African tax systems should be about governments delivering on the expected socio-economic development from taxes collected, according to Akinwumi Adesina, the President of the African Development Bank (AfDB).
He made the remarks during a press briefing that closed the AfDB Annual Meeting 2024, which convened more than 3,500 participants from across the world, in Nairobi, Kenya.
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Themed ‘Africa’s Transformation, African Development Bank Group, and Reform of the Global Financial Architecture’, the meeting comprised the 59th Annual Assembly of the African Development Bank and the 50th meeting of the African Development Fund.
Participants included African leaders, key officials of bilateral and multilateral development agencies, leading academics, and representatives of non-governmental organizations, civil society, and the private sector, engaging in discussions about the socio-economic transformation of the continent.
According to the bank’s Annual Economic Outlook report of 2024, for Africa to close the estimated annual financing gap of $402.2 billion for structural transformation by 2030, the tax-to-GDP ratio should increase from its current level of 14.0 percent to a minimum of 27.2 percent.
Expanding tax capacity and catalyzing private sector investments in critical sectors will be key to mobilizing the needed resources for Africa’s structural transformation.
"Investing in institutional tax capacity by expanding the use of digital technology, combat illicit financial flows, and reforming tax policies, as well as building a social contract between government and taxpayers to address implicit taxation—will be vital to enhancing domestic resource mobilization,” it states.
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Adesina noted that taxes are social contracts between society and governments to not just collect them but deliver on intended development.
According to him, people lose faith in tax systems when they pay taxes and go on to provide social services for themselves such as electricity, water and sanitation, infrastructure, and social protection, among others –things that should be provided by the governments.
"We cannot hope to collect more taxes from them because they are already taxed. That is an implicit tax. Citizens cannot and should not compensate for the government’s failure. Utilities must perform well.”
Combating illicit capital flows
The bank indicates that Africa loses roughly about $89 billion every year in illicit capital flows, mainly corruption.
"It doesn’t matter how much you keep pouring [collecting taxes], it goes away. So, it’s not just the collection, but blocking the leakages so that whatever is collected, stays. There is more to be done on tackling corruption and the issue of illicit capital flows and efficient use of the money collected,” said Adesina.
He noted that African economies are too generous in providing tax exemptions to foreign corporations.
"Some incentives are needed, but you cannot be giving away every single thing for freebies. So I think African countries need to relook at that to not over-incentivize.”
This means that African countries should be able to collect royalties and taxes from their oil, gas, minerals, metals, and other resources, he said, property-based shifting and transfer of resources out of Africa cannot work.
"For me, any company working in Africa using Africa’s resources must pay taxes in Africa. It’s not a free world. We need resources to be able to develop.”