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“Focus on boosting domestic revenues”
– by Oupa Magashula, Claudia Isabel Rittel
What will ATAF focus on in this first phase of its existence?
At the Inaugural Conference last November in Kampala, member countries gave us a mandate to develop this organisation into a mechanism that delivers tangible benefits in terms of developing effective and efficient tax administrations. We must contribute to developing sufficient, skilled capacity in Africa
– to collect the taxes that are due to the respective governments,
– to tax the profits of multinationals operating in Africa,
– to increase transparency in tax administration and
– to implement internationally-agreed standards on exchange of information to counter tax evasion and other abuses.
How will you achieve these goals?
ATAF must show value to the members. ATAF has already held several technical events for African tax officials on key issues of tax administration. These events have made the most significant impact, and are a cornerstone of our approach to developing effective and efficient tax administrations on the continent.
Are there more similarities or more differences between the member states’ tax performance?
Tax administrations developed in different ways across the continent. To varying degrees, they were influenced by the former colonial powers. Generally speaking, we have lately seen many African countries forming revenue administrations that handle both taxes and customs. How a country structures its tax administration, however, does not detract from the fact that it needs to be able to collect all the revenue due to it in order to finance its development agenda. In the past two decades, many African countries undertook reforms with the goal of boosting revenue. Often taxation was treated as a technical and administrative exercise, without regard for its political and social nature. Typically, reforms tried to change the composition of taxation in favour of taxes that are easier to collect and not perceived to distort the economy. The focus was thus on raising indirect taxes and expanding their reach. These reforms had limited success in increasing the tax revenue of African countries. Of course, many factors determine the tax performance of a country, and success has varied from country to country. We have recognised that we can learn much from one another. In the end, each tax administration has to cut its own teeth in practice to improve its tax performance.
What are the biggest challenges ATAF members face in terms of taxation?
One of the most pressing issues is to reduce countries’ dependence on foreign assistance and indebtedness. We need to focus on boosting domestic revenues through broadly-based taxation. Experience has shown that this will lead to more predictable revenues. It will also help to ensure that aid-funded investments are sustainable, and prepare for the gradual exit from aid in the long term. Most taxable capacity in Africa tends to be concentrated in a rather small number of people and companies. Often, they know how to evade taxes by use of power and influence. The majority of the people, on the other hand, does not have much political power and influence. Their taxable capacity is low and costly to collect, especially in rural areas, so in the end, only mid-sized companies tend to pay taxes. We have to work on how to deal with the other two sectors.
Should African governments formalise the informal sector to raise more tax revenues?
Most African countries have a high percentage of small businesses operating in the informal sector. There are increasing concerns that larger businesses are hiding in the informal economy. Broadening the tax base therefore is a strategic objective. Compliance management in this sector should aim at increasing the level of voluntary tax compliance. Efforts to facilitate such compliance must target those small businesses that do not deliberately evade taxes, but face difficulties and need assistance to comply with tax obligations. Effective education and service programmes should help. As for those small taxpayers unwilling to pay taxes, there should be efficient measures to enforce tax registration.
How important are taxes for the ATAF member states’ economic development?
Taxation is central to the development agenda of every state in the world. Domestic resource mobilisation is the financial bedrock on which sustainable, long-term development is built. The raising of tax revenues is arguably the most central activity of any state. Revenue from taxation is what literally sustains the existence of the state, and provides the necessary financial resources for all social and economic activity. Taxation therefore lies at the administrative heart of government and provides the basis by which public goods are made available and effective regulation is implemented.
Are taxes an alternative to financial aid?
Official development assistance (ODA) is of limited effectiveness, and though foreign direct investment flows to Africa have increased in recent years, they are still too limited in geographical coverage and focused on extractive industries to have a significant effect on employment creation and poverty alleviation on the continent. Harnessing domestic financial resources, through equitable, efficient and effective taxation, could help to raise additional funds for Africa’s economic development. Reducing dependence on donor funds and the associated conditionalities would increase African ownership of national development processes of course.
It seems as if everything hinges on domestic resource mobilisation.
Resource mobilisation will not by itself solve all the problems faced by African countries. Many of them lack the sufficiently-developed institutions and adequate human resources necessary to make development work. However, in the medium to long term African countries will finance an increasing share of their development needs from domestic sources. That will give them much-needed flexibility in the formulation and implementation of policies which address their economic, social and other developmental challenges.
“No taxation without representation” was a slogan in the USA’s independence struggle in the 18th century. Does this statement play a role in the current revenue situation in African countries?
Taxation is the avenue through which citizens are most directly connected to the state. Taxes are an important catalyst for public demands. Governments that rely mainly on tax revenue are likely to be more accountable to citizens than those that rely on non-tax revenue sources, such as natural resource rents or foreign aid. Effective taxation underpins effective state-building and encourages greater involvement of citizens in public affairs. The perceived fairness of the tax system is crucial to building an effective state based on citizens’ consent.
Do you expect more cooperation on fighting tax evasion from countries outside Africa?
There is a strong call for greater cross-border cooperation on tax matters, particularly on issues of tax evasion, avoidance and the exchange of information. For Africa, ATAF provides us with an optimal structure through which to engage with other organisations on these matters. For example, we regularly interact with the OECD on these matters.
In the ATAF context, what is the role of donors and international organisations?
ATAF is driven by its African membership, but the importance of its partnerships with other tax administrations, and technical and development institutions cannot be overstated. We regularly engage with our partner organisations, they have expressed interest in supporting ATAF in the areas of establishing a permanent secretariat, research on tax systems in Africa, technical expertise and capacity building, for instance. We have actively developed relations with the African Development Bank (ADB) and the GTZ, two organisations that have supported ATAF from its inception. We are also engaging with other bodies on long-term cooperation, namely the OECD and the IMF, to name but two.
The African Tax Administration Forum (ATAF) helps the heads of African tax authorities share experiences. The most important decision-making body is the General Assembly, while a Council of ten representatives manage matters between the annual meetings. On the Council, the five geographical regions (North, South, East, West and Central Africa) each have one representative. Currently, Botswana, Rwanda, Nigeria, Morocco and Gabon represent their respective regions. Additionally Senegal, Ghana, Kenya and Zimbabwe were voted into the Council via majority rule. It was also decided that the permanent ATAF Secretariat will be based in Pretoria. ATAF is funded by the member states as well as donor contributions. The 29 members are:
Benin, Botswana, Cameroon, Chad, Ivory Coast, Egypt, Eritrea, Gabon, Gambia, Ghana, Kenya, Lesotho, Liberia, Madagascar, Malawi, Morocco, Mauritania, Mauritius, Namibia, Nigeria, Niger, Rwanda, Sierra Leone, South Africa, Sudan, Tanzania, Uganda, Zambia and Zimbabwe.
The African Tax Administration Forum (ATAF) helps the heads of African tax authorities share experiences. The most important decision-making body is the General Assembly, while a Council of ten representatives manage matters between the annual meetings. On the Council, the five geographical regions (North, South, East, West and Central Africa) each have one representative. Currently, Botswana, Rwanda, Nigeria, Morocco and Gabon represent their respective regions. Additionally Senegal, Ghana, Kenya and Zimbabwe were voted into the Council via majority rule. It was also decided that the permanent ATAF Secretariat will be based in Pretoria. ATAF is funded by the member states as well as donor contributions.
The 29 members are: