At a time when most Africa countries are faced with a daunting task of eradicating tax arrears, Zimbabwe and Zambia have recorded highest revenue recovery rates of 93% and 82%, respectively, compared to the regional average of about 20%, a report by the African Tax Administration Forum (ATAF) shows.
The continent desperately needs increased domestic revenue to support its development needs and curb overreliance on donor funding, which often comes with strings attached and rarely matches local priorities. In its 2018 Africa Tax Outlook (ATO), a flagship publication on regional tax matters issued a few weeks ago, ATAF notes with concern how average ATO ratio of arrears to net revenue rose from 19.17% in 2015 to 20% in 2016. This was an unfavourable result, compared to the IMF’s Tax Administration Diagnostic Assessment Tool (TADAT) recommendation that the ratio of stock and flow of tax arrears to total revenue should be below 10%.
“However, Zambia and Zimbabwe boasted the highest arrears-to-net-revenue-recovery rates of 82% and 93%, respectively, against an ATO average of 20%,” says ATAF.
The Zimbabwe Revenue Authority (Zimra), for instance performed beyond expectations in the first half of 2018 after gross collections hit US$2.41 billion against the budgeted US$2.10 billion, driven by excise duty, net value added tax on local sales and individuals. Improved enforcement, automation and crackdown on corruption were some of the strategies employed by Zimra. These saw the tax collector surpass the set target by 15.09%. After deducting refunds of US$98.88 million for the first half, net collections were US$2.31 billion, representing a 10.37% jump from the expected US$2.10 billion. According to Zimra, the first half collections represent a 53.48% of the annual target of US$4.3 billion. In its report for the half of 2018, Zimra board chairperson, Willia Bonyongwe, said net revenue collections improved by 35.94% from the US$1.70 billion realised in the first half of 2017.
However, the 2018 edition of the ATO report reveals, among others that there are variations in economic performance as measured by real gross domestic product between the participating countries. In that regard, Rwanda recorded 8.6% as the highest growth rate for 2016. Of the 26 ATO countries 10 recorded or experienced negative real growth in revenue while Uganda, Seychelles and Lesotho respectively observed an increase of 2.37; 2.26 and 2.4 percentage points in their tax to GDP ratio from 2015. Botswana, Zimbabwe and Angola experienced declines of 3.44, 3.18 and 2.18 percentage points respectively in their Tax to GDP ratios. According to ATAF, value added tax (VAT) remains the cash cow in most ATO countries, with the average VAT-to-total tax revenue ratio of 31%, which is higher than the OECD average of 20%. On one hand personal income tax to-GDP ratios for ATO countries are still very low compared to those of the OECD countries.
“This could be attributed mainly to the low-income levels for these countries, as compared to the developed economies,” said ATAF.
On non-tax revenue the report shows ATO countries, which relied on oil revenue such as Angola, Chad and Nigeria having seen their revenue decrease due to price fluctuations in the international oil price. Declining oil revenues have resulted in extensive spending cuts across departments and agencies. Tax expenditure data deficiency is still a major challenge among several ATO countries while some countries such as South Africa and Ghana are more transparent with regards to budgeting and reporting on tax expenditures at the national level. Processing tax returns and taxpayer payment information are some of the most time-consuming activities for tax administrations hence the need to modernise systems by adopting modern technologies. By 2016, ATAF says about 88% of the ATO countries had modernised their tax collection processes.
“The use of electronic systems to replace traditional means of return submissions and making payments are eliminating the mistakes associated with manual submissions,” said ATAF.
The ATO report is the largest collaborative tax statistics initiative on the continent, which serves as a reliable source of information on taxation and, thus, constitutes a solid African and global benchmark for tax policy formulation and tax administration reforms across Africa. This year’s publication brings together valuable, practical and relevant descriptive and analytical work on tax issues for the period of 2010-2016 from 26 African countries.
It assesses and compares 26 countries against indicators in seven broad categories - total tax revenue, individual taxes, non-tax revenue, tax and customs administration structures and functions, service management, compliance management and human resource in tax administration. The indicators are crucial to African tax authorities as they implement reforms and policies to broaden the tax base, narrow tax gaps, simplify and improve fairness in tax systems, enhance overall voluntary compliance, and keep policy makers informed on tax matters.
ATAF was established by African revenue authorities in 2009, in order to improve the performance of tax administrations in Africa based on the belief that better tax administration will enhance economic growth, increase accountability of the state to its citizens, and more effectively mobilise domestic resources.