East Africa: Is tax competition a race to the bottom?

Governments in East Africa are providing a wide range of tax incentives to businesses to attract greater levels of foreign direct investment (FDI) into their countries. Such incentives include corporate income tax holidays, notably in export processing zones (EPZs), and reductions from the standard rate for taxes such as import duties and VAT. Yet this study, which focuses on Kenya, Uganda, Tanzania and Rwanda, shows that such tax incentives are leading to very large revenue losses for governments, are promoting harmful tax competition in the region, and are not needed to attract FDI. In total, Kenya, Uganda, Tanzania and Rwanda are losing up to US$2.8 billion a year from all tax incentives and exemptions.