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Occasional Paper No. 8

Taxation in Sub-Saharan AfricaPart I

Tax Policy and Administration in Sub-Saharan Africaby Carlos A. Aguirre, Peter S. Griffith, and M. Zuhtii Yucelik

Part IIA Statistical Evaluation of Taxation in Sub-Saharan Africa

by Vito Tanzi

Fiscal Affairs Department

International Monetary FundWashington, D.C.

October 1981


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Contents

PagePrefatory Note vii

PART I: Tax Policy and Administration in Sub-Saharan Africa

I. Introduction 3

II. Summary of Conclusions 4Taxation of ImportsTaxation of ConsumptionTaxation of the Agricultural SectorTaxation of Income and Property in the Modern SectorSpecial Tax IncentivesGeneral Aspects of Tax Administration

III. Taxation of Imports 8IntroductionSalient Policy Aspects

Tariff FunctionsNominal and Effective ProtectionExemptionsRegional GroupingsImport Taxes and Exchange Rate

Administrative ConsiderationsProliferation of Duties and TaxesUse of Specific RatesReliance on Administrative ValuesCustoms Procedures and Personnel Problems

IV. Taxation of Consumption 14IntroductionThe Case for Taxes on Domestic Consumption

Role of Excises and General Sales TaxesCoordination with Import DutiesElasticityEquity and Conservation Objectives

General Sales TaxesChoice of Form of Sales TaxNeed to Avoid CascadingRate StructureSome Special Problems

ill


CONTENTS

PageV. Taxation of the Agricultural Sector 21

IntroductionTaxation of the Subsistence SectorTaxation of Primary Exports

Export DutiesMarketing BoardsExchange RatesIncome Taxation

Taxes on Produce

VI. Taxation of Income and Property in the Modem Sector 26Introduction

DefinitionSpecial Characteristics

Use of Tax Instruments in Sub-Saharan AfricaRegional CharacteristicsTaxes on PropertyTaxes on Individual IncomeTaxes on Business and Corporate IncomePoll Taxes, Registration Duties, Stamp Taxes,

and Business LicensesSpecial Problems

VII. Special Tax Incentives 33Types of IncentivesInternational Agreements

BilateralMultilateral

ProblemsRevenue LossResource AllocationEquityAdministration

VIIL General Aspects of Tax Administration 37IntroductionOrganizational Issues

Participation in Tax Policy FormulationOrganizational StructureSeparation of Assessment and CollectionDelegation of Authority and DecentralizationCodes and Manuals

Resource ProblemsStaffingEquipment and Facilities

Assessment, Collection, and EnforcementOther Administrative Issues

PART II: A Statistical Evaluation of Taxation in Sub-Saharan Africa

I. Introduction 45

II. Level of Taxation 46

iv


Contents

PageIII. Tax Structure 48

IV. Highlights 51

Tables1. Selected Countries of Sub-Saharan Africa: Surface Area, Population,

Per Capita Income, and Openness (Imports-Gross Domestic Product)Ratio 52

2. Selected Countries of Sub-Saharan Africa: Gross Domestic Product byType of Economic Activity 53

3. Selected Countries of Sub-Saharan Africa: Tax Revenue as Percentageof Gross Domestic Product, 1973-78 54

4. Selected Countries of Sub-Saharan Africa: International Tax ComparisonIndices, Fiscal Year 1977 55

5. Selected Countries of Sub-Saharan Africa: Ratio of Expenditure to TaxRevenue, 1973-78 56

6. Selected Countries of Sub-Saharan Africa: Buoyancy of Tax Revenuewith Respect to Gross Domestic Product, 1972/73-1978/79 57

7. Selected Countries of Sub-Saharan Africa: Ratio of Main Taxes to GrossDomestic Product 58

8. Selected Countries of Sub-Saharan Africa: Composition of Tax Revenueby Main Categories, 1969-80 59

9. Selected Countries of Sub-Saharan Africa: Ratio of Import Duties toImports, 1972-78 60

10. Selected Countries of Sub-Saharan Africa: Ratio of Export Duties toExports, 1972-78 61

11. Selected Countries of Sub-Saharan Africa: Import Duties 6212. Selected Countries of Sub-Saharan Africa: Company Income Tax 6313. Selected Countries of Sub-Saharan Africa: General Sales, Turnover, or

