Conclusion

As several African nations celebrate 50 years of independence in 2010, it is time for a continent that still relies too much on often volatile and unpredictable external flows to take a new look at taxes – a potential untapped source of billions of dollars. It is time also for donor countries to consider the benefits they can get from giving more help to set up stable, broad-based tax systems in African nations.

African tax administrators, under serious capacity constraints, face a daily battle against informality, evasion, corruption and fraud, pressure to grant exemptions, etc. Yet there is a more optimistic side to the story. Following a decade of reforms, levels of tax revenues collected in Africa compare well with those of countries at similar stages of development. African politicians are looking for ways to improve collection further.

Tax revenues should not be seen as an alternative to foreign aid, but as a component of government revenues that grows as the country develops. One of the development dividends of effective tax systems is greater ownership of the development process, whereby the government shapes an environment that is more conducive to foreign and domestic private investment, sustainable use of debt and effective foreign aid. The challenge is therefore for African countries and their partners to reverse the vicious circle of aid dependence shifting government accountability away from citizens towards donors, and trigger a virtuous circle of aid becoming redundant by supporting public resource mobilisation.

In the short run, strategies towards more effective, efficient, and fair taxation in Africa typically lie with deepening the tax base in administratively feasible ways. Policy options include removing tax preferences, dealing with abuses of transfer pricing techniques by multinational enterprises and taxing extractive industries more fairly and more transparently. In the long run, the capacity constraints of African tax administrations must be released to open up policy options.

 

Notes

[1] Data on tax revenues is not available for Comoros, Eritrea, Malawi, Somalia and Zimbabwe.

[2] LICs are Zambia, Tanzania, Mozambique, Eritrea, Uganda, Gambia, Kenya, Central African Republic, Zimbabwe, Comoros, Somalia, Niger, Mali, Madagascar, Burkina Faso, Senegal, Rwanda, Guinea-Bissau, Ghana, Guinea, Congo, Dem. Rep., Burundi, Malawi, Sierra Leone, Togo, Chad, Mauritania, Ethiopia, Benin, Liberia.

LMICs are Nigeria, Sudan, Egypt, Arab Rep., Djibouti, Lesotho, Tunisia, Cameroon, Morocco, Cape Verde, Congo, Rep., Sao Tome and Principe, Angola, Cote d'Ivoire, Swaziland.

UMICs are Algeria, Botswana, Gabon, Namibia, Equatorial Guinea, Seychelles, Mauritius, Libya, South Africa.

[3] Although the term covers states with heterogeneous characteristics, most fragile states are low income economies with weak public administrations. More than half of the fragile states in sub-Saharan Africa are post conflict countries. See Annex of DfID (2005) for a proxy list of fragile states.

References

AfDB (2007), African Development Report, Tunis:African Development Bank.

Bahl, R. W. and R. M. Bird (2008), “Tax Policy in Developing Countries: Looking Back and Forward”, Working Paper Series No. 13, Institute for International Business.

Baunsgaard, T. and M. Keen (2005), “Tax Revenue and Trade Liberalisation”, IMF Working Papers 05/112, Washington, D.C.:IMF.

Bird, R. and E. Zolt (2005), “Redistribution via Taxation; the Limited Role of the Personal Income Tax in Developing Countries”, in International Tax Program Paper 0508. Toronto:Joseph L. Rotman School of Management.

Bird, R. M., J. Martinez-Vazquez and B. Torgler (2004), "Societal Institutions and Tax Effort in Developing Countries," International Studies Program Working Paper Series No. 0406, International Studies Program, Andrew Young School of Policy Studies, Georgia State University.

Brautigam, D. (2000), Aid Dependence and Governance, Sweden:Almqvist & Wiksell.

Brautigam, D. and S. Knack (2004), “Foreign Aid, Institutions, and Governance in Sub-Saharan Africa”, Economic Development and Cultural Change 52, January.

