## tessaea

## Source details

**Canonical URL:** [tessaea](https://www.imf.org/-/media/files/publications/dp/2025/english/tessaea.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/dp/2025/english/tessaea.pdf.md)
- [Structured JSON version](/-/media/files/publications/dp/2025/english/tessaea.pdf.json)

---

### Executive Summary
- Purpose: shed light on tax expenditures (TEs) in sub-Saharan Africa (SSA), highlight significant data gaps, transparency, and governance issues, and build on studies by other institutions and agencies.
- Definition and functional characterization:
  - TEs are provisions within the tax system that reduce tax liability relative to a defined benchmark and may take the form of exemptions, deductions, credits, or preferential rates.
  - TEs function as indirect fiscal transfers similar to direct subsidies, grants, or transfers.
- Variation in quality across countries:
  - Degree to which TEs are (i) well defined and transparent; (ii) routinely and rigorously costed with respect to revenue forgone; (iii) administered under a clear legal framework; and (iv) assessed with respect to stated objectives varies widely.
- State of reporting in SSA:
  - For roughly 30 percent of SSA countries, no inventory or estimate of revenue forgone from TEs exists.
  - For the remaining SSA countries, only about half are assessed as having a full and published estimate.
  - Of countries with such an estimate, roughly one-third choose not to publish.
- Indicative fiscal scale: estimated revenue forgone from TEs in the sub-Saharan Africa region ranges from 0.1 percent to nearly 13 percent of GDP.
- Macroeconomic context motivating scrutiny:
  - Tighter global financial conditions, declining official development assistance, increased commodity price volatility, and capital flow volatility.
  - Higher borrowing costs, rising debt levels, and interest rate spreads are putting substantial pressure on debt service-to-revenue ratios.
- Scope exclusions (explicit): this paper does not (1) propose a new methodology for estimating TEs, (2) estimate the cost of TEs for individual SSA countries, (3) assess the relative importance of individual types of TEs specifically for SSA countries and their impact, or (4) delve into particular constraints on estimating and publishing TE estimates in SSA countries.

### Key Findings and Statistics
- Reporting and transparency:
  - Roughly 30 percent of SSA countries lack any TE inventory or estimate.
  - Only about half of the remaining SSA countries have a full and published estimate.
  - Roughly one-third of countries that have an estimate choose not to publish it.
- Fiscal magnitude:
  - Indicative estimates of revenue forgone from TEs in SSA range from 0.1 percent to nearly 13 percent of GDP.
- IMF GTED sample average:
  - TEs cost about 4 percent of GDP and 25 percent of tax revenue, on average, across the 109 countries that contribute to the Global Tax Expenditure Database (GTED) report (Redonda and others 2025).
- IMF country-survey and cross-country estimates:
  - Out of 45 SSA countries surveyed, 32 country teams reported information or estimates on TEs; 22 teams reported published estimates.
  - Of reporting teams, 17 had “comprehensive” inventories and costing; others reported partial coverage.
  - Reported country-level estimates range from 0.1 percent of GDP in Chad to nearly 13 percent of GDP in Eswatini.
  - The average estimated TE cost across all reporting countries (inclusive of both partial and comprehensive estimates) is 3.0 (percent of GDP).
- Regional financing context:
  - African Development Bank estimate: by 2030, Africa will need to close an annual financing gap of $402.2 billion for prioritized SDG areas (education, energy, productivity, infrastructure) (AfDB 2024).
  - In 2025, sub-Saharan Africa is expected to lose $4.2 billion in external funding (a 7 percent decline from 2023) as the OECD projects a 9–17 percent drop in Official Development Assistance (AfDB 2025; OECD 2025).

### The Macroeconomic Importance of TEs
- Impact on revenue:
  - TEs directly reduce tax liabilities relative to a benchmark tax system, producing lower tax revenues than would be collected in their absence.
  - Large or poorly targeted TEs can erode the tax base, constrain fiscal space, and amplify vulnerabilities by shifting public spending away from more transparent and progressive uses.
  - Widespread VAT exemptions or reduced rates can disproportionately benefit wealthier groups and weaken tax progressivity.
- Administrative and compliance costs:
  - TEs increase tax system complexity, raising compliance costs and inducing higher noncompliance.
  - Historical evidence: complexity of the income tax system was estimated to cost the United States between 10 and 17 percent of revenues raised (Slemrod 1996; Gale 2001).
- International competition effects:
  - Use of TEs to attract foreign investment can produce a “race to the bottom,” eroding revenues with limited long-term investment benefits.
- Impact on equity:
  - Well-designed refundable credits or targeted deductions can enhance equity, but many TEs are regressive in SSA and can produce “upside-down subsidies.”
- Transparency and governance:
  - TEs are frequently unquantified and unreported, receive less scrutiny than direct budgetary spending, and are rarely subject to periodic review, increasing risks of rent seeking and eroding public trust.
- Potential benefits (conditional):
  - Properly designed, implemented, and assessed TEs can support investment, equity, and resilience, but effectiveness depends heavily on design, administration capacity, and context.
  - VAT zero-rating of basic goods can be less effective than targeted transfers; investment incentives based on costs (for example, accelerated depreciation) are generally preferred over profit-based incentives (for example, tax holidays).

### The Sub-Saharan Africa Context: Trends and Constraints
- Revenue trends:
  - Recent slowdown in revenue mobilization has been more pronounced in SSA than in other regions.
  - Indirect taxes were the main driver of rising revenues during 2000–24, notably VAT, but their contribution has declined in recent years.
- COVID-19 and subsequent measures:
  - About 40 percent of SSA countries provided extensions and exemptions to taxpayers on their direct taxes (Aslam and others 2022).
  - Roughly half of SSA countries provided VAT relief during COVID-19 through acceleration of refunds, new exemptions, and extension of filing deadlines.
- Tax potential and the tax gap:
  - Tax gap exceeds 5 percentage points of GDP in about a third of SSA countries based on IMF WoRLD database analysis.
  - Region’s estimated tax potential is substantially lower than other parts of the world due to structural constraints.
- TE landscape and reporting constraints:
  - TEs are implicit forms of government support that often remain opaque; many countries do not routinely report, evaluate, or integrate TEs into budget planning.
  - Constraints include complexity of defining a benchmark tax system, data limitations, capacity constraints, and TEs granted outside national tax frameworks.

### IMF Engagement: Surveillance, Programs, and Capacity Development
- Surveillance:
  - IMF staff Article IV reports for 94 consultations across 30 SSA countries (2015–24) show 95 percent contained at least one reference to TEs.
  - All 30 countries had at least one report referencing TEs; average keyword mentions per report rose from 6.7 (2015–19) to 9.3 (2020–24).
  - References to tax exemptions account for over 60 percent of all references; average mentions of “tax expenditures” per report rose from 0.6 (2015–19) to 2.0 (2020–24).
- Programs:
  - 72 IMF-supported program approvals across 36 SSA countries (2015–24).
  - 46 programs (64 percent) in 30 countries (83 percent) had structural benchmarks (SBs) related to TEs.
  - Total of 96 TE-related SBs, amounting to 5.5 percent of all SBs.
  - About one-third of TE-related SBs entailed direct policy interventions to eliminate or contain TEs; others focused on improving governance, data, and reporting.
- Capacity Development (CD):
  - Average of five specialized CD missions annually to SSA countries on TEs over the past decade; CD work covered 24 countries and included regional seminars.
  - CD focus areas: reporting and transparency, evaluation and reform, compliance risk management, tax modeling, and institutional strengthening.
  - Since 2021, 19 SSA countries have incorporated discussions of TEs within their CD efforts.

