African governments should stop offering long tax breaks to attract foreign investors, Jeffrey Owens, director of the WU Global Tax Policy Center (WU GTPC), has said.

Governments, he said, must create a stable tax environment and stop offering various tax incentives to bring investors into their countries.

According to a recent report, 46% of 155 nations approved new tax incentives between 2009 and 2015, or increased the generosity of existing incentives.

According to the study, as of 2015, more than half of 107 developing nations provided domestic financial incentives such as tax holidays and favourable corporation tax rates.

Owens, a professor at the Institute for Austrian and International Tax Law, WU, said these incentives could be costly for African nations.

“Most African countries provide generous tax incentives,” Owens told the Standardbusiness on the side lines of the 2023 summer school in South Africa last week.

“Most of them have special economic zones which provide very favourable tax treatment. They do that because they feel they need to give these incentives to attract foreign direct investment. But it's unclear how successful they are. It's a lose-lose game.

“So, it's a race to the bottom with each country trying to provide the most favourable tax regime. I think what Africa needs is to move away from giving these tax holidays to providing a certain predictable tax environment.

“So, if you come into my country, you know what treatment you're going to get, you know it's going to be the same treatment that other companies in the same service are going to get and you know that if there's a dispute it's going to be resolved in a principal manner,” he said.

He noted that this was the only way for African nations to compete, especially in light of the Organisation for Economic Co-operation and Development's global minimum tax of 15%.

“It's an opportunity to use the G20 initiative for African countries to review the way they provide incentives. You always will provide incentives, but you obviously do ask yourself: Is this best done via the tax system? Can it be done via regulations? Let's make the fundamentals right,” he said.

For instance, in Zimbabwe, the government has granted tax breaks or exemptions to a number of businesses.

The Zimbabwe Revenue Authority's (Zimra) annual report for 2020 showed significant rise in potential revenue lost due to tax exemptions.

Zimra said the figure increased by 555,79% to $111,55 billion that year.

The lost tax revenue at the time, calculated at the official exchange rate of U$$1:$81,30 was equal to US$1,29 billion.

The 2023 summer school, organised by WU GTPC in association with the World Bank Group, United Nations Office on Drugs and Crime (UNODC), African Tax Institute, and Tax Justice Network Africa, ran under the theme: Enhancing the capacity of civil society organisations in efforts to curb illicit financial flows.