1

African Tax Outlook Publication (ATO)

11 July 2018

2018 African Tax Outlook Publication

2

The AFRICAN TAX OUTLOOK flagship publication aims to provide valuable,

practical and relevant descriptive and analytical work on tax issues to

improve tax administrations and inform tax policy formulation and

implementation in Africa.

African Tax Outlook Publication (ATO)

1

26 countries featuring in the 2018 edition

Ghana

Angola

Niger

Malawi

Chad

26 countries featuring in the third edition

Tanzania The Gambia Togo Uganda Zimbabwe

Swaziland

Burundi Cameroon Kenya Lesotho Mauritius

Rwanda Senegal Seychelles South Africa

15 African countries contributed to the data collection of the first edition (2016)

26 countries featuring in the third edition

6 countries joined in the 2017 edition

Benin BotswanaLiberia

Mozambique Nigeria Zambia

26 countries featuring in the third edition

5 countries joined in the 2018 edition

MalawiNiger

Angola Chad Ghana

Launch of the ATO publication

Finalisation of the ATO publication

Validation workshop

Data analysis phase

Data collection phase & Selection of drafting team

Consultative workshop

Constitution of the ATO team

Expression of interest

ATO Data Process

Benefits of the African Tax Outlook Publication

The African Tax Outlook Publication: makes tax statistics and analyses available to African tax administrations allows cross-country comparisons and benchmarking provides comparable data on tax policy, tax administration and tax legislation provide an analysis of the data in terms of taxation trends identifies good practices within the African region to improve on Revenue

Administration.All this will help to improve the efficiency and effectiveness of member country taxation.

Benefits of the ATO Online Data Portal

A big enhancement is the new online ATO data platform which was launched on 22

November 2017.

It is a cross-country international data platform providing members with the unique

opportunity to collect a harmonized set of national-level information and data on tax

and Customs administration.

The online data platform aims to improve the comparability, analysis, consistency,

quality and accessibility of revenue data for participating countries in the ATO

publication

The online is used in future for all data collection, data dissemination, reporting

purposes. Reduces tax administration burden Maximise timeliness and data accuracy

The ATO publication has been divided into two main parts – Themes, sub-themes and indicators.

The first part defines the theme and indicators that guides the reader on quantitative tax statistics. The

second part shows the importance tax and customs administrative data.

The following themes have been covered:

Tax rates;

Tax bases;

Tax revenues;

Non-tax revenues

Organisational structures and functions of tax administrations

ATO Structure and themes

11

GDP and Tax revenue growth

Tax-to-GDP ratios

Tax Composition

Regional Analysis2

TOTAL TAX REVENUE

12

GDP and Tax revenue growth

Growth of Tax revenue and GDP, 2016

-25%

-15%

-5%

5%

15%

25%

Real GDP Growth Real Revenue Growth Population Growth

Countries like Rwanda recorded 8.64% real GDP growth in 2016 which was higher than the 1.4% average for sub-Saharan Africa in 2016 (IMF, 2018).

On the other hand, Burundi, Lesotho, Nigeria and Swaziland recorded negative real GDP growth of between 9% and 3%.

13

Tax-to-GDP Ratios

Some ATO countries observed sharp increases in tax-to-GDP ratios. E.g. Uganda, Seychelles and Lesotho respectively saw an increase of 2.37,

2.26 and 2.4 percentage points in their tax to GDP ratio from 2015. Average ATO tax to GDP ration on 2016 is 16% In contrast, countries like Botswana, Zimbabwe and Angola declined by 3.44,

