While much still needs to be done to bolster historically informal tax regimes, across much of the region governments are prioritising and modernising tax reforms, according to new research by the OECD and partners.
Between 2000 and 2014, all eight countries covered in the analysis – Cameroon, Côte d’Ivoire, Mauritius, Morocco, Rwanda, Senegal, South Africa and Tunisia – posted increasingly strong tax to GDP ratios. These higher ratios are a strong indication that governments are mobilising a greater share of the nation’s wealth for public spending through taxation.
As a percentage of GDP, all eight reported tax revenues of between 16.1 and 31.3 percent. Corporate income tax revenue to total tax revenue ratio was considerably higher than the OECD average of 8.5 percent, hovering in the 13 to 18 percent range.
Since 2000, rising taxes on income and profits have propelled tax revenues in the eight countries higher, with corporate tax making up a big part of it. Value added tax revenues have also gone up.
“The eight participating countries take tax policy seriously,” says Henri-Bernard Solignac-Lecomte of the OECD Development Centre. “Through tax reforms and changes in their tax administrations, they have made steady progress over the last decade and a half, in spite of the 2009 financial crisis, in mobilising their own resources for their development.”
Mobilising domestic resources – rather than relying on external borrowing and aid – has many advantages. It can support the prosperity and legitimacy the state, and enhances accountability.
Creating strong, fair revenue collection agencies is key. African tax systems have a reputation for operating on an informal basis. Symptomatically, not enough is being done to ensure Africa’s wealthiest are paying their fair share of taxes – an issue that has come to the fore globally with the publication of the Panama Papers leak of offshore legal and banking records.
Whereas globally personal income taxes constitute around a quarter of all tax revenues, in Africa these make up only about 10 percent. The wealthy tend to benefit the most from informal tax regimes. In South Africa, for example, around 114,000 high net worth individuals are not registered with the tax authority. This costs the government an estimated $10.9bn in lost revenue.
However in many cases, African governments are beginning to shore up porous, informal tax systems.
“An improvement in revenue collection, which all eight countries [in the report] experienced between 2000-2014, increases the capacity of governments to act through spending and investment,” says Mr Solignac-Lecomte.
Heavy reliance on non-tax revenues – such as resource rents and aid – is acute among many lower income nations. Of the eight countries analysed, those with the lowest national incomes had comparatively higher non-tax revenues.
But these revenues tend to be more volatile than taxes which can lead to financial instability, according to Dr Nara Monkam, the director of research at African Tax Administration Forum (ATAF), one of the partners on the report.
Dr Monkam suggests tax policy should encourage domestic revenue mobilisation and promote foreign investment, without prioritising one over the other.
“There is a need for coordination and cooperation among African countries, particularly at the regional level, to counter harmful tax competition, and devise approaches [to] tax incentives to avoid an unnecessary race to the bottom,” she concludes.
Source: This Is Africa