Favourable new tax treaties among African states are tipped to spur investment across the continent as governments move to eliminate burdensome tax barriers.
Trends show that non-double taxation agreements or DTAs could become more commonplace in Africa as AfCFTA, the ambitious single market for goods and services, begins to take shape.
Madagascar-Morocco Income Tax Treaty, applied from 1 January 2023 for withholding and other taxes, is the latest example of African states’ push to restructure their tax regimes.
The treaty, established between the two countries in 2016, entered into force in November 2022, following the exchange of ratification instruments between the two countries in Antananarivo.
Intra-African treaties are a departure from past trends where tax treaties were chiefly between African states, former colonial powers, and Nordic countries while neglecting their peers.
The Tax Justice Network-Africa (TJN-A) notes that South Africa, Mauritius and Tunisia were the only significant African treaty partners for African countries during the last two decades.
A 2013 tax treaty between Mauritius and South Africa, which entered into force in 2015, was one of the continent’s most high-profile intra-African treaties and, at the time, represented a new eagerness for intra-African-trade.
There are now several tax treaties in the works, including between Kenya and Rwanda, Nigeria and South Africa, Mauritius and Kenya, and Ghana and South Africa.
But the East African Community may have a more ambitious plan in the pipeline, with its planned Multilateral Tax Treaty (MTT).
In 2010, the East African Community council of ministers set in motion the East African Community Double Taxation Agreement (EAC DTA), a multilateral treaty for avoiding double taxation and preventing fiscal evasion concerning income taxes.
Kenya, Rwanda and Uganda have ratified the tax treaty, with the East African Business Council pushing for Tanzania and Burundi to do the same.
The MTT was set up to provide certainty and predictability for investors and further enhance fiscal harmonisation in the EAC region.
Meanwhile, states like Uganda are also terminating skewed tax treaties that tend to favour European states and corporations.
TJN-A notes that other African countries want to rebalance an unequal trade environment.
“Zambia has decided to renegotiate some of the treaties that are most at risk of abuse, while Uganda has announced a freeze in new treaties while it formulates a clear policy,” stated the tax network.
The International Monetary Fund (IMF) has previously pointed out that some bilaterally negotiated agreements can, by restricting taxing rights and through the abuse of treaty networks using shell companies, also contribute to the loss of a country’s tax base and facilitate tax avoidance.
Tax agreements in Africa often cover taxes on income, capital gains, and other financial activities and provide for the exchange of information between the two tax authorities.
In addition, several other non-double taxation agreements are in place across Africa, including agreements between Nigeria and South Africa, Ghana and South Africa, and Zimbabwe and Mauritius, among others.
These agreements demonstrate the commitment of African nations to promote economic cooperation and eliminate obstacles to cross-border trade and investment.
With the elimination of double taxation, businesses can operate more freely across borders, leading to increased competition and innovation and boosting the continent’s economy.
There are millions of African living in countries outside the country in which they were born. Often those are other African states, and these expatriate Africans offer a significant opportunity not only for trade but for investment funds to cross borders once onerous tax barriers and impediments are removed.
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