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Discussions of development issues in Sub-Saharan Africa (SSA) tend not to focus on the importance of countries’ capacities to optimize domestic revenue sources. Improving the capacity of Sub-Saharan African governments to raise revenue from domestic sources strengthens public institutions while reducing the need for external financial assistance which can be costly. Efficient and fair tax policies and regulations improves the capacity of state institutions to govern which can valuable spill over into other areas. Acts of corruption become more challenging as informal processes become increasingly formalized. Raising revenue from domestic sources also helps combat escalating public debt, which have reached unsustainable levels for many countries in the region. Finally, these additional resources can be used to fund programs to support investments in education, health, infrastructure and overall development.

Despite recent efforts to boost revenues, Sub-Saharan Africa suffers low revenue sources compared to other regions around the world. Total revenue (excluding grants) to GDP is 18 per cent for SSA countries compared to over 25 per cent in Advanced Economies. SSA countries have done well recently raising direct and indirect taxes, especially with the inclusion of VAT in many countries. However, liberal trade policies have resulted in weaken import tax receipts.

SSA countries have tools in place to finance their own development. Raising domestic revenue sources by 3-5 per cent, can bring in an additional USD$50 to 80 billion annually to public coffers. Broadening personal income tax bases, introducing property taxes, reducing corporate tax exemptions and optimizing excise taxes are all options governments have at their disposal. Countries require additional efforts to promote transparency in public spending and revenue collection, as this improves public confidence and willingness to cooperate with tax authorities. To read the full text: Domestic Revenue Mobilization

Author: Negash Haile