A new paper from the Center for Global Development urges sub-Saharan African countries to take an aggressive stance to protect their tax base. Multilateral forums are a good avenue for them to pursue this objective, although they should also take advantage of regional forums to focus on international tax issues, discuss tax competition, and pursue policies for developing countries.
Over the past two decades, sub-Saharan Africa has managed to increase the average tax-to-GDP ratio by 2 percent, comparable to progress made in Asia over the same period. Corporate income tax revenues have contributed at a consistent rate of one-fifth of the average overall tax revenue. Multinational enterprises, despite being largely responsible for this figure, are also adept at avoiding tax by exploiting loopholes in the legal tax code. Sub-Saharan Africa struggles to effectively tax multinational enterprises, because they have weak enforcement tools and are vulnerable to corruption that hinders investigative and punitive measures.
The Center for Global Development recommends a menu of policies sub-Saharan African governments and stakeholders can implement to better handle international tax challenges. Chief among them are imposing limits on interest deductions, remaining cautious about entering into double tax treaties, introducing a minimum corporate income tax, reconsidering tax exemptions, and taxing gains on offshore indirect transfers, which usually are derived through the sale of shares in offshore holding companies.