National tax administrations in sub-Saharan Africa have undergone considerable reform in recent decades.
In a number of respects, they are, on average, more reformed and more efficient than tax administrations in other low income regions of the world. They have responded effectively to a number of major challenges. However, we now have evidence from benchmarking evaluations organised by the International Monetary Fund (IMF) that overall tax administration performance in the region is unimpressive.
This paper assembles a wide range of evidence from recent research on two inter-connected policy issues in African tax administration: the use (under-use, misuse) of digital technologies and a set of questions of who should be taxing small scale business, how, and how much.
The first conclusion is that digital technologies are generally under-used and mis-used relative to their potential. They tend to be deployed in a rather fragmented way and for ‘taxpayer facing’ activities, rather than for internal control purposes. They have much under-exploited potential to support additional revenue collection, to make the collection process less unpleasant and fairer and to address the problem of weak oversight and accountability of tax administrations.
The second conclusion is that there is a high potential for improving the organisational arrangements for taxing small business in sub-Saharan Africa. The current practice reflects a confluence of several factors.
For a number of reasons, tax administration is relatively centralised; nearly all revenues are collected by central government tax agencies, leaving very little for sub-national revenue collectors. In consequence, central government tax agencies have to organise themselves internally to undertake very different types of tasks: to collect revenue both from small numbers of big companies, that typically provide nearly all revenues, and from very large numbers of very small scale businesses. The latter collectively provide a small proportion of total revenue.
Further, many if not most national tax administrations have on their books large proportions of inactive taxpayers – people and companies who are registered with the tax administration, but who do not actually pay tax. Taxpayer registers are often inaccurate. A major reason for both the large numbers of inactive taxpayers and the inaccuracy of the registers is that considerable efforts are continually made to register new taxpayers, even though experience indicates that few will actually end up paying tax. I label this the registration obsession. It is closely associated with the idea that the major source of uncollected revenues in sub-Saharan Africa is the so-called informal sector – implicitly, small scale businesses and relatively poor people. This narrative is diversionary. The major sources of uncollected revenues lie elsewhere, including the incomes and assets of the wealthy and the unjustified tax exemptions granted to companies. The informal sector narrative serves the purpose of distracting attention from these real sources of uncollected revenues.