## _wp11162 ## Source details **Canonical URL:** [_wp11162](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11162.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11162.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11162.pdf.json) --- ### Introduction — background and scope - Review covers revenue administration reforms since the early 1990s in 19 Anglophone African countries grouped into three geographic groupings: - Southern Africa: Botswana, Lesotho, Mauritius, Namibia, Seychelles, South Africa, Swaziland, and Zimbabwe. - Eastern Africa: Kenya, Malawi, Rwanda, Tanzania, Uganda, and Zambia. - Western Africa: The Gambia, Ghana, Liberia, Nigeria, and Sierra Leone. - Country characteristics: - Post-conflict examples: Liberia, Rwanda, Sierra Leone, and earlier Uganda. - Resource-endowed examples: Botswana, Nigeria, Namibia, Liberia, Sierra Leone, South Africa, and Zambia; recent discoveries include oil in Ghana and Uganda. - Key observation: Resource revenues have been major contributors for some countries and in some instances a disincentive to developing effective non-resource tax regimes and administration. ### IMF Fiscal Affairs Department (FAD) involvement and TA modalities - FAD provided advice and assistance to all 19 countries to varying degrees; some East African countries were intensive recipients. - Documented TA delivery modes: - diagnostic missions from IMF headquarters, follow-up missions, expert assignments (long-term, short visits, regional coverage), the regional TA center (RTAC) model, in-country and regional workshops and seminars. - External donor involvement: - Extensive British government financing and TA influential in almost half the countries often involving millions of U.S. dollars of aid. - Other donors mentioned: World Bank (major involvement in Tanzania tax administration/reform project 1999–2009), GTZ, U.S. Treasury and USAID, Norway, African Development Bank, European Union, East and West AFRITACs. ### Anglophone Africa economic developments - Income classification (2008 per capita GNI thresholds preserved as in source): - Ten of the 19 countries are low-income countries (LIC) by World Bank definitions (per capita GNI under US$975 in 2008). - Lower middle-income countries—LMIC (2008 per capita GNI between US$976 and US$3,855): Lesotho, Nigeria, and Swaziland. - Upper middle-income countries (2008 per capita GNI between US$3,856 and US$11,905): Botswana, Mauritius, Namibia, Seychelles, and South Africa. - Since 2003: economic growth accelerated in most countries with exceptions; Swaziland stagnated and Zimbabwe worsened. - Structural notes: - Large agricultural and informal sectors with low productivity; manufacturing and information sectors relatively underdeveloped (exception: South Africa). - Several landlocked countries face high overheads, poor transport infrastructure, and market access difficulties. - Policy imperative: poverty alleviation and MDG targets require domestic capacity to collect taxes and other revenues efficiently and fairly. ### Revenue structures and regional comparisons (selected figures from Table 1) - Regional tax revenue components (1993–97 / 2003–07) in percent of GDP (unweighted regional averages preserved exactly as provided): - Tax Revenue (1997 / 2007): OECD: 34.0 / 34.4; Sub-Saharan Africa: 13.7 / 15.1 - Direct taxes (1997 / 2007): OECD: 10.9 / 13.1; Sub-Saharan Africa: 4.4 / 5.8 - Social contributions (1997 / 2007): OECD: 12.2 / 10.2; Sub-Saharan Africa: 0.2 / 0.9 - Indirect taxes (1997 / 2007): OECD: 10.6 / 10.9; Sub-Saharan Africa: 5.3 / 6.5 - Customs duties (1997 / 2007): OECD: 0.3 / 0.2; Sub-Saharan Africa: 3.8 / 1.9 - Key observations: - Central government revenue collections across Africa are relatively low compared with other regions. - High dependence on international trade taxes historically; trade taxes declined over the decade with stronger growth in indirect tax revenues. - Social contributions are negligible in Africa given broad absence of social security systems. ### Tax-to-GDP developments across the 19 Anglophone countries (summary from Table 2) - General patterns: - Outside Seychelles and SACU members (Botswana, Lesotho, Namibia, South Africa, and Swaziland) with tax collections above 20 percent of GDP, most countries are in the 10–20 percent of GDP range. - Zimbabwe was a temporary outlier at 5.2 percent of GDP in 2008 before subsequently recovering. - Change over roughly a ten-year period ending near 2008: - Tax collections increased in 15 countries and declined in 4 countries (Kenya, Seychelles, Zambia, and Zimbabwe). - Increases by magnitude: - Less than 1 percent of GDP in 2 countries. - Between 1 and 3 percent of GDP in 3 countries. - More than 3 percent of GDP in 10 countries. - More than half of the Anglophone African countries increased tax collections by at least 3 percentage points of GDP. - Component-specific trends: - Direct tax collections improved in all but two countries, with notable improvements in resource-rich countries (Botswana, Liberia, Namibia, Nigeria). - Six of the 19 countries had a decline in indirect tax collections. - All but eight countries had lower collections from international trade taxes; of those with growth in import taxes, half were SACU members benefitting from SACU transfers tied to South Africa’s strong economy. - Caveats: - GDP understatement and subsequent rebasing (e.g., Ghana, The Gambia) can alter tax-to-GDP comparisons. - Over 1980–2005 increases across 40 sub-Saharan Africa are mostly attributed to resource revenues, with collections in non-resource countries mostly stagnant (Keen and Mansour, 2009). ### Synopsis of revenue administration reforms and the rise of the Revenue Authority (RA) model - Seminal policy drivers: - Tariff reform and the introduction of VAT triggered extensive revenue administration reform. - VAT rollout chronology and coverage: - Began in the early 1990s with larger economies (South Africa, Kenya, and Nigeria). - Second wave in the latter half of the 1990s. - Third group since 2000; by 2010 VAT reached 15 countries. - Four remaining countries announced plans: Swaziland and Seychelles both in 2012, The Gambia in 2013, with future expectations for Liberia. - RA model diffusion and status: - RA model emerged in Uganda in 1991 and spread widely to 17 countries. - By 2010, 16 of the 19 Anglophone countries had some form of RA; a 17th (Swaziland) formed in early 2011, leaving only Liberia and Namibia with more traditional Ministry of Finance departments. - Rationale: greater governance, financial, and HR autonomy to overcome civil service rigidities (Kidd and Crandall, 2006); hard evidence of RA superiority is limited and the model may have delayed some reforms in later generations. - Integration and scope: - Most RAs include both tax and Customs administration though often operating separately given differing business models. - Synergies from common RA management and shared systems have been underexploited. - Large Taxpayer Offices (LTOs) and segmentation: - LTOs created from the late 1990s in some countries to secure bulk revenue, integrate direct and indirect tax administration, strengthen self-assessment, and pilot streamlined procedures. - Initial results mixed; model more fully delivered from about 2004 onward. - Evolution toward fully integrated domestic tax administration and segmentation beyond LTOs (medium, small/micro) remains in early stages in many countries. ### FAD policy stance and donor complementarity - FAD advice emphasized: - Gradual market opening and freer trade; tariff reform and stronger domestic tax instruments, particularly VAT. - Need to mobilize additional revenue beyond trade tax losses; preference for broad-based VAT with a single rate, minimal exemptions, and a relatively high threshold in weak-administration contexts. - Transition toward a vision of a fully integrated single domestic tax administration with strong headquarters and taxpayer segmentation beginning c.2003. - For recent RA launches, stronger encouragement for critical administrative reforms during launch rather than delayed follow-up. - Donor landscape highlights: - British Government (ODA/DFID) influential in establishing RAs. - East and West AFRITACs support TA implementation since around 2003. - World Bank, GTZ, U.S. Treasury/USAID, Norway, AfDB, European Union involved in various country programs. ### RA governance, scope creep, and collection responsibilities - Governance constraints: - Minister of finance often retains influence via board appointments, ex officio membership, and legislated powers. - Tax policy remains the preserve of MoF, with administrative inputs from the RA. - RAs often dependent on government funding from MoF; statutory funding formulas can be overridden. - Board characteristics: - Boards categorized as advisory, operational, or empowered; most RAs began with boards except Seychelles; South Africa moved to advisory committees. - Boards generally prohibited from operational case work (Zambia an exception in practice). - Internal audit typically reports to chief executive with board access; Mauritius exception where internal audit reports exclusively to the board. - Collection scope and risks: - RAs collect resource-sector taxes and sometimes minor noncore revenue streams (drivers licenses, vehicle taxes, passport fees, traffic fines). - Risks of collecting minor taxes/fees: stretching capacity, diverting focus from core revenue collection, costs may exceed benefits, and public interactions for minor services shape perceptions of RA efficiency. ### Integration of Customs and tax functions — pros and cons (Box 1 summary) - Advantages: - Economies of scale, increased efficiencies, greater specialization, avoidance of duplication, single corporate image, better information sharing. - Disadvantages: - Fragmented accountabilities, risk of misaligned strategies, unbalanced focus on less challenging activities, need for matrix management arrangements, requirement for strong referral and monitoring, and uniqueness of some Customs functions (e.g., rules of origin). - Empirical note: no country known to have fully organizationally integrated both Customs and tax audit functions; integrated RA investigation functions are commonly observed. ### Human resources, planning, and outsourcing (Box 2 and related sections) - HR positives: - Increased professionalism, senior management improvements, performance-based pay, more competitive remuneration relative to civil service, independent recruitment, enhanced integrity measures, organizational flexibility, tailored training programs. - HR negatives: - Shallow depth of expertise at middle management and staff levels, insufficient focus on performance indicators beyond collections, decline in