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ACCRA – The 7th African Tax Research Network (ATRN) Annual Congress took place from 5th to 7th September 2022 at the Movenpick Ambassador Hotel in Accra, Ghana. It was jointly organised by the African Tax Administration Forum (ATAF) and the Ghana Revenue Authority (GRA). At least 32 African countries were represented by over 230 participants from Ministries of Finance, African tax administrations, the African Union Commission, the AfCFTA Secretariat, Members of Parliament, Civil Society, Academia, Development Partners such as UN, OECD, IMF, WCO, WBG, Captains of Industry, media practitioners and individual tax policy experts.
The tax and revenue implications of the African Continental Free Trade Agreement (AfCFTA) were robustly debated at the Congress. The meeting affirmed that the AfCFTA would increase overall income and welfare for most African countries. Based on statistics from the World Bank, it was highlighted that by 2035 the AfCFTA could increase real income gains by 7 percent and boost African exports by $560 billion. The meeting observed that based on data from 35 African Tax Outlook members, import duties contributed to 6.41% of total tax revenue in 2020. Out of the five main tax types, import duties were on bottom position, while the top 3 were VAT, Personal Income Tax and Corporate Income. Imports from Africa are very low compared to those from the rest of the world, averaging 13% between 1995 & 2020. Therefore, although there are expected tariff revenue losses in the short term, this will be marginal.
It was further deliberated that the long-term benefits of the AfCFTA, including lowering trade costs, promoting regional value chains and providing consumers with greater variety, may balance out the short-term losses. It’s also expected that growth in GDP and consumption will positively impact on the performance of domestic taxes.
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1. ATAF-ATRN’s 7th Annual Congress took place in Accra, Ghana from 5th to 7th September 2022 at the Movenpick Ambassador Hotel jointly organised by the African Tax Administration Forum and Ghana Revenue Authority (GRA) in partnership with GIZ. 32 African countries were represented by over 230 participants from Ministries of Finance, African Tax Administrations, the African Union Commission, the AfCFTA Secretariat, Members of Parliament, Civil Society, Academia, UN, OECD, IMF, WCO, WBG, Development Partners, Captains of Industry, media practitioners and other key partners and individual tax policy experts.
2. The purpose of the congress was to deliberate on the tax and revenue implications of the African Continental Free Trade Agreement. In particular, participants discussed the short-, medium- and long-term implications of the AfCFTA, steps member states may take to adjust policies to counter effects of estimated short term revenue losses, and the broader tax policies issues raised by the AfCFTA.
3. The congress was opened by the Executive Secretary (ES) of ATAF, Mr. Logan Wort. In his opening remarks, the ATAF ES appreciated the Ghana Revenue Authority, for always taking a leading role in supporting ATAF in its quest to improve tax revenue administration on the continent. He recognized the presence of and appreciated the outgoing ATRN board for their dedication.
4. The ATAF ES alluded to the fact that the AfCFTA may result in short term tariff revenue losses to some African member countries where trade taxes remain a key source of revenue, however, ATAF in partnership with the African Union shall support the continent to navigate the revenue implications of the AfCFTA while ensuring its smooth implementation. ATAF in the next decade plans to increase its focus on Customs and Trade, as well as using applied research to form the basis of all ATAF programs.
5. Mr Wort informed the delegates that ATAF has offered 178 technical assistance missions to 25 countries in 2021 and to date, ATAF’s Technical Assistance and Country Programmes work has led to assessments worth US$ 3.3 billion and associated revenue collection of about US$1.3 billion. The ES reiterated that the ATRN program for the last 7 years has influenced pragmatic tax policy formulation in Africa through credible research in tax policy, administration, law, and leadership. He informed the delegates that ATAF launched the African Multidisciplinary Tax Journal and encouraged them to access it through the ATAF website.
6. The Commissioner General (CG) of the GRA, Dr. Ammishaddai Owusu-Amoah, welcomed attendees of the congress and highlighted that as a result of the COVID-19 pandemic and its impact on tax revenue and foreign direct investment generally, there is now a need for tax administrations to identify measures that facilitate trade to rebuild economies. Indeed, the role of tax and customs authorities remains central to the effective implementation of the AfCFTA, since they are key actors in executing the customs procedures, operationalizing tariff concession and administering the rules of origin, amongst other responsibilities.
7. The CG provided an overview of the current capabilities of tax and customs authorities, which have been developed by way of the advancements of the Regional Economic Communities. In emphasizing the importance of regional cooperation between authorities to prevent or detect tax evasion and avoidance schemes, the CG raised the example of the European Union combatting VAT fraud. Importantly, the CG noted that addressing such challenges in the AfCFTA context, requires organisations like ATAF, the AUC and all relevant players especially the AfCFTA Secretariat to engage in and facilitate much deeper engagement to protect Domestic revenue mobilization efforts on the continent.
