AFTER a decade of solid progress in domestic revenue mobilisation, tax revenues in Africa declined between 2019 and 2020 as a result of COVID-19, according to a new report released today. Africa’s average tax-to-GDP ratio declined by 0.3 percentage points (p.p.) in 2020 to 16.0%, reducing the continent’s ability to meet the challenges of higher borrowing costs, rising food insecurity and heightened global economic uncertainty.

Revenue Statistics in Africa 2022 reveals that tax revenues fell by 0.5% in nominal terms between 2019 and 2020 on average across the 31 African countries covered by the report, while GDP rose by 0.2%. Twenty-four of these countries recorded a decline in their tax-to-GDP ratio in 2020 compared to 2019. Tax-to-GDP ratios ranged widely across the continent in 2020, from 5.5% in Nigeria to 32.5% in Tunisia.

Policies to mitigate the impact of COVID-19 on businesses and households contributed to the fall in revenues. Namibia observed the largest decrease in tax revenues as a share of GDP in 2020, with a 1.7 p.p. decline that was partly attributable to a stimulus and relief package implemented in response to the pandemic. Meanwhile, Chad recorded the largest increase, of 6.6 p.p.

Despite the decline in 2020, Africa’s average tax-to-GDP ratio rose by 1.6 p.p. between 2010 and 2020. This was larger than the increase of 1.0 p.p. in Latin America and the Caribbean (LAC) but smaller than the 1.9 p.p. rise in OECD countries over the same period. Nonetheless, the COVID-crisis has reversed a decade of gains in tax revenues as a share of GDP for several African countries, notably in Kenya and Namibia, which were two of the six countries whose tax-to-GDP ratio was lower in 2020 than in 2010. 

The decline in Africa’s average tax-to-GDP ratio in 2020 was driven by falls in taxes on goods and services. They accounted for half of total tax revenues on average across the continent and declined by 0.4% of GDP in 2020. Revenues from personal income tax remained unchanged as a share of GDP while revenues from corporate income tax rose by 0.1 p.p. as a result of a sharp increase in Chad.

Meanwhile, non-tax revenues rose by 0.6 p.p. to 6.8% of GDP on average across the 31 African countries in 2020, thereby offsetting the decline in tax revenues. This increase was driven by higher inflows of foreign aid, with grant receipts increasing by 0.4 p.p., as well as by higher payments from the Southern African Customs Union Common Revenue Pool, in particular to Lesotho. These compensated for an average decline of 0.2 p.p. in property income that was partly due to lower oil prices in 2020.

The new report contains a special feature on the taxation of the informal sector in Africa, a key theme for domestic resource mobilisation given that more than eight out of ten workers in Africa are in informal employment. Efficient taxation of the informal sector requires government to better understand and support firms and individuals operating in the informal sector, rationalise taxes and facilitate registration.

Revenue Statistics in Africa is a joint initiative of the African Tax Administration Forum (ATAF), the African Union Commission (AUC) and the Organisation for Economic Cooperation and Development (OECD), with the technical support of the African Development Bank (AfDB), and the Cercle de Réflexion et d’échange des dirigeants des administrations fiscales (CREDAF). The 2022 edition received support from the European Union and is part of the second phase of the Pan-African Statistics Programme, a joint initiative between the European Union and the African Union.