3.18 and 2.18 percentage points respectively in their tax to GDP ratios

0%

5%

10%

15%

20%

25%

30%

GDP per capita and tax revenue per capita, 2016

Tax-to-GDP ratios: Regional Analysis, 2016

0% 5% 10% 15% 20% 25% 30%

Angola

Botswana

Lesotho

Malawi

Mauritius

Mozambique

Seychelles

South Africa

Swaziland

Tanzania

Zambia

Zimbabwe

SADC Average

ATO Average

0% 5% 10% 15% 20% 25% 30%

Benin

Gambia

Ghana

Liberia

Niger

Nigeria

Senegal

Togo

ECOWAS Average

ATO Average

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

Burundi

Kenya

Rwanda

Uganda

EAC Average

ATO Average

0% 5% 10% 15% 20% 25% 30%

Botswana

Lesotho

South Africa

Swaziland

SACU Average

ATO Average

ECOWASSADC

EAC SACU

34%

32%

35%

37%

34%

13%

23%

23%

28%

22%

15%

10%

16%

22%

16%

5%

15%

9%

2%

8%

17%

7%

5%

2%

8%

5%

8%

1%

0%

4%

11%

5%

11%

9%

9%

0% 20% 40% 60% 80% 100% 120%

ECOWAS

EAC

SADC

SACU

ATO AVERAGE

VAT Personal income tax revenue Corporate income tax revenue Excise

Import duty Other customs taxes: Other Domestic Tax Revenue

Tax-to-GDP ratios, per tax type: Regional Analysis, 2016

The standard VAT rate average in EAC is lower compared to the other regions.

Personal income taxes are the second largest contributor to tax revenue in the ATO, however the PIT’s relative importance is lower in the ECOWAS at only 13% compared to 23% in both SADC and EAC.

The ECOWAS region tends to depend mostly on Customs taxes as import duties account for 17% of revenue making it the second largest contributor to revenue in the ECOWAS region.

Excise taxes have a larger role in the tax revenue in EAC compared to the other regions accounting for 15% of total revenue compared to less than 10% in the other regions.

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The composition of tax revenue

34% 31% 35% 35% 34% 34%

17% 19%18% 18% 18% 20%

17% 17%16% 17% 16% 15%

10% 10% 10% 10% 10%10%

11% 11% 9% 9% 10% 9%

8% 8% 8% 8% 8% 9%

4% 4% 4% 4% 3% 4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015 2016

VAT Personal income tax Corporate income tax Import duty Other Domestic Tax Revenue Excise Other customs taxes

Indirect taxes (consumption andcustoms taxes) account for 55% of theaverage ATO country’s total taxrevenue.

Direct taxes (corporate and personalincome taxes) account – 34%.

Composition of tax revenue, ATO average, 2011-2016

Contribution to Total Revenue in the ATO, 2016

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Non-Tax Revenue

Other customs taxes

Excise

Other Domestic Taxes

Withholding tax

Import duty

Corporate income tax

Personal income tax

VAT

The largest contribution to ATO revenue in 2016 was VAT at 34% followed by PIT at 20%.

The relative importance of personal income taxes-to-total tax revenue has been increasing within the ATO from an average of 17% in 2011 to 20% in 2016 while CIT revenue has shown a decline in relative contribution to total revenue to 15% from 17% in 2011.

The contribution of Excise taxes to total revenue has also increased slightly from 8% to 9% between 2015 and 2016.

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The composition of tax revenue

Average growth in real and nominal GDP in ATO countries, 2011-2016 ATO countries show nominal GDP

growth (increases in production andprices), with annual ATO averagegrowth rate of 0.24%

The highest nominal growth rate oftax revenue was Tanzania at 19%

In Angola, Benin, Botswana, Niger,Nigeria, Zambia and Zimbabwe haveexperienced negative growth in theirtax revenue

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Nominal GDP Growth Nominal Revenue Growth

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Stability of Tax Revenues in the ATO

Countries that had larger share ofCustoms revenue in total tax revenuetended to have a higher level of volatilityin their tax to GD ratios

Mozambique and Togo had the highest volatilityin tax-to-GDP ratios while Mauritius and Kenyahad the least volatility.

The high volatility in Mozambique, Togo, Nigerand Zimbabwe is reflective of positive increases intax-to-GDP ratio over the period.

In Mozambique and Togo, the significantincreases were due to positive performance inincome taxes while in Zimbabwe it is reflective ofthe unstable economic conditions during theperiod.

