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Tax policy analysis

Africa: The rising debt burden highlights the need for further progress in domestic revenue mobilisation

 

15/12/2021 – Successful efforts to increase tax revenues and boost domestic revenue mobilisation in African economies over the last decade have been offset by rising debt-service costs, which amounted to almost two-thirds of the increased revenues generated between 2010 and 2019, according to a new report.

 

Revenue Statistics in Africa 2021 shows that the average tax-to-GDP ratio in Africa was 16.6% in 2019, an increase of 0.3 percentage points (p.p.) from 2018. The report, being launched this week at the African Union’s Specialized Technical Committee 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 the Seychelles and Tunisia, and increased in 16 countries between 2018 and 2019, while declining in 14. The rise in the Africa (30) average tax-to-GDP ratio between 2018 and 2019 was driven by increases of over 2.5 p.p. in three countries (Equatorial Guinea, Mali and Tunisia) that were partly attributable to tax policy and administration reforms. In spite of this increase, the average tax-to-GDP ratio for Africa in 2019 remained below those of the Asia-Pacific, Latin America and the Caribbean (LAC), and the OECD at 21.0%, 22.9% and 33.8%, respectively.

 

Between 2010 and 2019, the Africa (30) average tax-to-GDP ratio increased by 1.8 p.p., similar to increases in the LAC and the OECD averages over the same period (1.9 p.p. and 2.0 p.p., respectively). However, average non-tax revenues in these 30 African countries decreased from 8.1% of GDP in 2010 to 6.3% in 2019 due to declines in grant revenues and rents and royalties. As a result, total public revenues for the 30 countries included in the report decreased over the decade prior to the COVID-19 pandemic.

 

The report includes a special feature on external debt levels in Africa, which reveals that external debt costs rose by 1.1% of GDP on average between 2010 and 2019, offsetting nearly two-thirds of the average increase in tax levels over this period. The increase in debt-servicing costs, which is attributable to changes in both the level and composition of external debt, will be exacerbated by the adverse impact of the COVID-19 pandemic on public finances and debt levels in the region.

 

While the priority continues to be navigating the challenges of the COVID-19 crisis, in the future further fiscal reforms will be required in African countries to finance developmental goals and to ensure debt sustainability. While some African countries have diversified their tax bases in recent years toward value-added tax and personal income tax (PIT), the continent remains more reliant than other regions on trade taxes and the corporate income tax, which are among the taxes most heavily affected by an economic downturn. PIT and social security contributions accounted for 24.8% of total tax revenues for the Africa (30) 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 seeking to respond to the climate crisis. In Africa, there is significant scope to strengthen environmentally-related taxes, which only amounted to 1.1% of GDP in 2019 on average. While this is around the same level as the averages for LAC and Asia-Pacific regions, it remains lower than in the OECD average (2.2% of GDP). There is also scope for greater reliance on property taxes, which only represented 1.9% of total tax revenues, on average, in Africa, or about one-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 Organisation for Economic Co-operation and Development and its Development Centre, with technical support from the African Development Bank and the Cercle de Réflexion et d’Échange des Dirigeants des Administrations Fiscales. The 2021 edition received financial support from the European Union and is part of the second phase of the Pan-African Statistics Programme, a joint initiative between the European Union and the African Union.

 

To access the report, data, brochure and country notes, visit: https://oe.cd/revstatsafrica

 

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