The Bank Supports Efforts to Strengthen Domestic Taxation in Africa

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Date: 19/11/2009
Location: Kampala, Uganda

The African Tax Administrators Forum (ATAF), an African network of tax commissioners, was officially launched at a ceremony in Kampala, Uganda, opened by the President of Uganda, Mr. Yoweri Museveni on 19-20 November 2009. The inaugural conference was attended by 29 African tax commissioners, as well as policy-makers and development partners.

The African Development Bank is a strategic partner of ATAF since its inception in 2008.  The Bank’s delegation was lead by Mr. Gabriel Negatu, Director, and included Carlos Santiso, Peninah Kariuki and Edward Sennoga.

The development of ATAF comes at a crucial time for tax administrations in Africa. Addressing 125 delegates from 29 African tax bodies, donor agencies and multinational organisations, Mr. Museveni urged delegates to take up the enormous challenge of mobilizing tax revenue for Africa’s development. “This challenge has been further compounded by the international financial crisis, a slowdown in trade and capital flight”, he said

The global economic downturn has brought renewed emphasis on the critical importance of domestic taxation and resource mobilisation for Africa’s development. Better taxation contributes to improving the enabling environment for the development of the private sector and the promotion of economic growth. Domestic revenue is the main and most predictable source for financing development and service delivery, helping countries move away from the dependence of aid and single commodities, such as oil and mineral resources. Nevertheless, as the Chair of Nigeria Federal Inland revenue Services, Mrs. Ifueko Omoigui Okauru underscored, the objective of efficient and fair mobilisation of domestic resources is not only to respond to an exogenous crisis which originated outside Africa, but more fundamentally “to build a stronger Africa ... and have a voice in tax policy reforms.”

Although still in its consolidation phase, ATAF brings together the heads of African tax administrations to discuss common challenges and key priorities for effective domestic resource mobilisation. ATAF’s objective is to become a platform for articulating African tax priorities and building institutional capacity of African tax administrations through peer learning and the sharing of good practices. For Brahim Kettani, Director General at the Moroccan tax administration, ATAF provides “a unique forum where African countries can learn from one another.”

For Oupa Magashura Commissioner for the South African Revenue Service, “this forum will allow us to pursue stronger cooperation and build a united approach in the field of tax policy and revenue realization among African countries”. “The formation of a continental tax administration forum reflects a new approach and thinking on tax in Africa,” he aded Allen Kagina, Commissioner General Uganda Revenue Authority added that it is “a significant move away from dealing with tax collection in a purely technical or administrative manner, to a deeper understanding of the role of taxation in state building.” She however noted capital flight, presence of tax havens and the continent’s dependence on foreign assistance and indebtedness as some of the most pressing issues of the revenue sector. “Billions of dollars leave the African continent each year. Between 1961 and 2004, these outflows are estimated at around 7.6% of the annual GDP of the region and in effect make African countries net creditors of donor countries,” Kagina said.

Participants underscored that, in the area of economic governance, progress is being made, not everywhere, not all the time, but progress is being made over time. For example, since 1985, 15 countries such as Ghana, Rwanda, Uganda, Lesotho, South Africa, and Tanzania have established autonomous revenue agencies which have contributed to strengthen the independence and efficiency of tax administration. For the Commissioner General of the Uganda Revenue Authority, Mrs. Allen Kagina, “good taxation strengthens democracy, by bringing more accountability, better governance and improved services”. As such, African tax commissioners noted that efficient, fair and transparent taxes not only help governments finance development, but contribute to anchor accountability and build effective states; they “provide the fiscal foundations of the fiscal pact between states and citizens”, said South African Minister of Finance and former Tax Commissioner, Pravin Gordhan in his statement.

However, many challenges, new and old, still remain to increase the tax effort in line with the taxable capacity of African countries.  Sub-Saharan Africa is still characterized by low levels of tax effort, often below the threshold of 15% of GDP required for the effective delivery of basic services, with high levels of dependence on aid and rents from natural resources and extractive industries. As Gabriel Negatu, Director of the ADB Governance, Economic and Financial Reforms Department (OSGE) underscored, “the power of raising taxes also brings responsibilities; it is an issue of domestic accountability. We should therefore not only strengthen how taxes are collected, but at the same time monitor how those revenues are used and accounted for.”

Further reform is required to strengthen the economic and governance foundations of taxation, by broadening the tax base, strengthening tax administration, enhancing direct taxation, rationalising tax exemptions, fighting fiscal corruption. “Improving domestic revenue mobilisation is not only an economic challenge; it is also a governance challenge” said Carlos Santiso, ADB Manager of the Governance Division (OSGE.1); “Africa’s fiscal response to the food, fuel and financial crises through fiscal stimulus packages has been marked by an unusual pragmatism, the use of tax policy as a credible fiscal policy tool and new impetus for improving efficiency of tax systems”. Better revenue governance also requires improving the credibility of tax policy in terms of stability, predictability and equity and strengthening transparency and accountability in revenue management (including through better oversight by parliaments and civil society), especially in sectors such as extractive industries (oil, gas and mining).

The Bank reiterated its support to ATAF, pledging further financial and technical support for its consolidation, including through the Canadian Trust Fund. Helping regional member countries improve revenue governance is an important pillar of the Bank’s Governance Strategic Directions and Action Plan for 2008-2012. The strategy underscores the role of taxation for financing development, strengthening governance, building capable states and improving the business environment. In 2008, only 2% of total bilateral aid for governance and economic management focused on tax-related matters.

In response to the Monterrey (2002) and Doha (2008) commitment on financing for development, as well as the Paris Declaration (2005) and Accra Agenda of Action (2008), the Bank is progressively scaling up its assistance to strengthen country tax systems by encouraging further reform in the policy, regulatory and institutional framework for domestic revenue mobilization. It is expected, that an active Bank involvement in this field will open significant opportunities for Bank operations at the country level. The Bank is currently strengthening capacity and encouraging reforms in tax policy and administration in Sudan, Liberia, Gambia, Cap Verde, Tanzania, and Swaziland.

The Bank also supports tax reform and better revenue governance through platforms and initiatives such as the African Technical Assistance Centres (AFRITAC), the African Investment Climate Facility (ICF) and the Extractive Industries Transparency Initiative (IETI). The 2010 African Economic Outlook (AEO) will focus on Public Resource Mobilization and Aid and take stock of progress made, pending challenges and new directions for tax policy and administrations in Africa.

Only recently the G8 countries endorsed ATAF at their summit in Italy in July 2009, following on the 2007 G8-Action Plan for Good Financial Governance in Africa. Canada is expected to emphasize this important topic even further during its G8 presidency in 2010.