The Budget Bibliophile’s Bookshelf: Taxing Africa: Coercion, Reform and Development
By Paolo De Renzio— Sep 06, 2019
This book review also appears in the September issue of Governance.
Watch the video review here.
Mick Moore, Wilson Prichard and Odd-Helge Fjeldstad: Taxing Africa: Coercion, Reform and Development. London: Zed Books (2018).
Taxation, believe it or not, has become a hot topic in international development. The need to mobilize additional resources to finance the Sustainable Development Goals, coupled with doubts about rich countries’ capacity and willingness to foot the multi-trillion dollar bill attached to the SDGs, have brought unprecedented attention to government efforts to raise more revenues domestically. An embodiment of this trend is the Addis Tax Initiative, set up in 2015 to bring together donor and recipient governments around a commitment “to enhance the mobilization and effective use of domestic revenues and to improve the fairness, transparency, efficiency and effectiveness of their tax systems.”
This recent trend, however, is based on a much longer history of knowledge and scholarship around the idea that how governments raise revenues is a key aspect of state building and an important determinant of development effectiveness. After all, as Schumpeter once declared, “the fiscal history of a people is above all an essential part of its general history.” Based on this general underpinning, Taxing Africa asks some important questions about how taxation could play a better role in the development trajectory of a continent that has gone from colonial rule to dependency on foreign aid and natural resources, and where elites have too often relied on rents and extraction to manage and maintain power at the expense of the rest of the population.
The three authors lead the International Center on Tax and Development, one of the major research initiatives working on taxation and development. They bring together and draw on decades of research and policy engagement to deliver a very readable and extremely interesting summary of the relevant issues, which includes both a comprehensive review of the evidence and relevant examples from recent reform efforts, to inform a vision of how taxation could become an important engine to advance governance and development improvements in Africa.
Chapter 1 lays out the overarching ideas which inform the book, which can be summarized as follows: (a) the way in which Africans experience tax is very diverse and shaped by a divide between large taxpayers in formal, urban settings and the small, informal taxes paid by most Africans in rural settings; (b) tax systems are often unfair and regressive, exacerbating inequality and undermining state legitimacy and tax compliance; (c) there are important links between the international, national and local aspects of taxation and tax reform; (d) tax reforms face strong political resistance, coupled with low levels of citizen mobilization, making their prospects difficult; (e) the narrative highlighting the potential of taxation to support accountability and state-building needs to be questioned and better understood; and (f) African tax debates, structures and policies need to be placed in historical perspective in order to better shape their future prospects.
Chapter 2 provides a brief historical overview of the origins of taxation in Africa, from colonial times to the present day, highlighting the origins of the dual system of taxation and of the informal and often coercive collection of local taxes. It also shows that given the nature of economic systems across the continent, African governments do relatively well in terms of “tax effort”. As a consequence, rather than simply focus on collecting more revenues, African governments should worry more about “who pays taxes, how they are collected, and how governments use the revenue” (p34).
Chapters 3 and 4 look at the international dimensions of Africa’s tax problems, showing how the secrecy, complexity and loopholes that characterize the international tax system have a serious impact on tax revenues in Africa, especially when it comes to high net worth individuals and multinational corporations, and to the ways, both legal and illegal, in which these actors shift money and profits out of African countries in order to pay less taxes, with revenue losses estimated at between 18 to 36 billion US dollars. Growing efforts to tackle such behavior and recoup at least some of the losses are under way, the authors explain, but it is unclear how much African governments will be able to benefit from them, given their limited capacity and the need for effective regional cooperation.
Chapter 5 focuses on the extractive sector, which represents a large share of Africa’s economies and exports, but contributes little to tax collection. Large multinational corporations in this sector, and mining companies in particular, are “greatly under-taxed” due to a combination of governance and political economy factors, including the availability of large rents, the instability of world market prices and the lack and asymmetry of information necessary for decision-making. There are many different arrangements that governments can choose from, and no unique solution, pointing to the need for more transparency, careful and independent evaluation, and the enhancement of local capacity and systems.
Chapters 6 and 7 focus on taxation a national and local level, highlighting the scope that exists for improvement in a number of areas, especially in equity in burden sharing, efficiency and interactions with taxpayers. The authors criticize a number of reform initiatives that are commonly seen across Africa mostly as a consequence of IMF influence, highlighting the limited impacts obtained through the introduction of Value Added Taxes and of semi-autonomous revenue authorities as “best practice” institutional model. Other important areas of underperformance are in personal income taxation, tax exemptions and corruption. Local taxation systems in Africa tend to be fragmented, informal and ineffective, resulting in underfunding of local services. Property taxes, in particular, represent an underexploited opportunity. The many small fees and charges that exist are called “nuisance taxes” given their dysfunctional and exploitative nature and the high level of corruption involved.
The two final chapters look forward and assess the ways in which tax reforms could better contribute to Africa’s development. In the end, strengthening African tax systems may mean little if African governments are not interested in making good use of the taxes they collect. But strengthening tax systems could in itself make governments more responsive and effective, by creating incentives to promote growth and strengthen public administration systems, and by empowering citizens to demand accountability. “The bottom line from recent research”, the authors warn, “is that the emergence of positive connections between taxation and the quality of governance is critically dependent on how tax is collected and on the political and institutional context” (p181). This is very important, for example, in the context of debates around the SDGs. Rather than focusing on increasing tax collection alone, tax reform efforts should include elements of greater fairness, more transparency and improved public engagement. An important potential road to more significant reform lies in the empowerment of a wider range of voices in tax debates, to motivate and support political leaders willing to drive progress.
Taxing Africa is an easy and rewarding read for those not overly familiar with debates around taxation and development in Africa, providing important materials and ideas not just for scholars, but for practitioners from various areas, including governments, donor agencies and, perhaps most importantly, those civil society actors across Africa whose interest and intervention might help shape a better development path for Africa in the decades to come.
 J.A. Schumpeter (1991 ). “The Crisis of the Tax State,” in R.A. Swedberg (ed.), Joseph A. Schumpeter: The Economics and Sociology of Capitalism. Princeton, NJ: Princeton University Press. Page 7.