Mick Moore at Africa Research Institute looks into the different tax regimes of anglophone and francophone countries in Africa:
Some tax authorities have been quite innovative in their efforts to capture revenue in the informal economy. Some success has been achieved by working closely with local business and trader organisations. For example, the Ghana Revenue Authority (GRA) reached an agreement with a union of bus drivers in Accra to collect a daily income tax. In exchange, bus drivers were issued with a ticker and given assurances by the police that they would not be stopped at road blocks and fined for insignificant – or invented – transgressions. In this example, however, the initial success was stymied when the union stopped handing over all the money to the GRA.
I’ve long thought that the informal sector is one area where African governments could tap into to collect taxes to shore up their national budgets. Many governments haven’t even attempted to do anything about it because it presents a daunting problem. How do you organize, register, and empower such a large and variegated sector of the economy to pay taxes? What incentives do you provide them in exchange of organizing, collecting and rendering unto Caesar what is due him.
Even more daunting though, what services is the government able to provide in exchange? While this might seem like a chicken and egg scenario, ultimately, I think the governments have to put their service delivery house in order first, before trying to collect taxes from the informal sector. I think the above point also applies to what Moore also saw as a sector ripe for an overhaul – property taxes.
Property tax is the number one unexploited revenue source in Africa. It is a largely untapped source of funding for sub-national governments. In fact, property tax is underexploited all over the world. In many countries, a colonial system for taxing property is still in place which is very complicated and tends to be weighted in favour of wealthier elites. Most property tax decisions are made locally, where class interests can be particularly powerful. Any sensible tax system would include provisions to revalue properties every five years, especially in rapidly urbanising countries. In reality, political decisions are made not to undertake revaluations for a long time – so property tax is an ever-shrinking proportion of total revenue.
If I was a forward-thinking government official, I’d put a large amount of donor capital into shoring up tax collection mechanisms in key economic sectors first. Then use that tax revenue to fund service delivery. I am aware it is not quite as simple as fix-tax-collection-and-your-development-problems-are-over. It is a major step to getting off the aid teat, and a major step to governments being held accountable to their people – whose taxes they have a sole responsibility to deploy for the good of the country, not just themselves.