Ghana:Finance Minister tasks GRA to think outside the box to meet revenue targets

 

14 March 2014

Mr Seth Terkper, Minister of Finance and Economic Planning, on Thursday tasked the Ghana Revenue Authority (GRA) to delve deep into its wealth of experience as revenue administrator to come out with innovative initiatives and measures to mobilize the needed revenue for the nation. He said now that Ghana is classified as a lower middle income country, donor support had dwindled considerably; therefore there is the need for GRA to garner domestic resources of income to fast-track the development efforts of the country. He, therefore, entreated the management and staff of GRA to think outside the box to come out with new ideas that would enable the GRA to achieve set revenue targets, in order to accelerate national development.
 
Mr.Terkper made these remarks in a speech read for him by Dr. Larbi Siaw, a Tax Policy Advisor to the Finance Minister, at the opening ceremony of a three-day Annual Management Retreat of the GRA in Takoradi, to review last year’s performance and strategise to improve on service delivery this year. The event was held on the theme, Exceeding a Challenging Revenue Target in 2014: Strategies for Enhanced Efficiency and Effectiveness in Revenue Mobilization.
 
Mr.Terkper noted that 2013 was a challenging year for the country in view of international happenings that had adverse effects on the national economy, hence the need to re-strategise to meet revenue target this year.
 
In the light of the very competing and legitimate demands from all sectors of the economy, GRA must dig deep into its arsenal of compliance measures and procedures in your collection efforts to achieve the set targets, he stressed. He reiterated President John Mahama’s call for domestic production and consumption of locally made goods, therefore domestic revenue generation must not be lost on them. He urged them to rope in the informal sector operators, the semi-formal and formal sectors that are evading tax, adding that GRA must ensure that the many compliance measures and procedures are strictly adhered to and applied fairly and firmly. To this end, Mr. Terkper pledged government’s determination to provide all the necessary resources and logistics to the Authority for effective execution of its mandate.
 
The Commissioner-General of the GRA, Mr. George Blankson, said the GRA had targeted 41.9 percent revenue collection this year, which is above last years a revenue collection of over 30 percent. Last year, he said, was a challenging one for revenue mobilization in the country, which was a reflection of the general challenges faced by the national economy. He expressed optimism that some innovations and tax reforms instituted by government, as well as the integration of office functions of the GRA, would come to fruition and contribute meaningfully towards meeting the revenue target this year.
 
He urged management and staff of GRA to remain focused, dedicated and committed in their bid to increase revenue collection for the country.
 
 
Source: ghana web

Tanzania: Yes, Informal Sector Should Start Paying Taxes

 

16 March 2014

Three months from now, the Minister for Finance, Ms Saada Mkuya is expected to table the 2014/2015 Budget in the National Assembly.
 
Recent reports say that next year’s budget is anticipated to be 19.9 tri/-, the figure which is probably cracking heads of some officials working at the Treasury. Revenue collection in this country is under the supervision of the Tanzania Revenue Authority (TRA), which assesses, collects and accounts for all Central Government revenue and also administers effectively and efficiently all the applied revenue laws. TRA is also expected to advise the government on all matters related to fiscal policy, promote voluntary tax compliance, improve the quality of services to the taxpayers, counteract fraud and other forms of tax evasion and also produce trade statistics and publications. 

Looking at these functions of TRA, I can easily see some loopholes where people do profitable businesses but unlikely they are not duly taxed. For example, my friend who conducts charcoal business at Sinza area in Dar es Salaam laughed at me two weeks ago, when I told him how much I earn monthly and the amount I pay under the Pay As You Earn (PAYE) scheme.

“Why are you wasting your time? The amount you get per month is what I collect in four days. If you can gather courage and decide to do this business, I am ready to give you the capital,” he advised me.

 

I saw some logic in what he was saying, because the man normally sells one bag of charcoal for 50,000/- and every month he can sell an average of 200 bags, making him earn a cool 200m/- monthly. If he deducts 25,000/- per bag that he pays charcoal vendors in Rufiji plus 5,000/- paid as transport charges for each bag from Rufiji to Dar es Salaam, this means he manages to collect a net profit amounting to 4m/- every month. This friend of mine is not taxed and TRA officials have not given him any TIN number.
 