### Technical Road Map for Reform: Principles and Practical Steps
- Six guiding principles for a sound TE policy framework:
  - Justification: incentives justified only if net social benefits reasonably expected and publicly articulated; ex-ante assessment should document and ideally quantify social benefits and costs.
  - Design: incentives should be directly targeted, favor cost-based investment incentives over profit-based, and include sunset provisions.
  - International considerations: sensitivity to international commitments and regional cooperation to limit tax competition.
  - Legislation: TE provisions should be clear, integrated into tax law, subject to Ministry of Finance review, ratified by parliament, and publicized.
  - Implementation: national revenue agency should oversee implementation; basic compliance obligations should not be waived; tailored CRM and inter-agency cooperation required.
  - Evaluation: periodic, public, evidence-based ex-post evaluation; TEs should be estimated and published regularly, including beneficiary information.
- Before introducing new TEs:
  - Require ex-ante costing and a clearly stated, specific objective; quantify objectives when possible and prefer alternatives (direct spending, cash transfers) where more cost-effective.
  - Use simple metrics initially (for example, dollar cost per job created) when data or capacity are limited.
  - Example simple-metric exercise:
    - TE associated with proposed incentive = $300,000.
    - Government willing to forgo revenue of $250 to create an additional job.
    - Expected additional jobs = 1,500 → implied revenue cost per job = $200.
    - Since $200 < $250 willingness-to-pay, incentive is desirable under this metric.
    - Ex-post: actual jobs created = 500 → actual cost per job = $600; incentive would need to have generated other benefits worth at least $175,000 of tax revenue forgone to be warranted.
- Reforming existing TEs:
  - Prioritize development of TE reports using principled benchmark definition and costing methods.
  - Start TE reporting with customs/import data but expand to VAT, CIT, and other regimes.
  - Use qualitative information (objectives, beneficiaries, durations) when full costing is not feasible to prioritize evaluations.
  - Deepen cost–benefit analysis over time using structural analysis and econometric methods as data availability improves.

### Country Case and Practical Recommendations: Uganda and The Gambia Examples
- Uganda (Box 3):
  - Tax revenue yield = 13 percent of GDP.
  - Statutory tax rates: 30 percent for CIT and 18 percent for VAT.
  - Reported TE totals:
    - 2020 TE report: 1.7 percent of GDP.
    - 2023–24 TE report: 1.8 percent of GDP.
  - IMF missions (2022, 2023, 2025) estimated:
    - Aggregate CIT expenditure estimated at 2.3 percent of GDP.
    - Aggregate VAT expenditure estimated at up to 4.6 percent of GDP.
  - Recommendations: mandate ex-ante and ex-post TE assessments; publish TE reports; consolidate TE provisions in tax legislation; centralize TE authority under Ministry of Finance; condition TEs on comprehensive tax filing; eliminate discretionary waivers.
- The Gambia (box example):
  - In 2024, total customs concessions amounted to 2.6 percent of GDP, with nearly half from import VAT.
  - Authorities plan to publish their first TE report by the end of 2025 using a phased approach: define benchmark tax system, create TE inventory, identify customs-related TEs, and form a working group from GRA and MoFEA.
  - Caveat: customs concessions may not map to TEs depending on benchmark (for example, ECOWAS Common External Tariff vs statutory tariff rates); some import VAT concessions for inputs by VAT-registered entities do not constitute VAT expenditure.

### Implementation Priorities and Practical Steps (Getting started)
- Immediate priorities:
  - Produce a TE report using available data and expand coverage over time.
  - Define a benchmark tax system and adopt a principled costing approach (revenue forgone method as a starting point).
  - Establish or strengthen centralized databases and integrate administrative and survey data.
  - Amend legislation to mandate filing of tax returns for TE recipients and consolidate TE provisions in tax law.
  - Use phased CD and external technical assistance where capacity constraints exist.
- Medium-term priorities:
  - Institutionalize ex-ante costing and mandatory ex-post evaluation cycles with public disclosure.
  - Integrate TE estimates into fiscal planning and medium-term fiscal frameworks.
  - Strengthen inter-agency cooperation and tax policy units to provide continuity and impartial analysis.

*Source: tessaea - references.*

### references.

### tessaea - references.

### Executive Summary
- Purpose: shed light on tax expenditures (TEs) in sub-Saharan Africa (SSA), highlight significant data gaps, transparency, and governance issues, and build on studies by other institutions and agencies.
- Definition: TEs are provisions within the tax system that reduce tax liability relative to a defined benchmark and may take the form of exemptions, deductions, credits, or preferential rates.
- Functional characterization: TEs act as indirect fiscal transfers similar to direct subsidies, grants, or transfers.
- Variation in quality across countries: most countries have TEs embedded in tax frameworks, but the degree to which provisions are (i) well defined and transparent; (ii) routinely and rigorously costed with respect to revenue forgone; (iii) administered under a clear legal framework; and (iv) assessed with respect to stated objectives varies widely.
- Historical note: investigation and assessment of TEs began in the mid-1960s and spread first among OECD member states.
- Objectives behind TEs: typically economic or social, but may also be environmental, political, or cultural.
- Tradeoffs: while TEs can target relief or incentives through the tax system, they incur fiscal cost (revenue forgone) and add complexities—raising concerns about revenue administration, governance, fairness, and lack of public scrutiny.
- State of reporting in SSA:
  - For roughly 30 percent of SSA countries, no inventory or estimate of revenue forgone from TEs exists.
  - For the remaining SSA countries, only about half are assessed as having a full and published estimate.
  - Of countries with such an estimate, roughly one-third choose not to publish.
- Indicative fiscal scale: estimated revenue forgone from TEs in the sub-Saharan Africa region ranges from 0.1 percent to nearly 13 percent of GDP.
- Macroeconomic context motivating scrutiny:
  - Tighter global financial conditions, declining official development assistance, increased commodity price volatility, and capital flow volatility.
  - Higher borrowing costs, rising debt levels, and interest rate spreads are putting substantial pressure on debt service-to-revenue ratios.
  - Greater attention to domestic revenue mobilization and scrutiny of TEs to address financing gaps through “own” resources.
- IMF engagement:
  - Analyzing TEs, assessing revenue impact, and proposing reforms within sustainable medium-term fiscal frameworks aligns with IMF mandate and expertise.
  - Survey data suggest TEs have been a significant focus for the IMF, but more could potentially be done given the current conjuncture.
- Assessment challenges and feasibility:
  - Establishing a benchmark tax system requires timely access to data and significant methodological expertise.
  - A deep knowledge base exists from six decades of practice among IMF, OECD, World Bank.
  - Establishing TE frameworks and integrating revenue costs into fiscal planning are achievable, as shown by a growing number of SSA countries.
- Paper structure: Sections 1–7 outline definitions, macroeconomic impacts, SSA context, data and information state, IMF engagement, a road map for reform, and conclusions.
- Outside scope (explicit): this paper does not attempt to (1) propose a new methodology for estimating TEs, (2) estimate the cost of TEs for individual SSA countries, (3) assess the relative importance of individual types of TEs specifically for SSA countries and their impact, or (4) delve into particular constraints (technical and/or governance) on estimating and publishing TE estimates in SSA countries.

### Key Findings and Statistics
- Reporting and transparency:
  - Roughly 30 percent of SSA countries lack any TE inventory or estimate.
  - Only about half of the remaining SSA countries have a full and published estimate.
  - Roughly one-third of countries that have an estimate choose not to publish it.
- Fiscal magnitude:
  - Indicative estimates of revenue forgone from TEs in SSA range from 0.1 percent to nearly 13 percent of GDP.
- Policy relevance:
  - Tighter global financial conditions and lower official development assistance increase importance of domestic revenue mobilization.
  - TEs affect debt service-to-revenue ratios through forgone revenues and interact with higher borrowing costs and rising debt.

