“For every £1 spent on operating costs an additional £100 is returned in tax revenues” is the claim for results achieved on a programme to boost tax collecting in developing nations. The UK Government’ s Department for International Development (DFID) on 19 Feb announced plans to give £47 million ($61m) to boosting tax collection “aimed at helping end their reliance on aid”.
According to calculations by website Nurmara , using estimates by the Organisation for Economic Co-operation and Development (OECD), tax collection in Africa is 18% of GDP (15% in sub-Saharan Africa). OECD says tax revenues in developing countries are about 14% of GDP, far lower than the 35% average for developed countries.
Less tax revenue means less funding for public services. In a press release International Development Secretary (Minister) Penny Mordaunt said: “This new UK support will help countries collect more taxes and leave them less reliant on aid. It will turbo charge their development.
“Governments in the developing world want to move beyond aid and we want to help them get there faster. We are supporting their efforts to implement a fairer, more transparent tax system which is vital in helping our aid money go further.”
The UK Government’s £47m package is broken down:
• £10.3m to the OECD including support to Tax Inspectors Without Borders (TIWB), an initiative by OECD and United Nations Development Programme which assists developing countries to implement international tax standards by sending experts overseas.
• £7.4m to the World Bank’s Global Tax Programme to work with countries to build effective tax systems.
• £3.7m to support the Platform for Collaboration on Tax (PCT), launched in 2016 by the International Monetary Fund (IMF), the United Nations and the World Bank Group. It aims to boost cooperation on tax issues.
• £4.2m to the African Tax Administration Forum (ATAF), based in Pretoria. The website was updated last year on events and reports, but outlines strategic objectives to be achieved in 2013-2015. According to the UK Government, ATAF “provides leadership of the tax reform agenda on the African continent and represents the needs of developing countries in international forums.” HMRC (the UK tax authority) will provide up to 2 tax experts for 4 years to help ATAF’s member states build a sustainable and impactful organisation.”
• £2.25m to the Intergovernmental Forum for Mining, Minerals, Metals and Sustainable Development (IGF) to help developing countries tackle tax avoidance in mining and unlock opportunities to increase government revenues and economic activity in the sector.
• Around £1m to the IMF Tax Administration Diagnostic Assessment Tool (TADAT), designed to provide an objective assessment of the health of key components of a country’s system of tax administration.
• Around £13m to the IMF’s Africa Regional Technical Assistance Centres’ (AFRITACs), which support African countries to build capacity in tax administration, public financial management, economic and financial sector management, and national statistics. Around £2.6m will specifically support boosting tax revenue.
• Around £5m to Institute for Fiscal Studies to develop tax-policy analysis in 4 developing countries, to reduce poverty and inequality and a research fund to increase knowledge of tax collection in developing countries.
Useful OECD statistics and overviews on tax collection in 21 African countries can be found via this website.
ACMN OPINION – PROUD TAXPAYER OF THE YEAR AWARD
One marked difference between paying tax in UK and in some African countries is how friendly and supportive customer-facing tax officials can be in UK, projecting an image that they realize running a business is hard and competitive, and trying to make it as easy as possible for businesses to meet their obligations to pay tax.
Dealing with some African tax administrations makes you feel you are dealing with officials determined to trick or extort you into handing over more than you should. Appeal mechanisms based on “pay the demand first, query later” and it can take years to receive repayments. As tax authorities push up tax as a percentage of GDP they tend to hit companies that try to pay tax the hardest, because they are more transparent and give unscrupulous tax officials more to grab, compared to companies that seek to be as shady as possible. The result is far less transparency and tax collection. Tax putting businesses out of operation, losing future revenues including payroll tax, is not unknown when they could be doing all they can to nurture businesses into paying their tax.
By comparison, in several European countries I have been surprised to hear people say “I’m happy to pay my fair share of tax”. They feel they get value for their money such as health, education, infrastructure, and social welfare for the needy. They also see tax as a measure of their success in making money.
African tax administrations can improve skills at making tax collection easy and transparent for businesses.
African countries should start awards for taxpayer business of the year and business leaders should be proud to compete for it.