Tax revenue in Africa

The tax ratio is the total of all collected taxes expressed as share of gross domestic product (GDP). The average tax ratio has been increasing in Africa since the beginning of the 1990s, implying that many economies have made noticeable progress in collecting taxes. This ratio is important because it tells how much tax revenue is available to a country’s government, taking account of the size of the economy. Figure 4 plots the evolution of the weighted and un-weighted average tax shares for the African continent. The tax shares of countries have been averaged by weighting each country’s tax share by the size of its economy.

Classifying African countries according to their level of income shows three different trends in tax ratios.[2] Figure 5 plots the tax share over time of African countries when classified in three groups of income per inhabitant. Countries are classified as “upper middle income” if their income per capita was between USD 3 856 and USD 11 905 in 2008. The tax share of this group of countries has converged with the tax share of OECD countries, to around 35% (OECD, 2009a). Indeed, the OECD un-weighted average was 35.8% in 2007 (Bird and Zolt, 2005). Countries are classified as “lower middle income” if per capita income fell between USD 976 and USD 3 855 in 2008. This group has a tax share comparable to other countries from other continents in the same income category, around 22%. For comparison, Bird and Zolt (ibid.) estimate that all countries with income per capita below USD 4 900 have an average tax share of 18.3%. “Low income countries” are those with 2008 income per capita of USD 975 or less. These countries have a much lower ratio, below 15%.