Tax in Africa: Emerging Trends and Transformations

 - OECD Revenue Statistics in Africa 2023 Report

The Organisation for Co-operation and Economic Development (“OECD”) Revenue Statistics in Africa 2023 Report (released 31 October 2023) compiles comparable tax revenue and non-tax revenue statistics for 33 countries in Africa. The publication is jointly undertaken by the OECD Centre for Tax Policy and Administration, the OECD Development Centre, the African Union Commission (AUC) and the African Tax Administration Forum (ATAF), with the financial support of the European Union.  

Revenue Statistics in Africa 2023 presents internationally comparable indicators on tax and non-tax revenues for 33 African countries up to and including 2021, the second year of the COVID-19 pandemic. The Revenue Statistics in Africa initiative is a unique tool to understand Africa’s diverse and complex economic environment, for tracking progress in domestic resource mobilisation, and for informing the design and analysis of tax policy across the African continent. As such, it contributes to the United Nations’ Sustainable Development Goals, the Addis Ababa Action Agenda and the African Union’s Agenda 2063. Revenue Statistics in Africa also contributes to the implementation of the second phase of the Pan African Statistics Programme, a joint initiative between the African Union and the European Union that aims to improve measurement of progress in the process of African Integration by promoting the use of statistical data of quality in the decision-making process and policy monitoring. This edition of Revenue Statistics in Africa includes a special feature on the VAT Digital Toolkit for Africa.  

Tax revenues 

The unweighted average tax-to-GDP ratio for the 33?countries in this publication (the “Africa?(33) average”) was 15.6% in 2021 and recorded no change relative to 2020. The tax-to-GDP ratio refers to total tax revenues, including compulsory social security contributions, as a percentage of gross domestic product (GDP). The Africa (33) average in 2021 was below the averages of Asian and Pacific economies (19.8%), Latin America and the Caribbean (LAC) (21.7%), and the OECD (34.1%).  

In 2021, the Africa?(33) average tax-to-GDP ratio remained below its pre-pandemic level of 15.8% in 2019, having declined by 0.3 percentage points (p.p.) in 2020. This was also the case for the Asia-Pacific region, whose average tax-to-GDP ratio declined by 0.9 p.p. in?2020 before increasing by 0.2 p.p. in 2021. By contrast, the average tax-to-GDP ratio in the LAC region regained its pre-pandemic level in?2021: after recording a drop of 0.8 p.p. in 2020, it increased by the same magnitude the following year. In the OECD, tax revenues increased as a percentage of GDP in both years on average. These figures underscore the urgent need for enhancing tax administration and broadening the tax base in African countries to ensure stable and increasing revenue streams that can fund crucial development projects and bolster economic resilience.  

Tax-to-GDP ratios varied widely across the countries included in this publication in 2021, from?5.9% in Equatorial Guinea to 32.5% in Tunisia. Tax revenues as a percentage of GDP increased in?20 countries and decreased in 13 between 2020 and 2021. Chad registered the largest decrease, of 4.6 p.p., followed by the Seychelles and Equatorial Guinea (2.6 p.p. and 2.5 p.p. respectively). By contrast, Botswana’s tax-to-GDP ratio recorded the largest increase in this publication in 2021 (of 2.8 p.p.), followed by South Africa (1.9 p.p.) and the Democratic Republic of the Congo (1.8 p.p.). Reflecting the diverse economic landscapes within Africa, tax-to-GDP ratios exhibited substantial variance, highlighting the necessity for country-specific tax policy designs and implementation strategies.   

The year 2021, a phase of global economic rebound, presented mixed fiscal outcomes for African countries. The countries covered by this report recorded median growth of 12.1% in nominal tax revenues relative to the year before, compared with a 1.8% drop in 2020 due to the COVID-19 shock. Amid a recovery across many African economies in 2021, all but six countries in this report recorded increases in both nominal tax revenues and nominal GDP between 2020 and 2021. In comparison, 13 countries recorded increases in nominal tax revenues and nominal GDP between 2019 and 2020. However, the tax-to-GDP ratio in 17 of the 33 countries in 2021 was below its level in 2019, prior to the pandemic.  

Between 2020 and 2021, revenues from taxes on goods and services increased by 0.2% of GDP on average; this category was most adversely affected by the COVID-19 pandemic in 2020, decreasing by?0.4% of GDP. Within taxes on goods and services, increases of 0.1 p.p. in 2021 in revenues from value added tax (VAT) represented a modest rebound following a 0.3 p.p. decrease between 2019 and 2020. Revenues from income taxes decreased by 0.1 p.p. on average in 2021 due to a fall in corporate income tax revenues over the period, having remained stable between 2019 and 2020. Social security contributions decreased by 0.1 p.p. in?2021, following an increase of the same magnitude in 2020. The changes in revenues from taxes on goods and services have direct implications for public service funding and development in Africa, making it imperative to optimise these revenue sources in alignment with continental developmental objectives.  

