It is urgent for African countries to broaden their tax and revenue collection bases while leveraging technology to boost compliance and collection in order to achieve development goals, a report by the UN Economic Commission for Africa (ECA) has found.
The 2019 Economic Report on Africa (ERA 2019) said that government revenue on the continent could be increased by 12–20% of GDP through the pursuit of tax and non-tax income collection, especially by aligning fiscal policy with the business cycle.
ERA 2019 suggested that African countries should invest in advanced data collection methods that better monitor non-tax revenue streams while also suggesting they should ‘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 were some of the other propositions in the report.
ERA 2019 said the continent could increase tax revenues by as much as $99bn, 4.6% of GDP, annually if it follows its recommendations.
The report highlighted how some African countries saw success by using digital systems. Rwanda managed to increase revenue collection by 6% of GDP by introducing e-taxation and South Africa used online tax payments to reduce compliance cost by 22.4% of GDP while lessening the time to comply with VAT by 21.8%.
However, the report noted that improved tax/revenue performance cannot be hinged on tax efficiency alone but also on the provision of essential public services to reduce inequality and encourage economic growth and compliance.
It added that this should go with combating corruption and reinforcing accountability to reduce inefficiencies in tax collection.
The report also said closing loopholes in existing agreements with the multinationals could boost tax revenues accruing to concerned governments by about 2.7% GDP, funds that can be deployed for achieving the SDGs.