PRESS RELEASE FROM THE AFRICAN CAPACITY BUILDING FOUNDATION
Addis Ababa, 2 September 2015
The upcoming 2015 African Capacity Report (ACR) says that despite significant improvements in revenue collection over the last decade (2006-2015), the effective mobilization of domestic resources in African countries faces significant challenges, chief among them high capacity constraints and low tax collection efforts.
According to the Report, between 45%-50% of the 45 countries surveyed have very high needs in building institutional and human capacity in almost all areas critical to ensuring effective and sustainable domestic resource mobilization (DRM): fighting illicit financial flows, revenue collection, fiscal sustainability, strengthening of the financial sector, fight against corruption and social security and safety nets.
It adds that in 27 of the 45 countries covered by ACR 2015, DRM between 1996 and 2010 remains low. This is due a very narrow tax base; tax erosion due to high levels of capital flight, weak capacity within the tax administration and the inability to deal with illicit financial flows. Preliminary findings also show that the level of taxpayers’ trust in the tax system is low in 89% of the countries surveyed while the high proportion of fiscal exemptions extended to investors further contributes to tax erosion – 97% of the countries surveyed have tax exemptions dedicated to investors.
The surveyed African countries have also failed to see value of adhering to platforms like the African Tax Administration Forum – the first platform for exchange between tax authorities, launched in 2009 or the Collaborative African Budget Reform Initiatives (72% of surveyed countries are non- members).
The Report says that a key element for successful DRM starts with an effective and visionary, committed and accountable leadership that sets the right tone at the top. “Governments must be at the forefront in developing requisite capacities. In the short term, capacity building initiatives should focus on the ways and means to broaden the tax base by, for example, removing unnecessary tax preferences, dealing with transfer pricing abuses and taxing extractive industries fairly and transparently; the conduct of training to develop or improve the skills of staff involved in DRM-related issues,” it says.
ACR 2015 also highlights the importance of “active participation to initiatives such as the African Tax Administration Forum (ATAF) and Collaborative Africa Budget Reform Initiative (CABRI) which are crucial in sharing best practices; and peer-learning activities via initiatives such as the Tax Inspectors without Borders initiative by the OECD and UNDP.”
Moreover, there is a need for governments to - in the medium to long term - build capacity around structural issues, namely developing resource mobilization strategies that target the informal sector and other largely untapped sectors like urban property; and enhancing fiscal legitimacy through long-term capacity building in DRM especially taxation and the continuous modernizing of all tax collection systems to ensure efficiency and effectiveness.
The Report encourages African countries to recognize DRM as an effective strategy to finance Africa’s development. There is need to mobilise internal resources to implement the Sustainable Development Goals (SDGs) and Agenda 2063, although this does not mean that Africa should not mobilize external resources as well. Also, African countries should not depend on donor aid alone as most donor countries have failed to live up to the longstanding commitment to deliver 0.7% of Gross National Income.
The ACR is the African Capacity Building Foundation’s flagship publication, published every year since 2011, and its supporting indicators offer inputs for decisions on what is needed to support in capacity development. The Report’s edition for 2015 will be published by year end.
