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How Can Africa Widen the Tax Net?

Tax as a proportion of GDP is very low in many African countries, increasing pressure on governments already stretched to fund essential services and pay debts. What are the options for improving revenue collection?

All governments need to provide certain services to citizens. International law imposes some obligations for health and education, for example; and of course in democracies governments that fail to meet expectations are unlikely to last long. Borrowing can meet some expenses – but, especially when growth is uncertain, any government that fails to service its debts is in deep trouble. Tariffs on cross-border trade are falling away. So collecting taxes from companies and individuals is a necessity.

But many African countries receive a much lower proportion of their GDP in tax than do countries on other continents, according to a report by the Organisation for Co-operation and Economic Development (OECD). The report, which covers tax revenue data for 30 African countries between 1990 and 2018, shows that the average tax-to-GDP ratio for the 30 African countries was 16.5% in 2018. This compared with an average 34.3% in the 38 OECD member states; and 23.1% for the Latin American and Caribbean nations.

There is, however, a wide variation among African countries: some – such as the Seychelles, Tunisia, and South Africa – have tax-to-GDP ratios above 30%; others take less than 10% – examples are Nigeria, Equatorial Guinea, Chad and the Democratic Republic of the Congo.

Source : African Business