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.



[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.


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