Brun, J.F., G. Chambas and S. Guerineau (2007), "Aide et mobilisation fiscale", Jumbo n° 21, Agence française de développement, Paris:AFD.

Burnside, C. and D. Dollar (2000), “Aid, Policies and Growth”, American Economic Review 90(4).

Cottet, C. and C. Amprou (2006), “Aide et politique budgétaire des pays bénéficiaires : une revue de la littérature économique”, AFD, Rapport thématique Jumbo, n° 16, septembre.

CABRI and AfDB (2008), Budget Practices and Procedures in Africa 2008, Collaborative Africa Budget Reform Initiative, African Development Bank..

Chambas G. et al. (2005) L’Afrique au Sud du Sahara. Mobiliser des ressources fiscales pour le développement, FFAM-CERDI, Economica, Paris.

Chambas, G. et al. (2010), La fiscalité locale dans les pays d'Afrique subsaharienne, FFAM-CERDI, Economica, Paris.

Chambas, G., J.F. Brun and G. Rota-Graziosi (2007), La mobilisation de ressources propres locales en Afrique, UNPAN026803.

DfID (2005), Why we Need to Work More Effectively in Fragile States, London:Department for International Development.

Di John, J. (2009), “Taxation, Governance and Resource Mobilisation in Sub‐Saharan Africa: A Survey of Key Issues”, Elcano Royal Institute Working Paper 49/2009, Madrid, 30/9/2009.

Easterly, W. (2005), “Reliving the ‘50s: the Big Push, Poverty Traps, and Takeoffs in Economic Development”, CGD Working Paper 65, Washington, DC: Center for Global Development.

European Commission (2010) Tax and Development - Cooperating with Developing Countries on Promoting Good Governance in Tax Matters, Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee, COM(2010)163 final, Brussels, 21.4.

Foster, V. and C. Briceño-Garmendia (2009), Africa’s Infrastructure: A Time for Transformation, Agence Française de Développement and World Bank, Washington, D.C.:The World Bank.

Guillaumont, P. and Guillaumont-Jeanneney, S. (2006), Big Push versus Absorptive Capacity: How to Reconcile the Two Approaches, CERDI Working Papers 200614, CERDI:Clermont-Ferrand.

Gupta, S., B. Clements, A. Pivovarsky, and E. Tiongson (2004), “Foreign Aid and Revenue Response: Does the Composition of Foreign Aid Matter?”, in Sanjeev Gupta, Benedict Clements and Gabriela Inchauste (eds.), Helping Countries Develop, the Role of Fiscal Policy, Washington DC: IMF.

Heller, P. S., and S. Gupta (2002), "Challenges in Expanding Development Assistance". IMF Policy Discussion Paper 02/5. Washington DC: IMF.

Hollingshead, A. (2010), The implied Tax Revenue Loss from Trade Mispricing, Global Financial Integrity.

IFC (2009), Taxation as State-Building Reforming Tax Systems for Political Stability and Sustainable Economic Growth A Practitioner’s Guide, FIAS/The World Bank Group in collaboration with DFID, Washington, D.C.:International Finance Corporation.

IMF (2007), “Tax Revenue and Trade Reform: Is Revenue Risk an Obstacle?”, Background Paper for the Fourth Meeting of the Asia Tax Forum Hanoi, Vietnam (April 18-20).

IMF (2009), “Namibia: Selected Issues Paper”, IMF Country Report No. 08/132, April.

Jütting, J. and J. R. de Laiglesia (2009), Is Informal Normal? Towards More and Better Jobs in Developing Countries, Development Centre Studies, Paris:OECD.

Joshi, A. and J. Ayee (2002), Taxing for the State? Politics, Revenue and the Informal Sector in Ghana, Institute of Development Studies, Sussex.

Kaldor, N. (1980), “Reports on Taxation”, Vol. 1 and 2, London:Gerald Duckworth.

Kar, D. and D. Cartwright-Smith (2008) “Illicit Financial Flows from Developing Countries: 2002-2006”, Global Financial Integrity, Center for International Policy, Washington, D.C.:GFI.