Angola

Benin

Botswana Burundi

Cameroon

Gambia

GhanaKenya

Lesotho

Liberia

Malawi Mauritius

Mozambique

Niger

Nigeria

Rwanda

Senegal

Seychelles

South AfricaSwaziland

Tanzania

Togo

Uganda

Zambia

Zimbabwe

0,0000

0,0001

0,0002

0,0003

0,0004

0,0005

0,0006

0,0007

0% 10% 20% 30% 40% 50% 60%

Tax

to G

DP

Var

ian

ce

Share of Customs

Domestic and Customs Revenue Share of total tax revenue, 2016

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Domestic Customs

Most of revenue of the ATO countries is from domestic revenue with the largest share of domestic revenue to total revenue observed in Swaziland, South Africa and Lesotho at 88%, 84% and 82%, respectively.

This generalisation however excludes other countries like Togo, Benin and Gambia that are more dependent on Customs revenue with contributions to total revenue of 57%, 52% and 44% respectively.

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Value Added Taxes

Excise taxes

Trade taxes

Personal Income Taxes

Corporate Income Taxes

ANALYSIS OF THE DIFFERENT TAX TYPES

3ANALYSIS OF THE DIFFERENT TAX TYPES

Breakdown of major tax heads in the average ATO country, 2016

VAT yielded the mostrevenue (35%) in total,followed by individualincome taxes whichcontributed 27%.

Excise taxescontributed 6%, whileother taxes, whichincluded all minor taxtypes combined, hadthe least contributionof 4%.

35%

6%

27%

19%

9%4%

Domestic VAT

Excise tax revenue

Individual Income Tax

Corporate income Tax

Import duty

Other Taxes

VAT-to-GDP ratio, 2016

VAT-to-GDP ratio for 2016 stood at 6.3% on average for the ATO countries, which iscomparable to the OECD average of 6.8%. The ratios of overall VAT revenue-to-GDP werehighest in Senegal, Seychelles and South Africa where they exceeded 10%. Nigeria had thelowest total VAT-to-GDP ratio (1%),

0%

2%

4%

6%

8%

10%

12%

14%

VAT revenue, 2016

Highest growth in domestic VAT were witnessed in Ghana (21%), Kenya (21%), Tanzania(22%), Mozambique (29%) and Togo (29%), whilst Liberia (22%), Malawi (25%) and Swaziland(22%) had the highest growths in VAT on imports, against ATO averages 9% for domestic VATand 4% for Import VAT

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Domestic VAT VAT on imports

VAT Refunds

The ATO data portal has information on both net VAT and gross VAT, since refunds are accounted for on the data portal.

However, since not all countries were able to provide complete information, especially on VAT refunds in previous publications, to accommodate all countries, gross VAT was sometimes used in the analysis of VAT.

Where this was the case, it indeed tended to overstate VAT revenues, and consequently tax-to-GDP ratios.

However, in the 2018 publication, we have already included the analysis on VAT refund. The analysis on VAT included both gross and net VAT revenues, and where countries could not provide information on VAT refunds, they were left out in the analysis where net revenue was used.

0% 20% 40% 60%

Botswana

Burundi

Cameroon

Gambia

Kenya

Lesotho

Malawi

Mauritius

Mozamb…

Nigeria

Rwanda

Senegal

Seychelles

South…

Swaziland

Tanzania

Uganda

Zambia

Zimbabwe

ATO…

0% 10% 20% 30% 40% 50%

Botswana

Burundi

Cameroon

Gambia

Kenya

Lesotho

Malawi

Mauritius

Mozambique

Nigeria

Rwanda

Senegal

Seychelles

South Africa

Swaziland

Tanzania

Uganda

Zambia

Zimbabwe

ATO Average

VAT refunds-to-VAT revenue ratios, 2016

Average VAT refunds-to-VAT revenue ratios,

(2011-2016)

Ratio of Excise taxes to total taxes by tax type, 2016

0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 30,00%

Benin

Botswana

Burundi

Cameroon

Gambia

Ghana

Kenya

Lesotho

Liberia

Malawi

Mauritius

Mozambique

Niger

Rwanda

Senegal

Seychelles

South Africa

Swaziland

Tanzania

Togo

Uganda

Zambia

Zimbabwe

Tobacco Alcohol Fuels Other

With reference to the share of

excise taxes-to-GDP by excise

types, the highest contributor was

fuel, which came first in

Zimbabwe, Uganda, Togo,

Tanzania, South Africa, Seychelles,

Senegal, Kenya and Ghana

Excise on fuel contributed 3.58% toGDP in Zimbabwe, while inSeychelles, Uganda and SouthAfrica, the contributions were2.78%, 2.16% and 1.37%,respectively.