remuneration competitiveness over time, persistent corruption risks, training underfunded, some RA Acts prescribing organizational structures that limit flexibility. - Planning, forecasting, and reporting: - Planning and research (R&P) units typically responsible for revenue monitoring, forecasting, and policy inputs. - South Africa cited as leading example with detailed public annual reports; several RAs have 3–5 year corporate plans though rigidity and weak budget linkages noted in early iterations. - Outsourcing practices and risks: - Outsourcing uncommon for core tax functions; common for support services (cleaning, security). - Notable examples: outsourced taxpayer audit pilot in Namibia; refund claim certification by public accountants in Kenya; wholesale outsourcing of Customs in Mozambique in post-conflict context. - Risks include reputation issues and need for close oversight of outsourced functions. ### Operational policy design, headquarters role, and functional models - Reforms reversing past centralization: - Adoption of delegation, self-assessment, process simplification, automation, and clearer separation between operations and policy/monitoring. - Headquarters best practice: - Small teams of experienced administrators developing documented operational policies and monitoring delivery using performance indicators. - Functional organizational model: taxpayer services, returns and payment processing, taxpayer audit, debt and filing compliance enforcement, investigations, and dispute resolution. - Evolution of organizational models: - From tax-type separation to functional models to client/taxpayer segmentation (large, medium, small) with functionality preserved in segment offices. ### Taxpayer segmentation, LTOs, and medium/small taxpayer approaches (Box 3 summary) - Typical segmentation profile: - A small number of large taxpayers contributing in excess of 70 percent of revenue. - A moderate number of medium taxpayers (often VAT-registered). - A large number of small taxpayers contributing little in aggregate. - Empirical VAT taxpayer strata (selected entries from Table 5 preserved exactly): - Botswana (2004): Large Taxpayers No. Taxpayers 240; % of Rev 58 %; % Taxpayers 3.1 %. - Ghana (2009): Large Taxpayers No. Taxpayers 275; % of Rev 63 %; % Taxpayers 1.2 %. - Kenya (2006): Large Taxpayers No. Taxpayers 243; % of Rev 50 %; % Taxpayers 0.01 %. - Malawi (2007): Large Taxpayers No. Taxpayers 297; % of Rev 79 %; % Taxpayers 9.4 %. - Mauritius (2004): Large Taxpayers No. Taxpayers 430; % of Rev 62 %; % Taxpayers 5.9 %. - Rwanda (2009): Large Taxpayers No. Taxpayers 268; % of Rev 86 %; % Taxpayers 8.3 %. - Uganda (2004): Large Taxpayers No. Taxpayers 210; % of Rev 71 %; % Taxpayers 2.6 %. - Zambia (2006): Large Taxpayers No. Taxpayers 454; % of Rev 79 %; % Taxpayers 8 %. - LTO lessons: - Turnover commonly used as LTO eligibility criterion to secure about 70 percent of collections (target not always achieved). - Early LTOs faced empowerment, stratification, and internal coordination challenges; later reinvigorated LTOs (Malawi, Rwanda, Zambia, Uganda re-launched; Kenya and Tanzania reinvigorated) show improved outcomes. - Integrated LTOs within a single domestic tax department are increasingly the norm. - Medium taxpayer office (MTO) uptake limited; dedicated MTOs rare (Liberia and Uganda cited as examples at time of analysis). - Small taxpayers: many treated via presumptive tax regimes given administrative cost considerations. ### Core operational issues: identification, self-assessment, filing, audit, arrears, IT, and dispute resolution - Taxpayer identification: - Universal TIN adoption increasing; good TIN characteristics advocated (all-numeric, fewest digits, check-digit, unique, never reassigned). - Multiple identifiers and weak registration practices undermine effectiveness; mass registration campaigns risk low-quality registers. - Self-assessment and filing: - VAT introduction supported self-assessment but prerequisites (simple laws, taxpayer services, easy filing/payment, enforcement, selective audit) often absent. - Administrative assessment persists for income tax in many countries, including use of Best of Judgment estimates generating uncollectible debt. - Electronic filing/payment limited; about half of countries receive tax payments through the banking sector. - VAT filing frequency: most countries require monthly filing irrespective of size; exceptions include South Africa, Mauritius, Botswana where filing frequency varies by taxpayer size. - Audit and compliance: - Risk-based and issue-oriented audits emerging but capacity gaps remain; many administrations lack sufficient competent auditors. - Audit effort often overconcentrated on VAT refund verification to the detriment of broader compliance objectives. - On-time filing rates often poor, often under 50 percent. - IT systems and single taxpayer account: - IT adoption increased but outcomes disappointing in many piecemeal projects; absence of a single taxpayer account impedes effective arrears management and consolidated taxpayer views. - Taxpayer services and dispute resolution: - Recognition of taxpayer services importance growing; resources devoted remain small. - Use of call centers, radio/TV, and mobile text messaging potential noted. - Dispute resolution mechanisms weak in many countries; internal objections should be adjudicated independently and findings in favor of taxpayers viewed as normal feedback. ### Audit function, filing compliance, and arrears management - Audit improvements: - Issue-oriented audits and risk-based methods introduced in some administrations. - Effective audit outcomes require strategic planning, audit manuals, annual audit plans, and headquarters oversight. - Filing compliance and arrears: - Weak filing compliance and arrears management common; best practice found in more effective LTOs where proactive account management yields high filing rates. - System limitations include inability to apply penalties/interest consistently and creation of spurious debt from automatic estimated assessments. ### VAT adoption, rates, and productivity - VAT adoption status: - Of 19 Anglophone African countries, 15 implemented VAT; earliest 1990 (Kenya), most recent 2010 (Sierra Leone). - Early adopters: Kenya (1990), South Africa (1991), Nigeria (1994), Zambia (1995); Ghana’s first attempt in March 1995 repealed then successfully implemented in 1998. - Second wave: Uganda (1996), Mauritius (1998), Tanzania (1998), Namibia (2000), Malawi (2000). - Third wave: Rwanda (2001), Botswana (2002), Lesotho (2003), Zimbabwe (2004), Sierra Leone (2010). - Anticipated launches: Swaziland (RA operational objective before VAT), Seychelles (2012), The Gambia (January 2013), Liberia (moves toward VAT expected). - VAT rates and yields: - A single VAT rate is now standard, varying from 5 to 18 percent, and averaging 15 percent. - As a percentage of GDP, VAT yield ranges from 1.2 percent in Nigeria to 7.7 percent in Lesotho. - VAT productivity ratios (preserved exactly as listed): - Uganda: 21.8 - Tanzania: 21.9 - Rwanda: 23.9 - Nigeria: 24.3 - Zambia: 26.1 - Malawi: 32.0 - Kenya: 35.0 - Namibia: 41.5 - Botswana: 44.0 - Ghana: 45.2 (2004) - Mauritius: 47.3 - Lesotho: 54.7 - South Africa: 53.8 - Design and administrative factors affecting productivity: - Excessive exemptions and weak administration reduce productivity. - Withholding mechanisms (particularly pervasive in Kenya) and unavailability of refunds (Nigeria) increase observed productivity but undermine proper VAT design. - Typical positive features: emphasis on a single rate and zero-rating mostly limited to exports. ### VAT organizational approaches, registration thresholds, refunds, and withholding - Organizational timing: - Slight majority implemented an RA prior to VAT launch; lags between RA establishment and VAT launch ranged from one year (Lesotho, 2002; Malawi, 2000; Zambia, 1994) to seven years (Sierra Leone, 2003). - Administrative structures: - New VAT divisions typically created at introduction; initial separation from income tax common and later integration increasingly observed (examples: Kenya 2004, Uganda 2005, Nigeria 2005, Rwanda 2006). - Separate VAT and income tax departments led to duplication, weak information sharing, isolated audits, and higher costs. - Registration thresholds (selected country examples and historical adjustments preserved as stated): - South Africa: 1991 threshold R 150,000; increased to R 1 million in March 2009 (around US$118,000). - Ghana: initial GC 25 million (~US$14,000) failed in 1995; 1998 implementation began with GC 200 million (then around US$80,000), reduced in 2001 to GC 100 million (then US$14,000), depreciated to around US$9,453; threshold due to increase to GHS 90,000 in late 2010. - Kenya: began at K Sh 200,000 (then about US$8,300) in 1990; raised including from K Sh 3 to 5 million in 2009 (now US$62,775). - Zambia: originally ZK 40 million (equivalent to US$30,000 in 1994), eroded to US$8,000 by 2001 when raised to ZK 200 million (now US$38,596). - Tanzania: doubled from T Sh 20 to 40 million in 2004 (from US$20,900 to US$30,180 in relative terms). - Rwanda: from RF 15 to 20 million in 2009 (now US$34,826). - Refunds and withholding: - Refund volumes vary widely: South Africa at 39.5 percent; Zambia at 38 percent; Mauritius at 21.5 percent; regional Africa average (noting exceptions) 6 percent of gross VAT collections over 1998–2001; Nigeria at zero. - Refund determinants: economic openness/exports, administrative/policy measures (deferral on imported capital goods, quarantining credits), financing mechanisms (gross receipts financing improves efficiency vs annual appropriation). - Withholding mechanisms (notably Kenya) boost gross VAT collections but create significant refund demands and administrative strain. ### Key conclusions and policy implications (selected) - Reform outcomes: - VAT rollout across 15 of 19 countries spurred administrative modernization: self-assessment, process simplification, automation. - Tax collections across Africa rose from 15½ to around 17 percent of GDP over the decade (attributed mostly to resource sector revenues). - For Anglophone African countries, overall collections were up in 15 of the 19, with more than half growing by at least 3 percent of GDP. - Strengths: - VAT an important revenue source concentrated in a small pool of large taxpayers. - Movement toward integrated administration, modern management practices, strategic planning, and performance measures. - Weaknesses: - VAT productivity ranges from weak to average except in South Africa and other SACU countries; causes include design issues (low thresholds, many exemptions) and administrative deficiencies (poor identification, registration, enforcement). - Refund systems generally inadequate; audit resources often overconcentrated on refund verification rather than broader risk-based audit objectives. - IT projects often piecemeal; single taxpayer account largely absent. - Policy priorities and recommendations (drawn from analysis): - Move toward integration of VAT and income tax administration to reduce duplication and improve information sharing. - Adjust and rationalize registration thresholds to balance administrative costs and tax base coverage. - Strengthen IT systems and interoperability (Customs and tax data exchange) to better exploit import/export data for refund verification and compliance. - Adopt risk-based audit and refund verification processes, prioritizing exporters and taxpayers with sound compliance histories. - Expand taxpayer segmentation beyond large taxpayers to improve service and compliance across medium, small, and micro segments. - Ensure adequate and predictable financing mechanisms for VAT refunds (consider gross revenue performance metrics and separate quantity/quality refund performance indicators). *Source: IMF staff paper, _wp11162_.