To: Ministers of Finance of The Republic of Burundi, The Republic of Kenya, The Republic of Rwanda, The United Republic of Tanzania and  The Republic of Uganda

Subject: End tax incentives in the East African Community

On the occasion of the East African Community Day on 30th November, we, civil society organisations from member countries of the EAC, would like to draw your attention to the urgent task of ending harmful tax incentives in the Community in order to improve the welfare its citizens. On this day, established for the promotion of East African unity and equitable development of the region,we would like to urge and encourage you, the finance ministers, to be the tax champions of the continent by leading on closing tax loopholes and ending harmful tax incentives.

Revenue lost in the EAC through harmful tax incentives

Governments in East Africa are providing a wide range of tax incentives to businesses in order to attract greater levels of foreign direct investment (FDI). Such incentives include corporate income tax holidays, notably in export processing zones (EPZs), and reductions from the standard rate for taxes such as import duties and value added tax (VAT). Yet evidence shows that such tax incentives are responsible for significant revenue losses for governments and in addition, are not necessary to attract FDI. In total, Kenya, Uganda, Tanzania and Rwanda are losing up to US$2.8 billion a year from all tax incentives and exemptions. This money could finance public services to improve the welfare of the citizens of the EAC and to reduce poverty and inequalities in the region.

Big business not paying their fair share

While large multinational companies are receiving tax incentives and not paying their fair share of tax, citizens are bearing a disproportionate tax burden due to an over reliance on consumption taxes in revenue collection, such as VAT and Pay As You Earn (PAYE). Consequently, as our lives get more expensive, poverty is increased, inequalities are exacerbated and welfare is reduced. While we welcome broadening the tax base in order to increase domestic revenue, the poorest citizens should not be disproportionately burdened. The revenue lost to tax incentives given to large multinationals could alleviate the tax burden on the poor while providing the essential services citizens of our region have the right to enjoy.

Ending harmful tax incentives is possible

There is no reason why these companies should continue to receive unnecessary tax breaks that drain countries of our rightful revenue that should be spent on improving the lives of the people of the region.

Research findings backed by investors, international financial institutions and civil society organisations, demonstrate that companies do not consider tax breaks as their primary reason for investing in a country. More influential considerations that determine investment decisions include a politically stable climate, good infrastructure, access to markets, a healthy and educated work force and a system of legal redress, systems that could be sustainably financed with the revenue foregone.  

Setting a regional example to end harmful tax incentives

We welcome the numerous measures proposed in the Code of Conduct Against Harmful Tax Competition in the East African Community that aim to stop the introduction of  additional harmful incentives, increase transparency and exchange of information on tax exemptions, and to adopt uniform transfer pricing rules.

However, the signatures required for the code to enter into force have been pending for years and now is the time for the political will to materialise to ensure the Code is passed. In order for the Code to be effective in achieving its objectives, we urge the EAC to ensure that the Code is enforceable in national legislation with severe consequences for non compliance. We also encourage the EAC to include an obligation by member states to carry out tax expenditure analyses as a routine part of the budgetary process.

In order to stop the race to the bottom through tax competition in the region and instead ensure that unity in the EAC delivers equitable growth, we ask the EAC to set an example by leading on the process of ending harmful tax incentives as stipulated in the Code of Conduct Against Harmful Tax Competition in the East African Community.

As stipulated in the EAC Charter the EAC has an obligation to its citizens to harmonize tax in the region and to remove tax distortions for the purpose of bringing about a more efficient allocation of resources within the Community. The EAC Charter also states the desire to eliminate harmful tax practices and to bring about fair tax competition within the Common Market, and acknowledges the need for a Code of Conduct designed to curb harmful tax measures. In the light of these commitments and stated intentions, we call on You, the Finance Ministers of the EAC, to demonstrate leadership in Africa by taking concrete steps to end harmful tax incentives by signing the Code of Conduct Against Harmful Tax Competition in the East African Community.

SIGNED on behalf of Civil Society representatives of the EAC region:

East African Tax and Governance Network (EATGN)– Kenya (Network of over 16 member organizations geared towards establishing a vibrant tax justice movement across the Eastern Africa region that mobilizes citizen participation in influencing policy and practice for a just and equitable society.)

Policy Forum– Tanzania (Over 100 non-governmental organizations registered in Tanzania, drawn together by specific interest in influencing policy processes to enhance poverty reduction, equity and democratization.)

Southern and Eastern African Trade Information and Negotiations Institute (SEATINI)– Uganda (An African initiative to strengthen Africa's capacity to take a more effective part in the emerging global trading system and to better manage the process of Globalization.)

PARCEM, “Parole et Action pour le Réveil des Consciences et l'Evolution des Mentalités”, (Speech andActionfor theConsciousnessRaising andtheEvolution ofMentalities) a National civil Society organization engaged in advocacy for democratic governance, accountability and transparence and civic education

OAG (Observatory of Governmental Action), Burundi civic rights groups of 18 associations, parliamentarians and journalists

OLUCOME, the Observatory on Anti-corruption and Economic Malpractice, counting 7000 members and working in the all provinces of Burundi

SYGECO (Syndicat Général des Commerçants du Burundi(General Trade union of Burundi Traders), the most representative trade Union of small business sector with 5000 active members,

CONAPES (Conseil National du Personnel de l’Enseignement Secondaire ), the National Council  of Secondary Education Cycle workers, representing 5000 members and working across all the 17 provinces of Burundi

SYNAPA (Syndicat National du Personnel Paramedical et Aide-Soignants), the National Trade Union of Paramedical Staff and Caregivers, representing 6000 members et working in all the 17 provinces of Burundi

FOCODE (Forum pour la Conscience et le Développement), the Forum Conscience Raising and Development, representing 1800 members et working across 6 provinces of Burundi