I have another friend who sells ‘Kitimoto’ (roast pork) at a famous joint along Shekilango road in Dar es Salaam. He sells one-kilo portion at 10,000/- . At times he can sell up to 70 portions, making him make 700,000/- per day. One kilo of row pork sells at 5,000/-. Do a quick estimation to find out the net profit he makes. This man does not pay any kind of tax. Generally, people involved in the informal sector are not taxed including Machingas, Shoe shiners, Bodabodas, bus and daladala touts.
 
Last year, I remember to have read an article by Viann Komba, a senior tax manager with Ernst & Young who praised TRA for advancing in terms of administration of various taxes. He lamented that such efforts were hindered by TRA’s natural inability to navigate through the informal sector, because activities associated with this terrain of life are informal while TRA is formal.
 
Komba charged that economists and tax experts have always confirmed that there is a big room to widen the tax base in the informal sector and therefore improve government revenue performance. According to him, it is unfortunate that the government endeavours to navigate in the informal sector by using formal tools. Informal sectors are set of economic units which do not comply with legal regulations, yet whose products are considered legal and taken on board in national numbers.
 
Informal sector activities in Tanzania include construction, transport, tuition, medical services, recreational halls, animal husbandry, milling business, entertainment and urban agriculture, among others.
 
Economists say that the informal sector is sometimes linked with bazaar-economy, disorder, black market and at times, the world turned upside down. Some experts have labelled it with underground economy, hidden, parallel, black, clandestine and household. According to Komba, different disciplines like economics, labour, finance and sociology also define the term differently. There is therefore no unique and uniform definition of the term, but instead researchers, based on the various criteria, have attempted to define it in accordance with the problem at hand, he says.
 
Recent reports say that Tanzania is considered to have a large informal sector compared with the other East African countries. The World Bank Doing Business database ranks Tanzania among the three countries in Africa with the largest such sector, together with Nigeria and Zimbabwe.
 
The presence of large informal sector renders it difficult for governments to efficiently work out and programme any development plans. It is also believed that economies with large informal sectors have lower capital return and growth rates because the contribution of public services to productivity decreases with informality. 

Economists say that informal sector consume a large share of the public services that are financed by taxes mostly collected or paid by formal activities in the formal sector. Performance of the government revenue in developing countries as well as other developed countries is therefore directly and seriously affected by the presence of large informal sector in the countries.
 
Komba’s discussions centres on one of the possible methods to work around the challenges of taxation of the informal sector in Tanzania, a developing country with its own and unique characteristics and whose definition of informality is specific to itself. The truth is that informal sector in Tanzania contributes little to the government revenue (or not at all) and it is not easy to work out a taxation model that is suitable for informal activities and/or the informal sector. All sorts of blames may be wrongly directed towards the Tanzania Revenue Authority (TRA), the institution which is formal in itself and which requires a formal approach to assess tax. TRA requires enough information and reliable records, which is not the case with informal activities in the country.
 
There have been plenty of literature and discussions going around in Tanzania on how to tax the informal sector and therefore improve the government revenue performance. Unfortunately most of the discussions turn around and discuss taxation of informal sector by employing formal tactics. Most of the arguments and solutions to taxation of informal sector turn to be only relevant to formal activities. As mentioned above it may be illogical to point fingers at TRA because TRA is itself formal, with its approach and tools all formal.
 
The institution is not vested with resources or the right manoeuvring tools for informal activities. Though TRA is vested with the obligation to tax and collect tax from any person who has taxable income, the agency requires well structured records and information to be able to register taxpayers and administer/assess their taxable amounts.
 
It is important to note also that it is difficult to draw a fine line between formal activities as opposed to the informal activities. They are sometimes intertwined. However, all of us are pretty sure that there is enough tax revenue from the informal sector. How to go about getting the tax from the informal sector remains to be a headache. Taxation of informal activities has always posed challenges to governments.
 
Taxation is traditionally built on three pillars, namely tax policy, tax law and tax administration. However, it is the administration part of it that turns the wheel into money (government revenue) in the bank. Different tax regimes require different types of administrative arrangements.
 
For any tax system a decision has to be made as to which agency should be responsible for such tax and what is/are the tax-points (time and place). While the tax administration will have the main responsibility for the administration and collection of taxes in general, different methods suitable for different taxes might be chosen.
 
While VAT in Tanzania, for example, is administered and collected through registered traders and the customs offices, corporation tax is administered or assessed directly through the corporate tax offices. It is the nature of different taxes that calls for such different tax points and tax agents or in general, tax administrative arrangements. However, their efforts have been hindered by their natural inability to navigate through the informal sector because activities associated with this terrain of life are informal while TRA is formal.
 
