Non-adherence to socio-economic contract hinders tax collection —Tax administrators

At the African Tax Administration Forum (ATAF) Assembly held recently in Lagos, tax administrators established a nexus between good governance and willingness of citizens to pay tax. The assembly also urged African governments to emplace stronger tax administration to mobilise funds rather than resorting to foreign loans which perpetuate privation and poverty on the continent. Tyavzua Saanyol reports.

As inflation continues to rise, triggering a surge in the prices of commodities across African markets, experts in the tax administration industry have attributed the growing cost of living on the continent to the outbreak of Covid-19, the war between Russia and Ukraine, climate change and rising insecurity, amongst other factors.

Stakeholders from the tax administration sector from over 53 countries recently assembled in Lagos to seek measures on how to improve revenue generation through tax collection in Africa.

Over 498 delegates at the African Tax Administration Forum (ATAF) Assembly held for the first time in Nigeria acknowledged that there is unwillingness among citizens of African nations to pay tax. The forum blamed the situation on the high cost of living that is on the increase on the continent.

They acknowledged that the rising inflation is not only affecting citizens, but that government at all levels in Africa is affected, causing an increase in the appetite to borrow. ATAF said African countries foreign debts were becoming unsustainable and it is important for internal revenue collections to close the gap in funding infrastructural projects.

However, they stated that citizens of African countries were unwilling to pay taxes due to the inability of governments to convince them that the monies from their taxes were used properly.

Though there are huge leakages in tax payment, as well as taxes that are not being collected, tax administrators in Africa must foster relationship with government and citizens to improve on revenue generation from the sector.

The Federal Inland Revenue Service (FIRS) hosted the Assembly in partnership with Deutische Gisellschaft for Internationale Zusammenarbeit (GIZ).

Speaking at the conference, the Executive Chairman of FIRS, Muhammad Nami, who is also the President of Commonwealth Association of Tax Administrators (CATA), reaffirmed the need to improve the socio-economic contract between taxpayers and good governance.

“As we know, the ATAF general assembly provides ample opportunities for peer review and knowledge sharing on emerging issues in tax administration in Africa.

“It has since inception, provided the model platform for regional interaction, collaboration and capacity building for member countries”.

He explained that the unprecedented global shock since 2020 to date occasioned by COVID-19 and currently made worse by the Russia-Ukraine war has indeed affected African economic growth.

“These unfortunate incidents have placed a significant burden on all revenue authorities in Africa by having them devise innovative means and adopt strategies that are less dependent on external economic factors to fund the rising budgetary needs of government at all levels.

“In addition to this situation is the challenge posed by the digital economy where business transaction has moved from brick-mortar model to digital space, thereby creating emerging issues in the tax ecosystem for developing African countries.”

Nami stated that “effective and efficient domestic revenue mobilisation has become more critical and urgent than ever before, as tax revenue is the most sustainable source of financing development globally.

“Distinguished guests, the theme of this conference, ‘Rethinking Revenue Strategies: The Human Face of Taxation’, provides a platform to discuss the human angle to taxation and critically evaluate some of the critical challenges, retarding its growth in Africa.

“One of the panel discussions will specifically focus on the relationship between good governance and its impact on tax compliance in Africa. Tax administrators, especially in developing countries, must understand that this is a big drawback for tax morale in our clime”.

Nami noted that “the fiscal social contract, which hinges on the willingness of the citizens to pay tax in return for the provision of public service is a clarion call on the government at all levels in Africa to rethink governance.

“In my view, if we must transform the system and enhance revenue collection in Africa, there is need for government at all levels, to engender public confidence and trust in government by providing value for taxpayers’ money.

“More importantly, the government should reconsider how projects are reported in the public space and the expected impact it will have on the tax-paying culture. Such reports should be communicated to convey the idea that taxpayers’ money is used to fund Infrastructural projects.”

Similarly, the Minister of State for Budget and National Planning, Prince Clem Agba, noted that too often the ideas that rise to the top in the discussion of how to improve the tax profile of many countries are really not much more than either the introduction of new taxes or the raising of tax rates.

“I agree with the theme of this event that the human face of taxation may be a more sustainable and effective way of achieving the desired results in the optimisation of revenue and fostering voluntary compliance. To be clear, we are of course mindful of the reality that the introduction of new taxes is sometimes not just inevitable but even needful as we take on the emergence of new business models.

“This is illustrated for example by the global ongoing work on the taxation of the digitalised and the globalised economy which are ordinarily not subject to the rules guiding the taxation of brick-and-mortar businesses.

“However, the continual resort to increase in taxes or tax rates as a revenue generation strategy reveals a stagnation of thought towards the human face of taxation and will ultimately prove to be a disincentive.

“Jurisdictions that are able to generate substantial revenue through taxation and record remarkable voluntary tax compliance achieve such success on the back of the institutionalisation of key reforms that prioritise voluntary compliance such as trust, transparency, fairness, accountability and ease of tax compliance – including ease of access to the structures of payment of taxes and reduction of complexity of tax law. It is also a trodden path that leads to functional, productive tax systems with high yield and output.”

The forum noted that apart from the unwillingness of citizens to pay taxes in Africa, there are sectors of the economy that are not taxed properly or not even taxed at all.

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Stakeholders explained that if taxes are properly paid in the digital and environmental sector, a lot of funds will be made available for the government to provide infrastructure.

Again, cases of revenue leakages in existing tax structures have also denied the continent of funds as well as sectors that have never been captured under the tax system, like the cabotage tax. Therefore, stakeholders emphasised the need for governments across Africa to rely more on Domestic Revenue Mobilisation (DRM) rather than turning to foreign loans.

Also at the conference, the lead speaker, Winnie Byanyima, Executive Director of UNAIDS, and Under-Secretary General of the United Nations, noted that it is only through an equitable and sufficient taxation that Africa can free itself and set on a journey to a sustainable future where Africans will have the opportunity they deserve.

She said that considering the number of Africans living in poverty, African governments cannot rely on borrowing instead of reforming their tax systems as debt financing in Africa is three times the education spending, six times the health spending and twenty-two times the social spending.

Byanyima stressed the need to tax the wealthy on the continent as the six richest Africans are richer than 600 million of the continent’s poorest.

Stressing the need to get tax administration right in Africa, the ATAF Executive Secretary, Logan Wort, said doing this would enable the continent to mobilise its resources for the improvement of quality of lives of the people rather than to continue spending so much on debt servicing.

This is important because with good tax administration, there will be adequate socioeconomic infrastructure like good educational institutions, quality healthcare, strong institutions, good governance, peace and generally, a good standard of living for the people of the continent.