Type to search

Tax reform, digitisation key to financing Africa’s development – ECA report

Business Economy

Tax reform, digitisation key to financing Africa’s development – ECA report

Share
UN ECA

The Economic Commission for Africa (ECA) has urged  African countries to broaden and deepen their tax and revenue collection bases while leveraging digital technologies to boost collection and compliance.

A statement by the Communications Section of the ECA, said the commission made the call while launching the 2019 Economic Report on Africa (ERA 2019) at the ongoing ECA’s 52nd Session on Saturday in Marrakech, Morocco.

The report’s theme is “Fiscal Policy for Financing Sustainable Development in Africa.”

According to the report, the tax reforms and digitisation would help to achieve pressing development goals.

The report said that the continent’s weak state of revenue-to-Gross Domestic Product (GDP) ratio which stood at 21.4 per cent in 2018 was regrettable.

It added that the continent must significantly augment the figure to adequately finance crucial national programmes, as those set out in Agenda 2030 and Agenda 2063.

It also said that government revenue on the continent could be increased by 12 to 20 per cent of GDP through the rigorous pursuit of tax and non-tax income collection, especially by aligning fiscal policy with the business cycle.

It made a case for states to invest in strong institutions and advanced data collection methods that better monitor non-tax revenue streams, while urging them to boldly venture into hard-to-tax areas such as agriculture, the informal sector and the digital economy.

“Reforming tax administration systems through the use of digitisation, refraining from issuing unproductive tax incentives and becoming highly debt-disciplined, are other propositions made for expanding the public purse to finance development in Africa.

“The continent can  increase tax revenue by as much as 99 billion dollars or 4.6 per cent of GDP annually if it sets out quickly to implement these recommendations,”  the report projects.

It added that there was much to be achieved by leveraging digital systems for revenue harvesting.

“For instance, Rwanda increased revenue collection by six per cent of GDP by introducing e-taxation and South Africa uses online tax payments to reduce compliance cost by a whopping 22.4 per cent while lessening the time to comply with the Value Added Tax (VAT) by 21.8 per cent,” it stated.

It, however, said that improved tax/revenue performance could not be hinged on tax efficiency alone, but also on the provision of essential public services to reduce inequality and encourage economic growth and compliance.

This, it said, should go with combating corruption and reinforcing accountability to reducing  inefficiencies in tax collection.

The report also highlighted the importance of multinational and state-owned corporations that were dominant in the natural resource exploitation sector.

“However, multinational corporations also have the ability to undertake complex international tax avoidance strategies that shift profits from where the underlying economic activities take place to low- or no-tax jurisdictions, a behavior referred to as base erosion and profit sharing.

“Closing loop holes in existing agreements with the multinationals can  boost tax revenues accruing to concerned governments by about 2.7 per cent of GDP, funds that can be deployed for achieving the Sustainable Development Goals (SDGs),” it further said.

It also said that Africa had a huge financing gap to plug, estimated at 11 to 13 per cent of GDP per annum if it must achieve the targets of the SDGs and Agenda 2063.

However, the ERA 2019, showed how this gap can be quickly plugged.

Following the launch, Ms Vera Songwe,  Executive Secretary, ECA, said the report was very timely for Africa.

This, she said, was because it explored comprehensive ways of financing development at a period when funding resources had been squeezed as fallouts of the global financial meltdown of 2008 and the nose-dive in commodity prices in 2014.

“These precedents have rendered the task of pursuing the implementation of the UN 2030 Agenda for Development and the AU’s Agenda 2063 for a prosperous, integrated and peaceful Africa difficult.

“I have no doubt that the imperative of raising additional revenues for financing these development agenda will be much easier for African countries that heed the carefully crafted recommendations in this report,” she said.

Mr Adam Elhiraika, Head of ECA’s Macroeconomics and Governance Division, said that to achieve the two agendas, Africa needed to increase its domestic investment rate to 30 to 35 per cent of annual GDP and triple its 3.2 per cent growth rate to about 10 per cent per annum.

“In Africa, we have a challenge of financing the SDGs but this challenge is not insurmountable, it can be addressed with serious, focused efforts to mobilise more domestic revenue through fiscal policy,” he said.

Debaters at the launch requested ECA to deepen research on how tax incentives could influence investments and revenue collection, though experts tended to agree on growing evidence that incentives did not make a great difference.

(NAN)

Tags:

Leave a Comment

Your email address will not be published. Required fields are marked *