Economists and tax experts have always confirmed that there is a big room to widen the tax base in the informal sector and therefore improve government revenue performance. It is unfortunate that the government endeavours to navigate in the informal sector by using formal tools. Time has come for the informal sector to be taxed, so that the government gets more revenues to support development activities.
 
 
Source: Tanzania Daily News (Dar es Salaam)

Financing the Burundi Revenue Authority – throwing good money after good?

 

28 March 2014

African governments must be able to mobilise revenues from taxation if they are to achieve long-term development. Domestic sources of income are crucial for funding social services aimed at poverty reduction and lessening dependence on foreign aid. Countless studies have shown that efficient tax systems help to strengthen state capacity and promote good governance.
 
For the past four years, I have been the Commissioner General of the Office Burundais des Recettes (OBR), the revenue authority of Burundi. In this period, taxes collected by the OBR have increased by 86%. An initial target to increase the contribution of tax revenue to GDP by 1% by 2016 was achieved in 2011. Tangible public services are now being delivered using this money. Corruption in revenue administration has reduced significantly. These are remarkable achievements for an institution in a small, post-conflict country where four-fifths of the population subsists below the US$1 per day poverty line.
 
The OBR is a real success story for the development industry. For every US$1 invested by Trade Mark East Africa (TMEA) – the body through which the majority of donor assistance is channelled – an additional US$8.30 in revenue is collected by the OBR. Some £14 million of aid funds has been spent to date on the OBR and I argue that this is real value for money.
 
Alas, all of this vital work could soon be undone. Donor organisations have yet to agree the second phase of support in line with the OBR’s strategic objectives, a reality that threatens to undermine all of the achievements of the first phase.
 
For the last three years, Burundi has been amongst the top ten best reformers in the World Bank’s Doing Business Index, often the only African country in the top ten. It is now possible to form a business in Burundi inside of one hour. New income tax, VAT and tax procedures laws were promulgated in 2013 and significant tax harmonisation with the rest of East Africa has occurred – Burundi’s top rate of tax is now a very competitive 30%.
 
One-Stop Border Posts (OSBPs) have been introduced with Burundi’s East African Community (EAC) neighbours, Rwanda and Tanzania. A new computer system and a scheme for permitting compliant taxpayers to rapidly clear their goods, mean Burundi is well poised to take advantage of the wider trade opportunities in the EAC. Border clearance times have been reduced. Very soon truck drivers will not need to exit their vehicles to clear goods at border crossings.
 
The OBR’s contribution to Burundi’s domestically financed state expenditure has grown from 63% in 2009 to 78% in 2013. Whilst Burundi still needs external assistance, this remains a significant step forward for one of the poorest countries in the world.
 

How has the revenue growth been achieved and what are the lessons to be learned for other states?

 
OBR recruited an almost entirely new cadre of 425 professional staff and these were trained using personnel from neighbouring revenue authorities and external advisers. Entirely new working conditions were crafted and a strict Code of Conduct introduced. The OBR adopted a salary scale that reflected the professional work people were asked to do. Modern procedures for tax and customs work were employed. Everyone has been obliged to work in open-plan offices which have created the right atmosphere of transparency. These processes have been documented in detail by Africa Research Institute.
 
The first phase of donor assistance channelled through TMEA amounted to US$17 million. This included financing for the position of the first Commissioner General, new computer systems, capacity building, office renovations and adviser assistance. The latter came in the form of technical expertise in taxation, customs, human resources, auditing, information technology, procurement and communications. The technical assistance alone cost roughly US$10 million. However, expressed as a percentage of the additional revenue generated between 2010 and 2013, the adviser assistance comes to just 2.17%.
 
The OBR’s recurrent operating costs are financed primarily by the state, including staff salaries, rent, consumables and travel. This has never exceeded 3% of the revenue collected by the OBR. In 2013, due to budget cuts, this figure fell to 2.3% and it will fall again in 2014 unless promised additional funding materialises.
 
Sadly, the OBR faces the perfect storm in 2014. In addition to a severely curtailed domestic budget, the current international development assistance to the OBR will end in May. The contracts of all technical assistants expire by then and for procedural reasons these are not being renewed. Even if new advisers are successfully recruited there is likely to be a substantial break in support.
 
