Tax Incentive consultancy

Terms of Reference for a policy brief on the policy reforms recommendations for the
governance and administration of Tax Incentives in Africa

1.Introduction-
Oxfam in Africa (OiA) is implementing the NORAD Fair Recovery project, aimed at
Strengthening civil society and media to advocate for fiscal justice that puts the financing of
Sustainable Development Goals and strengthening social contract at the center.

The project is being implemented against a backdrop unprecedented rise in poverty and reversal in
the progress made towards the Sustainable Development Goals (SDGs) in many countries across
Africa. Multiple crises continue to hold back countries from making sufficient economic progress,
including enduring economic shocks caused by the COVID-19 pandemic, rising food and energy costs,
accelerating inequality and escalating climate change.

To put African governments on a path to a fair recovery will require governments, regional and
international actors to redouble their efforts to strengthen progressive tax collection, including careful
review of policies and practice on Tax Waivers that continue to undermine Domestic Revenue
Mobilization efforts of many governments on the continent.

2.The problem of Tax Incentives
Tax incentives have traditionally been used by African governments as tools to promote
Foreign Direct Investments (FDI) in their countries. They are preferential tax treatments that
are offered to a selected group of taxpayers and take the form of exemptions, tax holidays,
credits, investment allowances, preferential tax rates and import tariffs (or customs duties),
and deferral of tax liability. Many African countries offer tax incentives with the objective to
stimulate growth of the manufacturing, agricultural, and extractives industries in their respective countries.

However, there have been concerns raised about the efficacy, transparency, and potential
adverse effects of tax incentives on Africa’s development agendas. A qualitative analysis of tax
incentives given in four African countries (Nigeria, Chad, DRC and Equatorial Guinea) within
the key productive sectors of the continent; the Extractives and Agriculture sectors1 found that:

I. Tax incentives reduces revenue collectable by governments.
a Cost Benefit Analysis of Tax Incentives and Aggressive Tax Planning in the Extractives Industry and Agri-Business Sectors in Africa https://oxfam.box.com/s/m6g6dkn8w2u4epgo2xpan8jc36ycrm4d

II. African governments tend to give profit-based incentives which generally reduce the applicable tax rate to taxable income, and which promote behaviours such as Aggressive Tax Planning
III. While tax incentives are offered as part of domestic tax laws, they are negotiated under strict privacy laws that do not allow for transparency.

Moreover, when assessing the impact of tax incentives on the continent’s development
agenda, the analysis found these incentives do not necessarily attract FDIs or substantially
impact the Gross Domestic Product (GDP) and Human Development Index (HDI) of these
countries. However, what is clear is that tax incentives, by facilitating base erosion and profit
shifting, constrain fiscal space in African countries, and ultimately restrict government
spending on essential social sectors. It is therefore imperative that African governments take
deliberate steps to ensure that the utilization of tax incentives is efficient and effective in
promoting the continent’s development.

In 2023, Oxfam commissioned a cost benefit analysis of tax incentives and aggressive tax
planning in Nigeria, Equatorial Guinea, Chad, and DRC together with the University of Nairobi,
centre for fiscal studies in April 2022. This is part of Oxfam’s initiative to work with academia
to strengthen capacity of civil society through increasing access to pieces of work and analysis
emanating from the continent. Oxfam seeks to re-engage the University of Nairobi for this
assignment.

3.The Assignment, scope of work
It is on this background that Oxfam seeks to develop a policy brief that builds on the above
cited qualitative analysis and other available data/research through providing policy
recommendations for efficient and effective tax incentives in Africa. The specific objective of
the brief is to outline policy options for African governments that ensure that tax incentives
are regulated as well as to provide a checklist for African civil society actors and journalists to
hold their governments accountable.

Specifically, the policy brief will:

1. Synthesize the key concerns for Africa and its development about the use of tax
incentives taking cognisance of the objectives and focus of the Fair Recovery Project.
2. Propose evidence-based policy recommendations to reform the granting and
monitoring of tax incentives, enhance transparency, and align tax policies with
progressive and fair tax systems.

4.Deliverables
In executing this assignment, the consultant will work directly with the Oxfam in Africa Just
Economies Advisor and the Just Economies and Inequalities Lead to deliver the following
outputs;
I. Draft Policy brief for review by Oxfam staff.
II. Final Policy brief