African economies sustain progress in domestic resource mobilisation
Africa has sustained gains in domestic resource mobilisation made since 2000, as tax revenues remained stable in 2016, according to Revenue Statistics in Africa 2018.
Providing internationally comparable data for 21 participating countries, the report finds that the average tax-to-GDP ratio was 18.2% in 2016, the same level as in 2015, which represents a strong improvement from 13.1% in 2000.
The third edition of Revenue Statistics in Africa, released on 31 October 2018 in Paris during the 18th International Economic Forum on Africa, shows that tax-to-GDP ratios varied widely across African countries, ranging from 7.6% in the Democratic Republic of the Congo to 29.4% in Tunisia in 2016.
Six countries – Mauritius, Morocco, Senegal, South Africa, Togo and Tunisia – had tax-to-GDP ratios greater than or equal to 20% in 2016. In comparison, the average tax-to-GDP ratio for Latin America and the Caribbean was 22.7% and 34.3% for OECD countries in 2016.
Revenue Statistics in Africa is a joint initiative between the African Tax Administration Forum (ATAF), the African Union Commission (AUC) and the Organisation for Economic Co-operation and Development (OECD) and its Development Centre, with the support of the European Union.
The publication, which now covers 21 countries, shows that revenue trends are mixed. Between 2015 and 2016, the tax-to-GDP ratios of 11 countries increased while those of 10 countries in the sample decreased. Botswana registered the highest increase (1.3 percentage points) followed by Mali (1.2 percentage points). The largest decreases (of over 2.0 percentage points) occurred in the Democratic Republic of the Congo and Niger.
The changes in tax-to-GDP ratios were primarily due to economic factors. Declines in oil prices coupled with lower activity among mining and oil companies contributed to the decreases in the Democratic Republic of the Congo and Niger, while a significant increase in the sale of diamonds in Botswana has increased revenues. In contrast, the increased tax-to-GDP ratio in Mali is partly explained by improvements to tax administration.
African economies continue to rely heavily on taxes on goods and services, which accounted for 54.6% of total tax revenues in the Africa (21) average. Value-added taxes (VAT) alone accounted for 29.3% of revenues. However, the contribution of income taxes is increasing: taxes on income and profits accounted for 34.3% of total revenues across the Africa (21) in 2016 and have contributed the most to growth in tax revenues since 2000, increasing by 2.6% of GDP to reach 6.2% of GDP in 2016. Corporate income tax revenue increased by 1.4 percentage points over this period to 2.8% of GDP, while revenue from personal income tax rose from 2.1% to 3.0% of GDP in 2016, a historic high.
The report also contains data on non-tax revenues, which continued to decline across the 21 countries on average in 2016 but remain an important source of income in certain countries. These revenues, which include income from natural resources and grants, exceeded 5% of GDP in nine of the 21 countries.
Revenue Statistics in Africa is an important part of the African Union’s pdf Strategy for the Harmonization of Statistics in Africa (SHaSA) (1.97 MB) and is aligned with the African Union’s Agenda 2063 and SDG 17.1. This edition contains a special chapter on SHaSA, identifying its approach to establishing an efficient statistical system that covers the political, economic, social, environmental and cultural development and integration of Africa, as well as the role of Revenue Statistics in Africa in this strategy.
Tax revenues as a percentage of GDP
The Africa (21) average tax-to-GDP ratio was 18.2% in 2016, which is 5.0 percentage points higher than in 2000 but unchanged from 2015.
In 2016, tax-to-GDP ratios ranged from 7.6% in the Democratic Republic of the Congo to 29.4% in Tunisia. Six countries (Mauritius, Morocco, Senegal, South Africa, Togo and Tunisia) had tax-to-GDP ratios greater than or equal to 20% in 2016.
The change in the tax-to-GDP ratio since 2000 is comparable with the increase in the LAC region (4.7 percentage points) and significantly stronger than growth amongst OECD countries over the same period (0.4 percentage points).
Between 2015 and 2016, the tax-to-GDP ratios of 11 countries increased while those of 10 countries in the sample decreased. This contrasts with 2015, when the Africa (21) tax-to-GDP ratio increased by 0.5 percentage points from the previous year on average and in 15 of the 21 countries.
VAT revenue as a percentage of GDP in the Africa (21) increased by 2.0 percentage points from 2000, to 5.3% in 2016. VAT revenue accounted for the highest share of tax revenues in 2016 at 29.3%, an increase of 4.9 percentage points from 2000. The share of taxes on trade has fallen from 17.9% of total tax revenue to 11.6% over the same period.