### Technical and Policy Implications
- Estimation requirements:
  - Establishing a benchmark tax system is necessary to estimate revenue forgone and requires data access and methodology expertise.
- Governance and transparency:
  - Publishing TE estimates is vital for assessing success relative to stated objectives and for public scrutiny.
- IMF role:
  - Surveillance, program engagement, and capacity development have addressed TEs; more engagement could help enhance domestic revenue mobilization, transparency, and governance.
- Reform feasibility:
  - Despite capacity constraints, integrating TE frameworks and revenue costing into fiscal planning is achievable and already underway in several SSA countries.

### Acknowledgments
- Prepared by an IMF team led by Todd Schneider, including Li Liu, Irena Jankulov Suljagic, Simon Naitram, Can Sever, Felix Simione, Sandhya Garimella, and Qianqian Zhang, with contributions from Haya Abu Sharar (AFR), Thornton Matheson, Petit Patrick, and Ross Warwick (FAD).
- The paper benefited from comments by Costas Christou and AFR mission chiefs, and Ali Abbas, Maria Cavalleri, Alexander Klemm, Anamaria Maftei, Mario Mansour, Jeta Menkulasi, Miguel Pecho, Anthony Ramarozatovo, and Daniel Rodriguez (FAD).

### Identifiers
- ISBN:
  - 9798229023887 (paper)
  - 9798229023993 (ePub)
  - 9798229023931 (WebPDF)
- Classification: HJ4642.S3 2025
- Subject heading: Tax expenditures—Sub-Saharan Africa

### Contents Outline (high-level)
- Executive Summary
- Acronyms and Abbreviations
- 1. A Primer on Tax Expenditures
  - A. What Are Tax Expenditures?
  - B. Types and Uses of TEs
  - C. History of Thought
- 2. The Macroeconomic Importance of TEs
  - A. Impact on Revenue
  - B. Impact on Equity
  - C. Impact on Transparency and Governance
  - D. The Potential Benefits of TEs
  - E. Macroeconomic Importance in Sub-Saharan Africa
- 3. The Sub-Saharan Africa Context
  - A. Recent Developments in Sub-Saharan Africa
  - B. Trends in Revenue Mobilization and Challenges in Sub-Saharan Africa
- 4. TEs in Sub-Saharan Africa
  - A. The Landscape of TEs in Sub-Saharan Africa
  - B. Estimates of TEs in Sub-Saharan Africa
- 5. How is the IMF Addressing TEs in Sub-Saharan Africa?
  - A. Surveillance
  - B. Programs
  - C. Capacity Development
- 6. Technical Road Map for Reform in Sub-Saharan Africa
  - A. Toward a Sound TE Policy Framework: Guiding Principles
  - B. How to Get There . . .
  - C. Getting Started
- 7. Conclusions
- References
- Boxes, Figures, and Table listings (as enumerated in the contents)

### Acronyms and Abbreviations
- AfDB African Development Bank
- ASYCUDA Automated System for Customs Data
- CD Capacity Development
- CDMAP Capacity Development Management Administration Program
- CIT Corporate Income Tax
- DRC Democratic Republic of the Congo
- EAC East African Community
- ECA Economic Commission for Africa
- ECF Extended Credit Facility
- EFF Extended Fund Facility
- FDI Foreign Direct Investment
- GDP Gross Domestic Product
- GRA Gambia Revenue Authority
- GTED Global Tax Expenditures Database
- IFA International Fiscal Association
- IIPF International Institute of Public Finance
- IMF International Monetary Fund
- LICs Low-Income Countries
- MONA Monitoring of Fund Arrangements
- MoFEA Ministry of Finance and Economic Affairs
- OECD Organization for Economic Co-operation and Development
- PCI Policy Coordination Instrument
- PCT Platform for Collaboration on Tax
- PSI Policy Support Instrument
- REO Regional Economic Outlook
- SBs Structural Benchmarks
- SCF Standby Credit Facility
- SADC Southern African Development Community
- SSASub-Saharan Africa
- TE Tax Expenditure
- TPU Tax Policy Unit
- VAT Value-Added Tax
- WoRLD World Revenue Longitudinal Database

*Source: tessaea - references.*

### 1. A Primer on Tax Expenditures

### 1. A Primer on Tax Expenditures

### A. What Are Tax Expenditures?
- Tax expenditures (TEs) are provisions that reduce tax liability relative to a benchmark tax system.
- Forms include exemptions, deductions, credits, or preferential tax rates; can be codified in tax laws or arise through decrees, ministerial orders, regulations, budget gazettes, administrative discretion, decisions of non-revenue authorities, or provided outside the legal framework.
- Functional equivalence:
  - TEs reduce taxpayer tax liability (increasing after-tax income) and reduce government revenue, making them functionally equivalent to certain types of direct government spending (for example, subsidies or grants).
- Procedural differences from direct spending:
  - Direct spending typically requires legislative approval (often annually); TEs can remain in effect indefinitely without periodic reapproval.
- Reporting and transparency facts:
  - According to the Global Tax Expenditures Database (2021), 105 countries published TE reports during 1990–2022, whereas a further 113 jurisdictions did not publish any information on TEs.
  - Of those countries that did publish, only 57 publish on an annual basis.
- Tax incentives are a subset of TEs: tax incentives are designed specifically to encourage particular behaviors among targeted groups; other TEs may aim to simplify the tax system or improve redistribution (ECA 2024).
- Main measurement approach:
  - The revenue forgone method measures the value of direct revenue losses associated with a specific TE and assumes taxpayers would not change economic behavior if TEs were removed.
- Benchmark definition for identifying and costing TEs:
  - A benchmark tax system acts as a reference point to distinguish structural relief from TEs and should be grounded in principles of fairness, efficiency, and simplicity.
  - Benchmarks vary across countries; three broad approaches to defining benchmarks (Beer and others 2022):
    - The reference tax law approach: uses a country’s existing tax system as the starting point, focusing on a limited set of existing tax provisions (example: a benchmark personal income tax relying on existing tax rates while excluding other tax relief provisions).
    - The conceptual approach: defines the benchmark based on an ideal tax system guided by tax theory (example: an ideal VAT with a single tax rate across all goods and services, with no exemptions or reduced rates apart from a zero rate on exports).
    - The expenditure subsidy approach: identifies TEs as only those provisions that could be provided as a subsidy or direct expenditure (example: a tax credit of $75 could also be provided as a direct subsidy of $100, assuming the subsidy is itself taxable at a 25 percent rate).
- Other benchmark approaches referenced (not listed above): (1) the revenue gain approach, which measures revenue gained from removing a specific TE and requires incorporating behavioral responses; and (2) the outlay equivalent approach, which measures how much direct expenditure would be needed to provide an equivalent benefit.

