Category Archives: AfriK4R

Domestic Resources Mobilization in Africa

African case studies on tax reform and domestic resource mobilization from Togo, Uganda and Ethiopia.

Togo 

  • IMF was not very happy when they merged the two offices of customs and revenue. But Togo accepted performance monitoring mechanism that was funded by the WB and when they saw that it was working, then the IMF came back on board.
  • Introduced reform in a country where the richest people are civil servants
  • Invested in computers, capacity building, software to have a system that tackles all aspects from declaration to dispute resolution.
  • Got 15,000 new taxpayers last year, while in past years they used to get 7,000.
  • Also improve speed and security. Previously, petroleum revenue used to be manually recorded. They now use PIN’s in different department, and the software is connected to the banking system so no more direct payments (all are done at at banks).
  • While they initally retired a number of officers who did not want to learn or comply, those who remained had improved terms with performance targets for which they earn bonuses
  • 2015 target was 480 billion CFA and they managed to college 516 billion.
  • They have not fully used the system yet. It’s only two years old, but they rely on their neighbours for internet connectivity.

Afcop AfriK4RUganda: 

  • Is in second phase of a 2019-20  plan which targets to  fully financing budget from domestic sources. The revenue authority started in 1991 but reforms started in 2005.
  • Even as the economy has grown, surprisingly the informal sector has also grown to take a larger share of the economy (49% of GDP, up from 43% in 2002. They have had to target the informal sector to keep up e.g via presumptive tax thresholds.
  • The revenue authorities treat the government as ‘private sector’and removed their exemptions like VAT and income tax.
  • Have business bands, and a taxpayer identification number (TIN) is requires for most transactions and permits, whether livestock movement, boda boda purchase, agriculture payments etc. All professionals – doctor engineers lawyers also have TIN’s, and they hope the introduction of national ID cards will enhance tax collection efforts.
  • They have a separate section for international taxation and have built capacity in oil & gas taxation. But as they train staff, other companies hire away their top performer, so they have to be retained.
  • They have simplified tax system so people can pay at their convenience e.g. via mobile money even when banks are closed.

Ethiopia:

  • Set out to mobilization domestic resources for the largest hydroelectric dam in Africa after foreign donors and partners who had supported previous smaller dams, balked at participation.
  • The GERD (Great Ethiopian Renaissance Dam) will generate 6,500 MW. It is 1,680 Sq.KM, and 120 kilometres by 14 kilometers and 146 metres high – and it took off  in April 2011, is 70% done, to be completed in July 2017.
  • Because of political impact river to other countries (shared Nile), external funding was blocked by international community and they turned to own people to meet the $4.8 billion cost (11% of their GDP or about 60% of the country’s 2012 budget).
  • Got contributions from individuals and companies –  local and diaspora –  though direct contributions, lotteries, music events.
  • They also had a diaspora bond which has raised $500 million. People bought the 1.5% bond that matured in 5,7, 10 years. The dam will generate income from electricity sales to pay back the bond – and is expected to generate $1 billion per year.
  • They also got support from banks, who expanded branches to reach more of the rural population (one bank now has 1,000 outlets) and mobilized deposits. The banks were required to allocate 27% of every loan they make to buy the bond.

Mobilizing Domestic Resources for Africa’s Transformation

This is the theme of the third Africa for Results Forum (AfriK4R) forum that’s taking place in Nairobi from July 13 to 15, and organized by the African Capacity Building Foundation (ACBF) and the African Development Bank (AfDB).

The first one was held in  2013 in Harare, and the next  in 2015 in Abidjan. One of the main concerns has been that, with the diminishing official development assistance (ODA)  to Africa, estimated to be 27% in 2014, and down from 38% in 2004., the budget needs of African governments need to be matched by a growth in local resources like taxes, exports and natural resources.

Kenya’s Devolution CS Mwangi Kiunjuri cited some of the resources available to Africa including $520 billion annually from domestic taxes that Africa generates, $168 billion from minerals & fuels,  $400 billion that Africa holds in international reserves, rise in Stock market Capitalization from $200 billion in 1996 to $1.2 trillion in 2007 and $160 billion in sovereign wealth funds (10 African countries have established these)

Challenges of African government face to mobilize domestic resources include: a very narrow tax base and a huge informal sector; high levels of capital flight; tax evasion & avoidance; proliferation of tax exemptions; lack of legitimacy of tax administrations; relatively low penetration of the formal banking sector; and lack of human, technical, legal, regulatory, and financial capacity to deal with illicit financial flows – Thomas Munthali, Director, ACBF.

Munthali, also cited good examples of domestic resource mobilization including the  Central Bank of West African States (BCEAO) reform on e-money; the Uganda border-post anti-smuggling trade measures; the Zambian direct deposit of fees into one government account; Zimbabwe’s tapping on the informal sector by introduction of presumptive tax; and Malawi’s use of Electronic Fiscal Devices in VAT collection.