Home » News » Business » Regulatory constraints impedes Africa tax revenue mobilisation

Regulatory constraints impedes Africa tax revenue mobilisation

Publishing Date : 12 November, 2018

Author : REARABILWE RAMAPHANE

The General Assembly of the Africa Tax Administration Forum (ATAF) held in Gaborone recently has underscored regulatory constraints and limited internal capacity of African tax collection bodies as key factors that continue to hinder effective and efficient domestic resources and revenue mobilisation through tax by relevant authorities.


The high profile meet by tax administration officials of African states which convened for the 5th time since inception in 2008 provides an avenue for member countries to share best practices on tax matters and discuss strategies for improving on tax administration in the Africa region. When officially opening the forum held under the theme,“Moving Africa beyond Aid through Tax Revenue Mobilisation”, Minister of Finance and Economic Development Kenneth Matambo said Africa’s funding gap for its infrastructural development was estimated into hundreds of billions of United States dollars by International finance institutions such as the African Development Bank and the World Bank. 


He observed that historically, Africa has depended on Overseas Development Assistance (ODA) to finance its development. “However, for many countries, including Botswana, this source of development financing has declined over the years” shared Matambo who explained that the decline in ODA has spurred many of the developing countries including in Africa to turn to domestic resources for financing their development needs.


Matambo shared that while governments take the lead in making policy decisions for mobilising domestic tax revenue to finance infrastructural development the responsibility of actually pulling the act together was bestowed upon revenue authorities. “As governments, we are cognisant of some of the challenges that our revenue authorities face in mobilising domestic revenue for development, which range from regulatory constraints to limited internal capacity” he said. 


Matambo added that it would bear little fruits for African countries to address some of these challenges within the confines of their individual boarders as they spread to inter boarder’s trade dealing and customs collection operations. “It can be overwhelming, hence, the need for a fora such as the African Tax Administration Forum to brainstorm on these issues,” he added. 


At the forum which ran for more than 3 days revenue authorities with the host Botswana Revenue Service (BURS) leading discussions, shared experiences in the areas of good governance in the running of their organisations, articulation of tax policy reforms, building of internal systems and processes to improve efficiency and effective revenue collection, and in designing training programmes to improve capacity within the revenue authorities. 


Late last year the African Tax Administration Forum launched “Toolkit for Transfer Pricing Risk Assessment in the African Mining Industry” an instrument that seeks to guide African Countries on dealing with issues of illicit financial flows, the achievement was underscored at this year’s meet as a significant milestone considering the challenge faced by the African countries in dealing with multinational organisations. Just a fortnight ago the Africa Mining Summit held in Gaborone at the very same venue revealed the African was losing over $100 billion to illicit capital and illegal financial flows annually.


It was highlighted that building tax administration capacity was needed to help spur development in Africa. Tax revenues account for over a third of GDP in developed economies while contributing far less in developing countries, particularly in sub-Saharan Africa, where they correspond to less than a fifth of GDP. Deliberations at the forum underscored that more tax revenue would not only help the African countries to function and pay for goods and services but would open the way for other market and state reforms that would promote economic, social and environmental development. 


“Raising tax burdens might seem like an odd proposition to policymakers, but when taxes account for 10 to 15 percent of GDP, a well-designed increase in tax is exactly what many developing countries need: just as an excessively heavy tax burden might crush activity, an excessively low one can starve an economy of the oxygen it needs to advance,” said Mr. Logan Wort Executive Secretary of African Tax Administration Forum. Logan Wort noted that institutional arrangements were another issue which can have an impact on the effectiveness of tax administration. 


He shared that revenue bodies in most African countries follow a relatively unified, semiautonomous model, meaning that they have considerable freedom to interpret tax laws, allocate resources, design internal structures and implement appropriate human resource management strategies. “At the same time, they are responsible for tax, customs and non-tax revenue operations, this can cause some resources stretch and result in gross inefficiencies” he said proposing for further dialogue on tax administration reform.


Botswana’s proposed tax administration reform 


Like many African countries, the taxation structure in Botswana was basic at the time of its independence in 1966 comprising mainly of the Income Tax department. However, five decades later, the country’s fiscal landscape has transformed, guided by orderly legislative reforms and institutional transformation. Over the past five decades, a number of tax laws were put in place aimed at improving the country’s tax regime. In addition to the review of the old Income Tax and Customs Act, the Government adopted the Value Added Tax Act of 2002, and Botswana Revenue Service Act of 2003. 


The latter culminated in the establishment of the Botswana Revenue Service (BURS). As a result of these measures, Botswana is currently financing over 60 percent of its budget from the domestic tax revenue, while the balance comes from the customs duties and other revenues. The contribution of ODA to the budget is less than one percent. The tax to gross domestic product (GDP) ratio is around 20 percent, which, though lower than in OECD countries, Matambo underscored as very competitive among the Sub-Saharan countries. 


He explained that despite the relatively high tax to GDP ratio, the Government of Botswana remains concerned about the country’s narrow domestic revenue base, and volatility of the two main sources of mineral revenue and customs receipts.“In this regard, the Government of Botswana is working on further reforms to improve the tax landscape. These include the development of a new Tax Administration Bill to consolidate the administration of various domestic taxes and improve on their implementation,” he said. 


Deliberating on the new proposed bill Matambo said this overarching tax administration law will result in the consequential amendments to other revenue laws such as the Income Tax and the Value Added Tax Acts to synchronise and harmonise them. Government has made a policy decision on the funding model for BURS, whereby unlike with other state-owned enterprises, which are funded through a grant subvention from Government, BURS has been allowed to retain part of its tax collection in order to fund its operational and development requirements. However, for good governance, the budget of BURS is still subject to the normal approval by the BURS Board and the Ministry of Finance and Economic Development. 

 

Matambo observed that the change in the funding model has enabled BURS to address challenges relating to capacity and skills development, as well as funding its infrastructural projects, such as the ICT systems and construction of border posts. “Through the technical assistance from the Forum, my Ministry has developed the Transfer Pricing legislation, which is due to be laid before Parliament next month. The transfer pricing legislation buttresses the message that everyone should pay taxes when they become due, without fail or manipulation.” He said

Cartoon

Polls

Do you think the courts will help put the UDC, BMD impasse within reasonable time ahead of the 2019 General Election?

banner_14.jpg
banner_12.jpg

POPULER BRANDS