### B. Types and Uses of TEs
- Common forms of TEs:
  - Tax exemptions: exclude income from the base of an income tax or exclude specific goods and services from the base of a consumption tax (example: exemptions from customs duties for imported goods below a specific monetary value).
  - Tax allowances or deductions: subtracted from the tax base before applying the tax rate (example: deduction for mortgage interest paid).
  - Credits and offsets: deducted from tax liability, including credits for charitable donations or pension contributions; some credits can be refundable and turn tax liability negative.
  - Tax rate reductions, rate relief, or concessional tax rates: for example, reduced corporate tax rates for small businesses or reduced VAT-style rates for basic goods.
  - Tax deferrals: delay in tax payment (example: accelerated depreciation allowing companies to defer tax liability by recognizing expenses earlier).
- Typical policy objectives for introducing TEs:
  - Stabilizing or reducing the cost of necessities such as basic foods or fuel.
  - Attracting or incentivizing new investment.
  - Supporting production in targeted industries.
  - Providing an advantage to domestic production.
  - Providing financial support to individuals or households caring for dependents.
  - Incentivizing small and medium-sized business formation.
  - Promoting human capital investment in socially beneficial areas such as education or health care.
  - Encouraging research and development.
- Rationale for using TEs instead of direct spending:
  - Administrative ease: tax systems already identify income levels, making targeting to income levels administratively simpler.
  - Existing mechanisms: certain behaviors (for example, R&D spending) are easily captured by the tax system.
  - Avoids creating separate bureaucracy to administer direct spending (examples: child/family tax credit and investment tax incentives).
  - Offsetting tax liability can be administratively simpler than collecting revenue and then making direct expenditures.

### C. History of Thought
- Origins and diffusion:
  - The concept of TEs emerged in the 1960s to highlight tax provisions functioning like spending programs; Stanley Surrey coined the term and influenced inclusion of a chapter on TEs in the US federal budget in 1968 and annual reporting under the 1974 Congressional Budget Act.
  - Germany launched a similar practice in its 1967 subsidies report.
  - By the 1980s, countries including Austria, Canada, France, Spain, and the UK had adopted reporting frameworks; by 1996, nearly all OECD countries were formally reporting on TEs.
- Empirical and normative critiques:
  - Effectiveness: long literature documents uncertain and uneven effects of tax incentives on investment; lack of consistent evidence of positive impacts of tax incentives on total private investment or economic growth (Klemm and Van Parys 2011).
  - Determinants: tax incentives often play a limited role relative to structural factors such as infrastructure, political stability, and resources (Tanzi and Zee 2001).
  - Targeting and equity concerns: TEs aimed at supporting households can be ineffective if they subsidize behavior that would have occurred anyway or fail to reach low-income groups with little tax liability; critics document “upside-down subsidies” benefiting higher-income taxpayers despite targeting lower-income households (Surrey and McDaniel 1985; Gravelle 2005; Marr and Highsmith 2011).
  - Efficiency and distortion:
    - TEs can distort economic incentives (for example, making one good relatively less expensive than others).
    - Incentives for smaller firms may create disincentives for firms to invest and grow (Benedek and others 2017).
    - TEs can lead to inefficiently high tax rates; a broader tax base with lower tax rates could raise equivalent revenue with less distortion (Feldstein 2015; Burman and others 2017; Kaplow 2017).
  - Administrative considerations:
    - Potential administrative cost savings from using existing tax reporting structures instead of separate spending programs (Swift, Brixi, and Valenduc 2004).
    - Identification, quantification, and compliance risks can impose substantial costs, particularly in developing countries (Pecho and others 2024).
  - Governance and transparency concerns:
    - TEs are seldom subject to the same scrutiny as direct expenditures, often lack sunset clauses, and are rarely reviewed for performance—especially in developing countries (Heady and Mansour 2019).
    - Limited public perception of TE costs can lead to inefficiently high public spending (Burman and Phaup 2012).
    - TEs can be viewed as political deals rather than targeted policy design and complicate budget planning due to unpredictable revenue costs and limited oversight, increasing the risk of unanticipated deficits and undermining budget credibility (Swift, Brixi, and Valenduc 2004).
- Implications for reform:
  - Need for rigorous evaluation of TEs to assess effectiveness, efficiency, and governance impacts.
  - Improving design, reporting, and governance is essential to enhance transparency, alignment with development goals, and overall policy effectiveness (IMF and others 2015; Beer and others 2022).
  - Recommended reforms include embedding provisions in tax law and publishing regular expenditure reviews.
  - Sugin (2011) emphasizes that meaningful reforms depend on better information—policymakers need clearer understanding of what TEs do, who benefits, and how they compare to alternative policy tools.

*Source: tessaea - 1. A Primer on Tax Expenditures*

### 2. The Macroeconomic Importance of TEs

### 2. The Macroeconomic Importance of TEs

### A. Impact on Revenue
- TEs directly reduce tax liabilities relative to a benchmark tax system, producing lower tax revenues than would be collected in their absence.
- Fiscal cost estimates:
  - TEs cost about 4 percent of GDP and 25 percent of tax revenue, on average, across the 109 countries that contribute to the Global Tax Expenditure Database (GTED) report (Redonda and others 2025).
- Fiscal implications and risks:
  - Large or poorly targeted TEs can erode the tax base, constrain fiscal space, and amplify vulnerabilities by shifting public spending away from more transparent and progressive uses.
  - Widespread VAT exemptions or reduced rates can disproportionately benefit wealthier groups and weaken tax progressivity.
  - Crisis-driven expansions of TEs can become semi-permanent and procyclical when not subject to annual budget reviews (IMF and others 2015).
- Administrative and compliance costs:
  - TEs increase tax system complexity, raising compliance costs and inducing higher noncompliance (Kaplow 1996).
  - Complex systems create loopholes for tax planning and avoidance and increase the likelihood of involuntary errors by revenue administrators.
  - Historical evidence: as far back as 1995, complexity of the income tax system was estimated to cost the United States between 10 and 17 percent of revenues raised (Slemrod 1996; Gale 2001).
- International competition effects:
  - Use of TEs to attract foreign investment can produce a “race to the bottom,” eroding revenues with limited long-term investment benefits.
  - Location-specific profits (extractive industries, telecommunications) do not require additional incentives and may represent a negative TE.
  - Overlapping, poorly coordinated incentives across countries can encourage harmful tax competition (Keen and others 2014).

### B. Impact on Equity
- Potential positive uses:
  - Well-designed TEs (for example, refundable tax credits or targeted deductions for low-income households) can enhance equity by reducing effective tax burdens for vulnerable groups.
  - In some contexts, certain TEs may be more easily administered and targeted than equivalent spending programs.
- Risks to distributional outcomes:
  - Many countries have not operated TEs through budgetary processes; distributional effects are less visible and rarely evaluated ex-ante or ex-post.
  - Opacity can perpetuate structural inequities and erode the redistributive function of the fiscal system (OECD 2010).
  - TEs can distort horizontal equity when access is uneven, discretionary, or dependent on professional tax advice, advantaging those with better access to planning.
  - Weakened legitimacy and declining tax morale can follow perceptions of unfairness, complicating tax collection and governance reforms (Fishbien 2024).

### C. Impact on Transparency and Governance
- Reporting and oversight shortcomings:
  - TEs are frequently unquantified and unreported, receiving less scrutiny than direct budgetary spending.
  - Lack of oversight makes TEs easier to enact and maintain than direct spending programs, even when direct spending might be more efficient or transparent.
- Corruption and rent-seeking risks:
  - Discretionary TEs can be granted on improper criteria, inducing rent seeking and corruption; perceptions of favoritism erode public trust.
  - Exemptions can increase opportunities for tax avoidance and evasion (for example, transfer pricing to shift profits to tax-exempt taxpayers).
- Policy instrument effectiveness:
  - Layers of TEs can hollow out tax bases, weakening the effectiveness of standard fiscal levers (rates, thresholds, deductions, credits) for revenue or countercyclical relief.
  - Identifying and costing TEs can inform base-broadening measures to support fiscal consolidation, but accurate measurement is challenged by data limitations.