Value-Added Taxes 6514. Selected Countries of Sub-Saharan Africa: Excises on Some Specific

Goods as Percentage of Gross Domestic Product 6615. Selected Countries of Sub-Saharan Africa: Export Duties (Base and

Rates) 6716. Selected Countries of Sub-Saharan Africa: Excises and Selective Produc-

tion Taxes 70

V


The following symbols have been used throughout this paper:

... to indicate that data are not available;

— to indicate that the figure is zero or less than half the final digit shown,or that the item does not exist;

- between years or months (e.g., 1978-80 or January-June) to indicatethe years or months covered, including the beginning and ending yearsor months;

/ between years (e.g., 1979/80) to indicate a crop or fiscal (financial)year.

"Billion" means a thousand million.

Minor discrepancies between constituent figures and totals are due toroundings.

VI


Prefatory Note

This study was prepared by members of the staff of the Fiscal Affairs Depart-ment. Completed in March 1981, the study draws extensively on the work of theDepartment on the administration and implementation of taxation policies in sub-Saharan countries since 1964. The authors are grateful to A. M. Abdel-Rahman,W. A. Beveridge, Ved P. Gandhi, Richard Goode, Adrien Goorman, and LeifMuten for their comments on earlier drafts, as well as to Jitendra R. Modi, who alsosupervised the preparation of the tables. Research assistance for the tables wasprovided by Sahar El Damati and Chris Wu.

Responsibility for the study remains with the authors; the opinions expressed aretheirs and do not necessarily represent the views of the Fund.

Vll


Part ITax Policy and Administration

in Sub-Saharan Africa


I Introduction

This study identifies some of the taxation problemsmost frequently encountered by Fund member countriesin sub-Saharan Africa and seeks solutions that may beuseful either to the region as a whole or to groups ofcountries in the region. A companion study (see Part II)provides a statistical framework for assessing the taxsystems of the countries in this region.

The appropriateness of different taxes for sub-SaharanAfrica can be judged with reference to traditionalcriteria—such as (1) fruitfulness as revenue sources,(2) effects on resource allocation, (3) contribution toequity, and (4) ease of administration. In evaluatingdifferent taxes, however, it is important to note that taxsystems and policies have limitations. The ability toraise revenue is limited by possible undesirable effectson resource allocation and income distribution, whichtend to grow stronger as the ratio of taxes to grossdomestic product (GDP) rises. This is especially truefor the developing countries of the sub-Saharan region,since the scarcity of their administrative resourcesmakes it difficult for them to raise large amounts ofrevenue from relatively complex taxes, such as theincome tax, that generally have the least undesirableside effects.

Administrative constraints and the small size of manytax bases also impose limits on the ability of the govern-ment to use the tax system positively to influence re-source allocation and the distribution of income andproperty. And finally, the political process and thepolitical and ideological nature of each governmentimpose additional constraints that limit the degree towhich and the manner in which the tax system can beused to both raise revenue and carry out policy.

The government's use of other instruments also affectstax policy. Monetary and credit policies can have^strong <expansionary or contractionary impact on tax oases,and therefore can have a considerable effect on taxrevenues and on policies—particularly in sub-SaharanAfrica where many of the economies are very open andforeign trade is the most important tax base. Similarly,tax policy, especially tax incentives and such devices astax rebates at export, can affect monetary, credit, andexchange policies.

Of the criteria for evaluating taxation, the ability toraise revenue is fundamental. Rarely can a tax thatyields little or no revenue influence allocation or distri-

bution significantly. In examining the revenue potentialof taxes in this study, two main aspects are considered:(1) the magnitude of the base relative to alternativebases and to the economy, and (2) the elasticity andbuoyancy of the tax. The latter includes the elasticityof the base itself in relation to GDP, the elasticity ofthe tax in relation to the base, and the buoyancy of thetax in relation to GDP.

In examining the potential of taxing a base with refer-ence to resource allocation, usually a prime concern isthat the tax either be neutral in its allocative effects orhave effects that will be positive in regard to develop-ment of the economy and optimum use of resources.And in examining the equity and distribution effects ofa tax, two important concerns are that the verticalequity of the system not be lessened and that as fewhorizontal inequities as possible be created.