* ### Introduction ........................................................................................................... ### INTRODUCTION ### Background and scope - The paper reviews revenue administration reforms since the early 1990s in sub-Saharan African countries with an Anglophone connection (hereinafter referred to as Anglophone African countries). - Nineteen countries are reviewed, grouped for simplicity into three geographic groupings: - Southern Africa: Botswana, Lesotho, Mauritius, Namibia, Seychelles, South Africa, Swaziland, and Zimbabwe. - Eastern Africa: Kenya, Malawi, Rwanda, Tanzania, Uganda, and Zambia. - Western Africa: The Gambia, Ghana, Liberia, Nigeria, and Sierra Leone. - Several countries are post-conflict (Liberia, Rwanda, Sierra Leone, and Uganda earlier). Several are resource endowed (Botswana, Nigeria, Namibia, Liberia, Sierra Leone, South Africa, and Zambia) with recent discoveries (e.g., oil in Ghana and Uganda). - Resource revenues have been major contributors for some countries and, in some instances, a disincentive to developing effective non-resource tax regimes and administration. ### Fiscal Affairs Department (FAD) involvement and technical assistance (TA) - The Fiscal Affairs Department (FAD) of the IMF has provided advice and assistance in revenue administration and tax policy to all 19 countries to varying degrees over recent decades. - Some countries have been intensive recipients of FAD assistance (particularly within East Africa). - Modes of TA delivery documented include: diagnostic missions from IMF headquarters, follow-up missions, expert assignments (long-term, short visits, regional coverage), the regional TA center (RTAC) model, and in-country and regional workshops and seminars. - Extensive British government financing and TA have been highly influential in almost half the countries, often involving millions of U.S. dollars of aid. ### Anglophone Africa economic developments - Many Anglophone African countries are among the world’s poorest and least developed economies. - Ten of the 19 Anglophone African countries are low-income countries (LIC) by World Bank definitions (per capita GNI under US$975 in 2008). - Remaining countries split between: - Lower middle-income countries—LMIC (2008 per capita GNI between US$976 and US$3,855): Lesotho, Nigeria, and Swaziland. - Upper middle-income countries (2008 per capita GNI between US$3,856 and US$11,905): Botswana, Mauritius, Namibia, Seychelles, and South Africa. - Since 2003, economic growth accelerated in most countries with exceptions; Swaziland stagnated and Zimbabwe worsened. - Factors contributing to growth: improved democracy and governance, debt relief, higher natural resource prices, liberalization, refined tax policies, and improved revenue administration. - Economic structure notes: - Several countries have significant mineral endowments (range from a blessing—Botswana—to perceived curse—Nigeria). - Manufacturing and information sectors relatively underdeveloped (exception: South Africa). - Large agricultural and informal sectors with low productivity pose tax policy and administration challenges. - Several landlocked countries face high overheads, poor transportation infrastructure, and market access difficulties. - Poverty alleviation and Millennium Development Goal (MDG) targets remain critical; sustainable solutions require domestic capacity to collect taxes and other revenues efficiently and fairly. ### Revenue structures and regional comparison (Table 1 summary) - Table 1 presents regional averages of central government tax revenue components for two periods: 1993–97 and 2003–07 (In percent of GDP). (Source: IMF. 1/ Unweighted.) - Regional averages (selected figures preserved exactly as in source): - Tax Revenue (1997 / 2007): - OECD: 34.0 / 34.4 - Sub-Saharan Africa: 13.7 / 15.1 - Direct taxes (1997 / 2007): - OECD: 10.9 / 13.1 - Sub-Saharan Africa: 4.4 / 5.8 - Social contributions (1997 / 2007): - OECD: 12.2 / 10.2 - Sub-Saharan Africa: 0.2 / 0.9 - Indirect taxes (1997 / 2007): - OECD: 10.6 / 10.9 - Sub-Saharan Africa: 5.3 / 6.5 - Customs duties (1997 / 2007): - OECD: 0.3 / 0.2 - Sub-Saharan Africa: 3.8 / 1.9 - Key observations from the regional comparison: - Central government revenue collections across Africa are relatively low compared with other regions. - High dependence on taxes from international trade (Customs duties) is notable for Africa. - Trade taxes declined over the decade with stronger growth in indirect tax revenues. - Social contributions are negligible in Africa given broad absence of social security systems. ### Tax-to-GDP developments across the 19 Anglophone countries (Table 2 summary) - Table 2 compares tax revenues for the 19 countries over approximately a ten-year period ending near 2008 (specific start and end years vary by country). - Outside Seychelles and SACU member countries (Botswana, Lesotho, Namibia, South Africa, and Swaziland) with tax collections above 20 percent of GDP, most countries are in the 10–20 percent of GDP range. Zimbabwe was a temporary outlier at 5.2 percent of GDP in 2008 before subsequently recovering. - Trends and aggregate findings: - Tax collections increased in 15 countries and declined in 4 countries (Kenya, Seychelles, Zambia, and Zimbabwe). - Increases by magnitude: - Less than 1 percent of GDP in 2 countries. - Between 1 and 3 percent of GDP in 3 countries. - More than 3 percent of GDP in 10 countries. - More than half of the Anglophone African countries increased tax collections by at least 3 percentage points of GDP. - Revenue declines were limited to four countries, with Seychelles and Zimbabwe experiencing sizable declines due to economic crises. - Component-specific observations: - Improvements in direct tax collections observed in all but two countries, with notable improvements in resource-rich countries such as Botswana, Liberia, Namibia, and Nigeria. - Six of the 19 countries had a decline in indirect tax collections. - All but eight countries had lower collections from international trade taxes; of those with growth in import taxes, half were SACU members benefitting from SACU transfers tied to South Africa’s strong economy. - Caveats: - Understated GDP in some countries may have inflated past tax-to-GDP ratios; subsequent rebasing (e.g., Ghana, The Gambia) can alter comparisons. - Over a longer horizon (1980–2005), increases across 40 sub-Saharan Africa are mostly attributed to resource revenues, with collections in non-resource countries mostly stagnant (Keen and Mansour, 2009). ### Structure and focus of the paper - The paper is organized into the following sections: - I. Context setting background on revenue structure, performance, and economic characteristics of Anglophone African countries and a synopsis of revenue administration reforms. - II. Revenue administration reform developments and drivers, particularly the rise of the revenue authority (RA) model. - III. Revenue administration organizational and management trends. - IV. Impact of client segmentation on tax administration and assessment of core operational functions. - V. Seminal impact of value-added tax (VAT). - VI. Concluding observations. *Source: IMF staff paper, "Introduction" section.* ### Section II explores some of the direct tax policy and administration developments that may have ### _wp11162 - Section II explores some of the direct tax policy and administration developments that may have ### Synopsis of Anglophone African revenue administration reforms - Tariff reform and the introduction of VAT were seminal policy developments and major impulses for extensive revenue administration reform. - VAT rollout: - Began in the early 1990s with larger economies (South Africa, Kenya, and Nigeria). - A second wave occurred in the latter half of the 1990s. - A third group since 2000 brought VAT to 15 countries by 2010. - The four remaining countries have announced plans: Swaziland and Seychelles both in 2012, The Gambia in 2013, and future expectations for Liberia. - Revenues from international trade are down in 11 countries, reflecting tariff reform, trade liberalization, Customs administration modernization, and a shift to domestic revenue sources such as VAT. - Pre-reform characteristics: - Revenue administration typically vested in several separately operating government departments. - Recruitment, remuneration, and retention were constrained by civil service systems. - Taxes were administratively assessed; service ethos toward taxpayers/traders was undeveloped. - Procedures were almost always manual, cumbersome, and prone to corruption. - High and restrictive tariffs made trade taxes more important historically; domestic indirect taxes were more narrowly based and often cascading. - Customs gatekeeper role had not yet begun shifting toward trade facilitation. ### Key organizational and administrative developments - Creation and spread of semi-autonomous Revenue Authorities (RAs): - The RA model emerged in Uganda in 1991 and has spread widely to 17 countries (as described in the text). - By 2010, 16 of the 19 Anglophone countries had some form of RA, with a 17th (Swaziland) formed in early 2011, leaving only Liberia and Namibia with more traditional ministry of finance departments. - Proponents argued RAs provided greater governance, financial, and HR autonomy to overcome civil service rigidities (Kidd and Crandall, 2006), though hard evidence of RA superiority is limited. - Hypothesis noted that the RA model may have delayed some critical reforms in later generations—requiring empirical verification. - Integration