African Tax Collections Grew By 1.6 Percent Of GDP In 2012

 

22 May 2014

The Organization for Economic Co-operation and Development has released a new report advising African nations on how to boost their tax revenue collections to foster sustainable development.
 
Strengthening domestic resources offers an antidote to aid dependence and enables countries to take ownership of their development and growth agenda, the report, entitled African Economic Outlook 2014, said.
 
In 2012, low-income African countries on average collected tax equal to about 16.8 percent of gross domestic profit (GDP). This is below the minimum level of 20 percent considered by the United Nations as necessary to achieve the Millennium Development Goals, a set of eight five-year international development goals established by the United Nations in 2000, which include the eradication of extreme poverty.
 
Lower-middle-income African countries fared a little better, with an average tax burden of 19.9 percent of GDP in 2012, the OECD said. With an average tax burden of 34.4 percent in 2012, upper-middle-income countries came closer to the average in OECD countries of 35 percent. In comparison, in 2000, the tax burden equaled 12.6 percent, 20.9 percent, and 28 percent, respectively, for each of these income levels. For Africa as a whole, the tax burden stood at 26 percent of GDP in 2012, up from 24.4 percent in 2011.
 
According to the report, total collected tax revenue in Africa has increased four-fold since 2000, from USD137.5bn, to a record USD527.3bn in 2012. Natural resource-related tax revenue largely underpinned this strong increase.
 
The report highlighted a number of challenges that many African countries must overcome to increase tax revenues further. One of these is the shallow tax base in most African economies due to weak tax administration capabilities. Collections are particularly low from small businesses and farming activities due to a large informal economy, the OECD said.
 
Also, the tax base can be further eroded by competition for investment between African countries. The report noted that ineffective tax incentives are no compensation for a poor investment climate and may actually damage a developing country’s revenue base, eroding resources for the real drivers of investment decisions: infrastructure, education, and security.
 
A further challenge is posed by the need to develop effective transfer pricing and information exchange regimes, the report said.
 
 
Source: Tax News