Domestic revenue more than tripled between 2002-08 , fell sharply in 2009, and recovered strongly to a new high in 2011. Continued international effort neededon tax havens and transfer pricing.
Africa: Since the 2001 NEPAD Founding Statement, African governments have emphasised the primary significance of domestic savings and of strengthened public revenue collection for development finance, and have pledged on many occasions to raise additional domestic resources.
Development partners: Supporting developing country efforts to mobilise national savings was a major commitment of the Monterrey Consensus, re-affirmed at the follow-up 2008 Conference in Doha. Since then, there have been several commitments at G-20 Summits to support the development of more effective tax systems; to prevent erosion of tax bases in developing countries including through exchanging tax information; to promote transparency by multinational enterprises when dealing with developing countries, including transfer pricing practices; and to address tax havens.
What has been done to deliver on these commitments?
Yet, in spite of efforts by many governments to reduce total tax rates on businesses in line with a worldwide trend, African companies still face the world heaviest tax burden both in terms of high rates and cumbersome tax regulations (see also Topics 4 and 12, Private sector and Economic governance). Also, free trade arrangements within Africa and between Africa and their major trading partners and the use of tax competition to attract foreign investment have put pressure on narrowing the tax base in many countries. In dealing with multinational enterprises, a number of African countries have transfer pricing policies in place but face significant challenges in their capacity to effectively assess the risk of potential revenue losses and remedial actions. Lastly, successes with rolling out VAT have increased tax efficiency, but have also led to a greater share of more regressive indirect taxes, while the more progressive personal income tax has experienced only a small increase as a share of GDP.
Development partners: There has been a significant scaling up of international effort. The OECD has created a “Task Force on Tax and Development” to support developing countries on a broad range of tax issues including capacity building for tax administration, combating tax avoidance and evasion, and ways to tax multinational enterprises through effective transfer pricing. The work by the Task Force was reported to the 2011 G-20 Summit. More than 100 countries have now joined the “Global Forum on Transparency and Exchange of Information for Tax Purposes”.
Each member of the Global Forum has committed to implementing the international standard on tax transparency and information exchange on request, and those commitments are subject to peer review examination. Members include a number of African developing countries, and to assist smaller jurisdictions and developing countries to meet the standard, a series of technical assistance programs have been launched by the Forum, in association with ATAF and other partners.
More than 700 bilateral agreements for the exchange of tax information have been signed, while more recently the focus has shifted to a multilateral approach. All G-20 members had committed to becoming parties to the multilateral Convention on Mutual Administrative Assistance in Tax Matters which allows for exchange of tax information between countries. The multilateral Convention is now open for signature by all countries, and it is envisaged that a number of African countries will sign the Convention in 2012.
What results have been achieved?
Total government revenue excluding grants increased from 21% to over 28% of GDP between 2002 and 2008 for sub-Saharan Africa (SSA)and from 30% to over 41% for North Africa. As a result, Africa more than tripled its revenue collection between 2002 and 2008 to reach over US$513 billion, more than ten times the volume of ODA, though the ratio to ODA varies considerably among countries (see table in Appendices). Revenue to GDP ratios have increased in all groupings of countries, but most significantly in resource-rich countries, helped by the boom in commodity exports and in middle-income countries.
As a result of this performance, while almost a third of SSA countries mobilised less than 15% of GDP as public revenue — commonly regarded as the minimum to ensure coverage of basic government services — in 2002, only 8 countries (or 17%) still collected less than 15% of GDP in 2011. However, from a global perspective, public resource mobilisation in SSA remains weak compared to other regions. Recent assessments of tax effort by the IMF show that half of SSA countries can, on the basis of their economic potential, further raise the equivalent of 2% to 4% of GDP in revenue.
The global economic crisis caused a sharp fall in public revenue in 2009, due to lower commodity prices and lower growth. In nominal terms, public revenue declined by US$120 billion, some 23% over the previous year, to US$394 billion. This decline occurred mostly in oil exporters.
Government revenue has recovered to reach US$469 billion in 2010 and hit a new high of US$520 billion in 2011. Government revenue in sub-Saharan Africa reached US$341 billion in 2011 compared to US$74 billion in 2002. The gross national savings rate increased from an average of 17.1% of GDP in the pre-Monterrey period to a high of 24% in 2006, but has since dropped back to an average of 20% in the past three years. However, increases reflect the performance of resource-rich and middle-income countries, whilst low-income countries have made minimal improvement.
What are the future priority actions?