Ease of administration is a final concern in evaluatingthe suitability of different components of a tax system. Atax base that cannot be reached adequately through theavailable administrative resources is inappropriate, eventhough in theory its taxation would have great advan-tages with respect to resource allocation and distribu-tion of income and property.

The main conclusions of this study are summarizedin Section II. Sections III-VII deal with the followinggeneral issues: (1) taxation of imports and its policyand administrative implications; (2) taxation of con-sumption, with special reference to general sales taxes;(3) taxation of the agricultural sector, including sub-sistence agriculture and primary export products;(4) taxation of income and property in the modernsector; and (5) special tax incentives and their impacton policy objectives. Each of these five sections men-tions the tax administration problems specificallyrelated to the issue discussed. A final section on generalaspects of tax administration (Section VIII) coverscommon aspects of various forms of taxation.

Given the broad scope of the study, it was necessaryto adopt a highly selective approach. It should also benoted that, although the study draws heavily on theFiscal Affairs Department's taxation reports, care hasbeen taken to preserve the confidential nature of thereports. Hence, the specific recommendations made toindividual countries are not set out here.

3


II Summary of Conclusions

In evaluating the adequacy of the tax systems of thesub-Saharan African countries, care should be taken toconsider the trade-offs occurring during the period inwhich the systems have taken shape. These trade-offshave been caused by historical, socioeconomic, andpolitical conditions.

Taxation of Imports

Heavy reliance on import tariffs for revenue has been,and still is, characteristic of many countries in the sub-Saharan region. This results from the scarcity of basesother than imports and, therefore, is to a large extentjustified.

But while it must be recognized that taxation ofimported goods is likely to remain an important revenuesource for some time, this does not necessarily meanthat all revenue should be obtained from import duties.The foremost objective of import duties should be toprovide protection, with a view to developing domesticproduction gradually. General sales taxes and excises,applying equally to imports and domestic production,should be used to raise revenue and to improve equity,and possibly for regulatory or sumptuary purposes.

In using import tariffs as protective instruments, cau-tion is needed to avoid overprotecting domestic indus-try. Excessive levels of effective protection result in loweconomic efficiency, but effective protection, as opposedto nominal protection, may not be easy to identify andmeasure. Therefore, detailed studies are needed—or atleast careful consideration—of the proper scope andlevel of protection. Only then is it possible to restruc-ture a particular tariff.

However, as few countries in the sub-Saharan regionhave rationalized their tax systems in this manner, it isnecessary to keep in mind the second-best alternative,in which import duties are important revenue produc-ers. In this situation, the use of ad valorem rates insteadof specific rates, the limitation of exemptions, and theimprovement of valuation methods can help to ensureproper yield and elasticity and to minimize distortions.

Taxation of Consumption

General sales taxes and excises are the two mostimportant tax instruments that can be levied on con-sumption. They should apply equally to both importsand domestic production in order to avoid unintendedand undesirable protection of inefficient local industries.This approach is necessary, even if no domestic produc-tion of some of the taxed goods has yet been started.

General sales taxes are likely to become the maintools for producing revenue as sub-Saharan Africancountries continue to develop. To avoid administrativecomplications and distortions in resource allocation, ageneral sales tax should have the broadest possible cov-erage and little or no rate differentiation. As to the mostappropriate form of sales tax, experiences in countriesboth outside and inside the region would seem to indi-cate either a multistage value-added tax or a single-stage manufacturer-importer sales tax. In any case, eco-nomic efficiency is best served by avoiding cascading,thus making the tax neutral with respect to the numberof stages in production or importation and distribution;if this is achieved, there will be no discrimination againstitems produced with taxable inputs or items that requirea long chain of production and distribution. Severalmechanisms have been used to avoid cascading. Bydefinition, a tax on value added avoids the problem,since it allows taxpayers to credit sales tax paid oninputs against tax due on their sales. Production taxesapplied by francophone countries provide for a deduc-tion from gross sales of the value of raw materials andintermediate goods that are incorporated in the product,while most countries levying manufacturer-importersales taxes allow producers to buy inputs tax free, toapply for refunds, or, as is done for the value-added tax,to compute a credit equal to the tax on inputs and applyit against the tax due on sales.

