Win-Win Tax Partnerships Mean Investment and Growth for Africa

For the first time, the International Fiscal Association Congress will this year be held in Africa. The timing is fortuitous, as African countries are making significant advances in both modernizing tax administration and pursuing economic growth. Underlying this effort is a new global paradigm of greater cooperation and partnership between tax authorities and large corporate taxpayers.

For the past decade, high-level tax gatherings have focused on the OECD/G20 Inclusive Framework on base erosion and profit shifting. BEPS 1.0 fundamentally changed the behavior of many multinational enterprises, restricting aggressive tax strategies: Accounting standards now require a more prudent approach to uncertain tax positions, also changing the risk-reward calculus.

Jurisdictions increasingly share tax data under BEPS Action 13. And as Pillar Two’s minimum tax requirements reduce incentives, better tax administration becomes a new comparative advantage for driving investment.

The traditional relationship between taxpayers and governments has been adversarial, reflecting a belief that taxpayers will always seek to minimize taxes and that enforcement is a tax administration’s only defense. While enforcement will always be a component of compliance, it’s increasingly clear that an “enforcement only” strategy is outdated and can deter investment as business considers the predictability of taxation in deciding where to invest.

Instead, modern compliance strategy is risk-based and encompasses a range of interventions beyond enforcement. These factors encourage both sides to promote and reward high levels of strong voluntary compliance, a better measure of success. The South African Revenue Service, for instance, states that “[w]e leverage each other’s strengths to resolve tax administration challenges and improve voluntary tax compliance.”

For Africa, this builds on the work of the 2024 Mining Indaba, at which senior government officials and major international mining companies explored enhancing tax compliance to improve cooperation and reduce disputes. But this new paradigm isn’t limited to mining; it involves industries as diverse as energy and telecommunications.

Some of this is not new; the Netherlands’ “horizontal monitoring” approach dates back to the early 2000s. The Forum on Tax Administration provided countries with a comprehensive framework for “cooperative compliance” programs in 2013,and the voluntary International Compliance Assurance Program facilitating open and cooperative multilateral engagements to promote tax certainty was formalized in 2020.

These initiatives focus on establishing and sustaining mutual trust. For governments, they offer earlier and better information on taxpayers’ businesses, enabling more effective risk management and allocation of scarce enforcement resources as well as a more stable revenue forecast.

A well-designed Tax Control Framework gives authorities an objective basis for relying on a taxpayer’s returns and disclosures. For taxpayers, partnerships can offer faster dispute resolution, greater certainty, and lower compliance costs.

These programs aren’t simply cookie cutter models—and in some ways, that’s the point. They require discussion between taxpayers and governments to build mutual trust and adapt to local circumstances. Nor are these programs special deals for certain taxpayers; they are designed to be fully compliant with the law and to ensure fair and predictable payments and revenues.

For these partnerships to work, tax officials must be able to provide certainty in advance. Partnerships should permit the parties to agree to disagree without jeopardizing the overall relationship. Taxpayers, for their part, must have effective controls to ensure compliance, along with accountability from responsible senior executives. Equally, a tax administration’s success should no longer be measured simply by revenue generated from audits or adjusted returns.

Technology plays a role here as well, helping to demonstrate the integrity of governance controls. And audit trails via e-invoicing and real-time monitoring of tax payments give both sides greater confidence.

All this frequently requires a shift in culture on both sides, to embrace transparency, cooperation, and trust. This work takes time and requires each side placing resources into the effort. Simply sitting around the same table in an atmosphere of trust delivers great benefits.

These changes can deliver greater certainty for both parties, fewer disputes, and a better overall investment climate.

These partnerships are important in themselves in promoting higher rates of voluntary compliance. They are also important as part of a positive effort to refocus attention on economic growth—how to design a tax system to promote the economic growth that will drive revenue growth. Tax revenue can’t arise unless there are profitable businesses employing workers, and investors, domestic or foreign, in those businesses.

Here, too, Africa is advancing rapidly. The African Development Bank expects real GDP growth of 3.8% in 2024 and 4.2% in 2025, second only to Asia. Kenya for example is growing quickly, building a very diverse economy. Other African countries also enjoy fast growth: The bank forecasts that at least nine countries will have growth at or above 6%—faster than China or the West.

Growth is the real key for African tax policy and the only way governments will have the revenue they need to meet the Sustainable Development Goals to lift people from poverty, increase gender equality, and build education and health systems.

The best policies promote “win-win” outcomes for both government and the private sector, as opposed to zero sum strategies that aim for maximizing revenue—and will likely miss.

More needs to be done. Tax control framework requirements should be increasingly harmonized across countries. Tax administrations clearly need full capacity to assess systems of internal control.

The IFA Congress’ agenda may be technical—but technical discussions are far better held in an atmosphere of positive collaboration between taxpayers and tax authorities focusing on the imperative for growth. This will spur investment and growth in Africa and throughout the developing world—a potential legacy for this historic IFA.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Daniel A. Witt is president of the International Tax and Investment Center headquartered in Washington, and has worked on tax policy and administration reforms in transition and developing countries since 1993.

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