trends: - Most Anglophone African RAs appropriately include both tax and Customs administration, though they often operate separately given differing business models. - South Africa and Zimbabwe show more highly coupled Customs and tax administration. - Synergies from common RA management and shared systems have been underexploited. - Large Taxpayer Offices (LTOs): - Created in a few of the 19 Anglophone countries from the late 1990s. - Objectives: secure bulk revenue from a few important taxpayers; introduce integrated direct and indirect tax administration; strengthen self-assessment; pilot streamlined procedures and systems. - Initial results mixed; model more fully delivered on expectations from about 2004. - Reasons for early shortcomings included weak political commitment, backlash from large taxpayers, and internal tensions from separate VAT and income tax departments. - Third-generation reforms: - A fully integrated tax administration model is emerging that merges VAT and income tax within one functionally structured organization, often with a strong headquarters. - Evolution toward taxpayer segmentation beyond the LTO model: special regimes for small- and micro-size taxpayers; VAT and “normal” income tax regimes left to medium and larger taxpayers. - Implementation for small and medium taxpayer administrative arrangements remains in its infancy and limited to a few countries. ### FAD (Fiscal Affairs Department) stance and role - IMF/FAD policy advice and TA: - Advocated gradual market opening and freer trade, encouraging tariff reform and stronger domestic tax instruments, particularly VAT. - Emphasized need to mobilize additional revenue beyond anticipated trade tax losses, highlighting criticality of effective VAT regime and administration. - Consistent advice for a broad-based VAT with a single rate, minimal exemptions, and in weak-administration contexts, a relatively high threshold. - While integrated tax administration is preferred, the creation of new organizations to administer VAT was viewed as a pragmatic, risk-averse step given fragile income tax administration capacity. - From around 2003, FAD increasingly promoted a vision of a fully integrated single domestic tax administration with strong headquarters and taxpayer segment focus (beginning with an LTO). - For recent RA launches, FAD more strongly encouraged critical administrative reforms during launch rather than years later. - Complementary roles and donor landscape: - British Government (ODA/DFID) was influential in establishing RAs, financing U.K. experts and shaping reform TA. - East and West AFRITACs (since around 2003) support TA implementation to complement FAD’s strategic role. - World Bank’s major involvement primarily in Tanzania (tax administration and reform project 1999–2009). - Other donors: GTZ (Germany) in Tanzania and Ghana; U.S. Treasury and USAID in Liberia, Nigeria, and Uganda; Norway in Uganda and Zambia; African Development Bank (e.g., Liberia, Swaziland); European Union (The Gambia, Seychelles). ### Revenue administration reform drivers and characteristics - Primary motivators: - Revenue enhancement to reduce deficits when domestic finances are inadequate. - Poverty reduction strategies and PRSPs increased urgency for domestic revenue mobilization; MDGs (September 2000) also increased pressure for revenue mobilization and reform. - Expansion of the tax base to reduce disproportionate burdens on a few taxpayers and to create opportunities to lower rates or provide tax incentives. - Need to simplify tax systems to reduce compliance costs for often unsophisticated small businesses with low literacy. - Administrative/operational changes and challenges: - Self-assessment and voluntary compliance concepts underpin reforms for both tax and Customs administration; VAT was the trigger since its feasibility depends on self-assessment. - Mixed outcomes: some administrations cling to administrative assessment methods for income tax and sometimes for VAT. - Risk-based approaches acceptance is nascent; many administrations retain 100 percent control habits (attempting to administratively assess every income tax return, inspect every import consignment, or demand every VAT invoice). - Effective risk assessment remains in its infancy in many countries, with exceptions like South Africa. - Information Technology (IT) adoption: - Most revenue agencies moved from very low bases to some IT support. - VAT volumes necessitated IT systems to avoid backlogs; Customs automation similarly needed. - Outcomes have been disappointing with varied and piecemeal technology projects; Customs automation possibly marginally more successful than tax administration. - Donor influence and TA were important in reform design and delivery. ### The Revenue Authority (RA) model: governance, scope, and issues - RA governance characteristics and constraints: - The RA model attempts to provide autonomy through governance arrangements distant from the minister and MoF, but several limits exist: - Minister of finance often retains influence: board appointments, ex officio membership, and legislated powers to direct the board. - Tax policy remains the preserve of MoF (appropriately), with administrative inputs from the RA. - RAs remain dependent on government funding from MoF; statutory funding formulas can be overridden. - Governing boards: - RA boards categorized as advisory, operational, or empowered. - Except for Seychelles, other 15 RAs began with boards; South Africa subsequently moved to advisory committees. - Appointment powers vary: president, prime minister, or minister of finance depending on country. - Boards are generally legally prohibited from operational or case work (except in practice in Zambia where board acts similarly to empowered boards). - Internal audit: - Internal audit typically reports to the chief executive and has access to the board; Mauritius is an exception where internal audit reports exclusively to the board. - Boards should not receive taxpayer-specific information in audit reports to avoid conflicts and protect confidentiality. - Collection responsibilities and scope creep: - RAs collect revenues from resource sectors (oil, diamonds, minerals, lumber, cocoa) via corporate income tax, special regimes (e.g., petroleum profits tax in Nigeria), royalties, and export levies (e.g., diamonds in Sierra Leone, cocoa in Ghana). - Some RAs have special units (e.g., oil and gas office in Nigeria; previously gold/diamond office in Sierra Leone) or heighten audit attention via LTOs. - RAs often collect minor revenue streams (drivers licenses, vehicle taxes, passport fees, traffic fines). Rationale: many agencies poorly equipped to assess/collect revenues; economies of scale and synergies. - Risks of collecting minor taxes/fees: - Core revenue collection may be neglected if resources diverted to minor revenue streams. - Costs can exceed benefits where capacity is limited and systems are inadequate. - Public interactions for minor services can shape citizen perceptions of the RA’s efficiency and transparency. ### Integrated Customs and tax administration functions - Integration landscape: - Customs and tax administration are core government revenue functions; the RA model brings both under one organizational umbrella in most Anglophone African countries. - Exceptions with historically separate services: Nigeria and Ghana (until 2009). - By the time of the report, Customs and tax administration reside together under a single RA in 16 countries. - South Africa and Zimbabwe have less clear organizational delineations between tax and Customs at corporate level (functionally and regionally arranged). - Degrees of functional integration: - In many RAs, a discernible Customs department and one or more tax departments exist; some shared functional units include: - Debt collections, investigations and enforcement activities, legal services (sometimes including appeals), and taxpayer services and education. - Corporate-level units for research & planning, revenue forecasting, and tax policy. - Rationale for integration: avoid duplication, increase efficiency, create a single cohesive RA image. - Drawbacks: potential diminution of accountability for distinct tax and Customs programs. - Observed underexploitation: - Expected synergies from shared management and systems for seamless information sharing and collaboration between Customs and tax administration have been disappointingly underexploited. *Source: IMF.* ### Box 1. Pros and Cons of Integrated Tax and Customs Functions ### Box 1. Pros and Cons of Integrated Tax and Customs Functions ### Advantages - Economies of scale and synergies from integration. - Increased efficiencies and cost of effectiveness. - Allows for greater specialization. - Avoid duplication of functions, staff, and resources. - Can minimize the need to coordinate identical programs across administrations. - Provide a single and strong corporate image. - Better facilitate the sharing of information. ### Disadvantages - Fragmented accountabilities—incomplete authority and responsibility across the entire tax and Customs administration programs, but ultimately coalescing with the RA CEO. - Risk of misaligned strategies for integrated functions (e.g., inappropriate taxpayer services) can adversely impact on effective compliance, audit, and enforcement programs of the tax or Customs administration. - Prone to unbalanced focus, with least challenging activities dominating (e.g., simple Customs investigations to the exclusion of complex income tax transfer pricing). - Requires matrix management arrangements (i.e., responsibilities to multiple masters—tax and Customs commissioners and RA CEOs), challenging even for mature and strong administration. - Requires strong referral and monitoring programs between integrated and devolved functions (e.g., referral of an audit case for investigation, monitoring outcomes, and possible referral back for collection or prosecution). - Some functions are unique to Customs (e.g., rules of origin). ### Contextual observations from surrounding text - No country is known to have organizationally integrated both Customs and tax audit functions, although an integrated RA investigation function is commonly observed. - The box appears within a broader discussion of revenue administration organization and management, including trends in Anglophone Africa toward RA models that emphasize professionalism, HR flexibility, and shared support services. *Source: _wp11162 - Box 1. Pros and Cons of Integrated Tax and Customs Functions* ### Box 2. Revenue Authority HR Observations ### Box 2. Revenue Authority HR Observations ### Positive and negative HR observations - Positive - Increased professionalism, particularly