Tax reforms and digitisation crucial for African economies

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Timo Shihepo

Windhoek - African countries should reform and digitise their tax systems in order to increase their revenue collection and prevent high debts from escalating. This is according to the United Nations Economic Commission for Africa (ECA).

Some African countries, like Namibia, have heeded the call by digitising their tax systems to close loopholes that have cost them millions of dollars from tax evasions over the years.

ECA says the digital identification can broaden the tax base by making it easier to identify and track taxpayers and helping taxpayers meet their tax obligations. By improving tax assessments and administration, it enhances the government’s capacity to mobilise additional resources.

The commission noted that the digital ID systems yield gains in efficiency and convenience that could result in savings to taxpayers and government of up to US$50 billion a year by 2020.

Tax is the key to financing development, but African countries are facing several domestic as well as international challenges.

According to the 2019 Economic Report on Africa released this week, in order for Africa to solve this, the continent must digitise its economies, broaden its tax base, and prevent further deterioration of fiscal and debt positions.

The report also states that digitising and reforming tax would help the continent double-digit growth to achieve the UN 2030 global goals (sustainable development goals (SDGs)), and the African Union Agenda of 2063.

Currently, African governments’ revenues account for 21.4%, which is insufficient to meet their development financing needs.

This year’s Economic Report on Africa, a flagship publication of the ECA, focuses on fiscal policy.

ECA’s executive secretary, Vera Songwe, said the report identifies several quick wins in Africa’s pursuit of additional fiscal space to finance its accelerated development.

The report focuses on the instrumental role of fiscal policy in crowding-in investment and creating adequate fiscal space for social policy, including supporting women and youth-led small and medium enterprises.

However, African countries are running out of time, as there is only 11 years, to achieve the UN 2030 global goals.

“African countries continue to search for policy mixes to help accelerate the achievement of the SDGs. However, for many countries, financing remains the biggest bottleneck with implementing capacity a close second,” Songwe said.

While analysing and highlighting both challenges and opportunities, the report also recommends comprehensive macroeconomic reforms aimed at building financial resilience, placing emphasis on the need for Africa to accelerate growth to double digits by 2030 and to boost investment from its current 25% of the gross domestic product (GDP).

In some of Africa’s largest economies — South Africa, Angola and Nigeria – the report reveals, growth trended upwards but remains vulnerable to shifts in commodity prices.

East Africa remains the fastest growing, at 6.1% in 2017 and 6.2% in 2018, while in West Africa, the economy expanded by 3.2% in 2018, up from 2.4% in 2017.

Central, northern and southern Africa’s economies grew at a slower pace in 2018 compared to 2017.

The report also revealed that debt levels remained high, as African countries increased their borrowing to ease fiscal pressures most of which have been precipitated by the narrowing of revenue streams that has gone on since the commodity price shocks of 2014.

The report recommends that African countries increase government revenue by 12-20% of GDP by adopting a policy framework that strengthens revenue mobilisation, including through digitalising African economies. Digitisation could enhance revenue mobilisation by up to 6%, the report said.

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