Equity and administrative considerations ought topreclude the levy of sales taxes on transactions relatingto unprocessed agricultural goods. In most of the sub-Saharan African countries, administrative difficultieswould make it inappropriate to extend multistage sales

4


Taxation of Income and Property in the Modern Sector

taxes to small retailers or to include small artisans andproducers in the coverage of a manufacturer-importersales tax. It is clear that the amount of revenue collectedas a result of such broadened coverage would not justifythe effort involved in dealing with small businesses.

Finally, mention should be made of the treatment ofcapital goods. It has been generally argued that exemp-tion of these goods from sales taxation is necessary toavoid cascading, since otherwise tax would be paid ona final product whose cost would already include partof the tax payable upon purchase of the capital goods.On the other hand, the taxation of capital goods hasbeen advocated to counteract the effects of too manyexemptions granted to users of capital goods underincentive schemes and to encourage increased utilizationof labor.

At earlier stages of economic development, excisescan play a role quite similar to that of general salestaxes. This is particularly true in economies where themanufacturing sector is small and produces few items.In more developed economies, selective excises shouldsupplement a general sales tax. The selectivity of excisesmakes them useful for emphasizing distributional goalsby imposing additional levies on goods and servicesconsumed by high-income sectors of the population.They can also be used for discouraging undesirableconsumption—a feature of excise taxation which hasbecome important in recent years from the standpointof energy conservation. Excises should in general beimposed at ad valorem, rather than specific, rates; andif specific rates are preferred for administrative or tradi-tional reasons, they should be subject to frequentadjustment.

Taxation of the Agricultural Sector

Because a large share of GDP results from agricul-tural activities in most sub-Saharan African countries,attention should be paid to the tax instruments that canbe used in the agricultural sector. However, the con-straints—mainly administrative—inherent in these areof such magnitude that it would not be realistic toexpect much from them, especially in terms of enhanc-ing productivity. The limited significance and potentialof land taxes illustrates the point, although special landtenure systems have also contributed to the minor roleof land taxation.

From the point of view of revenue, production ofprimary commodities for export is the most importantagricultural tax base. Export duties on primary productshave been extensively used by many countries in theregion. Since the possibility of shifting the duties for-ward is limited, there is a serious risk of adverselyaffecting production if they are imposed without due

regard to the profitability of the subsector. Negativeeffects on both government revenues and the balance ofpayments may result. On the other hand, taxes onexports could and should be used in situations whereproduction of certain crops is clearly profitable andincome taxes are not considered feasible. Implicit taxa-tion of exports through the pricing policies of marketingboards has not worked very well in recent years, owingto difficulties in forecasting and in meeting urgent reve-nue needs. If, however, the marketing board approachis used, considerations similar to those for export dutiesare valid.

It is doubtful whether tax should be levied on thesubsector related to subsistence production, and it isgenerally recognized that this subsector is not easy totax. Apart from a few crude substitutes for the incometax—such as poll taxes, graduated personal taxes, andtaxes on livestock—which have been found objection-able on grounds of equity and ease of administration,taxation of the subsector has generally been undertakenthrough levies on goods consumed by the populationengaged in subsistence production. These levies are, ofcourse, equally as regressive as the other tax instru-ments just mentioned but are easier to administer.

Taxation of Income and Propertyin the Modern Sector

The modern sector, comprised mainly of companiesand individuals in urban areas, constitutes one of themost elastic components of the tax base. The presentrevenue yield from the sector may be relatively small inmany sub-Saharan African countries, but the potentialyield is large. Because of the greater sophistication oftaxpayers in this sector, the income and property taxescan best be applied there.

Of property taxes, the annual levy on real property isthe most important in sub-Saharan Africa, especially incountries following the British tradition. Countries fol-lowing the tradition of continental Europe also rely onstamp and registration duties applied to transactionsinvolving real estate, and some of these countries haveno annual tax on property. In all cases, yield is low.Problems are raised by the variety of land tenure sys-tems and the lack of accurate ownership records ormodern real estate cadastre, complicated by inadequateadministrative resources. The tax runs a serious riskof horizontal inequity and misallocation of resources inmost countries.