### D. The Potential Benefits of TEs
- Conditional effectiveness:
  - Properly designed, implemented, and assessed TEs can support investment, equity, and economic resilience under certain conditions.
  - Effectiveness depends heavily on design, tax administration capacity, and broader context.
- Design examples and comparative effectiveness:
  - Under VAT regimes, zero-rating basic goods to reduce the tax burden on poor households is generally more effective than exemptions (Chandler, Thomas, and Tremblay 2025).
  - Direct transfers are typically more effective than reduced VAT rates for equity, yet reduced or zero VAT rates can be useful where well-targeted cash transfer programs are unavailable (Keen 2015; van Oordt 2018).
  - Investment incentives that reduce the cost of investment (for example, accelerated depreciation) are generally more effective than profit-based incentives (for example, tax holidays).
- External dependencies:
  - Even well-designed incentives’ success in attracting investment depends on external factors: type of investment, broader investment strategy, institutional features, and international tax rules.

### E. Macroeconomic Importance in Sub-Saharan Africa
- Scale and distributional concerns:
  - TEs are estimated to be large as a share of revenue in some sub-Saharan Africa countries (ECA 2024).
  - Many TEs in the region tend to be regressive, disproportionately benefiting higher-income individuals and larger firms; high informality limits low-income taxpayers’ ability to benefit.
- Administrative and governance constraints:
  - Constrained tax administration capacity and widespread informality widen the compliance gap and reduce effective revenue collection.
  - Weak fiscal institutions increase vulnerability to misuse of TEs, exacerbating already low tax morale and weakening tax collection efficiency (Robinson 2023).
- Recent policy context and external shocks:
  - African Development Bank estimate: by 2030, Africa will need to close an annual financing gap of $402.2 billion for prioritized SDG areas (education, energy, productivity, infrastructure) (AfDB 2024).
  - Some countries achieved revenue increases in 3-year windows averaging 0.5 percent of GDP per year (examples: Rwanda 2010–14; Uganda 2013–15; Namibia 2005–07; Comoros 2001–03; Cabo Verde 2004–07; Liberia 2009–12) (Akitoby and others 2020).
  - In 2025, sub-Saharan Africa is expected to lose $4.2 billion in external funding (a 7 percent decline from 2023) as the OECD projects a 9–17 percent drop in Official Development Assistance (AfDB 2025; OECD 2025).
  - External pressures: rising borrowing costs, grant declines, commodity price volatility, slower capital inflows, and tighter global liquidity have increased public debt burdens and fiscal vulnerabilities.
- Policy implication:
  - Reining in poorly targeted or regressive TEs can help expand the tax base, preserve equity, and foster accountability—supporting both near-term fiscal adjustments and longer-term domestic revenue mobilization.

*Source: IMF Departmental Papers — Tax Expenditures in Sub-Saharan Africa (chapter 2).*

### 1. Total Revenue Excluding Grants, 2000–222. Tax Revenue, 2000–22

### 1. Total Revenue Excluding Grants, 2000–22. Tax Revenue, 2000–22

### Revenue trends and regional comparison
- The recent slowdown in revenue mobilization has been more pronounced in sub-Saharan Africa than in other regions.
- Although revenue declined in all regions during the pandemic, the decline in sub-Saharan Africa was sharper. Some regions registered a slight recovery post-pandemic, whereas revenue continued to decline in sub-Saharan Africa.
- About 40 percent of sub-Saharan Africa countries provided extensions and exemptions to taxpayers on their direct taxes (Aslam and others 2022), some of which persisted through recent years in some countries.
- Indirect taxes were the main driver of rising revenues in sub-Saharan Africa during 2000–24, notably VAT, but the contribution of indirect taxes has declined in recent years.

### Drivers of recent revenue changes
- Indirect tax measures during COVID-19:
  - Roughly half of sub-Saharan Africa countries provided VAT relief during the COVID-19 pandemic through acceleration of refunds, new exemptions, and extension of filing deadlines (Aslam and others 2022).
  - Many of these VAT interventions supported short-term liquidity but have remained longer than intended in some countries, undermining VAT productivity and revenue performance.
- Direct taxes:
  - The contribution of direct taxes has declined, reflecting new corporate income tax (CIT) exemptions to vulnerable sectors (notably tourism and hospitality), temporary tax deferrals, and rate reductions.
- Trade taxes:
  - The contribution of trade taxes has remained broadly stable, though significant trade tax relief was introduced in many countries by lifting customs duties amid the pandemic. These TEs have often lasted the longest and in some cases persisted well beyond the pandemic peak (Aslam and others 2022).

### Tax potential and the tax gap
- Revenue collection in many sub-Saharan Africa countries is significantly below estimated potential—the highest level of revenue a country can achieve given its underlying macroeconomic and structural conditions (Fenochietto and Pessino 2010, 2013; IMF 2018b).
- Analysis based on the IMF WoRLD database suggests that the tax gap—the difference between actual collection and potential—exceeds 5 percentage points of GDP in about a third of sub-Saharan Africa countries.
- Cross-country heterogeneity in estimated tax potential reflects differences in:
  - level of economic development,
  - degree of informality,
  - trade openness,
  - public sector effectiveness, and
  - corruption.
- The region’s estimated tax potential is itself substantially lower than in other parts of the world, reflecting long-standing structural constraints.
- Policy implication: scaling back costly and often poorly targeted tax expenditures (TEs) could help narrow the tax gap by strengthening revenue performance and improving tax system efficiency.

### Tax expenditures (TEs): landscape and challenges
- TEs are implicit forms of government support that represent a significant and often opaque source of forgone revenue; if not regularly assessed and rationalized, they can erode the tax base, create inequities, and undermine transparency and fiscal control.
- In many sub-Saharan Africa countries, TEs are not routinely reported, evaluated, or integrated into budget planning.
- Historical and institutional context:
  - TE analysis has a long history in advanced economies (first evaluations in the German Federal Republic in 1966 and the United States in 1968).
  - OECD and some regional groups publish TE studies, but reporting practices and data types vary widely across countries and groupings.
  - In Africa, South Africa, Senegal, Benin, and East African Community member states began publishing TE reports in the early 2000s. WAEMU countries have moved to produce annual TE reports under Decision 08/2015/CM.
  - ECOWAS member states are invited to adopt guidelines on TE estimation in national legislation, including in the context of the 2025 Addis Tax Initiative.
- Constraints to TE reporting and costing:
  - Complexity of defining a benchmark tax system and establishing a strict evaluation methodology.
  - Data limitations and capacity constraints.
  - TE measures sometimes exist outside national tax frameworks (granted by non-revenue agencies or local governments), complicating identification and costing.

### Estimates of TEs in sub-Saharan Africa: data sources and findings
- Comparability challenges:
  - Without a standard methodology and agreed principles for a benchmark tax system, cross-country comparisons of forgone revenue from TEs are difficult and can be misleading.
  - Publicly available databases like the GTED provide snapshots but are heterogeneous in calculation and data sources; estimates are not uniform and are not always based on a benchmark tax regime.
- GTED and ECA analyses:
  - GTED suggests an indicative range of revenue forgone across countries but cannot be aggregated across countries due to differing coverage and methods.
  - A United Nations Economic Commission for Africa (ECA 2024) study used a single methodology (the revenue forgone approach) to estimate VAT and CIT TE costs in eight sub-Saharan Africa countries, compiling catalogs of TEs and costing them based on actual tax return data.
  - The ECA study focused on VAT and CIT because these are typically the largest revenue generators and where significant TEs are usually found.
- Key patterns from available data:
  - Many countries have yet to undertake rigorous TE assessments using benchmark tax systems or to publish such estimates.
  - Where available, TE costs (as a share of GDP or total revenue) are significant but vary widely across countries.
  - The bulk of TEs are likely concentrated in VAT and CIT regimes.

