Africa's tax system: A survey

Building tax administration capacity is needed to help spur development in Africa. A new survey shows that action is being taken, but more work is needed.

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

More tax revenue would not only help the governments of these countries function and pay for goods and services, but would open the way for other market and state reforms that would promote economic, social and environmental development.

Raising tax burdens might seem like an odd proposition to policymakers in crisisstricken OECD countries as they bid to raise revenues while keeping tax burdens as light as they can for the sake of growth. But when taxes account for 10 to 15% of GDP, a well-designed increase in tax is exactly what many developing countries need: just as an excessively heavy tax burden might crush activity, an excessively low one can starve an economy of the oxygen it needs to advance.



Click to enlarge


But how can more tax revenue be raised in poorer economies? One way is to generate more growth, but as many of the countries concerned lack the resources to administer tax, this approach may not be enough, that is, not unless efforts are made to improve the effectiveness of tax administration systems at the same time. That means strengthening the capacity and resources needed for better taxpayers’ services and enforcement, reviewing tax structures, and investing in skills and management systems needed to produce corruption-free tax systems.

This is easier said than done, of course, but improving the effectiveness and transparency of tax administration systems is nonetheless widely accepted as a key step to achieving the UN Millennium Development Goals. And because it means mobilising more domestic taxation, it can also help in smoothing efforts to open up world trade by further reducing the reliance on border taxes. In other words, channelling funds, including development aid, towards better tax administration is money well spent.

Indeed, as OECD data shows, tax/GDP ratios in sub-Saharan countries where tax administration reforms are being implemented now exceed 16.8% of GDP, which was the average for fragile and lower income countries. But to make a bigger difference, more information is needed about how tax administrations actually work and where the problems lie.

To fill this gap, the International Tax Dialogue, a global initiative based at the OECD and involving the EU, the IMF and the World Bank, among others, has undertaken a survey of 15 sub-Saharan African revenue bodies–Benin, Botswana, Burundi, Ethiopia, Ghana, Kenya, Malawi, Mauritius, Rwanda, Senegal, Sierra Leone, South Africa, Tanzania, Uganda and Zambia. The aim is to build a clear picture as to the various approaches and practices used across the continent, to identify problems and to provide policymakers with a better view of the kinds of measures that might be taken to address them. Similar work has already been carried out for the 50 middle and higher income countries of the OECD’s Forum on Tax Administration.

The good news is that all of the countries surveyed by the International Tax Dialogue are currently engaged in some pretty significant tax administration reforms, often with donor support. Nevertheless, our pilot survey has revealed some instructive trends and patterns.

Take cost, which is one of the main challenges facing tax administrators in developing countries. The cost of collection varies from 1% to 4% of the total collected in the region. Salary and related expenditures account for the largest portion–some 60- 80% of the budget. In most of the surveyed countries, investment in information technology accounts for less than 2% of total administrative expenditure. It should therefore come as no surprise to learn that most of the revenue bodies surveyed reported being dissatisfied with their existing IT systems. Efforts are being made to address this: all revenue bodies surveyed, with the exception of Burundi, indicated that they have a separate and substantive in-house IT function, and some are developing or plan to implement integrated tax administration systems for self-help services such as online registration, filing and payment.

Further investment in administrative systems would undoubtedly help improve treatment of taxpayers too. As the survey shows, all revenue bodies, except South Africa, assign identifi cation numbers ostensibly across all tax types, including customs. All personal and corporate income tax systems are based on self-assessment principles.

VAT is a feature across all countries surveyed, with a few countries using two thresholds, one for the sale of goods and another for services. In fact, indirect taxes contribute the highest proportion of revenue in seven of the countries surveyed, with direct taxes in six countries and international trade taxes in two countries. Non-tax revenues such as income from state-owned enterprises, fees and other payments for government services account for a very small proportion–about 1 to 2%–of total revenue collection. Compare this to developing countries in Latin America, where these can reach 10% or more of government revenues. Regarding enforcement, all countries believe they have adequate powers to enforce the payment of tax, with various interest and penalty regimes for similar offences applying across tax types, specifi cally for income taxes on the one hand and for VAT on the other. However, it is unclear how effective these measures are in practice: this is an area for further exploration.

Institutional arrangements are another issue which can have an impact on the effectiveness of tax administration. The revenue bodies in most of the countries surveyed follow a relatively unifi ed, semiautonomous model, meaning that they have considerable freedom to interpret tax laws, allocate resources, design internal structures and implement appropriate human resource management strategies. At the same time, they are responsible for tax, customs and non-tax revenue operations. Three of the countries surveyed are now integrating the collection of social security contributions with tax operations, a trend that is emerging in OECD countries too.

As for organisational arrangements, most are hybrid in nature. In line with current practice in tax administration, a number of revenue bodies have set up a headquarters function to provide operational policy guidance to fi eld delivery. Moreover, all revenue bodies (except Botswana) have set up a “large taxpayers’ offi ce” to administer all tax affairs of major enterprises and some individuals. Apart from Botswana and Mauritius, the revenue bodies have also created special taxation regimes for small and micro-enterprises, and six countries have set up dedicated units to manage them.

Meanwhile, all revenue bodies surveyed produce 3-5 year business/corporate plans using established planning frameworks, with clear mission statements, visions and objectives, as well as the actions to reach them, as do OECD countries.

