United Nations Economic Commission of Africa (Uneca) Southern Africa Regional Office says African countries need to reconsider offering tax holidays as an incentive to lure foreign direct investment (FDI).
The commission’s Southern Africa Region office director Said Adejumobi said in an intervew that instead of provision of tax holidays which deprive government of tax revenue from such investors, it must tie their incentives to performance.
“We are saying that this is not an effective means to attract FDIs. Countries lose through taxes they should collect. Foreign investors should pay tax because oftentimes these are big companies that can afford to pay tax.
“What we need to do is create enabling environment for them to operate. Let us have functioning infrastructure, banking system, create inter regional trade, clearing system and financial system,” he said in a presentation at the formation of Friends of Agenda 2063 in South Africa.
Adejumobi’s comments were based on a recent research conducted by Uneca which revealed that tax holidays given to foreign countries hardly serve their purpose of positive contribution towards the economy as many of the companies would reduce production or worse still close shop as soon as the tax waiver period elapses.
He further said instead of giving tax holidays to attract FDIs, governments must consider waiving taxes for local investors who, oftentimes, do not have the capacity to pay taxes.
Adejumobi said this would empower local investors to grow their businesses and invest more in their respective countries.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira agreed with Uneca’s position.
“Over the passage of time, it has been proved that these tax holidays don’t bring returns as much as it would be expected. Foreign investors have also been seen to be usually leaving the country after the tax holiday elapses.
“I concur with Uneca that we need to build local entrepreneurs who will always be in the country because they are here and committed to the development of the country,” he said.
On his part, Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe, while acknowledging that tax holidays hardly fulfill their objectives, said Malawi’s problems on wooing FDI are complex.
“Malawi’s problems when it comes to attracting FDIs are numerous, some of which are unfavourable economic environment for investment and tedious details of registration.
“These challenges put us as a country in an awkward position when negotiating our way out in dealing with foreign investors,” he said.
Kalilombe said the other way is to have priority areas in terms of giving incentives to investors.