Revenue from income taxes contributed the most to growth in the average tax-to-GDP ratio of the Africa (21) between 2000 and 2016, increasing by 2.6% of GDP over this period to reach 6.2% of GDP in 2016. On average across the Africa (21), corporate income tax revenue increased by 1.4 percentage points – from 1.4% to 2.8% of GDP – between 2000 and 2016.
The Africa (21) average tax structure is similar to that of LAC countries, although social security contributions in LAC are, on average, considerably higher. The Africa (21) average share of personal income tax (PIT) revenues to total tax revenue was 15.8% in 2016, lower than the OECD average (24.4%) but higher than the LAC average (9.7%).
Non-tax revenues were equivalent to at least 5% of GDP in nine of the 21 countries in 2016. Of the 21 countries, all but four had lower non-tax revenues as a proportion of GDP in 2016 than in 2015.
Africa Forum 2018: Africa’s Shifting Boundaries
The 18th International Economic Forum on Africa took place on 31 October 2018 in Paris. The Forum took a closer look at the topics of Growth, Employment, Migration and Development, through the lens of Africa’s latest Milestone – the signature of the African Continental Free Trade Area (AfCFTA) by 44 African countries on 21 March 2018 in Kigali, Rwanda. The following topics were discussed:
Africa’s Development Dynamics
The new Africa’s Development Dynamics (AfDD) report presents a forward-looking Africa that is resolutely open to the world and towards the future. Drawing on the most recent statistics, the AfDD assesses recent economic, social and institutional developments and identifies the megatrends that are influencing Africa and its integration into the global economy. As such, AfDD’s first edition provides prospective analysis to foster more inclusive growth, create employment and reduce inequality. This session also saw the launch of the 2018 edition of Revenue Statistics in Africa.
Session 1: The Promise of Regional Integration
The African continent has experienced strong growth at 5% between 2000 and 2014 thanks to high commodity prices, improved macro-economic management, and economic diversification strategies. This strong performance has led to the “Africa rising” narrative. However, this growth has not sufficiently reduced poverty nor improved social inclusion and well-being. Recent growth has not translated into enough quality jobs. Africa is now facing a slower growth regime (projected at about 4% annually between 2018 and 2022) that will need to have much stronger development outcomes. Reducing inequalities is crucial to make growth more inclusive. To that end, deploying redistributive policies effectively is key.
On 21st of March 2018, African countries created history by signing the pdf African Continental Free Trade Area (AfCFTA) agreement (4.67 MB) in Kigali, Rwanda. At the last AU Summit, five more countries, including South Africa, announced they have joined the AfCFTA; making it to forty-nine (49) signatories. After internal consultations, Nigeria Chief Trade Negotiator has just indicated the continent’s economic powerhouse is now ready to sign. In this new economic context, can the envisioned continental integration foster more inclusive growth, purveying millions of decent jobs? What policies will be necessary to accelerate integration and deliver more and better quality employment?
Session 2: Africa and Migration: Deconstructing Biases
Both policy and public debate on migration often rely more on perception than evidence. Analysis teaches us that the number of migrants relative to the population of developing countries increases as their per capita income rises. Fifty-three percent of African migrants live in another African country. In that context, if emigration from the continent is rising fast, emigration has the particularity of being mostly interregional.
Simultaneously with the AfCFTA treaty and the Kigali Declaration, a pdf Protocol on the free movement of people (3.80 MB) was adopted this spring by 30 African countries. The protocol aims at facilitating the establishment of the African Economic Community by supporting the implementation of free movement of persons, right of residence and right of establishment in Africa. The African Union has launched its continental passport to “realise the dream of visa-free travel for African citizens within their own continent by 2020”. As Africa undergoes these major transformations, can the continent seize the potential of its intra-regional migration flows to benefit its developmental needs?
Closing Session: Engineering Unity
The Regional Economic Communities (RECs) of Africa are the interface between the national and the continental levels for enhanced regional cooperation towards a more integrated continent and a better integration of Africa to the world economy. Africa has long made regional integration a core strategy: the continent is now accelerating efforts to realise the African Economic Community outlined in the 1991 African Union Abuja Treaty. The RECs, by promoting policy harmonization and enabling economies of scale, are de facto the “building blocks” of continental economic development.
After the advent of the Tripartite Free Trade Area – the “Cape to Cairo free trade area”, assembling three RECs together into a single new zone in 2015 – the Continental Free Trade Area was launched in March during an Extraordinary Summit of the African Union. In that context of accelerated integration, what will be the future operational linkages between the RECs and the continental area? How can RECs maximise their contribution to Africa’s integration?