senior management - Staff incentive schemes—performance-based pay, senior management term contracts. - Remunerations more competitive, able to recruit and retain competitively from strong comparators like finance sector, central banks. - Wages to support a sufficient standard of living without needing supplementation. - Ability to independently recruit staff with the appropriate skills sets and experience. - Enhanced integrity and ethics—codes of conduct, internal affairs units, etc. - Organizational flexibility to adjust as necessary to developments. - Training programs tailored to needs of revenue administration. - Negative - Depth of expertise in shallow, particularly at middle management and staff levels. - Insufficient focus on indicators to measure performance beyond collections. - Decline in remuneration competitiveness over time with failure to review scales and maintain relativity with comparators. - No wage level is high enough to fully deter corruption. - Recruitment flexibility negated by some RAs that inherited entire former workforce. - Corruption still endemic inside and outside some revenue agencies. - Some RA Acts prescribe the organizational structure (e.g., VAT department). - Training often no higher priority and as poorly funded as pre-RA situation. *Key implication:* HR reforms produced many immediate management improvements but persistent gaps in depth, incentives, and anti-corruption deterrence remain. ### D. Planning, Forecasting, and Reporting — findings and practices - Initial reforms often yield improved tax collections and stakeholder perceptions, but sustaining and building upon improvements has been a challenge. - Implementation of new HR regimes and RA governance models can dominate reform agendas and distract from core revenue administration modernization. - Recent reform rounds address: - tax administration integration and segmentation, - genuine self-assessment, - automation based upon streamlined procedures, - adoption of risk-based methodologies. - Revenue agencies require systems to: - accurately record and reconcile collections in a timely manner, - analyze outcomes to provide inputs for future forecasts. - Monitoring and forecasting responsibilities typically coalesce at corporate/RA level in a planning and research (R&P) unit. - Specialist economics expertise is often located in R&P units due to relationships with MoF for revenue monitoring, analysis, forecasting, and tax policy inputs. - Strategic and corporate planning trends: - South Africa: leading example articulating corporate vision, mission, objectives of SARS and reporting progress in detailed publicly published annual reports. - Several RAs have developed and publicized corporate plans with horizons of 3, 4, or 5 years. - A few (Kenya, Rwanda, and Uganda) have advanced to second or even third iterations of their plans. - Various methodologies used to score performance; Balanced Score Card (BSC) adopted by a few. - Weaknesses observed in early iterations of corporate plans: 1. excessive rigidity for the plan duration rather than a rolling approach updated annually; 2. lack of budget linkages; 3. not harmonized or modified to reflect modernization and reform initiatives. - Overall: corporate and strategic planning (except South Africa) still in its infancy but reflective of increasing professionalism. ### E. Outsourcing — practices and risks - Outsourcing in revenue administration is relatively uncommon; more common for generic support functions (e.g., cleaning, security). - Drivers and practices: - Paucity of skilled technical staff can prompt outsourcing, especially for IT development, implementation, and support. - Many RAs rely on contractor assistance; fewer undertake bespoke core-system development and more rely on off-the-shelf packages and vendor support. - Core tax administration functions are rarely outsourced due to critical fiscal nature; tax collection normally remains exclusive to government. - Examples and experiments: - Outsourced tax debt collections have been tried but pose reputation risks. - Anglophone Africa: only known outsourced core tax administration function example — taxpayer audit in Namibia (initially on a pilot basis due to insufficient internal capacity), with an expansion of the program. - Refund claim certification by public accountants used to expedite refund processing (e.g., Kenya). - Customs administration: - Private sector support more widespread for valuation, classification, and origin determination. - Pre-shipment inspection (PSI) services were common; increasingly discontinued or replaced by destination inspection (DI). - Mozambique: wholesale outsourcing of entire Customs function occurred from the mid-1990s given post-conflict circumstances, weak capacity, entrenched integrity problems, and donor involvement. ### F. Operational Policy Design and Monitoring — problems and reforms - Historical problems in Anglophone African RAs: - insufficiently developed operational policies and procedures, - very centralized management requiring approvals referred upward, - commissioners personally adjudicating many case files exacerbated by absence of effective self-assessment. - Reforms reversing these practices include: 1. increased professionalism of management and staff; 2. adoption of modern management practices, particularly delegation; 3. application of self-assessment; 4. simplification and automation of processes; 5. clearer delineation between operations and the role of developing policies and monitoring their application. - Organizational observations: - Commercial activity often concentrated in one or a few economic centers where revenue operations co-locate with senior officials, drawing senior managers into day-to-day operations. - Modern RAs have a clearly defined headquarters that develops operational policies and monitors delivery; headquarters should not undertake operational work in its own right. - Headquarters role: develop, define, document operational policies and procedures; monitor operational performance using appropriate performance indicators; report achievement against corporate objectives. - Effective headquarters arrangement: - small teams of very experienced and competent administrators responsible for specific tax or Customs functions or groupings. - Functional organizational model applied both at headquarters (policy development and monitoring) and in the field (policy delivery). - Functional structuring (e.g., taxpayer services, returns and payment processing, taxpayer audit, debt and filing compliance enforcement) supports a matrix management arrangement with vertical reporting to the chief executive and horizontal reporting to headquarters for technical guidance. ### IV.A. Tax Administration Organizational Developments — evolution and models - Organizational evolution described across three models: - By tax type: historical separate departments for indirect and direct taxes (e.g., VAT department separate from income tax), leading to duplication and lack of coordination. - By function: shift to functional model (registration, returns and payments processing, accounting, taxpayer services and education, compliance enforcement, taxpayer audit and investigations, dispute resolution), yielding economies of scale and reduced costs. - By segment: recent move to client/taxpayer segment model recognizing heterogeneous taxpayer needs (large, medium, small). - Interaction of models: - Functionality remains in segment models; large taxpayer and other segment offices often functionally structured, which can reintroduce some duplication but provides a single point of taxpayer contact and a single view of the taxpayer. - Sharing vs duplication: some functions (e.g., payment and returns processing) may be shared if streamlined and automated; audit, enforcement, and taxpayer service may be segment-tailored. ### IV.B. Segmentation — taxpayer segment characteristics and stratification - Typical segmentation categories: 1. a small number of larger taxpayers contributing in excess of 70 percent of revenue; 2. a moderate number of medium taxpayers who are above the registration threshold for VAT (if set appropriately); 3. a large number of small taxpayers who contribute relatively little to overall revenue collections. - Notes on size and scope: - Size is country specific; a medium-size business in one country could be a large taxpayer in another. - Employee-taxpayers: often large collectively but small individually; PAYE arrangements limit evasion scope; compliance risks shift to employers. - IMF mission stratification approach: - Analyses draw on turnover and payment levels of registered VAT taxpayers; Table 5 (referenced) summarizes VAT taxpayer populations in eight Anglophone African countries, all but one that now have an LTO. - VAT taxpayer populations typically show a three-layer perspective: large, medium, small. - Limitations of VAT-based stratification: 1. VAT-exempt sectors like banking; 2. large employers (government agencies and NGOs) that must withhold PAYE but have no other tax obligations; 3. larger small and microsize taxpayer segment below VAT threshold not voluntarily registering, plus potentially larger informal sector unknown to tax authorities. *Source: IMF Working Paper content (Box 2 and associated sections).