OECD: Africa's tax-to-GDP ratio declines to 16% in 2020

A recent report by the Organisation for Economic Cooperation and Development (OECD) has revealed that Africa's tax revenues fell to 16% in 2020, primarily due to the impact of the COVID-19 pandemic. The report, which also focused on taxation of the informal sector, was a joint effort by the OECD, the African Union Commission, the African Tax Administration Board, and with the support of the European Union. Alexander Pick, Acting Head of Unit for Tax Data and Statistical Analysis at the Center for Tax Policy and Administration, provided insights into the key findings of the report in an interview with CNBC Africa. According to Pick, the report covered 31 African countries, encompassing around 75% of the continent's GDP, including countries like Nigeria. The findings highlighted a concerning trend where three-quarters of the countries experienced a decrease in tax revenues as a percentage of GDP. While the decline in Africa was not as steep as in other regions, the impact on value-added tax and other consumption taxes was significant, leading to a widespread reduction in revenues. Pick emphasized that the decline in tax ratios was not solely a result of the economic shock from the pandemic but also reflected the tax policy responses implemented by countries to protect households and businesses during the challenging period. Several African countries had made significant progress in enhancing tax revenues before the pandemic, but the crisis had reversed a decade of gains in tax revenues. Addressing the path to recovery, Pick acknowledged the headwinds facing African countries in 2022, including slower economic growth, commodity shortages, high debt burdens, and climate change challenges. However, he pointed out that countries like Rwanda, Tunisia, and Togo had navigated the crisis effectively by combining tax policy measures with advanced tax administration approaches, such as digitalization tools and improved administrative structures. One of the notable features of the report was the focus on taxation in the informal sector, where over eight out of ten Africans work. Pick emphasized the importance of responsibly and sustainably navigating the informal sector to increase tax revenues while supporting small businesses. He underscored the need to make tax compliance easier for informal enterprises by simplifying procedures, reducing tax rates, and minimizing paperwork requirements. Additionally, understanding the diverse nature of the informal sector and building relationships between the government and informal sector actors were crucial for enhancing revenues and providing support during crises. In conclusion, the OECD report shed light on the challenges faced by African countries in maintaining tax revenues amidst the pandemic's economic repercussions. While the road to recovery may be arduous, the lessons learned from successful strategies and the need for inclusivity in tax policies can pave the way for sustainable growth and resilience in the face of future crises.