TAX NEWS - June 2010

African Tax: African economies should boost tax collection, cut reliance on aid

African economies could, and had to, boost tax collections and reduce their reliance on aid, Jean-Philippe Stijns, an economist at the Development Centre of the Organisation for Economic Cooperation and Development said on Tuesday.

Speaking on findings of the 'African Economic Outlook 2010' report, Stijns said that there was reason for optimism and that Africa was, on average, making progress in moving away from aid towards boosting its revenues from taxation.

On average, the continent as a whole collected about $441 a year a person in taxes and received only about $41 a year a person in aid.

Thus, aid represented less than 10% of the collected taxes on the continent.

However, out of the 48 African countries for which data was available, aid exceeded tax collections in 12 countries. Aid was larger or equal to one-half of the tax revenues collected in 24 of the 48 countries and aid exceeded 10% of the tax collections in 34 out of the 48 countries.

Only 14 countries were in a position where aid represented less than 10% of the tax collections.

Improved tax collections in most countries was, however, driven mainly by volatile and unbalanced sources of income, such as commodities, highlighted Stijns.

This meant that the tax base of these countries was often volatile, making macroeconomic management difficult.

African countries had to broaden and deepen their tax bases, said Stijns.

African Tax Administration Forum technical committee chairperson Logan Wort also noted that these countries had to invest more in broadening voluntary tax compliance, saying that a cultural shift was needed.

Further, he said that these countries had to look at ways of potentially taxing the informal economy and how much this sector could generate in revenues.

Meanwhile, Deloitte director Duane Newman said that tax and incentives were moving up the criteria list for investors when deciding where to build a new facility or setting up a new operation.

However, it was not only the tax level that was of concern to these investors, but rather the predictability and transparency of tax systems and the ease of paying taxes in these countries.