World Bank outlines how taxes can help make countries self-reliant

In the Bank’s new report, it stated that, tax revenues allows countries to be less reliant on support from foreign countries and natural resource revenues. But then some African countries face some challenges to collect enough taxes.

Tax collection in Africa is low but in 2018 – one of the most updated year with wide data coverage – Sub-Saharan African countries collected 14% in tax as a share of GDP.

This continent wide-average masks significant variation in countries. High and Upper-middle income countries like Seychelles, Namibia and South Africa have rates as high as 28-33% yet low-income countries like Chad, Democratic Republic of Congo and Ethiopia have rates as low as 7%.

Taxpayers in Africa face higher tax compliance costs, even compared to countries at similar income levels.

African countries spend on average 273 hours per year on taxes, a greater burden than the average of 220 hours in other regions (World Development Indicators, 2018).

Tax administration patterns in African countries feature lower reliance on technology and greater reliance on manual systems and in-person interactions between taxpayers and tax collectors. In African countries, 72 percent of firms report being required to meet with tax officials, and for those affected, 3.2 meetings are held on average each year (World Bank Enterprise Surveys, 2010-2020).

In contrast, 37 percent of firms in Europe and Central Asia are required to meet with tax officials and of those affected, 2.1 meetings are held on average.

The high frequency of meetings is also correlated with corruption indicators in taxation. On average, 17 percent of firms in Sub-Saharan Africa report that they are expected to give gifts in meetings with tax officials.

 However only 7 percent report the same in Europe and Central Asia. Similarly, 28 percent of firms in Sub-Saharan Africa cite tax administration as a major constraint, compared to 16 percent in Europe and Central Asia (World Bank Enterprise Surveys, 2010-2020).

Along the same lines, the use of information technology in tax administration, such as e-fling, increases with national income. For example, as of 2016, 85 percent of high-income countries, 65 percent of middle-income countries and 32 percent of low-income countries had adopted e-fling (World Bank, 2016). Its prevalence has since continued to grow rapidly.