By
Tom Odhiambo
Title: Financing Africa; Author: Attiya Waris; Paperback: 214 pages; Publisher: Langaa Rpcig (November 12, 2019); Language: English
Talk about taxes or taxation to anyone on the streets anywhere in the world and chances are that the conversation will lead to a complaint about how government is taxing its citizens but not providing services. In many parts of Africa this complaint will be about how government is taking too much from its people and doing little with it. The problem is couched in the language of corruption. In the end, the common refrain is that corruption eats much of what is collected as taxes in Africa.
The consequence is that African countries have never been able to finance their budgets and development programs through taxation. African countries either cannot properly collect taxes or where the taxes are significantly collected, a big percentage goes into individual pockets. Whatever goes to the government is further lost in misappropriation by ministries, departments, agencies and their officers. The stolen money is in turn banked outside the continent in tax havens. This is a conundrum that African countries seem unable to resolve.
Which is why debates about Africa financing itself are important. Can African governments collect enough taxes to pay for services, goods, development and save? Can Africa rely on its own resources to improve the quality of life of its people? And even if African governments were to effectively collect taxes, how do ordinary citizens ensure that they know how much is collected, how it is spent, and where it is spent? In other words, how do the taxpayers guarantee fairness in the collection and use of taxes?
In Financing Africa (Langaa RPCIG, 2019), Attiya Waris asks the questions posed above but from a legal perspective. Should there be laws that govern how much the government can tax its citizens? Should the law also spell out how money collected from taxes can and should be spent? What should be government policy and country law on the debt that a country can incur? In other words, how much should a country be allowed to borrow internally and externally? What should be the debt ceiling, if at all it should be there?
These questions have a direct bearing on the form of government in any country. The system of governance be it in a centralized or unitary system as opposed to a devolved or decentralized system may determine how much the government collects from different sectors or the economy as well as regions of the country. Also, the system determines who collects taxes, where they go to, how they are shared out, and who accounts for it. Most African countries run a centralized system of governance where the central authority determines taxes, and the sharing and use of the collected revenue.
The problem with this system, as opposed to the devolved form of government is that it is difficult to hold officials at the centre accountable. In many instances, the decisions involving taxes are not consultative or shared. The top-down approach to revenue collection or use means that the common citizens have little information and control over the process. The government is a big brother who cannot easily be questioned. In the devolved system, citizens may demand at the local level to be involved in determining the use of their taxes even if they may not have input on what percentage of their income is collected, when, by who, and for what reason.
Waris suggests that fiscal decentralization takes three forms: fiscal autonomy, assigned revenues systems and fiscal transfers. In the first one the local authorities determine what types of taxes to collect and how to use the revenue, and only depend on their own resources. In the second, ‘each devolved unit receives taxation revenue generated within its jurisdiction.’
Under fiscal transfers the powers to determine tax type, percentage and collection remain with the central government. Local governments may collect some taxes, but they depend on the central government for expenditure allocations. These models have different results, according to Waris, in different African countries. For instance, Kenya uses the fiscal transfers’ policy despite having a devolved system of government. But the county governments are always complaining that they don’t receive their revenue allocations for expenditure on time, with salaries and services suffering.
Yet, despite what the law says, many scholars agree that taxation should follow a set of principles that are known and agreeable to the taxpayer. The taxpayer should also be able to understand what the reason and process of taxation means. These canons demand that taxation should be equitable and about equality so that there is some sense of economic justice for all citizens. This means that taxes should be paid according to one’s income, ability and the benefits they derive from government services and goods.
Taxes should be ‘certain, and not arbitrary’. The taxpayer should not spend extra time or resources trying to decipher how and why they are paying taxes. It should also be convenient to the taxpayer to pay their dues, just as it should be affordable. In many cases evidence suggests that tax collection in African countries is too expensive because of inefficient systems. Also, taxes should be productive, allowing the government to budget and finance its expenditures without having to borrow or borrow too much. Taxes should be flexible such that the government can vary them depending on economic realities of the days, such as the reduction of personal income tax in Kenya because of COVID-19. It should also be simple so that all and sundry can understand its workings. Lastly, there should be diversification in taxes in order to increase the government revenue streams.
The lack of tax diversity in Africa is a big problem. Too many countries depend on a single or a few sources of tax revenue such as oil, cash crops or tourism. In case of any global economic or financial instability which affects the prices of these commodities, such economies suffer significantly as the government is unable to collect enough taxes. The consequence is an unending dependence on loans and grants from bilateral and multilateral donors.
Yet, if African countries had proper laws and policies governing their tax systems, which laws and policies are understood by every citizen who is obliged to pay taxes and the authorities that collect the taxes and government officials who spend the revenue, then they wouldn’t be dependent so much on borrowing expensive loans and donors. Consequently, Waris suggests that governments need to ‘develop compliant taxpayers by helping citizens understand why and how to pay taxes, as well as how the collected revenue is used and how they benefit. She also suggests that African governments need to have laws that determine the limits of debts that governments can incur, how much they gain from international treaties and have controlled access to the loan’s markets. With such an approach to taxes, taxation and collection of revenues, African governments could finance their fiscal needs.
The writer teaches at the University of Nairobi. Tom.odhiambo@uonbi.ac.ke
