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Tax Reform

How to Fix Fragile States? The OECD Reckons it’s All Down to Tax Systems.

Duncan Green's picture

‘Over-generous tax exemptions awarded to multinational enterprises often deprive fragile states of potential revenues that could be used to fund their most pressing needs.’ Another broadside from rent-a-mob? Nope, it’s the ultra respectable OECD in its Fragile States 2014 report.

After years of growth, aid to fragile states started to fall in 2011, so the report centres around an urgent call for OECD member states to help their more fragile cousins find a post-aid arrangement that funds essential state functions and builds the ‘social contract’ with citizens.

The key is a shift from aid dependence to ‘domestic resource mobilization’ (taxes and natural resource royalties), currently averaging a feeble 14% of GDP across fragile states and far too dependent on royalties from oil, gas and mineral extraction. Foreign direct investment (factories, farms etc) is generally low in volume and volatile.

Africa’s Tax Systems: Progress, but What Is the Next Generation of Reforms?

Duncan Green's picture

Taxation is zipping up the development agenda, but the discussion is often focussed on international aspects such as tax havens or the Robin Hood Tax. Both very important, but arguably, even more important is what happens domestically – are developing country tax systems regressive or progressive? Are they raising enough cash to fund state services? Are they efficient and free of corruption? This absolutely magisterial overview of the state of tax systems in Africa comes from Mick Moore (right), who runs the International Centre for Tax and Development (ICTD). It was first published by the Africa Research Institute.

Anglophone countries have led the way in reforming tax administration in Africa, considerably more so than their francophone peers. The reasons for this are numerous. Networks of international tax specialists are based mainly in English-speaking countries. Many of the modern systems that promote best practice within tax authorities were developed in anglophone countries, especially Australia. International donors, and particularly the UK’s Department for International Development (DFID), have directly and indirectly promoted a lot of reform of national tax authorities. In fact, this has been one of the success stories of British aid.

A package of reforms has been pursued in anglophone Africa. The most profound change is the amalgamation of revenue collection under a single agency, often referred to as a semi-autonomous revenue authority (SARA). Previously, it was common for tax collection to be dispersed among a number of departments within the Ministry of Finance. For example, different people would be in charge of collecting income tax, VAT and excise taxes. Multiple lines of tax collectors existed, usually not co-operating with one another and each trying to strike private deals with taxpayers. This structure – and practice – still occurs in much of francophone Africa.