Keen, M. and M. Mansour (2009), "Revenue Mobilization in Sub-Saharan Africa: Challenges from Globalization",  IMF Working Papers 09/157, Washington, D.C.:IMF.

Longoni, E. (2009), “Trade Liberalization and Trade Tax Revenues in African Countries”, Department of Economics Working Papers No. 158, University of Milano-Bicocca.

Dohrmann T. and G. Pinshaw (2009), The Road to Improved Compliance - a McKinsey Benchmarking Study Of Tax Administrations - 2008-2009, McKinsey.

Moss, T., G. Peterson and N. van de Walle (2006), “An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Africa”, CGD Working Papers 74, Washington, D.C.:Center for Global Development.

Mold, A. (2004), “A Proposal for Unitary Taxes on the profits of Transnational Corporations”, CEPAL Review 82, April.

OECD (2005), The Paris Declaration on Aid Effectiveness, Paris:OECD.

OECD (2008a), Information Note: Programmes to Reduce the Administrative Burden of Tax Regulations in Selected Countries, Forum on Tax Administration: Taxpayer Services Sub-Group, Centre for Tax Policy and Administration, Paris:OECD.

OECD (2008b), Governance, Taxation and Accountability: Issues and Practices, DAC Guidelines and Reference Series, Paris:OECD.

OECD (2008c), Taxation, State Building and Aid, Development Assistance Committee Factsheet, Network on Governance (GOVNET), Paris:OECD.

OECD (2009a), Revenue Statistics 1965-2008, Paris:OECD.

OECD (2009b), Latin American Economic Outlook 2010, Paris:OECD.

OECD (2009c), Transfer Pricing Guidelines for Multinationals and Tax Administrations, Centre for Tax Policy and Administration, Paris:OECD.

Piancastelli, M. (2001), “Measuring the Tax Effort of Developed and Developing Countries: Cross Country Panel Data Analysis - 1985/95”, Institute of Applied Economic Research Working Papers No. 818.

Reisen, H. (2010), “The Multilateral Donor Non-System: Towards Accountability and Efficient Role Assignment”, Kiel Institute, The World Economy, Vol. 4(5).

Remmer, K. (2004), “Does Foreign Aid Promote the Expansion of Government?”, American Journal of Political Science, 48(1).

Ross, M. (2004), “Does Taxation Lead to Representation?” British Journal of Political Science No. 34, Cambridge University Press.

Schuppert, C. (2010), Mapping Survey - Taxation and Development, German Technical Cooperation (GTZ), presentation made at the International Tax Compact Workshop, Brussels, January 26 : taxcompact.net.

Soest, C. von (2008), “Donor Support to Tax Administration in Africa: Experience in Ghana, Tanzania, Uganda and Zambia”, Discussion Papers 2/2008, German Development Institute, Bonn:DIE.

Toye, J., ed. (1978), Taxation and Economic Development, Frank Cass.

UNCTAD (1999), World Investment Report: Foreign Direct Investment and the Challenge of Development, New York and Geneva: United Nations Conference on Trade and Development.

UNESCO (2009), Universal Primary Education in Africa: the Teacher Challenge, Paris: United Nations Educational, Scientific and Cultural Organisation.

UNFPA (2007), State of World Population 2007- Unleashing the Potential of Urban Growth, New York:United Nations Population Fund.

Vernon, R. (1998), In the Hurricane's Eye: the Troubled Prospects of Multinational Enterprises, Harvard Univ. Press, Cambridge, MA.

Volkerink, B. (2009), “Tax Policy in Sub-Saharan Africa : A survey of issues for a number of countries”, Working Paper Series No. 2009-01, Center for Taxation and Public Governance, Department of Fiscal Law, Utrecht University.

World Bank (2009), Paying Taxes 2009 – The Global Picture, International Finance Corporation - World Bank - PriceWaterhouseCoopers.

Top