Tax Reforms Could Earn Africa An Extra USD 72 Bn In Revenue

By  |  March 27, 2019

The Economic Commission for Africa (ECA) has said that thorough tax reforms could yield Africa USD 72 Bn annually in revenue which is equivalent to 4.6 percent of gross domestic product (GDP).

The Commission prescribed tax reforms among other recommendations during the launch of 2019 Economic Report on Africa (ERA) earlier in Morocco.

Tax revenues constitute over a third of GDP in OECD countries. But they account for far less in developing countries especially in sub-Saharan Africa, where they correspond to less than a fifth of GDP.

Even though African countries have taken significant steps to strengthen their tax policy and tax administration capacity, they still grapple with the challenges of narrow tax base, large informal sectors, more so in countries that have abundant resources since they become vulnerable to unstable resource revenues.

The United Nations Economic Commission for Africa estimates that the continent loses over USD 50 Bn annually through illegal financial outflows , a tangible amount of this linked to tax avoidance and evasion. This has been attributed to weak tax laws and impotent administration infrastructures in most African states. Owing to these weak laws, country elites also control wealth through opaque tax haven structures since tax authorities have limited capacity to combat the problem.

A 2014 report published by Christian Aid imputes the weak tax laws to overdependence on trade. The report reveals that Africa also suffers from under declarations in values of imports, as well as faulty tax arrangements with multinational companies.

Regardless of actions taken in the last two decades to transform tax administration in the continent, ECA says the measures have been ineffective as glaring inefficiencies still linger.

The report dubbed ‘Fiscal Policy for Financing Sustainable Development in Africa’ indicates that increasing tax revenue generation in ways that are “equitable and sustainable” will enable African countries to achieve the Sustainable Development Goals and Agenda 2063.

The report calls on governments on the continent to address the tax system comprehensively to make sure the tax system is “progressive, neutral, fair and efficient, rather than to deal with each tax system separately. In this way, governments may find additional opportunities for expanding the tax base, create more certainty for tax payers, and contextualize any global standards.”

The Report says to improvement of tax policy and performance in Africa is contingent on more than tax efficiency but also on the provision of essential public services to reduce inequality and encourage economic growth.

In a move to widen the tax base, the report suggests African countries should improve on diversity by including more diverse payers in the tax net such as rural farmers and workers in the informal sector who have not yet been captured in the tax bracket. It insists that it should be done in a manner that it does not harm low income workers.

Notably, it also champions for improvement in revenue collection by fighting corruption as well as improving accountability in a bid to reduce inefficiencies in tax collection.

Featured Image Courtesy: All About History

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