### IMF country-survey findings on TEs (survey of IMF country teams)
- Out of 45 sub-Saharan African countries surveyed, 32 country teams reported information or estimates on tax expenditures. Of those, 22 teams reported that the estimates were published.
- Of those reporting estimates of TEs, only 17 country teams had what might be considered “comprehensive” inventories and costing; the remainder reported partial coverage (for example, lists limited to business tax, VAT, or customs exemptions).
- Of the 32 country teams reporting that an inventory of TEs was available:
  - 8 reported that they were not aware of, or that rules about TEs were not embedded in, legislation.
  - 13 indicated that TEs were not governed by a single authority (such as a Ministry of Finance or revenue agency).
- Of the remaining country teams reporting that no inventory of TEs was available, only 1 indicated that such an exercise was in train or that technical assistance was expected.

### Quantitative highlights and country-level estimates
- The IMF country-level survey and other sources confirm wide variation in estimated TE costs across sub-Saharan Africa, with reported estimates ranging from 0.1 percent of GDP in Chad to nearly 13 percent of GDP in Eswatini.
- The average estimated TE cost across all reporting countries (inclusive of both partial and comprehensive estimates) is 3.0 (percent of GDP).
- Observations:
  - Comparability is inherently difficult due to differing methods and assumptions used across countries, whether or not third-party technical assistance was involved.
  - TE accounting and publication remain limited in many countries despite potentially significant fiscal costs.

*Sources: IMF staff calculations; IMF Fiscal Affairs Department; WoRLD Revenue Longitudinal Database; Global Tax Expenditures Database; Economic Commission for Africa; country-team survey results as presented in the source content.*

### 5. How is the IMF Addressing

### 5. How is the IMF Addressing TEs in Sub-Saharan Africa?

### A. Surveillance
- Dataset reviewed: IMF staff Article IV reports for 94 Article IV Consultations across 30 sub-Saharan African countries over 2015–24.
- Frequency and coverage:
  - 95 percent of IMF staff reports contained at least one reference to TEs.
  - All 30 countries with Article IV Consultations during 2015–24 had at least one report referencing TEs.
  - On average, keywords related to TEs were mentioned 5 1/2 times per Article IV staff report.
- Trends over time:
  - Average number of keyword mentions per report increased from 6.7 during 2015–19 to 9.3 during 2020–24, representing a 40 percent increase in the number of mentions per report.
  - References to tax exemptions account for over 60 percent of all references.
  - The average number of mentions of the main term “tax expenditures” per report increased from 0.6 during 2015–19 to 2.0 during 2020–24, indicating a heightened focus on the broader macro-criticality of TEs.
- Methodology note:
  - Mentions were identified using a predefined keyword list covering exemption, exempt from tax, TE, tax relief, duty relief, tax holiday, preferential treatment, zero rate, tax deferral, tax waiver, tax incentives, tax credit, tax deduction, special regime, special tax regime, and acronyms (TE, TEA, TEs), including plural forms where applicable.
- Interpretation:
  - Findings confirm consistent and broad coverage of TEs in IMF surveillance in the region and a growing emphasis on assessing TEs and improving institutional frameworks governing them.

### B. Programs
- Scope and counts:
  - There were 72 IMF-supported program approvals across 36 sub-Saharan African countries between 2015 and 2024.
  - Out of those cases, 46 programs (64 percent of programs) in 30 countries (83 percent of countries) had structural benchmarks (SBs) related to TEs.
  - In total, there were 96 SBs targeting TEs, amounting to 5.5 percent of all SBs.
- Nature of conditionality:
  - About one-third of TE-related SBs entailed direct policy interventions to eliminate or contain TEs.
  - Remaining SBs focused on:
    - Developing and publishing action plans or strategies to rationalize TEs.
    - Reforming legal and institutional frameworks for more rules-based management.
    - Improving data and information systems for timely and effective monitoring.
    - Preparing stocktaking exercises to quantify and assess revenue impacts.
    - Completing audits to evaluate the rationale behind existing TEs.
    - Publishing detailed information on various types of TEs to improve transparency and public scrutiny.
- Temporal pattern:
  - TE-related SBs represented a larger share of all SBs in programs approved during 2016–20 (except in 2018).
  - The occurrence of TE-related conditionality as a share of all SBs has somewhat declined in recent years, possibly due to crowding out by other priorities.
- Data and limitations:
  - Data are from the IMF Monitoring of Fund Arrangements (MONA) database; year corresponds to program approval year.
  - Repeated SBs within the same program are counted as one. Broad measures not specifically referring to TEs are excluded.

### C. Capacity Development
- Objectives of IMF CD on TEs:
  - Help governments optimize tax systems, enhance fiscal transparency, and ensure tax policies support economic development and social objectives.
  - Key focus areas:
    - Reporting and transparency: guidance on accounting for TEs, integrating TE information into fiscal management, and making TE information publicly available, including its budgetary impact.
    - Evaluation and reform: systematic evaluation of TEs’ effectiveness, efficiency, and equity impacts; tailored guidance based on data availability and analytical capacity; advice to eliminate ineffective TEs as part of fiscal consolidation.
    - Compliance and administrative costs: support for robust compliance risk management (CRM) frameworks to identify compliance risks associated with TEs and prevent revenue leakages.
    - Supporting sustainable development: improving TE management to enhance fiscal sustainability and resource allocation for development priorities.
    - Collaboration and capacity building: cooperation with World Bank, OECD, and UN on tax incentive reforms; CD assistance to strengthen tax policy and administration, including TE management.
- Activity and reach:
  - Over the past decade, the IMF has carried out an average of five specialized CD missions annually to sub-Saharan African countries focusing specifically on TEs.
  - CD work covered 24 different countries and included a regional seminar for Central African Economic and Monetary Community (CEMAC) countries addressing TEs in the context of domestic revenue mobilization.
  - CD support included capacity building in identification, quantification, and publication of TEs; updating microsimulation models; and establishing tax policy units. Follow-up actions addressed nontax revenue codification, preparation for provincial taxation, and support for tax rationalization.
- Trends and scope:
  - CD specifically targeting TEs has remained stable in nominal terms but declined as a share of overall CD missions during fiscal years 2016–25.
  - Analysis based on the IMF’s Capacity Development Management and Administration Program (CDMAP) and keywords reveals that 19 sub-Saharan African countries have incorporated discussions of TEs within their CD efforts since 2021.
  - CD activities include revenue administration aspects, tax modeling to estimate TE impacts and revenue yields, and CRM frameworks to understand risks associated with tax incentives.
- Operational considerations:
  - Streamlining TEs often requires considerable time to gain political support; in the interim, revenue authorities must manage risks associated with tax incentives to prevent abuses and revenue leakages.