Most of the revenue bodies are funded through parliamentary appropriations, meaning that they develop budget proposals and bid for funding just like any other government department or agency. Some countries provide their revenue body with a performance bonus, such as a percentage of the collections, which is a practice rarely found elsewhere.

As this pilot survey suggests, real efforts are evidently underway to build effective tax administrations in several African countries, which is good news for long-term economic development. However, the devil is in the detail, and a more comprehensive study is to be carried out in collaboration with the African Tax Administration Forum (ATAF) and other international institutions to paint a clearer picture of the character and particular needs of the various administrations across the region. This information will also feed into the G20-led push on tax and development. That means covering more countries, and collecting and further refi ning the data, while drawing comparisons with countries outside the region. It is a major undertaking, but if countries in sub-Saharan Africa can use the information to help them improve their tax policies and their development paths at the same time, then the task will be worth it.


References

Magashula, Oupa (2010), “African tax administration: A new era”, in OECD Observer No 276-277, December 2009-January 2010.

Owens, Jeffrey, and Richard Carey (2010), “Tax for development”, in OECD Observer No 276-277 December 2009-January 2010.

OECD (2011), Revenue Administration in Sub-Saharan Africa, International Tax Dialogue (ITD), Comparative Study Series.

See the International Tax Dialogue’s website at www.itdweb.org


©OECD Observer No 284, Q1 2011




Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive print editions delivered to you directly


Online edition
Previous editions

Don't miss

  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • OECD Environment Director Simon Upton presented a talk at Imperial College London on 21 April 2016. With the world awash in surplus oil and prices languishing around US$40 per barrel, how can governments step up efforts to transform the world’s energy systems in line with the Paris Agreement?
  • Happy 10th birthday to Twitter. This 2008 OECD Observer interview with Henry Copeland said you’d do well.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Once migrants reach Europe, countries face integration challenge: OECD's Thomas Liebig speaks to NPR's Audie Cornish.
  • “Un Automne à Paris”: listen (and read) this sad yet uplifting new song by jazzman Ibrahim Maalouf and pop singer Louane that will be launched on 11 January in honour of the victims of the murderous attacks on the French capital in 2015 and as a tribute to love and liberty in this City of Light.

  • Secretary-General Angel Gurria on CNBC: Developed vs developing nations at COP21

  • Message from the International Space Station to COP21

  • COP21 Will Get Agreement With Teeth: OECD Secretary-General Angel Gurría on Bloomberg

  • The carbon clock is ticking: OECD’s Gurría on CNBC

  • If we want to reach zero net emissions by the end of the century, we must align our policies for a low-carbon economy, put a price on carbon everywhere, spend less subsidising fossil fuels and invest more in clean energy. OECD at #COP21 – OECD statement for #COP21
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa. blogs.worldbank.org
  • Pole to Paris Project
  • Black carbon causes millions of deaths every year and contributes to the warming of the planet. The United Nations Environment Programme explains how reducing black carbon can save lives and help combat climate change.
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • How can cities fight climate change?
    Discover projects in Denmark, Canada, Australia, Japan and Mexico.
  • Climate: What's changed, what hasn't, what we can do about it.
    Lecture by OECD Secretary-General Angel Gurría, hosted by the London School of Economics and Aviva Investors in association with ClimateWise, London, UK, 3 July 2015.
  • French Economy Minister Emmanuel Macron came to the OECD on 18 September for a webcast discussion on economic reforms, inequality and the outlook, with OECD Secretary-General Angel Gurría. You can watch the event by clicking on the photo.

  • Climate change: “We should not disagree when scientists tell us we have a window of opportunity–10-15 years–to turn this thing around” argues Senator Bernie Sanders.

  • In the long-run, the EU benefits from migration, says OECD Head of International Migration Division Jean-Christophe Dumont.
  • Is technological progress slowing down? Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • An employee prepares breakfast in front of the Eiffel tower at the Parisian luxury hotel Le Plaza Athenee. Nowhere in the world has more accommodation available on Airbnb than Paris. Now the home-sharing website that has transformed budget travel is giving super-deluxe hotels a fright too.
    ©REUTERS/Stephane Mahe
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on www.ft.com.
  • Low interest rates here to stay for half a century, says OECD director Adrian Blundell-Wignall.
  • Bill Gates visited the OECD on 26 June. He met with the Secretary-General Angel Gurría to discuss areas of collaboration with his foundation and participated at a briefing session on official development assistance modernisation with OECD experts.
  • The People’s Republic of China decided to enhance longstanding collaboration with the OECD and to join the OECD Development Centre, in a historic visit by Chinese Premier Li Keqiang on 1 July to the OECD in Paris.
    Read about it on OECD.org
  • Catherine Mann, OECD Chief Economist, explains on Bloomberg why "too much bank lending can slow economic growth".
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Come va la vita in Italia? How's life in Italy? The OECD Better Life Index is an interactive online platform in seven languages that goes beyond GDP by offering important insights into measuring well-being and quality of life. Try it for yourself!

Most Popular Articles

Poll

What issue are you most concerned about in 2015?

Euro crisis
Unemployment
Global warming
International conflict
Other

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2016