Reform of the African tax system – African Business

A digital overhaul of the African tax system is needed to encourage revenue collection, regional coordination and funding, Adam Elhiraika, director of macroeconomic policies at the Economic Commission for Africa, told Shoshana Kedem.

The Conference of African Ministers for Finance, Planning and Economic Development started on Wednesday in Marrakech with a session on economic and social trends in Africa over the past seven years.

A panel of experts, including the Director of the Macroeconomic Policy Department of the UN Economic Commission for Africa (UNECA), Adam Elhiraika, debated with country delegations the reforms and legal framework necessary for the reorganization of the African tax collection system.

Speaking to African Business, Elhiraika said that while some countries are not yet ready for digital reforms, digitization can make a major contribution to solving the region’s fiscal problems.

What were the main highlights of today’s session on recent economic and social trends in Africa?

The main highlights of today’s discussion relate to recent economic and social developments in Africa. We looked at how Africa fared in terms of growth in 2018. The continent grew 3.2% in 2018, up from 3.4% in 2017, but growth is expected to return to 3.4 in 2019 and 3.8 in 2020.

What are the main growth drivers in the region?

The main drivers of growth are the recent increases in investment and commodity prices, particularly oil prices, as well as the continued improvement in macroeconomic management and, in particular, the increase in exports. And the continent benefited from relatively strong global growth. The conversation highlighted the need for Africa to triple its growth rate by 9-10% and at least 6% in order to make significant progress towards its sustainable development goals.

Adam Elhikaika gave an overview of the latest economic and social developments in Africa at the meeting of the Committee of Experts

Can all African countries jump into the digital age when they grapple with domestic realities such as budget deficits and poor infrastructure?

The budget deficit problem has to do with outdated tax systems in many African countries, and so digitization and infrastructure building will help countries ultimately address the budget deficit problem. We say that African countries have the potential to at least double their current GDP tax rate of 15.4%.

Ten years ago the GDP tax rate in Africa was about half what we have today, and there is still potential to double it to 30% in the next 5-7 years.

So there are two types of interventions that governments need to take in order to take advantage of digitization: first, we need laws and institutional changes, and second, we need soft systems, not new hard infrastructure.

The digitization of their tax and tax systems should not cost the African countries much.

For some countries it is [digitalisation] jumps with the gun, but for others it is not. Some countries like South Africa, Rwanda, Kenya and Morocco already have very modernized tax systems.

As the youngest continent in the world saturated with digital skills but few job opportunities, how does this issue deal with youth unemployment and what solutions do you see for proposals and discussions at this conference?

We rely heavily on digitization, which offers African countries many opportunities to modernize their tax systems and mobilize more government revenue for taxes, sources and better management of government spending in order to build an infrastructure and an environment that is conducive to private investment. And everything that is important to job creation is important to job creation for African youth. So we are saying that funding is the main barrier to investment and development in Africa.

If you deal with the financial constraints we will be able to take advantage of analogous opportunities in many other areas and address issues of social development, employment and so on.

How will Brexit affect trade with African countries and what opportunities does it offer?

We were already preparing for Brexit when it was first discussed three years ago, so I don’t see any immediate effects on Africa in the short term.

In the longer term, countries may be able to engage with the UK and the EU under new agreements that will affect how they work with the UK vis-à-vis the EU. New data will show which sectors and countries offer the best opportunities.

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