The African Union’s efforts to raise additional f unds through minimal taxation of lucrative sectors of African economies have hit
a snag after finance experts sought a delay on the plan to raise additional US$ 1 .3 billion.
African finance experts, meeting here Monday to discuss alternative sources of f inance for the continental organisation, hesitated on tackling the proposed taxa t ion of various sectors of their economies, to give the organisation a guaranteed
source of income.
The African Union Commission (AU), which was on the brink of securing a deal to allow it to raise direct funds from taxes generated from trade, oil exports, air
ticket levies, tourism tax earnings and insurance premiums, was asked to delay d e cisions on the same.
African ministers of economy and finance are due to meet here Wednesday to discu ss the same financing of AU, but the experts, who discussed the subject in detai l on Sunday, said no decision can be taken on the taxation issue until states are
The Commission is seeking to bolster its budget through a series of taxes raised from diverse sources, among them, an oil exports tax, which could see the organ i sation raising more than US$600 million annually from African exporters of oil a n d gas.
However, the finance experts, who agreed to listen to the proposals after a heat ed debate on whether the agenda should be placed before the African leaders duri n g the 1-3 February heads of state assembly, said the plan had far-reaching impac t s on the economies of Africa.
“The Commission is downplaying the risks that our countries will face by agreein g to such a plan. This plan was drawn when the international finance markets was
stable and tourism was booming but this is not the same,” a Sudanese diplomat sa i d.
AU economists presented a study on how the Commission could effectively bolster its finance by taxing various sectors of the African economies, without hurting t hose sectors and with minimal direct impacts on the various economies of the Afr i can states.
According to the plan, exclusively reviewed by PANA, the AUC would become a publ ic institution, answerable to the people who make contributions to its budget an d less dependent on external donors, who tend to dictate the activities of the or g anisation.
Financial estimates show that from 2004-2007, AUC received US$ 747 million, of w hich 90 per cent was spent on fighting wars and other security-related expenses.
The lions share of the money, 74 per cent, came from international donors.
African states, a total of 48 countries, contribute more than 25 per cent of the organisation’s operational budget, while the remainder is funded by Algeria, Li b ya, Nigeria and South Africa, the largest contributors to the organisation.
The experts attending the talks said plans to raise additional funds through tax ation of the various sectors, including the insurance sector, air transport and o il trade, was a plan to increase member states’ contribution to AU without a dir e ct notice.
“This plan does not take care of events such as the drop in the prices of oil. I f the oil producing states cannot sell because of poor prices, there would be no
money to fund the organisation,” a Zambian investment expert said.
Kenyan economists at the meeting insisted the money already coming to AU from st ate contributions was equal to 0.1 per cent of the national budget and that rais i ng taxes to 0.2 per cent as proposed under the insurance finance, would be subst a ntial.
The official said the country contributes more than US$ 62,000 annually, which a mounts to almost 0.2 per cent of the country’s US$ 11 billion national budget.
AU wants the African finance ministers to consider approving the levies, which a ccording to a study carried out by experts, suggests that US$ 220 million could b e raised from adding US$ 2 on every short journey by air and US$ 5 on longhaul f l ights.
The other sources of tax include a 0.5 per cent on tourism earnings from each st ate, which AU experts said would not affect states and it would help raise US$ 5 9 million annually.
It concluded this cannot be implemented because most states offer tax exemptions to tourists to increase consumption of tourism products.
The proposed tax on imports, AU said, could lead to a loss of US$ 252 million fr om African states but this could be recovered from increased trade with other Wo r ld Trade Organisation (WTO) states, if the commission negotiates a favourable tr a de pact.
The proposal would raise US$ 130 million, while a proposal to tax the private se ctor could help to raise US$ 123 million for the organisation.
The experts concluded that some of these sources could be examined, noting that African states, must give AU enough sources of finance to fund integration.
The total amount raised in taxes, if the plan is approved, would amount to US$ 1 .384 billion.
AU is projecting a budget of US$ 170 million in 2009.