Taxation in Africa: How it works?

As African countries grapple with large fiscal deficits and sluggish growth in tax revenue, the issue of taxation has come under the spotlight. Professor Mick Moore, a political economist and CEO at the International Centre for Tax and Development, sheds light on some of the key challenges facing the continent in this regard. The International Tax and Development Centre points out crucial tax issues predominating in Africa, including the under-taxation of mining, the incomes of Africa's affluent, and the exploitation of the rural poor through informal taxation. These challenges hinder many countries from generating sufficient revenue to support developmental agendas. During a recent interview on CNBC Africa, Professor Moore addressed some critical aspects of taxation in Africa. One of the key themes that emerged from the conversation was the issue of illicit financial flows, which are estimated to range between 55 to 80 billion US dollars annually. Professor Moore acknowledges that while illicit financial flows are part of the taxation problem in Africa, they are not the sole issue. He emphasizes that other significant problems exist, such as the severe under-taxation of mining, wealthy individuals, and property in Africa. These gaps in the tax system contribute to the revenue shortfall experienced by many African nations. The interview also delved into the concept of Base Erosion and Profit Shifting (BEPS). Despite the initial optimism surrounding the BEPS process, Professor Moore highlights that its impact on the continent, particularly sub-Saharan Africa, has been limited. He suggests that more concerted efforts are needed to address the underlying structural challenges in the international tax system. Professor Moore advocates for greater African involvement in shaping international tax policies to better reflect the continent's interests. The conversation further explored the complexities of tax regimes in African countries aimed at attracting foreign direct investment. Professor Moore criticizes the prevalence of tax holidays and exemptions, labeling them as 'scandalous.' He asserts that factors such as infrastructure, legal predictability, and policy stability are more critical for attracting investments than tax incentives. By reducing tax exemptions, African nations could significantly boost their revenue generation without imposing additional tax burdens. Another crucial issue discussed in the interview was the taxation of mining companies, particularly regarding capital returns and gains tax. Professor Moore commends efforts by some African countries, like Uganda, to enhance their capacity to tax mining activities. He emphasizes the importance of preparing tax systems to effectively handle the potential increase in mining activities in the future. The conversation with Professor Mick Moore underscores the need for African nations to address systemic tax challenges and enhance their revenue generation capacities. By tackling issues such as under-taxation of key sectors, addressing illicit financial flows, and reforming tax incentives, African countries can pave the way for sustainable economic development and fiscal stability. As the continent navigates the complexities of taxation, the insights provided by experts like Professor Moore offer valuable guidance for policymakers and stakeholders seeking to build robust and equitable tax systems in Africa.