Successful revenue reforms elsewhere have taken up to 12 years – or more. In order for the OBR to grow sustainably, it needs the financial stability to make its own strategic decisions as defined in its 2013-2017 Corporate Plan. These objectives have been defined locally in conjunction with the Board of OBR and the Government of Burundi, and embraced by the international community.
 
Will Burundi’s brief period of revenue reform be the proverbial candle in the wind or will sufficient new donor funding emerge to take the OBR, and Burundi, to the next stage of development? I fear the worst. And am I to be proved right, the donor community would have wasted its best opportunity to reduce poverty in the long-term in Burundi.
 

Taxing Telecoms: charges levied on international calls not remitted to tax authority

 

The following article was published in Burundi’s IWACU magazine, March 2014.
 
It all started with a company, SG2. In theory, this company specialises in invoicing incoming international calls with the aim of calculating how much tax revenue should go to the government. However, operators in Burundi’s telecoms market explain that “this is not exactly the goal”.
 
Incoming international calls only represent a few percentage points of the total sales revenues of telecoms operators. One might therefore ask: why does this initiative between the Agence de régulation et de contrôle des telecommunications (ARCT) – the telecoms regulatory body in Burundi – and SG2 only target such a small fraction of the business of telecom operators? The explanation could go as follows: it’s because the sums are received in hard currency and the operators have all received an official instruction to raise the charge of incoming calls exponentially – from US$0.06 to US$0.34 per minute! So there is now “liquidity” in this segment, and the ARCT is demanding that operators transfer the surplus back to ARCT.
 
What is even stranger is that the operators were instructed to direct this surplus revenue to a special account at a local bank, when in fact such revenue should be sent to the account of the Burundi Revenue Authority (OBR). All of this is very troubling, not least for the OBR. According to several credible testimonies, the current Commissioner General, Kieran Holmes, has created enemies in Burundi. He has protested against recent concessions to newcomer Viettel, the Vietnam mobile operator owned by the military, as well as the scheme set up with SG2.
 

SMS is safer

 
As for phone tapping, several technicians of local companies have confided that:

“We were obliged to provide SG2 with some 200 free numbers and to authorise their technicians to access our networks. They connected their own systems. We are sure that they have the technology to carry out phone-tapping.”

 

Their advice?

“When you think that your phone might be tapped, use SMS instead. They are impossible to trace.”

 

Since the introduction of this system, international calls to Burundi have become very expensive, and Burundians in the diaspora now choose to use Skype or other calling systems (Viber, WhatsApp, etc). Soon people will do this for local calls as well, to avoid being tapped.
 
 
Source: Africa Research Institute

Nigeria’s Upward Revision of GDP Should Sound Alarm on Tax-to-GDP Ratio

 

3 April 2014

The long-anticipated rebasing of Nigeria’s GDP series was finally made public on Sunday April 6, and the general media reaction has been cautiously celebratory. But the reaction has largely missed one big point: the rebasing establishes that the biggest economy in Africa has the lowest tax revenues of almost any country in the world.
 
Headlines have focused on the country’s GDP ‘nearly doubling’ (Financial Times), or Nigeria becoming ‘the biggest economy in Africa’ (AFP). There has been a great deal of enthusiasm about the implications for Nigeria’s attractiveness to foreign investment. A range of evidence is offered in support of this view.

1. The rebasing reveals a much bigger market size (the total economy worth $453 billion rather than $264 billion)., and mean per capita GDP in 2012 rising from $1,555 to $2,689 – although as Justin Sandefur points out, household survey data that we use to measure actual incomes haven’t changed).
2. It results in a much lower debt-to-GDP ratio (falling in 2012 from around 19% to 11%), highlighting the relative strength and sustainability of public finances.
3. It shows much greater economic diversity, with oil and gas just 14.4% of GDP (compared to a third), and agriculture also falling from a third of GDP, to 21.6%.

 

Much about the rebasing is good news

All of this is undoubtedly good news, to the extent that they it is news rather than statistics simply catching up with reality (the first three points made by Todd Moss on Ghana’s rebasing in 2010 all stand, I think). The note of caution in all reporting — typically in the final paragraphs — has stemmed from the necessary reference to reality, noting that nothing has changed in terms of people’s actual incomes, or costs of living. (This BBC story is an emblematic example: under the headline ‘Nigeria becomes Africa’s biggest economy’ and after a few paragraphs on the statistics, you find the sub-heading, taken from a quote: ‘Changes nothing’!)
 
