Many African countries struggle to maintain an adequate intake from tax revenue. Discussing this problem was Togolese businessman Jonathan Fiawoo. He is a board member for the African Stock Exchange and has written on recent tax-related problems for sub-Saharan Africa.

The International Monetary Fund (IMF) released their latest Regional Economic Outlook. The findings from this report were grim for most of the countries named. They noted that the policies currently in place will allow the country to grow less than 4%. However, the IMF did estimate that these countries could boost their revenue by 5% by optimizing their tax policies.

In short, the tax policies currently in place are outdated and do not take advantage of the changing times. Fiawoo agrees that Africa will have to reform tax policies which would provide a higher income for governments. Outdated technology and complicated procedures plague the current tax policy. The incentive for updating these policies should be clear. A better tax plan would result in more money for necessary public services such as health care and education.

Widespread Deficits

The IMF report goes on to state that the tax frontier in these countries is significantly lower, compared to any other country in the world. Additionally, it’s estimated that African countries are losing money each year to illegal financial outflows. Money that is not being taxed or accounted for in any other way is being taken out of the country or being used for transactions without any taxation. Most of this activity is illegal since tax avoidance and evasion is common.

Nigeria is the country with the worst tax compliance. Although this country has 195 million people, it has the lowest ration of tax to GDP at just 5.9%. In contrast, South Africa has a third of the population of Nigeria, but their ratio is 24.7%. What this ratio means in financial terms is that South Africa collects $57 billion in taxes each year while Nigeria only collects $27.5 billion.

This number is staggering, but it's understandable when you realize that most Nigerians simply do not comply with the tax code. The workforce in this country is around 77 million, but the government estimates that only 14 million pay income tax. Although tax evasion is common in all citizens, it's especially the higher income individuals who are more likely to be tax evaders. In fact, only 214 people in Nigeria pay more than 20 million nairas in tax.

Nigeria doesn't do much better with their value-added tax or corporate tax. Many companies simply do not comply, and businesses may not even be registered, making tax compliance even more of a challenge. While Nigeria is attempting to improve compliance, tax enforcement is a huge problem for them to address.

Improvements in Kenya

Kenya is a country that is taking the advice of the IMF and testing solutions to boost their tax revenue. They began using the technology known as Excisable Goods Management System (EGMS) to tag and trace products. While it was initially developed to prevent counterfeiting, it can also be used to prevent tax avoidance. Kenya originally began to track alcohol and tobacco but has expanded their reach into all drinks and cosmetics.

They've also introduced a new online tax return system that is online and can be used by businesses and citizens. These two programs have resulted in a rise in tax compliance by 45% which is impressive. While Kenya has met with resistance, it has been allowed to proceed.

Countries Making Changes

Kenya isn't the only country that is following the IMF's advice to increase their tax compliance. Togo authorities have also started to implement changes that will increase their compliance. They have not introduced new technologies but have instead reassessed current policies.

In order to improve their compliance, the Togo Revenue Authority worked to unify their national tax and customs services. The TRA was created in 2014 and since their founding, streamlined this process. This approach was surprisingly successful and succeeded in their expectations.

Although it was predicted that the tax revenues would decrease by 10%, it increased by 23% just one year after the creation. They are also in the process of replacing an outdated tax code. With new legislation that will take effect in 2019, there will be tax relief to small and medium-sized businesses. This is one of the changes to the code but is designed to encourage these smaller businesses to pay their taxes.

Conclusion

In short, the problem of state finances and budgets in Sub-Saharan African countries has many causes. Outdated policies, difficulty enforcing policies, and non-compliance are simply a few of them.

To address these problems, countries must implement a more robust framework and ensure that policies are being enforced. With greater tax reform, Africa can take a major step forward with their economy and become a larger player in the global market. By combining more recent technology with increased transparency and efficiency, they stand to have a bright future ahead of them.

Author's Bio: 

Md Rasel is a professional blogger.