The three East African Community states trailed the average tax to GDP
ratio of the selected economies by close of 2015, an indicator of weak
tax policies. FOTOSEARCH
Changes in tax laws and rollout of digital transaction platforms
amid rising collection pressure on taxpayers pushed the average tax to
gross domestic product ratio of Kenya, Rwanda, Uganda and 13 selected
African economies to 19.1 per cent in 2015, a new report shows.
A
tax to GDP ratio refers to the share of a country’s tax revenues based
on the total value of goods and services produced by its economy and
helps to measure a country’s ability to finance its activities using
internal resources.
Findings from the report titled
“Revenue Statistics in Africa: 1990-2015” show that the average tax to
GDP ratio recorded by the 16 countries — the others being Cabo Verde,
Cameroon, Cote d’Ivoire, Democratic Republic of Congo, Ghana, Mauritius,
Morocco, Niger, Senegal, South Africa, Swaziland, Togo and Tunisia —
increased by 0.4 per cent to 19.1 per cent between 2014 and 2015.
This
was attributed to the fairly strong economic growth posted by the
economies, review of tax laws, particularly for income taxes, and gains
realised from introduction of electronic revenue collection tools.
However,
the three East African Community states trailed the average tax to GDP
ratio of the selected economies by close of 2015, an indicator of weak
tax policies, large informal sectors and absence of a uniform tax base
widening strategy, observers say.
According to the
report, published this month by the Organisation for Economic
Co-operation and Development, Kenya’s tax to GDP ratio in 2015 stood at
18.4 per cent, Uganda’s at 12.5 per cent and Rwanda at 16.7 per cent.
“We
do not have a common position on an EAC taxation strategy because of
significant differences in the economic structure of its member states.
Kenya,
for instance, has a very different economic landscape from that of
Uganda. We are working on a new set of tax reform measures for Uganda
that we think might widen its tax base significantly and raise its tax
to GDP ratio closer to that of better performing economies in Africa,”
said Mira Clara Salama, the IMF senior resident representative in
Uganda.
Significant contribution
The
report shows that the DR Congo tax to GDP ratio stood at 10.8 per cent
in 2015 while Ghana, Swaziland, Cameroon, Rwanda and Niger recorded
ratios of 15 per cent, 15.3 per cent, 16.4 per cent, 16.7 per cent and
17 per cent respectively.
In comparison, Cote d’Ivoire,
Cabo Verde, Mauritius, Senegal, Togo, Morocco, South Africa and Tunisia
registered 17.6 per cent, 19.2 per cent, 19.9 per cent, 20.8 per cent,
21.3 per cent, 26.1 per cent, 29 per cent and 30.3 per cent
respectively.
While intense civil conflict,
hyperinflation and considerable weaknesses in the tax administration
system are blamed for the DR Congo’s miserable tax to GDP ratio, the
lowest in the surveyed group, significant contributions from social
security payments are credited for Tunisia’s high tax to GDP ratio.
These contributions collected from formal sector employees accounted for 17.1 per cent of the country’s tax base in 2015.
Notable improvements in tax revenue collections were reported in Cabo Verde, South Africa and Uganda during 2015.
Notable improvements in tax revenue collections were reported in Cabo Verde, South Africa and Uganda during 2015.
Strategic
tax reforms implemented by Cabo Verde helped recover substantial tax
arrears accumulated by certain sectors, which triggered a 1.8 per cent
increase in the country’s tax to GDP ratio while a one per cent rise
effected in some individual income tax categories and inflation
adjustments to selected tax brackets and rebates triggered an expansion
in South Africa’s tax base which grew by 1.1 per cent in 2015, the data
shows.
Tougher measures
More
aggressive enforcement of value added tax and income tax measures,
particularly corporation tax and personal income taxes directly boosted
Uganda’s tax base in the same period despite persistent, structural
bottlenecks encountered in revenue mobilisation.
The
country’s tax base grew by 1.1 per cent in 2015 on account of stringent
collection measures that compelled large organisations to submit lists
of VAT compliant suppliers before obtaining tax refunds coupled with
tougher compliance measures applied on corporation tax clients.
“Our
economy was rebased in 2014 and this pushed down our tax to GDP ratio
to around 11.7 per cent. But we managed to raise it to 14.2 per cent
this year due to strong collections registered in the VAT and
corporation tax brackets. Unfortunately, data on the specific
contribution of these two tax heads to overall growth in our tax to GDP
ratio cannot be retrieved immediately,” said Henry Saka, Commissioner
for Domestic Taxes at the Uganda Revenue Authority.
Digital
transaction platforms such as the e-tax system for domestic revenue
collections, Asycuda World for Customs revenues, electronic cargo
tracking systems and the electronic fiscal devices used by revenue
bodies to capture real time sales data from traders and supermarkets,
helped revenue agencies collect more taxes, the report noted.
The
report found that VAT revenues accounted for 31.5 per cent of total tax
collections among the 16 countries captured in its research coverage,
reflecting a 7.2 per cent gain during the 2000-2015 period.
The
share of taxes collected on specific goods and services in the form of
import duties and excise duty amounted to 24.4 per cent of total
revenues, indicating a decline of 11.1 per cent during the period, while
the contribution of corporate and personal income taxes increased by
2.9 per cent and 0.9 per cent to 14.6 per cent and 16.3 per cent
respectively.
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