Better tax collection could stop US$63 billion leaving Africa, says AfDB president

22nd May 2017 Jack Aldane

Tens of billions in illicit financial transfers are draining Africa’s domestic resources but a better system of tax revenue collection could limit the impact this has on development, Akinwumi Adesina, president of the African Development Bank, said at the bank’s annual meeting in India today.

“All the taxes that we should be collecting are actually being filtered away because of illicit tranfers of money, or base-shifting, as multinationals do. The bank is working to reduce this,” Adesina told Development Finance at an opening press conference.

Adesina said the bank needs to do more to reduce corruption at African ports so as to collect more duties on shipped goods.

“Today, a little over US$63 billion dollars leaves Africa because of these bad practices, so we are working within the international framework to tighten the tax code, so that what belongs to Africa, from its minerals to oil and gas, stays in Africa, and doesn’t get extracted by others.”

The bank today released its economic outlook report for 2017, which states that African countries “will need to explore other options of mobilising domestic resources to minimise vulnerability of revenues to volatility in commodity prices”.

Tax revenue, according to the report, “remains the most important source of domestic financing in African countries but has slowed with the decline in commodity prices”.

Africa’s economic growth slowed to 2.2 percent from 3.4 percent in 2016 due to a prolonged fall in commodity prices, as well as the impact made on agriculture by adverse weather conditions in certain regions. To insulate against commodity price shocks in future, African countries have started to diversify their economies away from the natural resources towards construction, financial services, manufacturing, transport, electricity, and information and communications technology.

Adesina said the African Development Bank had had some success expanding what he called “a fiscal space for countries to be able to mobilise more resources”. In 2014, under the presidency of Donald Kaberuka, the bank created the Togo Revenue Authority to consolidate customs and tax services within the fourteen countries belonging to the CFA franc zone, the West African Economic and Monetary Union, and the Central African Economic and Monetary Community.

“Within one year, the revenue collection went up by 25 percent, just because of that,” he said.

Adesina also suggested African states could learn from Asia’s most noticeably developing economies, all of which have high tax-to-GDP ratios. He stressed however that Africa’s overall tax-take continues to grow.

“If you look at the total amount of tax, Africa is doing better. Right now there’s about US$500 billion collected in tax in Africa, but a lot more can be done.”

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