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Tax to GDP ratio for African countries improves –Report



Tax to GDP ratio for African countries improves –Report

Nigeria at 6%,  lags behind Ghana, others

As the Federal Government continues to bemoan Nigeria’s abysmally low tax to Gross Domestic Product (GDP) ratio, which at six per cent is generally regarded as one of the lowest in the world, a new data from Revenue Statistics in Africa 2017, released at the weekend, has shown that the mobilisation of domestic resources is improving steadily in other African countries.

Specifically, the report shows that the average tax-to-GDP ratio for the 16 countries that it covered in its   current edition (second) was 19.1 percent in 2015, an increase of 0.4 percentage points compared to 2014.

It also shows that each country has experienced an increase in its tax-to-GDP ratio compared to 2000, with an average rise of 5 percentage points.

The 16 participating countries were: Cabo Verde, Cameroon, Democratic Republic of Congo, Côte d’Ivoire, Ghana, Kenya, Mauritius, Morocco, Niger, Rwanda, Senegal, South Africa, Swaziland, Togo, Tunisia and Uganda.

The report provides an average of the participating countries – “the African (16) average”- showing that in 2015, the average tax-to-GDP ratio in these countries was 19.1 percent.

This is lower than the average tax-to-GDP ratios for Latin America and the Caribbean (LAC) and the OECD: 22.8per cent and 34.3per cent, respectively.

According to the report, the average tax structure of the African countries resembled that of the LAC region, except that social security contributions were a more significant component of revenues in the latter.

It further revealed that in 2015, taxes on goods and services were the largest contributor to total tax revenues in the African countries (57.2per cent on average), mostly in the form of Value-Added Tax (VAT); followed by taxes on income and profits (32.4per cent).

It said as a percentage of GDP, total non-tax revenues were lower than tax revenues in all 16 African countries, although the amounts varied considerably between countries due to a wide disparity in natural resource revenues and international donations (foreign aid, debt relief, or funding of national programmes).

Non-tax revenues as a percentage of GDP also varied significantly more than tax revenues over time, according to the report.

A special chapter in the report discusses the role of domestic resource mobilisation in improving governance and the business environment, particularly in the African states classified as fragile.

The report noted that while African countries have made significant efforts to strengthen their tax policy and tax administration capacity, they continue to face the challenges of large informal sectors, and a narrow tax base, particularly in resource-rich countries that makes them vulnerable to unstable resource revenues.

For instance, according to the report, tax-to-GDP ratios in 2015 ranged from 10.8per cent in the Democratic Republic of the Congo to 30.3per cent in Tunisia, with an average of 19.1per cent across the 16 countries. This is lower than the Latin American and Caribbean (LAC) and OECD averages (22.8per cent and 34.3per cent, respectively).

Also,  the report stated that between 2014 and 2015, all featured countries except Kenya, Tunisia and Morocco increased their tax-to-GDP ratios, adding that  on average, these countries increased their tax-to-GDP ratios by 0.4 percentage points, a slightly lower increase than for the LAC average (0.6 percentage points) but above the OECD average (less than 0.1 percentage points).

The African countries featured in the publication have significantly lower social security contributions than LAC countries. This accounts for most of the difference between their respective average tax-to-GDP ratios.

The report is produced jointly by the African Tax Administration Forum (ATAF), the African Union Commission (AUC) and the Organisation for Economic Co-operation and Development (OECD), with the financial support of the European Union.

It will be recalled that the Minister of Finance, Mrs. Kemi Adeosun, has repeatedly stated that at six per cent, Nigeria’s tax to GDP ratio is one of the lowest in the world. She contends that with such a ratio, which is less than the 15 per cent for Ghana, there was no way the country could generate enough non-oil revenue to enable the government to implement its programmes.

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