Personal Income Tax (PIT)

Zimbabwe, Zambia, Uganda,Seychelles, Lesotho and Kenyaexperienced PIT revenue-to-GDPratios of 5% while the rest of thecountries were below 5%.

It is interesting to note thatcountries that were above the 5%mark apply bottom marginal taxrates of 10% and above.

Four of them, except Kenya andUganda apply bottom marginal taxrates that are above the ATOaverage of 13%.

Growth in personal income tax revenue 2011 - 16

0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 35,0% 40,0%

Angola

Benin

Botswana

Burundi

Cameroon

Chad

Gambia

Ghana

Kenya

Lesotho

Liberia

Malawi

Mauritius

Mozambique

Niger

Nigeria

Rwanda

Senegal

Seychelles

South Africa

Swaziland

Tanzania

Togo

Uganda

Zambia

Zimbabwe

ATO Average

0% 2% 4% 6% 8% 10%

Angola

Benin

Botswana

Burundi

Cameroon

Gambia

Ghana

Kenya

Lesotho

Liberia

Malawi

Mauritius

Mozambique

Niger

Nigeria

Rwanda

Senegal

Seychelles

South Africa

Swaziland

Tanzania

Togo

Uganda

Zambia

Zimbabwe

ATO Average

PIT revenue-to-GDP ratios, 2016

Corporate Income Tax (CIT)

Six ATO countries had CIT-to-GDP ratios above3%, with some going as high as 5%, therebyexceeding the OECD average of 2.8%.

In total eight countries had CIT revenue-to-GDPratios of at least 3% and above.

Mozambique had the highest CIT-to-GDP ratio,attributable (at least in part) to having thehighest statutory CIT tax rate of 32%.

1%

1%

5%

2%

2%

2%

3%

2%

4%

2%

1%

3%

5%

2%

2%

1%

2%

4%

5%

3%

1%

2%

1%

2%

2%

2%

0% 1% 2% 3% 4% 5% 6%

Angola

Benin

Botswana

Burundi

Cameroon

Gambia

Ghana

Kenya

Lesotho

Liberia

Malawi

Mauritius

Mozambique

Niger

Nigeria

Rwanda

Senegal

Seychelles

South Africa

Swaziland

Tanzania

Togo

Uganda

Zambia

Zimbabwe

ATO Average

CIT revenue-to-GDP ratios, 2016

29

Social security

Other non-tax-revenue

NON-TAX REVENUE / TAX EXPENDITURES

4NON-TAX REVENUE

30

0,00% 2,00% 4,00% 6,00% 8,00% 10,00% 12,00% 14,00%

Cameroon

Ghana

Kenya

Malawi

Mozambique

Nigeria

Rwanda

Senegal

Tanzania

Togo

Zimbabwe

ATO Average

Contribution of Social Security to GDP in 2016 Contribution of Social Secuty to Tax Revenue in 2016

24 ATO countries have a public health system,although 5 are fully tax financed, 11 are partlytax financed and 8 are partly financed bycompulsory contributions.

With regards to old age pension schemes, threecountries are completely tax financed, ninepartly tax financed and fourteen financed bycompulsory contributions

Ratio of social security contribution to GDP, 2016

Social security

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Other non-tax-revenue

0,00% 10,00% 20,00% 30,00% 40,00% 50,00% 60,00% 70,00% 80,00%

Angola

Benin

Botswana

Burundi

Cameroon

Chad

Gambia

Ghana

Kenya

Lesotho

Liberia

Malawi

Mauritius

Mozambique

Niger

Nigeria

Rwanda

Senegal

Seychelles

South Africa

Swaziland

Tanzania

Togo

Uganda

Zambia

Zimbabwe

ATO Average

Oil Fees and License Royalties Other

Other Non-tax revenue – prone to

swings

ATO countries which rely on oil revenuesuch as Nigeria, Angola, Cameroon,Chad and Tanzania have seen theirrevenue decrease due to pricefluctuations in international markets ofoil.

