The International Finance Corporation (IFC) has urged African states to broaden their tax nets in order to increase government’s capacity to fund development.
The IFC’s visiting Director of Investment Climate Pierre Guislain told journalists in Nairobi that the tax burden in many of the countries currently falls on few individuals and corporations.
“Africa needs to set up a tax regime that is suitable for micro and small enterprises in order to raise more funds without disrupting macro-economic stability,” Guislain said.
According to the director, Africa’s public sector employs on average 10 per cent of the labour force, while the private sector caters for the remaining 90 per cent.
“So, if you want to achieve economic progress, it is essential to create conditions that favour the private sector,” he said.
The director noted that a simple taxation system will lead to greater compliance and will allow for more firms to join the formal sector of the economy.
The IFC, which is the World Bank Group’s agency for private sector development, said one of the greatest impediments of doing business in Africa is the small size of national markets.
“That is why the IFC is supporting initiatives for regional integration in order to broaden markets. We have also developed score cards to enable the partner states of the East African Community (EAC) measure progress towards removing trade barriers,” Guislain added.
He noted that financial institutions will also work closely with national governments to ensure they make laws that create a conducive environment for the private sector to expand. Already, the IFC has helped newly independent South Sudan establish a set of business laws, including company and commercial law.
He also called in the EAC to improve its business climate if it wanted to attract investors, noting that globalisation has given international investors many destination choices.
Head of the IFC Investment Climate East and Southern Africa, Peter Ladegaard, said the corporation is helping EAC countries harmonise their legal and regulatory environment.
“There is still wide recognition that despite the signing of the EAC Common Market Protocol in 2010, not all barriers to trade have been eliminated... We are also assisting the trading bloc to harmonise its specific laws relating to tax administration,” Ladegaard said.
Health specialist Khama Rogo said IFC was assisting the economic bloc to ensure that their health sectors correspond to each other.
“All regulatory bodies of the EAC have agreed to carry out joint inspection of medical schools to allow their graduates to work in health facilities across all the member states,” he said
He added that manufacturing drugs is cheaper in India than in Kenya, partly due to the scale of their economies.
“By standardising standards in the health sector, manufacturers will be able to serve a larger market,” the health sector specialists said. “We hope also that level of health service will be similar across the entire EAC,” he said.