Sub-Saharan Africa needs to up its game to stem falling tax revenue
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There has been extraordinary political progress in sub-Saharan Africa in the past 30 years, along with steady economic growth. Yet there still remains a need to improve tax collections.
Even though governments have allocated more resources to the process, revenue from taxation is shrinking instead of growing, both in real and absolute terms. There are 49 countries worldwide that collect less than 13% of their GDP, and 20 of them are to be found in sub-Saharan Africa.
The IMF suggests that’s the magic number countries need to collect to fund basic state functions as well as additional investment in physical infrastructure, education, health and other development initiatives.
The opportunity is huge: improved governance and efficiency could deliver as much as $110bn in new tax revenue over 2020-2025, according to a study by the UN Economic Commission for Africa (UNECA). That’s more than double the $51.8bn it received in official development assistance from 2018, according to the Organisation for Economic Co-operation and Development (OECD).
Collecting enough revenue opens up policy options and the capacity to execute them faster and better. Tax authorities have responded with various strategies to reverse the declining collection trend, including deepening their use of digitalisation, making it easier to pay tax and further penetrating their sizeable informal economies to find eligible taxpayers.
They also co-operate with one another in regional information exchanges and with peers worldwide — 22 have signed up to implement the OECD base erosion and profit shifting action plan initiative, the biggest global rewrite of taxation laws and regulations in history.
The policy direction is clear both globally and in Africa. Tax authorities are looking to tax where the value is created. Still, revenue has been declining for about 15 years in the region. In 2018, weighted tax revenues stood at 14.6% of GDP, down from a peak of 19.9% in 2005.
That peak came as governments began reforming their tax functions. Separate tax authorities became a trend in the early 2000s. These reforms included the shifting of tax and customs authorities from finance ministries to newly formed, quasi-independent and self-financing agencies. Most tax authorities now have good systems, and they know how to use them.
These systems also allow tax authorities to keep data private and secure, and that makes them one of the most trusted branches of government in many countries. Progress is being made in bringing additional taxpayers onto the tax ...
Even though governments have allocated more resources to the process, revenue from taxation is shrinking instead of growing, both in real and absolute terms. There are 49 countries worldwide that collect less than 13% of their GDP, and 20 of them are to be found in sub-Saharan Africa.
The IMF suggests that’s the magic number countries need to collect to fund basic state functions as well as additional investment in physical infrastructure, education, health and other development initiatives.
The opportunity is huge: improved governance and efficiency could deliver as much as $110bn in new tax revenue over 2020-2025, according to a study by the UN Economic Commission for Africa (UNECA). That’s more than double the $51.8bn it received in official development assistance from 2018, according to the Organisation for Economic Co-operation and Development (OECD).
Collecting enough revenue opens up policy options and the capacity to execute them faster and better. Tax authorities have responded with various strategies to reverse the declining collection trend, including deepening their use of digitalisation, making it easier to pay tax and further penetrating their sizeable informal economies to find eligible taxpayers.
They also co-operate with one another in regional information exchanges and with peers worldwide — 22 have signed up to implement the OECD base erosion and profit shifting action plan initiative, the biggest global rewrite of taxation laws and regulations in history.
The policy direction is clear both globally and in Africa. Tax authorities are looking to tax where the value is created. Still, revenue has been declining for about 15 years in the region. In 2018, weighted tax revenues stood at 14.6% of GDP, down from a peak of 19.9% in 2005.
That peak came as governments began reforming their tax functions. Separate tax authorities became a trend in the early 2000s. These reforms included the shifting of tax and customs authorities from finance ministries to newly formed, quasi-independent and self-financing agencies. Most tax authorities now have good systems, and they know how to use them.
These systems also allow tax authorities to keep data private and secure, and that makes them one of the most trusted branches of government in many countries. Progress is being made in bringing additional taxpayers onto the tax ...