* ### Box 3. Taxpayer Segments—Their Population and Revenue Contribution Characteristics ### Box 3. Taxpayer Segments—Their Population and Revenue Contribution Characteristics ### Stratification of VAT Taxpayer Populations for Selected Countries - Table 5 (selected entries): - Botswana (2004) - Prescribed Threshold: BP 25 m (x100) - Large Taxpayers: No. Taxpayers 240; % of Rev 58 %; % Taxpayers 3.1 % - VAT-LT Threshold: BP 250,000 - Medium Taxpayers: No. Taxpayers 3,934; % of Rev 39 %; % Taxpayers 51.0 % - Small Taxpayers: Threshold BP 250,000; No. Taxpayers 3,535; % Rev 3 %; % Taxpayers 45.9 % - Ghana (2009) - Prescribed Threshold: GHS 3 m (x300) - Large Taxpayers: No. Taxpayers 275; % of Rev 63 %; % Taxpayers 1.2 % - VAT-LT Threshold: GHS10,000 - Medium Taxpayers: No. Taxpayers 8,400; % of Rev 26 %; % Taxpayers 38 % - Small Taxpayers: Threshold GHS 10,000; No. Taxpayers 13,305; % Rev 1 %; % Taxpayers 61 % - Note: "The Ghana VAT threshold is nominally GHS 10,000, but for many taxpayers it is effectively zero, particularly retailers. The threshold was due to increase to GHS 90,000 in late 2010." - Kenya (2006) - Prescribed Threshold: K Sh 1 b (x200) - Large Taxpayers: No. Taxpayers 243; % of Rev 50 %; % Taxpayers 0.01 % - VAT-LT Threshold: K Sh 5 m - Medium Taxpayers: No. Taxpayers 7,883; % of Rev 43 %; % Taxpayers 14.6 % - Small Taxpayers: Threshold K Sh 5 m; No. Taxpayers 45,876; % Rev 7 %; % Taxpayers 85.0 % - Malawi (2007) - Prescribed Threshold: MK 100 m (x17) - Large Taxpayers: No. Taxpayers 297; % of Rev 79 %; % Taxpayers 9.4 % - VAT-LT Threshold: MK 6 m - Medium Taxpayers: No. Taxpayers 1,761; % of Rev 20.5 %; % Taxpayers 55.6 % - Small Taxpayers: Threshold MK 2 m; No. Taxpayers 1,109; % Rev 0.5 %; % Taxpayers 35.0 % - Mauritius (2004) - Prescribed Threshold: MUR 100m (x33) - Large Taxpayers: No. Taxpayers 430; % of Rev 62 %; % Taxpayers 5.9 % - VAT-LT Threshold: MUR 3 m - Medium Taxpayers: No. Taxpayers 3,180; % of Rev 36 %; % Taxpayers 43.7 % - Small Taxpayers: Threshold MUR 3 m; No. Taxpayers 3,663; % Rev 2 %; % Taxpayers 50.4 % - Rwanda (2009) - Prescribed Threshold: RF500 m (x25) - Large Taxpayers: No. Taxpayers 268; % of Rev 86 %; % Taxpayers 8.3 % - VAT-LT Threshold: RF 20m - Medium Taxpayers: No. Taxpayers 1,150; % of Rev 13 %; % Taxpayers 35.7 % - Small Taxpayers: Threshold RF 20m; No. Taxpayers 1,811; % Rev 1 %; % Taxpayers 55% - Uganda (2004) - Prescribed Threshold: U Sh 5 b (x100) - Large Taxpayers: No. Taxpayers 210; % of Rev 71 %; % Taxpayers 2.6 % - VAT-LT Threshold: U Sh 50 m - Medium Taxpayers: No. Taxpayers 1,966; % of Rev 28 %; % Taxpayers 24.5 % - Small Taxpayers: Threshold U Sh 50 m; No. Taxpayers 5,320; % Rev 1 %; % Taxpayers 66.2 % - Zambia (2006) - Prescribed Threshold: ZK 100 b (x500) - Large Taxpayers: No. Taxpayers 454; % of Rev 79 %; % Taxpayers 8 % - VAT-LT Threshold: ZK 200 m - Medium Taxpayers: No. Taxpayers 3,844; % of Rev 20 %; % Taxpayers 71 % - Small Taxpayers: Threshold MK 200 m; No. Taxpayers 1,121; % Rev 1 %; % Taxpayers 21 % - Observations from table and text: - "Turnover is often the key determinant for LTO management, typically struck at a level to secure about 70 percent of collections from all domestic taxes, although not always achieved." - "Expressed as a multiple of the VAT threshold, the LTO threshold varies widely, from as low as 17 times the VAT threshold in Malawi to a factor of approximately 500 in Zambia." - Distortions: compulsory registration for certain sectors and voluntary registration practices affect small taxpayer counts (examples: Kenya, Mauritius, Uganda high percentages below threshold due to overriding; Zambia least given voluntary registration only recently reintroduced; Ghana high proportion due to very low threshold and compulsory registration of all retailers). ### Characteristics of Taxpayer Segments - Large taxpayers - Small number, typically distinct legal entities, often many employees, influence within business and government circles. - Tax complexity: involvement in complex international transactions through subsidiaries or related companies. - Often maintain proper books and records but have professional accounting and legal assistance to interpret the law to their advantage. - Medium taxpayers - Moderate number, may have less formal structures (sole proprietorships or partnerships), fewer employees. - Moderate levels of business activity, often cash based, possibly less diligent bookkeeping enabling under-recording of income and tax evasion. - Compliance and audit activities important to ensure adequate contribution to revenue. - Small taxpayers - Multitude of small and micro-businesses: difficult to register and regulate, geographically dispersed, poor or non-existent record-keeping. - Much of this group considered informal sector; viewed as a large untapped revenue source but actual potential revenue is quite small relative to administrative burden. - Common administrative response: apply a presumptive tax with simplified procedures. ### Large Taxpayer Administration: LTO Experience and Lessons - LTOs are the most common manifestation of taxpayer segmentation; "a slight majority of Anglophone African countries having implemented some form of LTO." - Fund advocacy: importance of focused attention on large taxpayers (Baer, 2002); dedicated LTOs increasingly universal. - Common criteria and objectives: - Turnover commonly used for LTO inclusion; qualifying taxpayers aimed to account for "70 percent or more of tax collections." - Some countries mandate LTO administration of all taxpayers in a small number of key sectors regardless of turnover (banking, telecommunications, mining). - Reform objectives in implementing an LTO often include: - Enhancing revenue by securing the major source of payments through better compliance of the very small group of the most important taxpayers. - Using the LTO as a vehicle and pilot environment for organizational reform, shifting away from a tax type to a functionally structured and integrated approach. - Streamlining procedures and pilot implementing automated systems. - Introducing other major reforms such as self-assessment or as a prelude to VAT. - Early initiatives: partial failures due to insufficient empowerment of LTO managers, incomplete stratification analyses, existence of separate income tax and VAT departments, entrenched rent-seeking, harassment accusations undermining legitimacy. - Lessons: LTO role must be clearly articulated within a broader modernization strategy that entails a single, fully integrated tax administration; additional reform phases should address all taxpayer segments. - Recent improvements: newer and reinvigorated LTOs (Malawi, Rwanda, Zambia, Uganda re-launched, Kenya and Tanzania reinvigorated) are more effective: fewer missing large taxpayers, enhanced capacity, industry specialization, improved IT systems. - Integration trends: - Integrated LTOs now the norm following attempts to transcend separate VAT and internal revenue services (example Ghana since 2004; Nigeria includes VAT since 2005). - Effective LTO often "a single, integrated, and functionally structured office within a single, integrated domestic tax department." - Country examples of different integration paths: Uganda (2005 DTD + LTO), Kenya (LTO merged into DTD in 2005 then moved), Tanzania (LTD created 2001 then domestic revenue department in 2005), Mauritius (LTD 2002; merger in 2006), Rwanda (2004 LTD and IRD; 2006 transformation to DTD with LTO subordinate). - Challenges of split administration: - When LTO resides in separate department from other domestic tax departments: unclear leadership, potential duplication of headquarters functions, inconsistent policies. Single tax administration under common leadership is preferred. - In large dispersed countries (example: Nigeria), LTO operations may need to be regionalized but under centralized control. ### Medium and Small Taxpayer Administration: MTO and Local Offices - Definition and strategy: - Medium taxpayer segment: VAT taxpayers not under LTO administration (including voluntary registrants and assuming an appropriate registration threshold); may include non-LTO taxpayers exempt from VAT with turnover above registration threshold. - FAD advice: establish a pilot medium taxpayer office (MTO) in main economic center with possibility of provincial MTOs. - Strategy aims: emulate LTO model, maximize limited resources where critical mass exists, improve targeted taxpayer services for medium taxpayers; local offices can provide filing/payment services while account management and compliance remain at LTO/MTO. - Practical constraints and uptake: - Dedicated MTO arrangements limited in Anglophone Africa; only Liberia and Uganda had established a dedicated MTO (at time of analysis). - Concentrating large and medium taxpayer administration in few offices could leave remaining office network accounting for less than 10 percent of collections, creating incentives for local offices to retain larger taxpayers and potential rent-seeking. - Suitability of MTO model depends on country circumstances; example Uganda created an MTO in Kampala in 2009 but planned alternative transformation of local offices into front-office service centers and fewer back-office compliance centers. - Planned Ugandan approach leverages recent computerization efforts and business process simplification. ### Tax Administration Operational Issues (selected) - Taxpayer identification and registration - Robust taxpayer identification remains elusive; multiple taxpayer identifiers common including special VAT identifiers. - Universal TIN adoption increasing, but primacy often thwarted by insufficient vigilance, poor registration practices, lax proof of identity, and retention of old identifiers. - Other government registration schemes (social security, national citizen, electoral ID) present opportunities but require close collaboration and systems integration; these are rarely observed in Anglophone Africa. - Corporate/business registers often differ from taxpayer registers; failure to keep corporate register current or lack of coordination causes larger pools than active taxpayers. - Mass registration campaigns can undermine register integrity by emphasizing quantity over quality; recommendation: measure recruitment drive success by continued tax activity and compliance one year later. - Good TIN characteristics advocated by FAD include: all-numeric identifier with fewest digits possible; no meaningful information embedded; use of a check-digit; only one TIN assigned per taxpayer; TIN never reassigned or reused. - Self-assessment, filing, and payment - Self-assessment introduced with VAT but fully effective self-assessment prerequisites often absent: - Simple tax laws; taxpayer services including binding rulings; simple and convenient filing/payment; collection enforcement; effective selective audit; effective penalties; access to independent review. - Administrative assessment practices persist: detailed invoice lists required with returns; all refund claims often audited; computer-generated estimated assessments used for nonfiling—leading to uncollectible debt where taxpayer register integrity questionable. - Many income tax regimes rely on administrative assessment and Best of Judgment assessments, undermining self-assessment and modern practices. - Electronic filing/payment limited; approximately half of countries receive tax payments through banking sector often accompanied by a tax return. - FAD encourages outsourcing cashier function to banks and supports electronic filing/payment when back-office and financial systems are robust; outsourced services require close oversight. - Corrupt banking practices and weak internal controls in some West African countries have resulted in large scale illegal diversion of tax revenues. - VAT filing frequency: most Anglophone African countries require all VAT taxpayers to file and pay monthly irrespective of size. Exceptions aligning with FAD advice: South Africa, Mauritius, Botswana where monthly filing limited to large taxpayers and bimonthly or quarterly filing for others. Universal monthly VAT filing overburdens administrations and yields limited additional revenue in unautomated environments. - Personal income taxpayers (PIT): number relatively small; most with single employment source not required to file annual return (PAYE final). Some administrations instituted universal mandatory filing with disappointing collection/compliance outcomes due to insufficient assessment and audit resources. - Audit and compliance - Audit and self-assessment are linked; selective risk-based field audits were virtually unknown prior to 1990s and remain unfamiliar or rare in some countries. - Historical practice equated assessment with audit, mandating examination and assessment of every income tax return—unsustainable and undesirable. - VAT introduction created new audit approaches and recruitment of new staff partially mitigating old assessment habits, but administrative assessment remains common in many income tax regimes. *Source: IMF.