The evolution of tax-to-GDP ratios in African countries over the past decade reflects ongoing endeavours to strengthen fiscal systems for development across the continent. Between 2010 and 2021, the Africa?(33) average tax-to-GDP ratio rose by 1.5 p.p. In comparison, the average tax-to-GDP ratio for the LAC region and the OECD increased by 1.7 p.p. and 2.6 p.p. respectively over this period. Tax-to-GDP ratios rose in?23 of the 33 African countries between 2010 and 2021 and declined in ten.  

The increase in the Africa?(33) average tax-to-GDP ratio between 2010 and 2021 was mainly generated by VAT and personal income tax. In 2021, taxes on goods and services remained the main source of tax revenues in Africa, accounting for an average of 51.9% of total tax revenues, with VAT accounting for?27.8%. Taxes on income and profits accounted for 37.9% of tax revenues. Taxes on goods and services were the principal source of tax revenues for 24?of the countries included in this report in 2021. For the other nine countries, taxes on income and profits accounted for the principal share. 

Non-Tax Revenues

In 2021, average non-tax revenues in Africa decreased by 0.3 p.p. of GDP from the previous year to 5.8% of GDP. Grants decreased by?0.3?p.p. while revenues from the Southern African Customs Union (SACU), which is the only customs union in Africa with a revenue-sharing agreement, fell by 0.5 p.p. Revenues from rents and royalties increased by 0.4 p.p. amid higher oil and gas production and rising commodity prices. In the previous year, the COVID-19 shock caused a decrease in oil and gas royalties while foreign aid in the form of grants and SACU revenues increased from 2019.  

Between?2010 and?2021, average non-tax revenues decreased by?1.4?p.p. of GDP while tax revenues increased by?1.5?p.p., leading to only a small increase in government revenues in 2021 relative to 2010. This decline in non-tax revenues underscores the vulnerability of African economies to global economic fluctuations, reinforcing the imperative to diversify and stabilise non-tax revenue streams for consistent funding of essential public goods and services and developmental initiatives across the continent.  

Non-tax revenues ranged from 0.7% of GDP in South Africa to 29.9% of GDP in Lesotho in 2021. They were higher than tax revenues in Botswana, Equatorial Guinea, Lesotho and the Republic of Congo. Non-tax revenues exceeded 10% of GDP in five countries, four of which (Botswana, Eswatini, Lesotho and Namibia) received most of their non-tax revenues from the SACU Common Revenue Pool.  

Sources of non-tax revenues vary by country. For eight?countries, most non-tax revenues came from grants in 2021. Eight countries (Cameroon, Chad, the Republic of Congo, Equatorial Guinea, Gabon, Mauritania, Nigeria and South Africa) received most of their non-tax revenues from rents and royalties, in particular oil royalties. The remaining 13 countries, excluding the four net recipient SACU countries, relied more on other sources of non-tax revenues, such as interest and dividends and fees for goods and services. Given this varied landscape, African countries should consider adopting context-specific strategies to bolster their non-tax revenues. Tailored policies can optimise revenues from diverse sources, ensuring sustained financial support for national developmental goals and improved delivery of public goods and services.  

VAT Digital Toolkit for Africa  

Revenue Statistics in Africa 2023 includes a special feature based on the VAT Digital Toolkit for Africa, which was jointly produced by the African Tax Administration Forum (ATAF), the OECD and the World Bank group. As in other regions, the expansion of digital trade has created significant challenges for VAT systems in Africa that require a globally co-ordinated response. Without reforms to address these challenges, continuous digital trade growth causes unfair competitive pressure on domestic businesses and increasingly significant losses in VAT revenues, which are a key source of financing for most African countries. The VAT Digital Toolkit for Africa provides detailed guidance to assist African tax authorities in the design and implementation of robust policies for the application of VAT to digital trade. 

If you have any queries on the above or require any tax advice, please contact the KISCH Tax Advisory team: 

Willem Oberholzer 
Director
KISCH Tax Advisory 
+ 27 83 326 0500
Willemo@kisch-ip.com 

Gerhard Nienaber 
Director
KISCH Tax Advisory 
+ 27 82 771 9549
Gerhardn@kisch-ip.com 

Wilna Scholtz 
Director
KISCH Tax Advisory 
+ 27 83 265 2573
Wilnas@kisch-ip.com