In addition, reporting has welcomed the long overdue rebasing itself. This, the process of statistics catching up with reality, certainly is good news. Since the previous series was based on the structure of the economy in 1990, a jump to 2010 is a great improvement. Given the international recommendation of rebasing every four years, the new series is arguably somewhat dated already; so the commitment to rebase again in 2016 is also important. Transparency about the process of rebasing, and the material now published, is also very welcome.
 

But Nigeria’s tax revenues are worryingly low 

While there is at the least some kind of feel-good factor from the new numbers — perhaps most of all for those who live outside the country — there is a striking feel-bad issue: tax.
 
Some quick background on the four Rs of tax. Tax doesn’t only provide revenues, although these are clearly important for providing basic public services, infrastructure, and the institutional capacity for an effective state among other things. But it’s not just the money that matters, it’s also where it comes from: tax delivers much that resource revenues and aid cannot. Tax is the way we re-price goods and services (e.g., making public bads like smoking or pollution more expensive); is a central element in redistribution to reduce inequality; and, perhaps most important of all, is the basis for public representation.
 
In Nigeria’s case, there are longstanding concerns over the reliance on oil and gas revenues, and on the low level of tax revenues in particular. A range of research now provides support for the hypothesis that greater reliance on non-tax revenues weakens state-citizen relations, undermining standards of governance and institutions, and exacerbating corruption. Here’s the picture, using data released in March from the country’s IMF consultation.
 
Not too bad, you might think? Yes, non–oil and gas revenues at 6–7% of GDP are a bit of concern; and the downward trend overall is a worry. But revenues of 20% of GDP don’t compare all that badly in the region, or at this income level.
 

What are the dangers of such low revenue?

The rough rule of thumb used by the IMF and others, which Cotarelli’s (2011) IMF paper (oddly no longer available?) traces back to 1963 and the great Cambridge economist Nicholas Kaldor, is that a tax-to-GDP level below 15% is a danger sign. Below such a level of overall revenues, a state will struggle to function; and I would add, below such a level of tax revenues in particular, there is a serious threat to effective political representation and good governance, and so both to the ability of government to challenge poverty and inequality, and the likelihood of it happening.
 
On this basis, Nigeria’s rebasing reveals two serious issues. First, that despite massive resource wealth Nigeria has been failing in most recent years to reach even the 15% minimum in total revenues. And second, that the non–oil and gas share of revenues has been almost unbelievably low.
 
For 2012, the most recent year for which we have certain data, the total of non–oil and gas revenue stands at just 3.87% of GDP. From the OECD DAC data we know Nigeria received $1.916 billion in aid; or 0.42% of the now stated 2012 GDP of $451.69 billion. That leaves tax revenue of a maximum of 3.45% of GDP.
 
Looking at (admittedly far from perfect) World Bank data on tax, we find only four other countries in the last ten years which ever had such a low tax revenue: the oil states of Bahrain, Kuwait, and Oman (which together total less than 5% of Nigeria’s population); and, in 2004 only, Myanmar.
 
For one of the most populous countries in the world to be in this company should be of grave concern. It is no coincidence that Nigeria is also one of the only countries where more than one in ten children die before their fifth birthday. It also has, according to UNICEF, has bucked the trend of MDG progress to show a substantial deterioration from 2007–2011.
 
Nigeria’s GDP rebasing is worthy of celebration because it reveals more of the true picture. But the picture is certainly not one to celebrate. Instead, it reveals the depth of state weakness. Can that be enough to drive change?
 
A final thought: while there are clearly major political issues to address, policymakers could do worse than start with some basics in respect of transparency and the behaviour of the tax authority itself, as this figure compiled from Afrobarometer data shows.
 
 

Source: cgdev

Uganda: URA to tax government at source

 

13 April 2014

In the recent past, teachers and nurses have laid down tools demanding higher pay. Each time this happened, the Government was quick to point to lack of resources. However, it turns out that government departments have a lot to do with the lack of funds.

In September 2013, when James Tweheyo, the general secretary of the Uganda National Teachers Union, led a nationwide teacher strike for a 20% pay rise, government ministries, departments and agencies were unlawfully holding sh131b in unpaid taxes. This represents 77% of all unpaid taxes and close to 1.3% of the total amount of taxes that the Uganda Revenue Authority (URA) is meant to collect for the national coffers.