* ### introduction of new concepts like issue-oriented audits. The downside however was the lack of ### _wp11162 - introduction of new concepts like issue-oriented audits. The downside however was the lack of ### Audit function, LTOs, and risk-based approaches - Introduction of new concepts like issue-oriented audits improved approaches but integration between VAT and other tax audit activities was lacking until explicit integration initiatives like an LTO were attempted. - Over time, audit approaches dissipated in many countries as audit effort and resources increasingly were directed to processing and validating VAT refunds, sometimes to the exclusion of all other audit. - Risk-based methods have been adopted by some administrations to address this problem, recognizing that 100 percent verification of every refund claim is unnecessary, particularly for taxpayers with a history of satisfactory compliance. - Improved audit outcomes require more effective management practices beyond just additional and better trained auditors. - Some outdated beliefs persist that effective taxpayer compliance can only be achieved with sufficient resources for blanket audit coverage — characterized as unachievable, especially in Africa where human capacity is particularly constrained and competent personnel are quickly poached. - Progressive revenue administrations are professionalizing and better managing the audit function by developing audit strategies, annual audit plans, audit manuals, and standardized procedures. - Close headquarters oversight is essential, including the monitoring of outcomes against expectations and adjusting future plans on the basis of results achieved. - Huge capacity gaps remain, with shortages of competent auditors observed in almost every Anglophone African country in FAD’s experience; some countries have only a few staff capable of performing serious audit activity. - In constrained circumstances, maximizing the impact of limited resources requires taxpayer segmentation so that the best audit resources are targeted where the risks and revenue are greatest, namely the large and medium taxpayer segments. - It is illogical to deploy qualified accountants and experienced auditors to local offices dealing with very small businesses at the expense of underresourced and inexperienced LTO staff — a situation often observed. ### Filing compliance and arrears management - Weak filing compliance and arrears management are relatively common, with the best examples of filing compliance and debt management found in more effective LTOs where very high rates of filing have been achieved when taxpayer accounts are proactively managed. - More broadly, on-time filing rates are typically poor, often under 50 percent. - Causes include outdated taxpayer registers that cloud which taxpayers are required to file, excessive filing requirements particularly for VAT, administrative assessment backlogs resulting in large backlogs of unassessed returns from prior years, and late filing often going unpunished despite most legislation including adequate penalty provisions. - Administrative assessment of income tax often results in large backlogs of unassessed returns from prior years that distract staff from securing a return for the most recent period. ### IT systems and the single taxpayer account - IT systems often lack functionality to adequately monitor and react to nonfiling and arrears. - System features are sometimes suppressed or ignored after generation over successive months of many demand letters for missing tax returns of dubious merit or when the administration cannot handle the workload. - For arrears, common problems include the inability of the system to consistently apply penalty and interest in accordance with the law, and the creation of spurious new debt from automatically generated estimated assessments in response to nonfiling. - The absence of a single taxpayer account is the greatest impediment to effective arrears management. - Traditional organizational and procedural arrangements have not facilitated a single taxpayer view; there is no simple way to consolidate tax type department information, risking situations where one part of the revenue administration pursues a debt while another processes a refund for the same taxpayer. ### Taxpayer services and dispute resolution - Growing recognition of the importance of quality taxpayer services; earlier beliefs that taxpayers were simply expected to know their obligations are giving way to improved services delivered through multiple channels. - Developments are in their infancy in Anglophone Africa; resources deployed for taxpayer services are often a tiny fraction of staff, facilities, and budget compared to more advanced administrations. - The launch of VAT was often accompanied by higher quality and better designed brochures, guides, and publications, but momentum was hardly sustained; credibility suffered when stocks were not replenished or content was superseded. - Updating of tax information has generally been inconsistent, particularly as new legislation or other requirements were introduced. - Domestic multilingual needs and diverse literacy and education levels necessitate innovative delivery methods, including school curricula, workshops, road shows, and electronic media such as radio and television. - Many administrations now have websites ranging from outdated static information to more dynamic tools, but very few support online taxpayer interaction for electronic filing, payment, or account visibility. - A few countries have instituted toll free call centers; given explosive growth in mobile telephony across Africa, this channel has considerable potential for enforcing filing and debt compliance such as sending reminders by text message. - Face-to-face taxpayer services remain important; improved facilities help, but the most critical component is the quality of advice and information dispensed and the adequacy of systems and procedures. - Consistent policy and messages require an effective head office taxpayer service function; many Anglophone African RAs treat taxpayer services and education as a corporate function reporting to the chief executive, though there is a strong argument for tax and Customs administrations to have full responsibility for their own taxpayer/trader service function reporting to their respective commissioners. - Poor taxpayer services have adverse consequences on compliance, audit, dispute resolution, and other functions; full accountability is best ensured by having all functions report to the tax and Customs commissioners, respectively. - Dispute resolution is relatively poor in Anglophone Africa; for a few West African countries, there is no functioning dispute resolution mechanism even when provided by law. - Where internal objection or administrative review processes exist, they should be considered by tax officials independent of the original assessment or audit; findings in favor of the taxpayer should be considered normal within reason and limits to build confidence in impartiality and objectivity. - Objection outcomes provide feedback pointing to interpretive, administrative, and procedural deficiencies with opportunities for corrective action. - Advance tax rulings and interpretations provide a preemptive measure to minimize future disputes but are not particularly developed in Anglophone Africa, with a few exceptions like Mauritius and South Africa; a rulings and interpretation program could be piloted in an LTO. ### V. VAT in Anglophone Africa — history and implementation patterns - VAT adoption: Of 19 Anglophone African countries, 15 have implemented a VAT, the earliest in 1990 (Kenya), the most recent in 2010 (Sierra Leone). - Early adopters and years: - Kenya (1990) - South Africa (1991) - Nigeria (1994) - Zambia (1995) - Ghana first attempt March 1995 repealed three months after implementation; successful on its second attempt in 1998. - Second wave: - Uganda (1996) - Mauritius (1998) - Tanzania (1998) - Namibia (2000) - Malawi (2000) - Third wave: - Rwanda (2001) - Botswana (2002) - Lesotho (2003) - Zimbabwe (2004) - Sierra Leone (2010) - Anticipated VAT moves in remaining four countries: - Swaziland has announced intentions to launch VAT but first aims to have its RA operational that was intended sometime in 2010. - Seychelles has plans for a 2012 VAT launch. - The Gambia expects to launch VAT in January 2013. - Liberia expected to begin moves toward VAT implementation. - Motivations: revenue mobilization objectives often underpinned the move from predecessor sales or turnover taxes to a more broadly-based VAT; trade liberalization and tariff reforms also necessitated greater emphasis on domestic revenue. - Revenue outcomes: some countries sought revenue neutrality (e.g., South Africa and Seychelles for forthcoming VAT); in many instances revenue enhancement resulted, sometimes impressively so; in a few countries outcomes were disappointing with potential improvement from addressing design deficiencies and strengthening administration. ### B. VAT rates and productivity - A single VAT rate is now standard, varying from 5 to 18 percent, and averaging 15 percent. - A doubling of Nigeria’s 5 percent rate was contemplated but unsuccessful. - Early VATs had multiple rates but this is now uncommon following rate rationalization. - A few countries include zero-rating of some domestic consumption; with the exception of Nigeria until recently, exports are universally zero-rated. - Use and abuse of exemptions varies widely. - As a percentage of GDP, the yield from VAT ranges from 1.2 percent in Nigeria to 7.7 percent in Lesotho. - Given differences in rates, exemption and zero-rating policies, and administrative effectiveness, the productivity ratio20 provides a better comparator. