The Organisation for Co-operation and Economic Development (OECD) has compiled taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. revenue data for countries around the world—including 30 African countries, where tax revenue as a percent of GDP is on average lower than in other regions.
On average, this tax-to-GDP ratio for those 30 countries was 16.5 percent, compared to the OECD average of 34.3 percent and the Latin American and Caribbean (LAC) average of 23.1 percent.
The regional OECD report on tax revenue statistics in Africa covers the years 1990 to 2018, breaking down current tax structures in the region and how they have evolved over time.
Between 2010 and 2018, the average African tax-to-GDP ratio increased by 1.4 percentage points, from 15.1 percent to 16.5 percent, mainly due to revenue increases from value-added taxes (VAT, 1 percentage point) and individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. es (0.7 percentage points), while corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es decreased (by 0.5 percentage points). The average ratio has plateaued at 16.4/16.5 percent since 2014, as increases in some countries offset decreases in others.
Tax-to-GDP ratios vary significantly across African countries, however. In 2018, Seychelles (32.4 percent), Tunisia (32.1 percent), and South Africa (29.1 percent) had the highest tax-to-GDP ratios of the 30 countries covered. Nigeria (6.3 percent), Equatorial Guinea (6.3 percent), Chad (7.1 percent), and the Democratic Republic of the Congo (7.5 percent) had the lowest.
Taxes on goods and services were on average the greatest source of tax revenue for African countries, at 51.9 percent of total tax revenues in 2018. VAT contributed on average 29.7 percent, making it the most important tax on goods and services. Corporate taxes accounted on average for 19.2 percent of all tax revenues, and individual taxes accounted for 17.5 percent. Social insurance taxes and property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es played less significant roles, at 7.2 percent and 1.6 percent, respectively.
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On average, African countries’ tax structure is relatively similar to that of LAC countries. Notable differences are Africa’s relatively higher reliance on individual taxes and lower reliance on social insurance taxes. The average OECD tax structure differs quite substantially from that of the African average, as African countries tend to rely less on individual taxes, social insurance taxes, and property taxes, and more on corporate taxes and consumption taxA consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or an income tax where all savings is tax-deductible. es.
Between 2010 and 2018, revenue sources have shifted to VAT (increase of 2.8 percentage points of total taxes) and individual taxes (increase of 2.1 percentage points of total taxes). While the share of individual taxes is still lower than the share of corporate taxes, corporate tax revenue has declined by 2.3 percentage points of total tax revenue during the same time frame. Consumption taxes other than VAT have declined by 2.8 percentage points of total revenues.
The decline in consumption taxes other than VAT in many African countries is partly due to lower trade tax revenues. Trade liberalization across the region has led to reduced import tariffs, a narrower base of goods and services subject to excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es, and the elimination of taxes on exports, lowering overall trade tax revenues.
As mentioned in the special feature of the report on COVID‑19 and the African Continental Free Trade Area AfCFTA, COVID-19 has delayed the implementation of AfCFTA. In the short term, the agreement is likely to moderate the effects of COVID‑19 by strengthening the intra‑African trade and accelerating economic recovery. In the longer run, it will likely play an important role in protecting the continent against future shocks and bring additional revenues resulting from economic growth generated by closer integration. However, in the short term, AfCFTA will mostly impact the revenues of low‑income countries. Therefore, appropriate monitoring of these countries will be needed.
The OECD report also includes VAT revenue ratios for 29 African countries. This ratio looks at the difference between the VAT revenue actually collected and collectable VAT revenue under a theoretical VAT applied at the standard rate on all final consumption. The difference in actual and potential VAT revenues is due to 1) policy choices to exempt certain goods and services from VAT or tax them at a reduced rate, and 2) lacking VAT compliance. Higher VAT revenue ratios indicate a broader tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. , implying a more efficient VAT structure.
In 2018, the average African VAT revenue ratio stood at 0.37, lower than the LAC average (0.58) and OECD average (0.56). Cabo Verde (0.73), South Africa (0.61), and Togo (0.57) had the highest VAT revenue ratio, while Equatorial Guinea (0.06), Chad (0.07), and the Democratic Republic of the Congo (0.13) had the lowest ratios.
|Individual Taxes||Corporate Taxes||Social Insurance Taxes||Property Taxes||Value-Added Taxes (VAT)||Consumption Taxes Other than VAT||Other|
|Democratic Republic of the Congo||14.23%||30.21%||6.12%||0.20%||25.25%||18.96%||5.04%|
Source: Author’s calculation based on OECD/AUC/ATAF, Revenue Statistics in Africa 2020: 1990-2018 (OECD Publishing: Paris, 2020), https://doi.org/10.1787/14e1edb1-en-fr.
Notes: Figures include sub-national government tax revenues for Eswatini, Mauritania, Mauritius, Morocco, Nigeria (state revenues only), and South Africa. Sub-national government tax revenues are not available in other countries.
Individual Taxes covers the OECD category 1100 Taxes on income, profits, and capital gains of individuals. Corporate Taxes covers the OECD category 1200 Taxes on income, profits, and capital gains of corporates. Social Insurance Taxes covers the OECD category 2000 social security contributions (SSC). Property Taxes covers the OECD category 4000 Taxes on property. Value-Added Taxes (VAT) covers the OECD category 5111 Value-added taxes. Consumption Taxes Other than VAT covers the OECD category 5000 Taxes on goods and services minus the category 5111 Value-added taxes. Other covers the OECD categories 1300 Unallocable between 1100 and 1200; 3000 Taxes on payroll and workforce; 6000 Taxes other than 1000, 2000, 3000, 4000, and 5000; and custom duties collected for the EU.
Botswana: The breakdown of revenue from income tax by personal income tax and corporate income tax is not available.
The Africa average should be interpreted with caution as data for social security contributions (category 2000) and property taxes (category 4000) are not available or are partial in a few countries. Social security contributions are not available for Chad, the Republic of the Congo, Namibia, Togo, and Uganda and are only partially available for Cameroon and Senegal. Social security contributions for Botswana, Lesotho, and Malawi are deemed to be null as they do not meet the criteria to be classified as social security contributions set out in the OECD classification of taxes.
The Latin American and Caribbean (LAC) average includes 25 countries, namely Argentina, the Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, the Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay, Trinidad and Tobago, and Venezuela. Chile and Mexico are also part of the OECD average.
The OECD average includes 36 OECD countries. Colombia was not an OECD member in 2018 and is not included in the OECD average.