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Tax reforms could yield African countries $72 billion in extra revenue – ECA Report

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…Report says tax reform, digitisation key to financing development

MARRAKESH, Morocco, SUN, MARCH 24 2019-theG&BJournal- Africa could increase tax revenue by as much as $72 billion or 4.6 per cent of gross domestic product (GDP) annually if comprehensive tax reforms are carried out, the Economic Commission for Africa (ECA) says.

This is one of the recommendations in the 2019 Economic Report on Africa (ERA) launched yesterday in Marrakesh, Morocco.

The report also revealed that for Africa to achieve the UN 2030 global goals (SDGs), and the AU Agenda 2063 it must digitise its economies, broaden its tax base, prevent further deterioration of fiscal and debt positions, and aim for double-digit growth.

This year’s Economic Report on Africa, a flagship publication of the United Nations Economic Commission for Africa (ECA) (www.UNECA.org) focuses on fiscal policy.

“The Report identifies several quick wins in Africa’s pursuit of additional fiscal space to finance its accelerated development,” Vera Songwe, the ECA’s Executive Secretary stated at the launch. “It also focuses on the instrumental role of fiscal policy in crowding-in investment and creating adequate fiscal space for social policy, including supporting women and youth-led small and medium enterprises.”

But, a decade away from the SDG, she added that “African countries continue to search for policy mixes to help accelerate the achievement of the SDGs. However, for many countries, financing remains the biggest bottleneck with implementing capacity a close second.”

Despite measures taken in the last two decades to improve tax administration on the continent, glaring inefficiencies still remain, showing potentials for raising additional tax revenue by closing obvious gaps, the report says.

Increasing tax revenue generation in ways that are “equitable and sustainable” will enable African countries to achieve the Sustainable Development Goals and Agenda 2063, according to the Report, whose theme is “Fiscal Policy for Financing Sustainable Development in Africa.”

In the segment dealing with tax policy and performance in Africa, it also calls on governments on the continent to address the tax system holistically “to ensure that the tax system is progressive, neutral, fair and efficient, rather than to deal with each tax system separately.”

”In this way, governments may find additional opportunities for expanding the tax base, create more certainty for tax payers, and contextualize any global standards.”

The Report says to improve tax policy and performance in Africa will depend on more than tax efficiency but also on the provision of essential public services to reduce inequality and encourage economic growth.

To widen the tax base, it suggests African countries need to include more and more diverse payers in the tax net such as rural farmers and workers in the informal sector who have not yet been captured in the tax bracket. This should be done without harming the low income workers, the Report says.

In addition, it says the value added tax regulations needs to reduce policy gaps such as the excessive use of or reduced rates.

It also advocates improving governance in revenue collection by combating corruption and reinforcing accountability to reduce inefficiencies in tax collection.

While analysing and highlighting both challenges and opportunities, the Report also recommends comprehensive macroeconomic reforms aimed at building financial resilience, placing emphasis on the need for Africa to accelerate growth to double digits by 2030 and to boost investment from its current 25 per cent of GDP.

While economic growth in Africa remained moderate at 3.2 per cent in 2018 – due to solid global growth, a moderate increase in commodity prices and favourable domestic conditions, the Report emphasises that Africa needs to do more, and work towards achieving a fine balance between raising revenue and incentivizing investments, in order to boost growth.

In some of Africa’s largest economies—South Africa, Angola and Nigeria – the Report reveals, growth trended upwards but remains vulnerable to shifts in commodity prices. East Africa remains the fastest growing, at 6.1 per cent in 2017 and 6.2 per cent in 2018, while in West Africa, the economy expanded by 3.2 per cent in 2018, up from 2.4 per cent in 2017. Central, North and Southern Africa’s economies grew at a slower pace in 2018 compared to 2017.

On the issue of Africa’s debt burden, the Report reveals that debt levels remained high as African countries increased their borrowing, to ease fiscal pressures most of which have been precipitated by the narrowing of revenue streams that has gone on since the commodity price shocks of 2014.

It argues that African countries can increase government revenue by 12–20 per cent of GDP by adopting a policy framework that strengthen revenue mobilisation, including through digitalising African economies stating that digitization could enhance revenue mobilization by up to 6 per cent.

“Digital identification can broaden the tax base by making it easier to identify and track taxpayers and helping taxpayers meet their tax obligations. By improving tax assessments and administration, it enhances the government’s capacity to mobilize additional resources. Digital ID systems yield gains in efficiency and convenience that could result in savings to taxpayers and government of up to $50 billion a year by 2020.”-APO Group.

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