8. In her Keynote Address, Hon. Abena Osei-Asare, Deputy Minister of Finance, Ghana, noted that the AfCFTA has enormous potential to increase intra-African trade and change the position of the continent in the global value chain. However, she highlighted that the successful implementation of the AfCFTA will take time and requires a whole of government approach and political support.
9. The Deputy Minister urged stakeholders to strengthen regional inter-agency cooperation, rationalize national tax incentives regimes, improve efficiencies within the tax authorities, adopt the use of technology and, implement stronger measures against illicit financial flows. These steps will lead to the successful implementation of the AfCFTA in order to reap its full potential.
10. The representative from Ghana’s Ministry of Trade, Dr. Fareed Kwesi Arthur, recognized that the pursuit for integration through trade and investment will have an economic impact and, in particular, those highly reliant on tariff revenue would need to introduce measures to minimize the effects. However, there are positive implications of overall trade liberalization which are significant including that – companies and traders may re-channel the saved money to further finance their businesses; and cross-border traders may have the opportunity to be integrated into the formal economy which can assist governments to quantify and collect data to better inform policy development. Tax authorities and ministries of finance need to be mindful that countries are relying on us to implement long-lasting and effective measures to withstand the shocks of tariff liberalization on revenue collection.
11. The dignitaries stressed the importance of countries to maximise gains from the AfCFTA, and welcomed the opportunity presented by the ATRN to deliberate further on how a possible drop in revenue due to tariff liberalization can be mitigated, and the increase in intra-Africa trade harnessed to increase not only Countries tax bases, but improved economic development. This would be through innovation, and efficiency gains.
12. The meeting observed that based on data from 35 African tax Outlook members, import duties contributed to 6.41% of total tax revenue in 2020. Out of the five main tax types, import duties were on bottom position, while the top 3 were VAT, Personal Income Tax and Corporate Income. Imports from Africa are very low compared to those from the rest of the world, averaging 13% between 1995 & 2020. Therefore, although there are expected tariff revenue losses in the short term, this will be marginal.
13. Regarding the long-term effects of the AfCFTA, the meeting agreed that the AfCFTA would increase overall income and welfare for most African countries. Based on statistics from the World Bank, it was highlighted that by 2035 the AfCFTA could increase real income gains by 7 percent and boost African exports by $560 billion. UNCTAD estimates that African countries will lose US$ 4.1 billion in tariff revenue. In addition, some modest estimates indicate that losses will range from 0.03 percent to 0.22 percent of GDP (or about US$1 billion to US$7 billion) for the continent. The long-term benefits of the AfCFTA, including lowering trade costs, promoting regional value chains and providing consumers with greater variety, may balance out the short-term losses. It is expected that growth in GDP and consumption will positively impact on the performance of domestic taxes.
14. Further, the meeting noted that beyond the short-term revenue loss, implementation of the AfCFTA faces other challenges. To begin with, Africa is lacking in transport infrastructure making it difficult for the free movement of goods and persons across borders. Customs authorities and tax administrations have varying capacity levels and there is need to fill the knowledge gap with regards to trade policies obligations of each member state. Moreover, non-tariff barriers have continued to stifle the growth of intra-African trade. Indeed, elimination of tariff barriers will have to go hand-in-hand with simplification of processes and the implementation of trade facilitation measures.
15. Participants agreed that the opportunities for trade and investment require capacity building at both the technical and infrastructural level. Trade facilitation will also be a key element and entails the simplification, modernisation and harmonization of export and import processes with the objective of expediting the movement, release, and clearance of goods. At the national level, short term losses could be minimised through various measures including, a rationalization of tax incentive regimes, improving efficiencies within tax administration through the use of technology, intensifying the fight against illicit financial flows, and broadening the tax base. Further, the meeting agreed that members will need to support least developed countries and the states that rely heavily on tariff revenue, as they will have greater revenue losses. In this respect, members highlighted the important role of the Adjustment Fund established by the AfCFTA Secretariat and the Afreximbank that is intended to support state parties to adjust to the new trading environment under the AfCFTA.
16. The meeting recognized that whilst the frameworks for multilateral trade, International Investment Agreements (IIAs) and international taxation have developed in parallel, governed by different rules and principles, they continue to overlap. Indeed, the experiences of other regional trade and investment frameworks highlighted during the discussions demonstrate that a failure to address these overlaps will place countries at risk of expensive and lengthy disputes that can constrain their ability to design, administer or even withdraw tax and IFF policies. Based on an evaluation of the challenges arising in the World Trade Organization (WTO) framework, countries implementing the AfCFTA should be concerned about the way in which the non-discrimination principles contained in the Protocol on Trade in Goods and the Protocol on Trade in Services can be used to challenge the adoption and use of tax incentives or the use of defensive tax measures. In addition, the prevalence of subsidies cases concerning various types of tax incentives should be treated as a signal for countries seeking deeper integration to take steps to address incentive design and tax competition generally, outside the context of dispute settlement.