The Auditor General’s report for the financial year 2012/13 notes that the amount of unpaid taxes by government departments was sh31b at the end of June 2013. The eventual sh131b in September was a result of 13 government ministries not remitting Value Added Taxes, Pay-As-You-Earn and Withholding tax. At the time, the National ID project alone, under the internal affairs ministries, was holding sh40b in unpaid taxes.

The Government has approximately 88 ministries, departments and agencies. While most only receive money from fees for services and from budget allocations, some such as the Uganda Electricity Transmission Company Limited and local government engage in business.
 
Waiswa Abudu Sallam, the URA debt collection manager, says tax collection projections include the private sector and government.

“When government agencies fail to remit taxes, it affects service delivery. It also makes it hard to hit our targets,” he says.

 

The URA has a tax collection target of sh10.5 trillion. To date, the annual tax collections are off target by about sh270b, partly due to non-remission of taxes from government departments. He explained that government institutions are meant to collect 6% withholding tax on service contractors that are paid more than sh1m. Additionally, government workers are charged a PAYE tax.

A third tax, VAT, is collected by government departments whenever they charge for services. But Sallam notes that not all government departments have been diligent in remitting the taxes after they are collected.
 
 
Source: in2eastafrica

India calls for data sharing on taxation

 

12 April 2014

India today called for data sharing on taxation and blamed the industrialised and developed nations for their reluctance on parting with this information.

“Although it (taxation) is not on the agenda in this meeting, the issue of data sharing is becoming very critical for the developing countries,” said India’s Economic Secretary Arvind Mayaram.

 

He was speaking during his intervention on investment at the G20 Finance Ministers and Central Bank Governors meeting being held during the annual spring meeting of the International Monetary Fund and the World Bank.

“The continuing reluctance of some of the industrialised countries for parting with information under administrative assistance requests is contrary to the spirit of the move towards automatic tax information exchange,” Mayaram said.

 

India would like this to be considered in the next meeting so that jurisdictions are urged to do so in accordance with their treaty obligations, he added. Mayaram said the International Industrial Working Group should look beyond the conventional solutions like Public Private Partnerships and infrastructure investment funds.

“India has ventured into new and innovative financing structures and avenues of raising capital like Infrastructure Debt Funds and Investment Business Trusts for pooled investment, which are mainly aimed at attracting investments from Pension funds and other cash-rich wealth funds,” he said.

 

He noted that this aspect may be discussed, including the strategy of Pension/Sovereign Funds and the experiences of other members of G20, both as investors and investees. Mayaram said uncertainty in the credit markets is impacting the ability of infrastructure developers to raise finance for infrastructure projects and undermining confidence in private finance models.

 

“These ongoing liquidity issues are likely to increase financing costs associated with certain delivery models. Therefore, it is imperative that MDBs are channelled towards funding in emerging economies,” he said.
 

Source: Business Standard

‘Super tax’ on remittances to Africa hurts development -thinktank

 

16 April 2014

London (Thomson Reuters Foundation) – Africans face the highest remittance fees globally, regularly paying a “super tax” to send money home at a cost that hurts families and holds back development in the world’s poorest continent, a leading thinktank said on Wednesday.
 
The London-based Overseas Development Institute (ODI) said that reducing remittance charges to global average levels would generate $1.8 billion, enough to put 14 million children through primary school, or provide clean water to 21 million people.
 
The average cost to transfer $200 to sub-Saharan Africa was about 12 percent, compared with a global average of 7.8 percent, ODI said in its report, “Lost in intermediation”, branding the higher fees a “super tax”.

“This remittance super tax is diverting resources that families need to invest in education, health and a better future,” said the report’s co-author, Kevin Watkins. “It is undercutting a vital lifeline to hundreds of thousands of poor families in Africa. Africans living in the UK make huge sacrifices to support their families, yet face charges which are indefensible in an age of mobile banking and internet transfers,” Watkins said in a statement.

 

Weak competition, “exclusivity agreements” between money transfer operators, agents and banks, and flawed financial regulation contributed to pushing charges higher, ODI said.
 
The institute said two money transfer operators – Western Union and MoneyGram – accounted for two thirds of remittance transfers to Africa.

“We conservatively estimate that the two companies account for $586 million of the loss associated with the remittance ‘super tax’, part of it through opaque foreign currency charges,” ODI said in the report.

