Raising Government Revenue in Africa: A Road out of Poverty

IMF Blog, March 21, 2011

Source details

Author: Mark Plant
Date: March 21, 2011
Languages/Formats noted: Version in Français. Listen to the podcast in English or Français.
Core premise: Increasing tax revenue is necessary for African governments to fund better health care, education, infrastructure, and public-sector wages to reduce poverty.

Regional revenue trend:
- Revenues increased from around 11½ percent of gross domestic product (GDP) in 1995 to 15 percent in 2009.
Country case studies:
- Mozambique: "An impressive near doubling of tax revenues relative to the overall economy since 1992" enabled substantial increases in social spending with outcomes including increases in enrollment in primary education, better vaccination, and better basic water and sanitation infrastructure.
- Liberia: "Revenues increased from only 6 percent in GDP to 2003 to 20 percent in 2009," accompanied by significantly better primary enrollment rates, numbers of teachers, and child and maternal mortality, and increased spending for infrastructure.

Overarching guidance:
- Countries should avoid taxes that hamper economic development or job creation; tax systems should be "pro-development and pro-jobs."
- Two complementary areas of reform: improving revenue administration and better tax policy.
Revenue administration reforms:
- Focus on reducing corruption.
- Address non-compliance, which the text notes can result in "as much as half of the tax base" being lost because taxpayers escape taxation.
Tax policy reforms — five highlighted issues:
- Eliminate tax exemptions that are often substantial, favor some people, and "rob the government of quite a bit of revenue"; protect the poor through well-targeted safety nets on the spending side.
- Make value added taxes (VATs) less complicated by adopting fewer tax rates, fewer exemptions, and a reasonable threshold that keeps small taxpayers out of the VAT system and assures equity across individuals.
- Compensate for revenue losses from trade liberalization, including within customs unions such as in the East African Community.
- Adopt clear laws and regulations that include strong taxpayer protection against harassment from tax officials to ensure equitable administration.
- Ensure governments receive a fair share when negotiating deals on exploitation of natural resources like oil, natural gas, and minerals.

IMF technical assistance:
- The IMF has a long history of providing technical assistance in tax policy and revenue administration in Africa and worldwide and will continue to offer assistance to countries in the region.
- Regional Technical Assistance Centers (AfriTACs): "We have three located in Africa and two more will open soon."
- Launch of two Topical Trust Funds at the Nairobi event: one for tax policy and revenue administration, the other for management of natural resources.
Conferences and knowledge sharing:
- A conference on Revenue Mobilization in Sub-Saharan Africa co-hosted by the IMF and Kenyan government in Nairobi on March 21-22 aims to provide policymakers an opportunity to learn from each other and identify lessons on revenue mobilization.
- Discussions in Nairobi will inform a global conference on resource mobilization to be held on April 17–19, 2011 in Washington, DC, and respond to an ongoing Group of Twenty initiative on enhancing revenue mobilization in developing countries.

Mark Plant, March 21, 2011.