17. The growing trend of tax-related Investor State Dispute Settlement (ISDS) under the IIA framework should be a concern for tax authorities everywhere. As of 2021, the United Nations Conference on Trade and Development (UNCTAD), identified 165 ISDS cases where tax-related claims arose, accounting for 15% of the 1,190 publicly known ISDS cases overall. IIAs impose obligations on states that can create frictions with taxation measures and tax policymaking. Since a majority of African Double Taxation Agreements (DTAs) do not provide for arbitration; not all tax issues fall within the scope of DTAs; various difficulties have arisen with regards to the Mutual Agreement Procedures (MAPs); and domestic outcomes may not always be satisfactory, the increasing tendency of investors to make use of ISDS to challenge tax measures using the investor protections contained in bilateral investment treaties (BITs) and investment chapters in free trade agreements is a concern. Much like the trade overlaps, these overlaps with IIAs have given rise to expensive outcomes for countries.
18. All of the above issues concerning the interaction of taxation measures with trade and investment frameworks, should be treated as a forewarning by State Parties to the AfCFTA. These overlaps highlight, that the loss of tariff revenue is not the only concern where taxation is concerned. The future constraints on policymaking, the need to harmonize the design and implementation of tax incentives and the need to strengthen the sources of domestic resource mobilization (DRM) beyond tariffs should be the central focus. Establishing harmony between the need to strengthen DRM and the approach to tax competition is especially important for the countries that have been more reliant on tariff revenue. These countries will now need to navigate an environment in which they are forced to engage in tax competition whilst trying to secure new revenue bases. If cooperation and integration are the real desire, it is time to discuss a shared approach on the use of tax incentives, at the very least to protect or support the lesser developed nations in the community.
19. A shared approach towards the combatting of IFFs will be crucial to protecting the financial integrity of the future customs union and single market. To avoid the potential for disputes, this harmony must be established through a binding commitment by countries to coordinate their legal frameworks, implementation of rules, and administrative capacities and practices. Cooperation is, therefore, essential. IFFs can be a barrier to successful implementation and the experiences of the European Union and ECOWAS are key. Vulnerabilities in one country can expose the entire customs union or future single market. State Parties, the African Union and the AfCFTA Secretariat should take immediate action on this matter by introducing the combatting of IFFs as a general objective of the Agreement and prepare a strategy for rapid harmonization, regional inter-agency cooperation and identification of capacity or framework strengthening needs.
20. Broadly speaking, to ensure that countries are in compliance with the trade and investment obligations arising in the AfCFTA whilst still ensuring that DRM can be strengthened and IFFs detected, cooperation is now essential. A crucial step for State Parties to the AfCFTA will be to fully evaluate, identify and reflect on the steps that can be taken to avoid future disputes concerning taxation and IFFs and facilitate integration. The most important action that can be taken to enable this, is the establishing of dialogue between the taxation, trade and investment officials to, in advance, create a shared understanding of the challenges and solutions. The issues identified will take time to emerge, we should be fire preventing and not firefighting particularly in a dynamic global environment where digitization is changing the nature of tax and IFF policy needs. A staged approach will be necessary, but it must be based upon coordination.
21. Regional Economic Communities are the building blocks of the African Economic Community and have an important role to play in the implementation of the AfCFTA and trade facilitation programmes. Countries affirmed that the RECs have a lot of experience in integration efforts and provide a good basis upon which the AfCFTA can build on.
22. We need to strengthen inter-agency collaboration, ensure the inclusion of soft issues in all trade and transport projects (e.g. ICT), consultation with all stakeholders, harmonization of policies, strengthen trade governance and relevant institutions, develop regional value chains to ensure no country is left behind in the integration process and institutionalize public private dialogue on regional integration issues.
23. The joint research project between ATAF and the Global Tax Policy Center at the Institute for Austrian and International Tax Law, Vienna University of Economics and Business (WU) focuses on the impact of the AfCFTA. This project aims to provide countries with an understanding of the overlapping aspects of trade, investment and taxation frameworks, as well as a broader analysis of the tax and revenue implications. Over this and next year we will be producing guidance for tax and trade policymakers. In addition, we are seeking to collect case studies from ATAF member countries that will formulate a guidebook of best practices in the implementation of regional trade agreements.
24. The meeting thanked Ghana, and committed to continue the discussion on possible solutions to existing and possible gaps due to the ACFTA, to ensure the benefits of the ACFTA are maximized.
