After more than a decade of increases, the ratio of tax to gross domestic product among the African countries surveyed by the OECD held steady at 16.5% from 2014 through 2018, the most recent year covered in the latest edition of Revenue Statistics in Africa.
The African rate remained lower than the average 2018 tax-to-GDP ratios for the Latin American and Caribbean region, 23.1%, and OECD countries, 34.3%.
The report identified a wide gap between the level and trajectory of public revenues across the 30 countries surveyed. Tax-to-GDP ratios ranged from 6.3% in Equatorial Guinea and Nigeria to 32.4% in the Seychelles. The ratio exceeded 25% in four countries — Morocco, Seychelles, South Africa and Tunisia — and was less than 10% in five: Chad, the Republic of the Congo, the Democratic Republic of the Congo, Equatorial Guinea and Nigeria.
The report noted that the pandemic of COVID-19, the respiratory disease caused by the novel coronavirus, has plunged Africa into its first recession in decades, with millions of people possibly facing extreme poverty. Lower commodity prices, a loss of tourism, border closings and reduced international trade have had a crushing impact on incomes across the continent, the report said.
"With countries facing high levels of uncertainty due to the ongoing pandemic, African governments will need to carefully sequence their efforts to secure fiscal space for a strong and inclusive recovery," a statement accompanying the report said.
Once the health and economic crises are under control, those governments will have to mobilize additional domestic revenues to meet longer-term objectives, according to the report, which is jointly prepared by the OECD, the African Tax Administration Forum and the African Union Commission.
As in the rest of the world, African countries were driven by the pandemic to introduce economic measures such as stimulus spending and tax relief, including deferral of payments, rebates and exemptions; suspension of penalties and interest for late payments; and extension of filing periods. These mainly affected personal income, corporate income and value-added taxes.
The tax revenue report suggested additional steps countries could take to support economic recovery: revise revenue targets to account for effects of the pandemic, to ease the burden on revenue agencies; explore alternative revenue sources such as wealth and property taxes; and modernize tax administrative systems.
The report also suggested placing caps and sunset clauses on tax relief measures, and forming teams to monitor the impact on these measures, including quantifying revenue forfeited as a result of them as well as economic benefits achieved. The report said African countries should consider automating and tracking expenditures tied to tax relief measures, particularly those directed at businesses, and increase support to the informal sector, which fuels many economies but where workers are most vulnerable.
Rounding out the report's suggestions: ensure business continuity and minimize tax fraud; safeguard customs revenue by, for example, intensifying post-clearance audits and installing systems to curtail smuggling; and attract direct foreign investment.
Logan Wort, executive secretary of the African Tax Administration Forum, said in a webinar to introduce the report that African countries that have lost revenue because of the pandemic should expand their tax bases and improve the efficiency of revenue agencies to spark economic growth.
"We are not taxing political elites, we are not taxing high-net-worth individuals sufficiently," Wort said. "The corporate tax rate might be 28%, but the real tax rate is less than 10%. What is happening between 10% and 28%? Those things are in our control."
He pointed out that countries that have invested in information technology for their tax administrations have managed the crisis better. The pandemic should also motivate countries to review their tax incentives to ensure they are fueling investment, Wort added.
--Editing by Joyce Laskowski.
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