Kenya, Uganda, Tanzania and Rwanda are losing about $2 billion in revenue every year to foreign investors through generous tax incentives.

Tax Justice Network-Africa and ActionAid International figures show Kenya loses $1.1 billion, Tanzania $790 million, Uganda 370 million and Rwanda $176 million in unnecessary tax holidays, capital gains tax allowances and royalty exemptions.

On its part, Burundi lost $52 million to firms or officials who were given tax exemptions to import goods to build infrastructure and instead sold the materials.

TJN-A and ActionAid said policymakers in the region have spoken about revising tax policies but questions abound on how these tax incentives will be revised, costed and phased out, and the government’s resources and expertise to carry out the exercise.

The report by TJN-A and ActionAid titled “Still racing towards the bottom? Corporate tax incentives in East Africa,” reveals tax incentives are fuelling competition for investors and derailing harmonisation of policies, thereby undermining integration.

“Though there have been improvements in recent years in addressing the issue, governments continue to give away domestic resources in tax incentives,” said ActionAid Tanzania’s country director Yaekob Metena.

The report said the real cost of incentives remains hidden in all five EAC countries as there are neither mechanisms nor demands for accountability to reveal the huge revenue losses happening.

Mr Metena said there is a need for a shift in policy as political, financial national and institutional authorities admit tax incentives harmful to revenue mobilisation need to be revised if not altogether eliminated.

Reduce tax incentives

To their credit, East African governments have pledged steps to reduce tax incentives relating to value added tax by increasing tax collection and providing vital extra revenue that can be spent on providing critical services.

“Many leaders are promising to take measures but there is a need for tangible actions to be taken towards that end,” said TJN-A deputy executive director Jason Braganza.

He said the region must improve harmonisation of its tax legislation by ratifying the East African Code of Conduct on Harmful Tax Competition and implementing it at national levels. The code includes the recommendations of the African Union High Level Panel on Illicit Financial Flows, adopted at the AU Summit in January 2015.

The region has to grapple with tax treaties and special economic zones. At the national level, new legislation like VAT laws and tax administration seeks to redress numerous incentives.