Submission: Rough Sailing For The Addis Ababa Tax Initiative -By Abiodun Owolegbon-Raji

Filed under: Global Issues |

A little over three years ago, stakeholders converged on Addis Ababa, Ethiopia for the third edition of the Financing for Development conference (FfD), a high-level meeting of heads of states, finance experts, business sector entities, and NGOs for the negotiation, agreement and implementation of the post-2015 Sustainable Development Goals (SDGs).

The conference’s outcome, the Addis Tax Initiative – endorsed by the UN General Assembly in July 2015 – birthed an initiative to make tax systems more effective, transparent, and efficient. Yet more than three years down the line, the initiative which pledged international support for strengthening domestic revenue mobilization (DRM) – especially tax collection – across Africa has seemingly stalled. Recent analysis shows the support promised that summer has so far failed to materialize.

 

 

The appraisal by Jamie Drummond, co-founder of global pressure group ONE and Alex Thier, co-author of the Addis Tax Initiative, is incisive. They argued that while Africa’s government revenue is multiple times more than the international aid it receives, it is still way too low to cover its infrastructural and developmental deficit.

However, efforts to revamp tax structures have amounted to little more than lip service, as donations exclusively earmarked for this purpose have been infinitesimal. Indeed, only a paltry 0.2% of aid went to taxation support in 2015.

Nevertheless, redoubling support for new taxation structures is still an urgent matter. Early last month, the World Bank echoed these thoughts, specifically singling out Nigeria and urging the country to address shortcomings in securing non-oil revenues by raising taxes. “Nigeria needs to increase its non-oil revenue … To do that requires strengthening tax administration and increasing compliance rates, and reforms including rationalizing tax incentives and exemptions and selectively increasing rates such as excise on alcohol and tobacco” says the global lender’s vice president for Africa, Hafez Ghanem, amidst plans of increasing funding to the continent’s top oil producer to the tune of $4.5 billion in the next three years.

Ironically, Nigeria has actually made commendable progress in collecting taxes (thanks to the Voluntary Asset and Income Declaration [VAIDS] scheme) and harmonizing tax collection to avoid over-imposing on small businesses. Tax receipts have risen by about 42% from 2017. Also, the Federal tax authority had already realized about 75% of its 2018 target by mid-year.

Nigeria has an abysmally low tax revenue-to-GDP ratio of 6 percent for a country with over 70 million taxable adults. Through the scheme, though, the country’s tax base has grown from 13 million in 2015 to 19.3 million in 2018. Incidences of multiple taxation are also being addressed with the floating of a joint tax board working on a National Tax Policy to harmonize taxes being paid in the different states across the country.

But beyond the lack of international support, another point of serious concern is the issue of powerful vested interests (both political and economic) who ‘profit’ from weak tax systems in Africa. Indeed, personal income taxes only make up about 10% of tax revenues on the average as opposed to 25% in OECD countries. Economic ‘heavyweights’ (often with political influence) frustrate efforts aimed at improving the performance of tax administrators and processes.

We have a full plate of examples. In Kenya, parliamentarians have drawn a battle with the Kenya Revenue Authority (KRA) over allegations of improper contracting for stamp technology. Efforts to raise Sh3.6 billion in excise tax on cosmetics, bottled water and other non-alcoholic drinks – even after winning a protracted case at the Court of Appeal – is being frustrated. Cherangany MP Joshua Kutuny has gone as far as calling for the sack of KRA chief John Njiraini.

However, not everyone is perturbed by these endless delays. Coincidentally, drinks manufacturers and other corporate interests stand to gain from undermining this new system, as the tax burden rests on manufacturers and importers of such goods.

Even more flagrant: South Africa’s politically-motivated purging of tax officials. In 2017, at the behest of the Gupta family (and with help from dodgy reports prepared by KPMG), erstwhile president Jacob Zuma dismissed then-finance minister Pravin Gordhan in order to protect their business interests. By the time the curtains were raised, KPMG – having found itself at the center of ‘state capture’ allegations – withdrew all of its findings and recommendations in a report that accused the South African Revenue Service (SARS) of running a so-called ‘rogue spy unit’. Five other former SARS employees were also implicated in the report.

The sack of KPMG SA’s entire leadership and subsequent refund of R23m to SARS proved nothing more than a face-saving gesture. The notion that African tax laws are susceptible to political patronage had already been cemented.

Nonetheless, resistance from entrenched interests is no reason to abandon efforts towards strengthening tax collection systems. Though the Addis Ababa initiative may not be meeting its goals so far, it still has time to catch up. And initiatives like VAIDS have shown the numerous benefits of well-administered taxation that Nigeria and other African countries can gain. With pledges of support for DRM from the international community, effective tax collection will push the continent towards higher equality, fiscal accountability and reduced corruption – further advancing Africa’s march towards achieving the SDGs.

 

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