They have been making extensivespending cuts across departments andagencies due to the decline in oilrevenue.

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Domestic VAT Expenditures-to-Domestic VAT revenue ratios,

2016

0% 50% 100% 150% 200% 250% 300% 350%

Kenya

Malawi

Mauritius

South Africa

Swaziland

Zambia

Zimbabwe

ATO Average

Zero-rates Exemptions

On average, for those countries thatsubmitted VAT expenditure statistics,152% of gross VAT revenue wasforgone through the granting of VATexpenditures (zero-rates andexemptions combined).

Kenya (292%), Zimbabwe (263.5%)Swaziland (220%), and Zambia (196%)had the highest ratios of VAT revenueforgone through VAT expenditures.

0% 10% 20% 30% 40% 50% 60% 70% 80%

Kenya

Malawi

Mauritius

South Africa

Swaziland

Zambia

Zimbabwe

ATO Average

Zero-rates Exemptions

The ATO average was 49% for combined domestic VAT expenditures. It was observed that Kenya (74%), Zimbabwe (72%), Swaziland (66%) and Zambia (66%) had highest ratios of VAT revenues forgone as ratios of their potential VAT revenues.

These countries’ ratios of revenue forgone through VAT expenditures exceeded 50% of their potential domestic VAT revenues. Malawi (38%), Mauritius (13%) and South Africa (15%) had the lowest ratios

VAT Expenditures to potential VAT Revenue Ratios, 2016

34

FUNCTIONS, STRUCTURES AND SERVICES MANAGEMENT

IN CUSTOMS/TAX ADMINISTRATION

5 Cost of Tax Administration

Audit for Compliance

Customs Clearance

Staff Productivity

Average Growth in Cost of collection 2011 - 2016

• The data shows that on average in 2016, Revenue Administrations spent

1.6% of the revenue collected on operational costs which represented a

marginal increase over the average proportion recorded between 2011 and

2016.

• Swaziland has the highest cost collection ratio relative to its peers (5.2%)

followed by Zimbabwe (4.0%)

• While Senegal, Cameroon, Seychelles and South Africa had the lowest cost

to revenue ratios of 0.1%, 0.3%, 0.5% and 0.9% respectively.

Average Growth in Cost of collection 2011 - 2016

1,5%

2,2%

2,5%

1,9%

1,5%

2,9%

2,2%

1,6%

0,2%

1,3%

0,4%

1,2%

1,2%

3,0%

1,1%

0,3%

3,4%

1,7%

4,2%

1,0%

1,1%

2,0%

1,7%

1,1%

1,7%

2,7%

0,0% 0,5% 1,0% 1,5% 2,0% 2,5% 3,0% 3,5% 4,0% 4,5%

Average, ATO

Uganda

Tanzania

Rwanda

Kenya

Burundi

Average, EAC

Togo

Senegal

Nigeria

Niger

Liberia

Ghana

Gambia

Average, ECOWAS

Cameroon

Zimbabwe

Zambia

Swaziland

South Africa

Seychelles

Mauritius

Malawi

Botswana

Average, SADC

AngolaA

TOEA

CEC

OW

AS

NA

SAD

C

• Regionally, the EAC recorded the largest increase in the cost of collection to revenue ratios (12.1%) between 2016 and 2015 followed by the SADC region (3.6%).

• The ECOWAS posited the smallest change in the cost to revenue ratio (3.3%) of all the ATO regions.

Audit for Compliance

Benin; 12

Botswana; 29 Burundi; 13

Gambia; 42

Liberia; 9

Malawi; 20

Mauritius; 7

Mozambique; 78

Nigeria; 7

Rwanda; 11

Senegal; 28Seychelles; 14

South Africa; 48

Swaziland; 17

Tanzania; 14

Togo; 1

Uganda; 12

Zambia; 15

Zimbabwe; 12

ATO Average; 20

SADC; 25

Ecowas; 16

EAC; 11 In 2016, there were around twenty employees perauditor in the ATO region.