 

Western Union said the average global revenue it earned from transferring money was 5-6 percent of the amount sent.

“However, our pricing varies between countries depending on a number of factors such as consumer protection costs, local remittance taxes, market distribution, regulatory structure, volume, currency volatility, and other market efficiencies,” it said in a statement.

 

There was no fee for money transferred online from Britain for a cash payout in Africa when done through the sender’s bank account, it said.
 
Officials from MoneyGram were not immediately available for comment.

 

Rising Remittances

Remittances to Africa are rising.
 
In 2013, transfers to the continent were valued at $32 billion or around 2 percent of gross domestic product. In 2016, they are projected to rise to more than $41 billion, ODI said.

“With aid set to stagnate, remittances are set to emerge as an increasingly important source of external finance,” it said.

 

The ODI said there was no evidence of a fall in fees for Africa’s diaspora, even though governments from the G8 and G20 have pledged to reduce charges to 5 percent.
 
One of the many countries that are dependent on remittances is Somalia. Last year a threat by Barclays Bank to stop money transfer services to some 80 Somali remittance companies sparked an outcry with Somali-born Olympic gold medallist Mo Farah adding his voice to a campaign to keep the lifeline open.
 
For some, it is even more expensive to transfer money within Africa. For example, migrant workers from Mozambique pay charges as high as 20 percent to send savings back home from South Africa, the report said.
 
ODI called for several measures to lower Africa’s remittance “super tax” including an investigation of global money transfer operators by European Union and U.S. anti-trust bodies.
 
It also called for greater transparency over foreign exchange conversion rates and regulatory reform in Africa that would revoke “exclusivity agreements” between money transfer operators and banks and agents.
 
The use of micro-finance institutions and post offices as remittance pay-out agencies should also be promoted, ODI said.
 
 
Source: Thomson Reuters Foundation

Namibia: Should the Informal Sector Be Formalised?

 

22 April 2014

Windhoek — Government should focus on the inclusion of the informal sector to boost its contribution to the mainstream economy, a local economic analyst has proposed. His comment follows the findings in the African Development Bank 2013 report, titled “Recognizing Africa’s Informal Sector,” which found that the informal sector contributes about 55 per cent of Sub-Saharan Africa’s GDP and 80 per cent of the labour force.

“With the inclusion of the informal sector it could be expected to result in growth for the local economy, employment and wealth creation, and yes, ultimately, improved revenue for government,” IJG research analyst Rowland Brown said last week in response to questions from New Era regarding the role of the informal sector in the country.

 

There have been calls in the past for government to formalise the informal sector in order to broaden the tax base considering the amount of money circulating in the untapped informal sector. However, Brown cautions that a large number of those operating in the informal sector are earning a lot less than the minimum thresholds for the various forms of tax, particularly income and VAT (value added tax).

“Some informal trade is certainly being carried out as a secondary income for people with primary incomes from formal employment, and in these instances, tax revenue is definitely missed,” he said. He outlined that challenges such as access to finance also hamper the development of small businesses. “A major problem in this regard is the fact that many nascent businesses are required to go through a period of losses before they enter profit-making territory,” he said.

 

Brown says bank funding is not ideal for SMEs as interest payments are generally required from day one. He suggested that there is a need for more private equities, and that venture capital investors could help to develop the informal sector, but so would more SMEs with good business ideas and implementation.

When asked whether it would be wise to broaden the tax base by formalising the untapped informal sector, Brown said: “In some sense yes, however the tax base can and should also be broadened by doing exactly what the Ministry of Finance is doing and improving on the administration of the tax system, which should in turn reduce tax avoidance and evasion.”

 
The report also found that many African countries have experienced a growth revival, but this has not necessarily generated decent jobs, as unemployment remained high among youth and the adult African population.

“Even though the informal sector is an opportunity for generating reasonable incomes for many people, most informal workers are without secure income, employment benefits and social protection. This explains why informality often overlaps with poverty,” states the report.

 

In countries where informality is decreasing, the number of working poor is also decreasing and vice versa. The report states that the prevalence of informal activities is closely related to an environment characterised by weaknesses in three institutional areas such as taxation, regulation and private property rights.

“Higher taxes and complicated fiscal process may prevent informal sector operators from formalizing their activities. Long requirements for registration as well as licensing and inspection requirements are also barriers faced by the informal sector,” says the report.
 

Source: New ERA, Namibia