All countries in the region tax the income of bothindividuals and enterprises. Countries following the con-tinental European tradition tend to favor a primarilyschedular income tax, with only a small part of revenuederived from a tax on global income; others rely more

5


II • SUMMARY OF CONCLUSIONS

on a tax on global income of individuals and are morelikely to tax income of legal entities separately fromthat of other enterprises—with or without integrationof the taxes on corporations and shareholders. Prob-lems arise for the individual income tax with respect toselecting the appropriate adjustment for the family unitand the appropriate level of initial exemption, anddeciding whether foreign-source income and capitalgains should be taxed and how withholding should beapplied. Excessively high maximum rates may dis-courage savings and encourage evasion, while very lowminimum rates yield little revenue.

Despite its relatively low revenue yield, the individualincome tax has an important role to play in promotingequity, and efforts should be made to improve its struc-ture and administration. For this purpose, introductionof a global income tax should be considered by thosecountries having a schedular tax system. There has beensome movement in this direction.

The tax on business income presents problems withrespect to choice of rates, depreciation rules, incentivesto new businesses, and treatment of very small and verylarge businesses. Countries that are members of theCommunaute Financiere Africaine (CFA) have used aminimum business tax, which can be credited againstthe profits tax but is not refundable, as a means of pre-venting underreporting of taxable profits. The taxationof business income on a current basis has been recom-mended mainly for removing the discrimination againstother incomes (e.g., wages and salaries subject to cur-rent withholding) and for reducing the erosion of taxpayments arising from inflation.

Many countries of the region also levy registrationand stamp duties, poll taxes, and business license fees.The latter two may act as rudimentary substitutes forincome taxes, but it is usually desirable to phase themout as the skills of tax administrators improve. Stampand registration duties often are inappropriate in sub-Saharan Africa because of socioeconomic conditions,and most should be phased out, merged with othertaxes, or at least modernized to increase their revenueyield.

Special Tax Incentives

In sub-Saharan Africa, the principal reason for intro-ducing special tax incentives has been to encourageexpansion of the modern sector of the economy. It hasbeen argued that the immediate loss of revenue wouldbe offset later through the effect of induced increases indomestic supply and in the size of the tax base. Themost important incentives have taken the form of totalor partial exemption from tax and have been grantedmainly in connection with income or profits taxes andcustoms duties.

Tax incentives can be used to improve resource allo-cation. However, they should not be granted in anad hoc manner or without careful study, if this goal isto be reached. Thorough planning is also required toavoid introducing serious inequities between individualtaxpayers and between sectors.

To a large extent, tax incentives granted by a countryare likely to be determined by its desire to be in har-mony with its neighbors. In any event, the followingcomments should be taken into account. First, it isadvisable to limit the duration of special incentives,both to reduce constraints affecting revenue and toallow for possible changes in the circumstances thatmade the incentives desirable. Second, there may be acase for limiting the amount of benefit in relation toinvested capital, particularly to prevent industries thatquickly become highly profitable from enjoying exces-sive and unnecessary concessions. Third, incentivesfocusing only on capital investment are less efficientthan general tax holidays because of the latter's neutral-ity in regard to production factors. Finally, the impor-tance to the government of obtaining full informationon revenue forgone, exemption base, and other relevantparticulars from the beneficiaries cannot be overempha-sized; this is the only way that the government canensure an available data base for evaluating the effi-ciency of the incentives and for checking on compliancewith the conditions for granting the exemptions.

General Aspects of Tax Administration

Greater attention to tax administration issues isrequired if tax policy goals in sub-Saharan Africancountries are to be attained. Proper enforcement ofexisting taxes would generate additional revenue andmake unnecessary, or at least reduce, the proliferationof taxes. It should be noted, however, that additionalrevenue would be likely to accrue in the medium andlong term. Only in exceptional cases (e.g., where thereis a large accumulation of collectible arrears) willimproved administration produce quick results.

Staffing problems are especially difficult throughoutthe region. Recruitment and training procedures for taxofficials, as well as salary scales, need to be reviewed inorder to increase efficiency of administration. Assess-ment and collection techniques should be improved,and systems to detect noncompliance of taxpayers andto apply adequate sanctions should be developed.