From a regional perspective, the staff to auditor ratiowas highest in the SADC region, at 25,

And lowest in the EAC, at 11. However, the EACaverage should be interpreted with caution since only2 out of five countries submitted statistics on thisindex.

At country level, Togo (1 to 1) had the lowest staff toauditor ratio followed by Mauritius (7 to 1), Nigeria (7to 1) and Liberia (9 to 1).

It is worth mentioning that Togo comes as an outlierbecause it included all customs officers who dosearches and verifications at ports of entry, hencetheir low ratio.

Ratio of Tax Administration staff to Auditor

Audit for Compliance

• There were variations among ATO countries with referenceto the assessments issued by auditors.

• Comprehensive audits topped the ATO group at 39%followed by desk audits (27%) and then issue audits (24%).

• Nigeria (100%), Senegal (100%), Liberia (86%), Ghana (78%),Tanzania (67%), Togo (64%) and Zimbabwe (62%), issuedmore assessments from comprehensive audits in 2016.

• Mauritius (0%), Swaziland (6%) and the Gambia (9%) carriedout the lowest number of comprehensive audits

• On the one hand, while Botswana carried 81% issue audits,Mauritius, Mozambique, Togo and Zimbabwe had 0%.

• Mauritius (81%) and Mozambique (68%) had highestpercentages of desk audits carried out, Ghana, Botswana,Nigeria, Senegal and South Africa had nil.

• South Africa carried out 66% of other audits.

Assessments by Audit Type in Selected ATO countries, 2016

0% 20% 40% 60% 80% 100% 120%

Benin

Botswana

Burundi

Cameroon

Gambia

Ghana

Liberia

Malawi

Mauritius

Mozambique

Nigeria

Rwanda

Senegal

Seychelles

South Africa

Swaziland

Tanzania

Togo

Uganda

Zambia

Zimbabwe

ATO Average

Number of comprehensive audits Number of issue audits Number of desk audits Number of other audits

Customs Clearance

Lane Country Percentage of goods

Burundi

Nigeria

Mozambique

Gambia

87%

86%

71%

60%

Mauritius

Malawi

Kenya

Gambia

53%

45%

45%

40%

Botswana

Swaziland

Zimbabwe

Kenya

74%

74%

41%

39%

Zimbabwe

Rwanda

Cameroon

48%

32%

25%

The ATO-wide average percentages

of goods going through the lanes are

35% in the red, 24% in the yellow,

12% in the blue lane, 24% in the

green lane and 5% in other lanes.

The ECOWAS region has 68% of

goods going through the red lane

and the SADC community has 35%

of goods through the green lane.

Staff Productivity

0,00 5,00 10,00 15,00

Angola

Benin

Botswana

Burundi

Gambia

Ghana

Kenya

Lesotho

Liberia

Malawi

Mauritius

Mozambique

Niger

Nigeria

Rwanda

Senegal

Seychelles

South Africa

Swaziland

Tanzania

Togo

Uganda

Zambia

Zimbabwe

ATO Average

Revenues per General Tax Administration Employee (millions), 2016

Revenue per Tax Administration employee -: total revenue collected divided by the total number of employees in Tax Administration in the year 2016.

The revenues were converted to international currency using the PPP exchange rate for comparability across the different Tax Administrations;

41

POLICY RECOMMENDATIONS

6

TAX POLICY Diversify Revenue Sources Review VAT Thresholds Consider Reforming Administration of VAT Refunds Embrace Environment Taxes Design Excise Taxes Accordingly Reduce Heavy Reliance on Non-Tax Revenues Review Marginal PIT Rates and Reduce the Number of PIT Bracket Protect Revenue Losses through Streamlining Tax Expenditures

TAX AND CUSTOMS ADMINISTRATION Interact and Improve Communication Channels with Taxpayers Intensify Taxpayer Education Initiatives Increase the Number of Auditors and Aim to Recover More from Audits Decisively Deal with Tax Arrears Intensify Information Exchange and Reduce Import Tariffs to Curb

Smuggling Modernise and Automate Tax Administrations