Anyone would agree that tax strategies matter for Africa growth. By tax strategies we mean effective tax strategies for Africa. Taxes in this case refer to domestic taxes charged by African countries on goods and services. Ideally, taxes charged affect the competitiveness of the goods and services in external markets. While this an obvious thing to any policy maker, it becomes difficult for African countries who are seeking to maximize tax revenue collection.
In the case of digital services, especially, taxes are key for competitiveness. Consider for instance, a person developing an app to offer on Apple store or google play from Ghana. If Ghana were to charge indirect taxes on such a developer this will affect the pricing of the app on the store. With so many competing apps a user will not be too keen to pay a higher price for the Ghanian app. Tax strategies are therefore very important for Africa to grow its digital economy.
Looking at goods, the same applies. This is especially where there are services are inputs in the production of goods and the services carry indirect taxes. This directly affects the competitiveness of the goods in the global market. Of course, other factors apply in pricing of goods in the external markets that may nonetheless make them highly priced.
How taxes affect Africa growth
Considering that the world is borderless and global value chains are linked, if your goods and services are too expensive you are cut off from the global value chains. You can listen to our discussion on global value chains to better understand the concept from an Africa perspective.
Generally, taxes are especially important for attracting investments into your country. A business looking to set up in Uganda, for instance, would consider the tax cost in Uganda vis -a -vis Tanzania. Unless it is a business in need of raw materials in Uganda, it would not be particularly motivated to set up in Uganda if taxes are higher there compared to Tanzania. If taxes in Uganda are unattractive, then Tanzania might end up being the better action. This would place Tanzania within the value creation chain for the business over Uganda.
Conclusion on why tax strategies matter for Africa growth
Overall, tax strategies are important for Africa growth. Taxes feed directly to ability to participate in global value chains by Africa which impacts supply chains and economic growth.
We had this discussion recently on the Africa iShare podcast with Mr. Tarley, the Commissioner of Liberia Revenue Authority. You can listen to the discussion on YouTube or via podcast. Leave your comments and subscribe!
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