Successful efforts to increase tax revenue and boost domestic revenue mobilization in African economies over the past decade have been offset by rising debt servicing costs, which accounted for nearly two-thirds of the increase tax revenue generated between 2010 and 2019, according to a new report.
The African Revenue Statistics 2021 shows that the average tax-to-GDP ratio in Africa was 16.6% in 2019, an increase of 0.3 percentage points from 2018. The report, launched this week at the Committee African Union Technical Specialist on Finance, Monetary Affairs, Economic Planning and Integration, covers 30 African countries, representing 75% of Africa’s GDP.
Tax-to-GDP ratios in the region ranged from 6.0% in Nigeria to 34.3% in Seychelles and Tunisia, and increased in 16 countries between 2018 and 2019, while decreasing in 14. The increase in the average ratio taxes/GDP in Africa (30) between 2018 and 2019 was driven by increases of more than 2.5 pp in three countries (Equatorial Guinea, Mali and Tunisia) which were partly attributable to tax policy and tax reforms. ‘administration. Despite this increase, the average tax-to-GDP ratio for Africa in 2019 remained below those of Asia-Pacific, Latin America and the Caribbean (LAC) and the OECD at 21.0%, 22.9% and 33.8%, respectively.
Between 2010 and 2019, Africa’s average tax-to-GDP ratio (30) increased by 1.8 percentage points, which is equivalent to increases in the LAC and OECD averages over the same period (1.9 and 2.0 percentage points, respectively). However, the average non-tax revenue of these 30 African countries declined from 8.1% of GDP in 2010 to 6.3% in 2019 due to lower revenue from donations, rents and royalties. As a result, total government revenue for the 30 countries included in the report declined in the decade before the COVID-19 pandemic.
The report includes a special chapter on external debt levels in Africa, which reveals that external debt costs rose by 1.1% of GDP on average between 2010 and 2019, equivalent to nearly two-thirds the increase in the average tax/GDP ratio over the same period.
The increase in debt service costs, which is attributable to changes in the level and composition of external debt, will be exacerbated by the negative impact of the COVID-19 pandemic on public finances and levels of debt. indebtedness in the region.
While addressing the challenges of the COVID-19 crisis continues to be the priority, going forward, further tax reforms will be needed in African countries to fund development goals and ensure debt sustainability. Although some African countries have diversified their tax bases in recent years towards value added tax and personal income tax (PIT), the continent remains more dependent than other regions on trade taxes and l corporate taxes, which are among the taxes most affected by an economic downturn. Personal income tax and social security contributions accounted for 24.8% of total tax revenue for Africa (30) on average in 2019, compared to 49.2% on average in the OECD (2018 figure).
In addition to the COVID-19 crisis, the world is also looking to respond to the climate crisis. In Africa, there are significant opportunities to strengthen environmentally related taxes, which averaged only 1.1% of GDP in 2019. Although at the same level as the averages in LAC and Asia-Pacific , revenues from environmentally related taxes remain below the OECD average (2.2% of GDP). There is also scope for greater use of property taxes, which averaged only 1.9% of total tax revenue in Africa, or about a third of the level in OECD countries.
Revenue Statistics in Africa is a joint initiative of the African Tax Administration Forum, the African Union Commission, the Organization for Economic Co-operation and Development and its Development Centre, with the support of the African Development Bank and the Cercle de Réflexion et d’Échange des Dirigeants des Administrations Fiscales. The 2021 edition has received financial support from the European Union and is part of the second phase of the Pan-African Statistical Programme, a joint initiative between the European Union and the African Union.