Tax reform, digitisation crucial for Africa’s financial development

 MG 8327Report smaller2Africa needs to digitise its economies, increase tax base and prevent further deterioration of fiscal and debt positions to achieve the UN 2030 global goals (SDGs), and the AU Agenda 2063, according to the 2019 Economic Report on Africa

This year’s Economic Report on Africa, a flagship publication of the United Nations Economic Commission for Africa (ECA) focuses on fiscal policy. Government revenues account for 21.4 per cent, insufficient to meet countries’ development financing needs.

According to the report, African countries can increase government revenue by 12–20 per cent of GDP by adopting a policy framework that strengthens revenue mobilisation, including through digitalising African economies stating that digitisation could enhance revenue mobilisation by up to six per cent.

Vera Songwe, ECA’s executive secretary, stated, “Digital identification can broaden the tax base by making it easier to identify and track taxpayers and helping taxpayers meet their tax obligations. By improving tax assessments and administration, it enhances the government’s capacity to mobilise additional resources. Digital ID systems yield gains in efficiency and convenience that could result in savings to taxpayers and government of up to $50 billion a year by 2020."

While analysing and highlighting both challenges and opportunities, the report recommends comprehensive macroeconomic reforms aimed at building financial resilience, placing emphasis on the need for Africa to accelerate growth to double digits by 2030 and to boost investment from its current 25 per cent of GDP.

While economic growth in Africa remained moderate at 3.2 per cent in 2018 – due to “Solid global growth, a moderate increase in commodity prices and favourable domestic conditions,” the report emphasises that Africa needs to work towards achieving a fine balance between raising revenue and incentivising investments, in order to boost growth.

In some of Africa’s largest economies, South Africa, Angola and Nigeria, the report reveals, growth trended upwards but remains vulnerable to shifts in commodity prices.

East Africa remains the fastest growing, at 6.1 per cent in 2017 and 6.2 per cent in 2018, while in West Africa, the economy expanded by 3.2 per cent in 2018, up from 2.4 per cent in 2017. Central, North and Southern Africa’s economies grew at a slower pace in 2018 compared to 2017.

On the issue of Africa’s debt burden, the report reveals that debt levels remained high as African countries increased their borrowing, to ease fiscal pressures most of which have been precipitated by the narrowing of revenue streams that have gone on since the commodity price shocks of 2014.

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