*Source: tessaea - 5. How is the IMF Addressing (tessaea - 5. How is the IMF Addressing).*

### 6. Technical Road Map for Reform

### 6. Technical Road Map for Reform in Sub-Saharan Africa

### A. Toward a Sound TE Policy Framework: Guiding Principles
- Rationale: A sound TE policy framework is critical to ensure effectiveness while preserving the overall integrity of public finance and management. Without credible accounting and reporting, revenue loss from TEs is overlooked and their benefits unassessed, raising the risk that benefits do not justify costs and weakening governance, enabling nontransparent favors and corruption.
- Lifecycle stages referenced: Governance and transparency; Justification; Design; International considerations; Legislation; Implementation; Evaluation (Figure 12).
- Six fundamental principles (as presented):
  - Justification.
    - An incentive may be justified only if net social benefits can reasonably be expected, for reasons that are publicly articulated, and when more cost-effective policy alternatives are not available.
    - Net social benefits arise when the social benefits of an incentive exceed the social costs.
    - Social benefits include activities with positive externalities (for example, job creation or knowledge spillovers).
    - Social costs include compliance and implementation costs and wider societal costs—resource misallocation, distortions to competition, or weakened public trust.
    - An ex-ante assessment should document and ideally quantify associated social benefits and costs, and should be made public.
  - Design.
    - Incentives should target and promote the favored activity, avoiding unnecessary distortions and limiting revenue costs.
    - Direct targeting is necessary; benefits should be tightly linked to the level of business activity.
    - In the investment context, cost—rather than profit-based incentives are preferred; profit-based incentives increase after-tax profit without direct ties to increased investment and invite profit shifting and administrative complexity.
    - Use sunset provisions to limit exposure to revenue loss.
  - International considerations.
    - Incentives should be sensitive to international commitments and open to mutually beneficial cooperation.
    - Regional cooperation in sub-Saharan Africa is critical to limit tax competition and mutual damage from incentives.
  - Legislation.
    - Tax expenditure legislation should be clear, integrated into tax law, and subject to effective oversight.
    - TE policies should not be enacted without review and an opinion by the Ministry of Finance.
    - Measures should be ratified by the law-making body or parliament, consolidated in the main body of tax law, and publicized.
  - Implementation.
    - TE implementation should promote voluntary compliance, mitigate revenue and governance risks, and provide data needed for evaluation.
    - The national revenue agency should hold implementation authority.
    - Basic compliance obligations should not be waived (registration of beneficiaries; mandatory timely and complete filing).
    - Tailored service, assurance, enforcement strategies and inter-agency cooperation are needed to ensure monitoring and assessment.
  - Evaluation.
    - All TEs should be subject to periodic, public, and evidence-based ex-post evaluation.
    - TEs should be estimated and published regularly, including broad information on beneficiaries.
    - TE legislation should include a program for periodic, credible, and public evaluation.
    - Evaluations should focus on behavioral and external effects and be proportional to likely significance (greater potential revenue loss or distortion → more rigorous evaluation).

### B. How to Get There . . .
- Overall approach: Practical guidance distinguishes between new and existing TEs and countries at different stages of TE reporting, with emphasis on justification and evaluation to improve design and implementation.

- Before introducing new TEs: Discipline with ex-ante assessment.
  - New TEs should be costed and evaluated prior to implementation and documented in an ex-ante assessment to inform decision making.
  - A clearly stated, specific objective is prerequisite (examples: increasing investment, creating jobs, promoting regional development, generating knowledge spillovers, increasing reliability of electricity supply).
  - Objectives should be quantified whenever possible and justified only if benefits outweigh associated social costs.
  - Examine proposed TE objectives against existing measures to identify redundancies.
  - Tools and evidence:
    - Use Effective Tax Rates tools or Corporate Income Tax Simulation Models (detailed applications discussed in IMF (2015)).
    - Empirical evidence on effectiveness of tax incentives in attracting FDI in developing countries remains largely inconclusive, suggesting tax incentives alone are unlikely to be a cost-effective way to attract FDI.
    - Business surveys emphasize skill gaps, weak infrastructure, or unreliable energy supply as more important.
    - Distributional analysis based on consumption data can assess whether VAT zero-rating and exemptions benefit low-income households.
  - Consider alternatives: Spending or regulatory measures may be better than TEs (targeted infrastructure investment; targeted cash transfers and welfare payments are typically more progressive than VAT exemptions and can achieve poverty and inequality reduction at far lower fiscal cost (Warwick and others 2022)).
  - Direct fiscal costs:
    - Quantifying direct fiscal cost of TEs is crucial; practical guidance available in World Bank (2024), ECA (2024), Beer and others (2022), and CIAT and UN (2018).
    - Countries with limited data/capacity can start with simple metrics (for example, dollar cost per job created).
    - Ex-ante costing anchors ex-post evaluation and underscores need for time limits.

- Boxed example: Use Simple Metrics to Assess Tax Incentives (Box 1, reproduced from Liu, Seydou, and Keen (2025))
  - Ex-ante justification numerical example:
    - TE associated with proposed incentive = $300,000.
    - Government willing to forgo revenue of $250 to create an additional job.
    - Expected additional jobs = 1,500 → implied revenue cost per job = $200.
    - Since $200 < $250 willingness-to-pay, incentive is desirable under this metric.
  - Ex-post evaluation numerical example:
    - Actual jobs created = 500 → actual cost per job = $600.
    - Incentive would need to have generated other benefits worth at least $175,000 of tax revenue forgone to be warranted.
  - Notes: Simple exercises initiate conversation; over time collect data to enable comparisons (between firms/sectors/periods) while taking care to compare otherwise similar groups.

- Recognizing and accounting for TEs’ overall costs:
  - Identify indirect effects: reduced activities/revenues of those adversely affected; revenue loss from potential abuse; higher administrative and compliance costs associated with complex TEs.
  - Encourage preemptive measures: simple, well-targeted incentives; safeguards; effective monitoring to prevent abuse.
  - Identifying costs facilitates data collection and sharing for ex-post evaluation.

- Reforming existing TEs: Start using TE reporting.
  - Purpose: TE reporting exposes both direct and indirect government spending through tax code to budget scrutiny, facilitating informed decision making and public understanding.
  - Current reporting landscape: Nearly one-third of sub-Saharan African countries do not publish any TE reports; among those that do, only half maintain inventories and cost assessments classifiable as “comprehensive.”
  - Priority: Development of a TE report should be a priority, with external support if capacity constraints are the main barrier.
  - Reporting must follow principled approach to benchmark definition, costing method, and information reported (IMF (Heady and Mansour 2019) standard framework; World Bank (2024) TE reporting format).
  - Start with import data, then expand:
    - Customs data often high quality; TE reporting commonly begins with import concessions.
    - But focusing exclusively on import data has limitations—reporting should expand to all TEs.
  - Box case: The Gambia (Box 2)
    - The Gambia is progressing toward a TE report; current focus on monitoring total duty waivers and exemptions on imports using ASYCUDA customs data.
    - In 2024, total customs concessions in The Gambia amounted to 2.6 percent of GDP, with nearly half from import VAT.
    - Caveats: Customs concessions do not necessarily map to TEs depending on benchmark tax system (Common External Tariff of ECOWAS vs statutory tariff rates) and some import VAT concessions (intermediate inputs by VAT-registered entities) do not constitute VAT expenditure because final consumption is the benchmark base.
    - Framework development: With IMF support (Swistak, Warwick, and Muyangwa 2025), authorities plan to publish their first TE report by the end of 2025 using a phased approach: define benchmark tax system, create TE inventory, identify TEs related to customs concessions, and form a working group from GRA and MoFEA.
    - TE reports should feed ex-post evaluation to assess net benefits and inform decisions to retain, reform, or rescind measures.
  - Use of qualitative information in TE reports:
    - Objectives, beneficiaries, and durations in TE reports can inform policy even without full costing.
    - Grouping TEs by policy objectives can uncover redundancy and over-subsidization (examples: child tax credits, childcare tax deductions, VAT exemptions for clothing).
    - Analysis can identify measures misaligned with national priorities or socially irrelevant (example: fuel TEs that conflict with renewable energy uptake and decarbonization).
    - Prioritization: Use descriptive statistics to prioritize which TEs to evaluate further—low uptake items or those with few beneficiaries can be starting points; measures with largest expected fiscal cost or expected cost per beneficiary warrant deeper analysis.
  - Deepening cost–benefit analysis:
    - Evaluation methods range from simple indicators to econometric analysis and should be tailored to data availability and analytical capacity.
    - Minimum requirement: use structural analysis to inform cost-effectiveness.
    - Full ex-post assessment for tax incentives requires:
      1. Information (or estimation) on the extent the incentive changed behavior, implications for revenue, and the objective intended.
      2. A judgment on the importance attached to revenue and wider effects.

