Prosper Ndlovu Bulawayo Bureau
The African Tax Administration Forum (ATAF) has allayed fears by some countries over prospects of short term decline in tax revenues due to the implementation of the African Continental Free Trade Area (AfCFTA), saying the overall gains from the deal would surpass the perceived initial losses.
Zimbabwe officially joined the AfCFTA in February this year when President Mnangagwa attended the 33rd ordinary session of the Assembly of Heads of States and Governments of the African Union in Addis Ababa, Ethiopia. The country has been identified among a few states set to benefit immensely from the trade agreement. However, several other states had expressed concern that the deal would chew away customs duty earnings especially, which constitutes a big chunk of revenue for many countries.
The issue came under spotlight during the 4th ATAF high-level tax policy dialogue held virtually last week.
“The meeting noted that there would be an initial decline in tax revenues for some countries in the short term of AfCFTA implementation, which will be surpassed by the overall future gains,” said ATAF in the dialogue outcome statement.
“Participants were provided with a statistical background on the forecasted impact of the agreement on both customs and revenue.
“It was emphasised that the agreement did not only envisage losses in customs revenue but rather presented opportunities for domestic revenue mobilisation on the tax side (income tax and VAT) as domestic activities such as production increases. This is because the agreement was expected to contribute positively to African countries’ Gross Domestic Product (GDP).”
The participants were more broadly concerned as to whether tax administrations are ready to take advantage of these gains.
While noting progress made towards the operationalisation of the AfCFTA, citing its expected positive impact on African economies resulting from increased trade among nations, the meeting observed the disruptive impact of the deadly Covid-19 pandemic. High-level discussions on the new date and work towards the successful implementation are this underway after missing the mid-year 2020 target, which is now expected to be in the first half of 2021.
The meeting called for the speedy conclusion of the negotiations on the outstanding regulatory issues and welcomed the official commissioning of the AfCFTA Secretariat earlier this month (August).
While Phase 2 implementation negotiations were still pending, the gathering emphasised that to realise potential gains from AfCFTA, challenges preceding the agreement still need to be urgently addressed. These include monitoring and preventing capital flight, tax evasion, low penetration of the formal banking sector and addressing existing human capacity constraints in the implementation of tax policy.
The panel further identified the need to strengthen small to medium-sized enterprises as a critical success factor in enabling domestic revenue gains from the implementation phase of the agreement. This support could include small business funding or incentives. The widening of the tax base to include mining, agriculture and digital services, through digitisation was identified as an urgent aspect for countries to consider. A twin-factor to widening the tax base was noted by the panellists to be an emphasis on inter and intra-governmental collaboration between customs, revenue and other arms of government.
It was observed that while the onset of Covid-19 had delayed the implementation phase of the AfCFTA, this presented an opportunity for countries to come to the negotiating table to discuss various aspects relating to implementation such as tariffs, concessions and the like.