Revenue authorities, MoF need to work on revenue losses from AfCFTA

According to Rev. Dr. Ammishaddai Owusu-Amoah, Commissioner-General of GRA, Revenue authorities will need to engage with Ministries of Finance to make up for the revenue losses anticipated as a result of the reduction in import taxes during the implementation of the AfCFTA.

The AfCFTA parties will be required to lower tariffs on “90% of items that are traded inside the continent,” which may cause a short-term loss in tariff revenue to the majority of African member countries whose trade levies still serve as an important source of income.

According to him, the AfCFTA’s implementation would necessitate the use of technical expertise, improved procedures, and technology in collaboration with the relevant authorities, including the Ministry of Trade, Customs authorities, tax authorities, and other law enforcement agencies engaged in the detection of various financial and customs-related crimes.

Dr. Owusu Amoah spoke on the subject of “Tax and Revenue Implication of the African Continental Free Trade Agreement” at the beginning of the three-day African Tax Administration Forum and African Tax Research Network 7th Annual Congress.

He said as African Countries began trading under AfCFTA, they must recognize the critical role of tax and customs authorities and enhance their capacity and skills to operationalize the tariff concessions, administer the rules of origin and ensure that non-AfCFTA originating goods exploit the preferential treatment vis-à-vis the overlapping rules of the regional economic communities.

Mr Owusu Amoah called for stronger regional cooperation between tax authorities now more than ever.

“Tax and customs authorities play a key role in the collection of information including beneficial ownership information and financial information, as well as the use of tax identifiers that link individuals to the companies in which they are shareholders.

“As border control, customs authorities are key in detecting and preventing smuggling, counterfeit goods, and overall illicit trade, but in a future single market, one national authority cannot effectively execute this duty on its own.”

He said cooperation between tax authorities, in particular, would be extremely important in preventing tax evasion and avoidance schemes.

He said ATAF, the AfCFTA Secretariat, and the AU must establish deeper engagement to protect the future revenues of our anticipated union.

He highlighted information sharing and the use of technology, emphasizing the reshaping of the legal frameworks to enable the sharing of tax information between competent authorities.

This could have multiple advantages including, preventing the duplication of efforts, detection of fraud, tax evasion, or avoidance schemes that make use of multiple jurisdictions, and identifying and tracking the movement of goods.

“Today is an opportunity to begin this engagement between key authorities to map the road towards an operational customs union,” he said.

In a speech read on his behalf, Mr Ken Ofori-Atta, the Finance Minister, said regarding the tax and revenue implications of the AfCFTA, it was likely that customs revenue would not see an upward movement in the short-term.

However, this impact would be marginal compared to the share of intra-African exports as a percentage of total African exports, which is estimated at around 21 percent in 2021.

“In the medium term, AfCFTA is expected to improve trade, and therefore, would impact positively on GDP,” he said.

According to the World Bank, real income gains from the full implementation of the agreement would increase by 7 percent or nearly US$450 billion.

This would increase the domestic income levels of individuals and corporate entities and consequently increase both direct and indirect domestic taxes.

He said to boost customs revenue mobilization in the short-term, African countries could resort to other revenue-enhancing measures that target domestic taxes.

Mr Logan Wort, Executive Secretary ATAF, said the benefits of AfCFTA were expected to boost industrialization, and economic diversification and ensure sustainable, employment-generating growth for the whole of Africa.

However, this may result in short-term tariff revenue loss to most African member countries where trade taxes remain a key source of revenue.

“Therefore, since tariff revenues are currently a vital revenue source for many African countries, we must critically strategize on innovative ways to bridge these revenue gaps,” he added.