*IMF Departmental Papers — Tax Expenditures in Sub‑Saharan Africa (chapter: 6. Technical Road Map for Reform)*

### Box 3. Improving TE Reporting and Reform in Uganda

### Box 3. Improving TE Reporting and Reform in Uganda

### Overview and key findings
- Uganda’s tax revenue yield is 13 percent of GDP.
- Statutory tax rates are 30 percent for CIT and 18 percent for VAT.
- Reported TE totals:
  - 2020 TE report: 1.7 percent of GDP.
  - 2023–24 TE report: 1.8 percent of GDP.
  - Global average reported by GTED: about 4 percent of GDP.
- IMF tax policy missions (2022, 2023, 2025) estimated substantially higher TE costs for specific taxes:
  - Aggregate CIT expenditure estimated at 2.3 percent of GDP.
  - Aggregate VAT expenditure estimated at up to 4.6 percent of GDP.
- The relatively low reported TE level partly reflects inclusion of significant TEs in the benchmark tax system and insufficient data to cost numerous measures.

### Data, costing methods, and limitations
- Tax-exempt firms often do not file tax returns in sub-Saharan African countries, leading CIT expenditure costing based on tax returns to significantly understate aggregate costs.
- Where administrative filing data are incomplete, macro-based CIT expenditure costing may provide a more complete picture.
- In-depth impact studies are resource intensive and require dedicated technical assistance or training.
- Recommended steps to narrow data gaps and improve costing:
  - Establish centralized databases.
  - Integrate administrative and survey data.
  - Leverage digital technologies to track and monitor TEs.
  - Amend legislation to mandate filing of tax returns for all TE recipients.
  - Seek external support from academics, international financial institutions, and nonprofits to ensure impartiality and quality.

### Recent TE-related reforms and planned measures in Uganda
- Since the 2022 mission, Uganda has broadened its tax base:
  - VAT base marginally broadened by taxing the leather industry and diapers, along with iron industry inputs (other than billets).
  - Discretionary waivers for income tax were eliminated (with grandfathering); discretionary waivers are still applied to import tariffs.
  - Further base-broadening is envisioned in Uganda’s second domestic revenue mobilization strategy.
- Development of a draft governance framework for TEs with strong features, including:
  - Centralization of TE authority under the Ministry of Finance.
  - Broad consultation with government and private stakeholders on TE policy.
  - Ex-ante evaluation of proposed TEs.
  - Parliamentary review and ratification.
  - Postimplementation monitoring.
- Suggested additional features to strengthen the draft plan:
  - Eliminate discretionary waivers.
  - Condition use of TEs on comprehensive tax filing.
  - Set a periodic cycle for reviewing major TEs.

### Governance, accountability, and practical recommendations (Getting started)
- Mandate TE assessments, both ex-ante and ex-post, to improve governance, accountability, and transparency.
- Make TE reports publicly disclosed, subject TE reports to independent audits, and incorporate TE costs into annual budgets.
- Consolidate all TE provisions in tax legislation to ensure fiscal discipline and reduce corruption and rent seeking.
- Establish a dedicated group to oversee TE governance and management:
  - Provide continuity and coherence in origination, design, approval, implementation, and reporting of TEs.
  - Advise the minister with analysis including cost-effectiveness aligned with TE objectives.
  - In absence of a tax policy unit, create a specialized group to avoid fragmented approaches and insufficient information sharing.
- Pursue incremental improvements: a partial TE assessment with imperfect data and simple methods is preferable to no assessment and can serve as a stepping stone to a more rigorous inventory and costing.
- Seek external support in training and technical assistance to build capacity and impartiality.

*IMF DEPARTMENTAL PAPERS • Tax Expenditures in Sub-Saharan Africa — Box 3. Improving TE Reporting and Reform in Uganda*

### References

### References

### Themes and topics covered by the referenced works
- Tax expenditures: measurement, reporting, evaluation, reform, and limits (examples: Bartlett 2001; Burman and Phaup 2012; Beer et al. 2022; Heady and Mansour 2019; Swift et al. 2004; Geourjon et al. 2018; Geourjon and Rota-Graziosi 2024).
- Tax incentives and investment: design, assessment, and management in developing countries (examples: IMF, OECD, UN, and World Bank 2015; Inter-American Center of Tax Administrations and United Nations 2018; Klemm and Van Parys 2012; Pecho et al. 2024; Platform for Collaboration on Tax 2025).
- Domestic revenue mobilization and tax capacity: country episodes, tax effort, and strategies for Sub-Saharan Africa and WAEMU (examples: Akitoby et al. 2020; Fenochietto and Pessino 2010, 2013; Aslam et al. 2022; Dordevic and Maftei 2025; Swistak et al. 2025).
- Value-Added Tax (VAT) design and distributional effects: exemptions, zero-rating, embedded tax, and alternatives (examples: Tait 1988; van Oordt 2018; Chandler, Thomas, and Tremblay 2025; Thomas 2020; Warwick et al. 2022).
- Fiscal transparency, reporting, and technical guidance: IMF Fiscal Transparency Code and IMF How-To Notes and Technical Reports (examples: IMF 2014; IMF 2018a; Heady and Mansour 2019; Benedek et al. 2022; Matheson and Mylonas 2023; Matheson, James, and Mylonas 2025).
- Databases and methodological resources: Global Tax Expenditures Database (GTED 2021); World Revenue Longitudinal Database methodology (Mansour et al. 2025); Redonda et al. 2025 Global Tax Expenditures Database (Version 1.3.1); World Bank Tax Expenditure Manual 2024.
- Distributional and equity perspectives: regressivity of VAT, horizontal equity, and distributive justice (examples: Fishbien 2024; Kaplow 2017; Sugin 2011; Slemrod 1996).
- Broader fiscal and macro contexts: austerity, tax capacity and growth, and development outlooks for Africa (examples: Alesina, Giavazzi, and Favero 2019; Gaspar, Jaramillo, and Wingender 2016; AfDB 2024; AfDB 2025; IMF 2018b; IMF 2024 Regional Economic Outlook, Sub-Saharan Africa).

### Frequently cited publication types and institutions
- International Monetary Fund: Working Papers, How-To Notes, Technical Reports, Regional and country staff reports, Fiscal Transparency Code entries (multiple entries across 2014–2025).
- World Bank and OECD: manuals, working papers, and policy briefs on tax expenditures and incentives (examples: OECD 1996, 2010; World Bank 2024; Chandler et al. 2025).
- Research institutions and policy platforms: Ferdi, GTED, Platform for Collaboration on Tax, Council on Economic Policies.
- Regional development organizations: African Development Bank (AfDB) and United Nations Economic Commission for Africa (ECA).

### Notable numeric and bibliographic identifiers preserved from the references
- Policy and working paper numbers and years as cited (examples: IMF Working Paper 13/244; IMF Working Paper 16/234; Policy Research Working Paper 11120; How-To Note 2019/001; How-To Note 2022/005; Technical Notes and Manuals 2024/007; Technical Notes and Manuals 2025/004; IMF Selected Issues Paper 2025/070).
- ISBN and numeric identifiers at end of document:
  - 023887798229
  - 9
  - ISBN 9798229023887

*References section of "Tax Expenditures in Sub-Saharan Africa" (PDF chapter/section).*

---


_Source: https://www.imf.org/-/media/files/publications/dp/2025/english/tessaea.pdf_