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11162.pdf* ### 21.8 for Uganda to 53.8 for South Africa, and 54.7 in Lesotho. The developed-economy ### _wp11162 - 21.8 for Uganda to 53.8 for South Africa, and 54.7 in Lesotho. The developed-economy ### VAT productivity and design - VAT productivity ratios noted: - Uganda: 21.8 - Tanzania: 21.9 - Rwanda: 23.9 - Nigeria: 24.3 - Zambia: 26.1 - Malawi: 32.0 - Kenya: 35.0 - Namibia: 41.5 - Botswana: 44.0 - Ghana: 45.2 (2004) - Mauritius: 47.3 - Lesotho: 54.7 - South Africa: 53.8 - Design and administrative factors affecting productivity: - Excessive exemptions and weak administration reduce productivity. - Withholding mechanisms (particularly pervasive in Kenya) and unavailability of refunds (Nigeria) increase observed productivity but undermine desirable VAT design. - Typical positive design features observed: - Emphasis on a single rate and zero-rating mostly limited to exports. ### Organizational approaches to VAT administration - Timing and establishment of Revenue Authorities (RAs) relative to VAT: - Slight majority implemented an RA prior to VAT launch; exceptions included Botswana and Mauritius. - Lags between RA establishment and VAT launch ranged from one year (Lesotho, 2002; Malawi, 2000; Zambia, 1994) to seven years (Sierra Leone, 2003). - Examples of later VAT plans mentioned: Seychelles planned for 2012 (RA in 2008); The Gambia planned for 2013 (RA in 2006); Swaziland RA established early 2011 with VAT at some future point. - Organizational structures: - A new VAT division or department was normally created for VAT introduction; full integration with income tax was never the initial state in the 15-country sample. - Malawi and Botswana initially placed VAT administration in Customs divisions following the British model; later moves shifted VAT administration to Internal Revenue/RA departments. - Separate VAT and income tax departments led to duplication (facilities, offices, systems), weak information sharing, isolated audits, and higher administrative and compliance costs. - Trend toward integration: - Full integration of VAT and income tax administration described as “the way of the future.” - Countries that moved to integrated domestic tax administrations include Kenya (2004), Uganda (2005), Nigeria (2005), and Rwanda (2006). - Sierra Leone launched VAT (GST) in January 2010 in a separate unit but planned integration within its LTO as VAT stabilizes. ### Registration thresholds and administrative impact - Registration thresholds vary significantly; all countries except Nigeria apply thresholds. - Examples preserving historical and contemporary threshold adjustments: - South Africa: 1991 threshold R 150,000, previously doubled and then increased to R 1 million (around US$118,000) in March 2009. - Ghana: first attempt in 1995 used GC 25 million (around US$14,000) and failed; 1998 implementation began with GC 200 million (then around US$80,000), reduced in 2001 to GC 100 million (then US$14,000), depreciated to around US$9,453, due to rise to GHS 90,000 in late 2010. - Kenya: began at K Sh 200,000 (then about US$ 8,300) in 1990; raised, including from K Sh 3 to 5 million in 2009 (now US$62,775). - Zambia: originally ZK 40 million (equivalent to US$30,000 in 1994), eroded to US$8,000 by 2001 when raised to ZK 200 million (now US$38,596). - Tanzania: doubled from T Sh 20 to 40 million in 2004 (changing in relative terms from US$20,900 to US$30,180). - Rwanda: from RF 15 to 20 million in 2009 (now US$34,826). - Sectoral mandatory registration and voluntary registration: - Some countries mandate registration in certain sectors regardless of turnover (Ghana, Kenya, Mauritius, Uganda). - Voluntary registration is usually permitted; Zambia removed it in 2001 and reintroduced it in 2007. - South Africa may impose a minimum turnover for voluntary registration, such as R 50,000 (increased from R 20,000 in March 2009). ### VAT administration, IT, and taxpayer segmentation - Functional organization of VAT administration commonly includes: - (1) taxpayer services; (2) tax accounting (payment and filing); (3) nonfiling and debt compliance management; (4) taxpayer audit. - IT systems and taxpayer identifiers: - VAT often prompted first major IT usage (VIPS used in Ghana, Lesotho, Malawi, Tanzania, Uganda, Zambia; many have since shifted platforms). - Special purpose VAT registration numbers are the norm; Botswana is an exception using a single TIN. - Taxpayer numbers and filing periodicity: - Except for Nigeria and South Africa (VAT taxpayer populations greater than 100,000), VAT registers in other countries range from a few thousand to tens of thousands. - With a few exceptions, filing and payment are monthly with no differentiation by taxpayer size. - Staff ratios where VAT and income tax were not integrated (sample): - Botswana: 150:260 (2004) - Kenya: 454:712 - Malawi: 146:273 (2007) - Mauritius: 208:396 - Rwanda: 86:170 (2004) - Zambia: 191:334 (2006) - Taxpayer segmentation: - Majority of countries instituted some form of Large Taxpayer Office (LTO); segmentation beyond large taxpayers (medium, small/micro) remains underdeveloped. ### VAT refunds and withholding - Refund importance and observed levels: - Refunds are critical to tax only final consumption; exporters typically demand regular refunds. - Regional refund observations: South Africa at 39.5 percent; Zambia at 38 percent; Mauritius at 21.5 percent; Africa average (excluding noted exceptions) 6 percent of gross VAT collections over 1998–2001; Nigeria at zero. - Factors affecting refund volumes: - Economic openness and exports increase refund demand. - Administrative and policy measures reduce refund incidence (deferral on imported capital goods, quarantining credits for nonexporters, requiring carry-forward of credits). - Refund financing mechanisms matter: financing from gross receipts (e.g., Zambia) tends to improve efficiency versus annual appropriation processes. - Risk-based refund processes increasingly applied, with priority to exporter claims with sound compliance history. - Administrative effects of withholding mechanisms: - VAT withholding (payer withholds VAT, remits to tax administration, supplier claims credit) used in some countries (notably expanded in Kenya), boosting gross VAT collections but creating large refund demands and administrative strain. - Widespread withholding can transform VAT into a tax on production and divert administrative resources to refund verification and withholder compliance. ### Key conclusions and reform implications - VAT adoption and administrative modernization: - VAT rolled out across 15 of 19 Anglophone African countries over two decades starting in the early 1990s and spurred modern administrative practices (self-assessment, process simplification, automation). - Revenue outcomes: - Tax collections across Africa rose from 15½ to around 17 percent of GDP over the decade, mostly attributed to resource sector revenues. - For Anglophone African countries, overall collections were up in 15 of the 19, with more than half growing by at least 3 percent of GDP. - Strengths and weaknesses: - Strengths: VAT is an important revenue source, typically concentrated in a small pool of large taxpayers; move toward integrated administration and modern management practices; increased use of strategic planning and performance measures. - Weaknesses: VAT productivity ranges from weak to average except in South Africa and other SACU countries; causes include design issues (low thresholds, many exemptions) and administrative deficiencies (poor identification, registration, enforcement); refund systems generally inadequate; audit resources often overconcentrated on refund verification rather than broader risk-based audit objectives. - Policy implications and priorities: - Move toward integration of VAT and income tax administration to reduce duplication and increase information sharing. - Adjust and rationalize registration thresholds to balance administrative costs and tax base coverage. - Strengthen IT systems and interoperability (Customs and tax data exchange) to better exploit import/export data for refund verification and compliance. - Adopt risk-based audit and refund verification processes, prioritizing exporters and taxpayers with sound compliance histories. - Focus taxpayer segmentation beyond large taxpayers to improve service and compliance across medium, small, and micro segments. - Ensure adequate financing mechanisms for refunds (consider gross revenue performance metrics and separate quantity/quality refund performance indicators). *Source: IMF.* ### References ### _wp11162 - References ### Revenue administration, audits, and compliance - Baer, Katherine, 2002, “Improving Large Taxpayers’ Compliance—A Review of Country Experience,” IMF Occasional Paper 215 (Washington: International Monetary Fund) - Biber, Edmund, 2010, “Revenue Administration: Taxpayer Audit—Development of Effective Plans, IMF Technical Note and Manual TNM/10/03 (Washington: International Monetary Fund). - Crandall, William, 2010, “Revenue Administration: Autonomy in Tax Administration and the Revenue Authority Model,” IMF Technical Note and Manual TNM/10/12 (Washington: International Monetary Fund). - Kidd, Maureen, and William Crandall, 2006, “Revenue authorities: Issues and Problems on Evaluating Their Success”, IMF Working Paper WP/06/240 (Washington: International Monetary Fund). ### Resource taxation and natural resources - Calder, Jack, 2010, “Resource Tax Administration: Functions, Procedures, and Institutions,” pp. 319–39 in Daniel et al, The Taxation of Petroleum and Minerals: Principles, Problems, and Practice (Washington: International Monetary Fund). - Sala-i-Martin, Xavier and Arvind Subramanian, 2003, “Addressing the Natural resource Curse: An Illustration from Nigeria,” IMF Working Paper WP/03/139 (Washington: International Monetary Fund). ### VAT and indirect tax issues - Harrison, Graham, 2005, “VAT Refunds,” in Richard Krever, ed., (2008), VAT in Africa, (Pretoria: Pretoria University Law Press). - Krever, Richard, 2008, “VAT in Africa,” (Pretoria, Pretoria University Law Press). ### Revenue mobilization and regional/global challenges - International Monetary Fund, 2011, “Revenue Mobilization in Developing Countries” (Washington). - Keen, Michael, and Mario Mansour, 2009, “Revenue Mobilization in Sub-Saharan Africa: Challenges from Globalization,” IMF Working Paper WP/09/157 (Washington: International Monetary Fund). ### Customs administration reform - Zake, Justin, 2011, “Customs Administration Reform and Modernization in Anglophone Africa—Early 1990s to Mid-2010, IMF Working Paper, forthcoming (Washington: International Monetary Fund). *Source: _wp11162 - References* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11162.pdf_