Further decentralization is also needed. Regionaloffices should be established, in accordance with theavailability of trained staff and revenue potential, whilesome activities which lend themselves more readily tocentral administration should remain at the head office.

6


General Aspects of Tax Administration

Codification of tax laws has become indispensable inmany countries if they are to make up-to-date and man-ageable texts available to taxpayers and tax officials.

Efforts should be made to have representatives of thetax administration participate in the work of tax plan-ning units in charge of long-range policy studies. Suchparticipation should help to prevent the emergence ofproblems when tax changes are implemented. The struc-ture of tax departments should be carefully studied witha view to avoiding duplication of certain services, thussaving the government money and reducing the incon-

venience to taxpayers. Other objectives of this studyshould be to provide efficient coordination betweenassessment and collection activities and to ensure tax-payer convenience.

Finally, since taxation has been associated with for-eign domination in most countries in the region, it isimportant to establish satisfactory communications withtaxpayers in order to convince them that the tax systemis being administered fairly, that enforcement is ade-quate to deter delinquency, and that the money col-lected is being spent wisely.

7


Ill Taxation of Imports

Introduction

Most countries in the region still rely heavily on thetaxation of imports for revenue; this reliance reflects theinadequacies of other tax bases and the countries' reluc-tance to make use of other taxes that may requiremore sophisticated administrative capabilities.1 The con-sequence has usually been the placement of excessiveemphasis on the revenue function of tariffs.

If tariffs are used to provide protection for domesticindustries, their effects on economic efficiency shouldbe underscored. Economic development can be greatlyhampered by protecting domestic industries to the pointof rendering them uneconomic or economically ineffi-cient. Ideally, an important objective of each countryshould be to develop efficient industries that can makemaximum use of its comparative advantages.

As might be expected, there are many remnants ofthe recent colonial past in most countries of the sub-Saharan region. They appear in the structure of levies,the pattern of trade preferences, the affiliation withregional groups, and the characteristics of national leg-islation—all of which have been influenced by the colo-nial history of each country and, in some cases, havebeen a deterrent to the formulation of national andregional policies.

Other features of the taxation of imports in sub-Saharan African countries are the prevalence of exemp-tions, the fairly extensive use of specific as opposed toad valorem rates, and the reliance on price lists ratherthan on internationally accepted definitions of value forpurposes of valuing imports.

Salient Policy Aspects

Tariff Functions

Customs tariffs in the sub-Saharan African countriesare reasonably adequate instruments for equity and

revenue purposes. However, these positive characteris-tics have been achieved at the expense of their suitabil-ity for protecting domestic production. Because tariffswere originally designed to yield revenue and to improveequity and because practically no country in the regionhas been able to do away with their revenue function,the tariffs have not been transformed into successfultools of protective policies. At the root of the problemlies a basic dilemma: the maximum revenue cannot becollected if a tariff constructed to afford protection todomestic industries succeeds in its main objective andimport substitution takes place.

Moreover, even the equity objective may be incon-sistent with revenue considerations; an increase in taxeson luxury products may result in less revenue beingcollected by deterring consumption, encouraging localproduction, or encouraging contraband. For example,imports of luxury products in Somalia are subject tocombined tax rates ranging from 129 per cent to736 per cent, the latter rate being applicable to spiritsand liquors; taxation at these levels does not normallyproduce much revenue.

Some limited degree of fine tuning, allowing for atariff with multiple functions, is possible. The difficultiesinherent in doing this, however, dictate a different solu-tion. From the viewpoint of tax policy, tariffs are justpart of the system of indirect taxation. It seems best,therefore, to try and rationalize the latter by assigninga specific goal to each tax instrument. This approachwould facilitate considerably the study of the effectsthat tax changes may have and would make it easier toachieve multiple policy goals.

Under such a rationalized system, customs dutieswould be used mainly for protection.2 A general salestax could be the main instrument for collecting revenue,while considerations of equity, energy conservation, andthe need to discourage consumption of socially undesir-able goods and services would best be served by a sys-tem of excise taxes. The general sales tax and the excisetaxes should be levied on both imports and domestic

1 In 15 countries in the region import duties accounted formore than 40 per cent of total tax revenue, and in 24 countriesthe proportion exceeded 30 per cent (see Part II).

