On Monday, June 7, 2021, the African Development Bank (AFDB) hosted a webinar aimed at enlightening African countries on their response to issues surrounding taxation and its impact on debt management, especially in light of issues caused by the COVID-19 pandemic. 

In his opening remarks, Mr Abdoulaye Coulibaly, Director of the Governance Department, AFDB, thanked partner organisations and the government of Japan for sponsoring the session. He also referred to the first seminar which focused on the importance of transparency on the part of governments in debt management. 

We know that the tax to GDP ratio is low in Africa… We need to focus on forecasting tax revenues bearing in mind that some sources are predictable and more forecastable than others. We consider that the strategies for debt management must be looked at in conjunction, hence the topic of our webinar.” – Mr Abdoulaye Coulibaly, Director of the Governance Department, AFDB.

Dr Nara Monkam, Director of Research, African Tax Administration Forum (ATAF) gave the first presentation at the webinar. She began by listing industries adversely impacted by COVID-19; tourism, manufacturing, hospitality, food services, construction, mining, arts and entertainment. All these sectors represent lost opportunities for taxation and revenue for most African governments. She therefore recommended:

  • Unlocking the potential of existing taxes by reviewing and making changes where necessary and scrapping conventions that are no longer tenable.
  • Effectively taxing sectors such as telecoms, banking, insurance, construction and extractive sectors.
  • Exploring the potential of environmental taxes, feeding into sustainability and economic resilience.
  • Unlocking the potential of property taxes, and
  • Taxing the digital economy.

She also emphasized the need for African governments to pay attention to reassessing their property tax policies. This is in the context of African countries seeing expansion in cities and struggling to meet up with the infrastructure and funding necessary to meet growing demands. She suggested that for countries to engage in property tax reforms, they will need to:

  • Mobilise strong political will and support. Without political support, efforts to implement reforms will be moot.
  • Enhance capacity and institutional support, increasing both their technical and administrative competence.
  • Invest in IT to unlock more efficient tax administration.

Dr. Monkam went on to recount the success story of Mzuzu, a Malawi Suburb that has seen its tax revenue grow from K50 Million to over K350 million between 2013 and 2018. This, she said, was achieved by assessment, sensitization, and government emphasis on tax compliance.  

There is a need to modernize the tax structure and emphasize the use of technology to improve tax administration. Education of taxpayers will help in increasing voluntary compliance.” – Dr Nara Monkam, Director of Research, ATAF.

Mr Phillippe K. Tchodie, Chairman, African Tax Administrators Forum (ATAF) and Commissioner General, Togo Revenue Authority, spoke to the challenges Togo faced as regards taxation and COVID-19. He emphasized that the strategy of the Togolese government was to increase revenue while simultaneously reducing the country’s debt profile. This will help de-risk their economy, making it more attractive for foreign direct investment. 

We have explored several options…Togo’s strategy is to increase the component of property tax which is currently very low. Currently, we are carrying out a study with the AFDB to rationalise expenditure and see how to enhance the supervision of large corporations. We think that we can increase collection if we can reduce transfer pricing.” – Mr Phillippe K.Tchodie Board Chairman, ATAF

Mr Penda Ithindi, an adviser to the Namibian Minister of Finance, addressed how Namibia managed its debt situation. He mentioned Namibia’s membership of the SACU (South African Customs Union) where its share of revenue is 34 percent. This revenue has allowed the government to invest in social programmes, thereby extending grants to all segments of society. 

“Our main proposition is that a key consideration is inclusive economic growth. We find growth to be at the centre of public debt and tax policies. For one to reduce debt over time, the growth should be broad-based, sustainable, and enforced over time. Namibia places a high premium on how the system supports growth and promotes economic agents to produce. In the African context, we find that tax systems put pressure on investments. Taxing investments to death.” – Mr Penda Ithindi, Adviser to the Namibian Ministry of Finance. 

Ms Alexandra Readhead, Lead, Tax and extractive Industries, Intl Institute of Sustainable Development (IISD), gave the second presentation where she established a link between the taxation of resources, fiscal policy, and debt management. In her presentation, she established that extractive industries have a link to GDP. 

There are lots of countries that are dependent on extractive industries but have a high level of debt. Resource-dependent countries in Africa with high levels of debt are a source of concern. Countries with natural resources should have higher public spending without having to resort to debt.

“Resource backed Loans (RBLs) are a major contributor to debt risk in African countries. These loans are usually unclear and do not reflect a good value for the resources especially when you take into account the future value of the aforementioned resources. These loans are in effect mortgaging the resources of a country. Conversely, they can be a cheap source of finance, if managed properly.” – Ms Alexandra Readhead, IISD.

She further addressed the need for governments across Africa to manage their fiscal policy while accounting for risk and reward in the overall fiscal framework they adopt. All these cut across the backdrop of transparency and effective use of incentives as contained in these agreements. 

Contributing to the discussion, Mr Arron Singhe of the AFDB, mentioned that the organization provides support to countries in understanding the determinants of income in the revenue sector. He went on to say this is achieved through financial revenue forecasts in addition to established models. This is achieved through resource mobilization, capacity and capability strengthening and the provision of policy advice. 

“There are opportunities in local content and diversification. Subsidy of petroleum products is an example of this. Nigeria as a consequence of this policy, maintained low petroleum prices, while neighbouring countries kept their prices in line with the international level. This resulted in the smuggling of petroleum products into other countries for a larger profit.” – Aaron SInghe, Chief Oil Sector Officer, AFDB.

He went on to reaffirm that it is in the interest of the government to tax legal enterprises, quoting Al Capone – You can’t collect taxes from illegal money. 

Mr Kalyyu Gebre-Selassie of the AFDB also mentioned the need to broaden the tax base by considering the informal sector. He maintains that in countries, where the economy is dominated by the informal sector, its capacity to generate tax revenue, is limited. He further reiterated the commitment of the AFDB to work with these countries in resolving these challenges. 

Written by Ogodilieze Osaji-Ugo


Elsewhere on Ventures

Triangle arrow