2 The term "customs duties" in this study is the equivalent ofimport duties.

8


Salient Policy Aspects

production. A clear distinction between import dutiesand the sales and excise taxes is desirable, even whenthe bulk of the sales tax base consists of imports andwhen some of the luxury goods that are to be speciallytaxed are imported, because the separation avoids giv-ing unintended protection to actual or potential localproduction.3

Nominal and Effective Protection

The mixing of revenue and protective functions hasalso led to excessive levels of protection, resulting indamaging effects on resource allocation. Thus, whencustoms duties have been assessed heavily on luxurygoods, an incentive has been created to produce thegoods domestically, and it is likely that this kind ofimport substitution has not improved resource alloca-tion. Recognition of the problem is difficult since effec-tive protection—a concept developed only in the last15 years—determines the effect of a particular tariffstructure on allocative efficiency. While nominal protec-tion levels can be easily measured, rates of effective pro-tection are determined by the value added by localmanufacturers, and this is difficult to quantify.4 Never-theless, it is clear that, because many raw materials,intermediate goods, and capital goods are either taxexempt or taxed at much lower rates than final goods,effective protection of import substitutes—includingluxuries—has become excessive. This is particularlytrue for industries such as batteries, cosmetics, andassembly plant industries in general, where the nominaltariff on the final product is high and the share ofdomestic value added tends to be low. The seriousnessof the problem is underscored by the fact that the costsof this inefficient allocation are likely to rise with thelevel of industrialization. On the other hand, domesticproduction of essential food items may have actuallybeen discouraged by negative effective protection result-ing from low or zero nominal duties and high domesticvalue added. Instead of having encouraged productionof items in which the countries have noticeable com-parative advantages, external economies can be effected,and dependence on foreign exchange availability is les-sened, it is quite possible that the protective policiesmore commonly found have done just the opposite.

Solutions to these problems of protection are not easyto identify. The first step toward solving them should be

3 Quantitative restrictions and exchange controls have alsobeen widely used as protective devices.

4 A relatively simple measure of the effective protection ratefor a particular product is given by a fraction whose numeratoris the difference between the tariff rate on the product and theaverage tariff rate on the inputs used in its production weightedby the latter's share in the product price on the world marketand whose denominator is the percentage of value added perunit of output measured in world market prices.

to undertake a detailed study of the existing protectionlevels for various industries and sectors. This shouldbe followed by careful determination of the levels ofprotection that would be compatible with improvedresource allocation, efficient utilization of foreignexchange, and appropriate incentives to agriculture.Only then would it be possible to restructure the cus-toms tariff with a view to achieving these objectives.The complexity of this task only highlights the vitalimportance, pointed out before, of not trying to use thetariff for too many purposes.

Exemptions

It has frequently been observed that the share ofitems such as machinery and transport equipment intotal imports grows as economies develop. Since theseitems are generally subject to low rates of duty andsometimes are even zero rated, their increased impor-tance vis-a-vis other imports tends to make customsrevenue inelastic. By way of illustration, 25 per cent ofSierra Leone's imports in fiscal year 1977/78 were zerorated; the share of exempt imports in total imports wasabout the same in Mauritius in 1978. A much higherlevel of exemptions, about 65 per cent of total imports,was observed in Liberia, which has a higher per capitaincome, in the period 1973-76. Other more developedeconomies in the region, such as Cameroon, Gabon,and Senegal, also exempt large shares of their imports.

Fast growth of exemptions has also eroded the basesof import taxes. In many countries, imports needed tocarry out government contracts and developmentalprojects, imports of raw materials, direct governmentimports, imports of plant and machinery for local man-ufacturers, imports of agricultural inputs and machin-ery, and imports of certain quasi-government institu-tions are partially or totally exempt from duties or otherlevies. For example, in Sierra Leone, the proportion ofthe value of imports exempt from the entry fee and thelicensing fee went from 36 per cent in fiscal year1976/77 to 54 per cent of imports in fiscal year1979/80. Equally, exemptions in Somalia expandedfrom less than half of the total value of imports in 1977to more than three fifths the following year. Perhaps themost dangerous institutional arrangement, which isfound in some sub-Saharan African countries, is the oneconferring broad powers on ministries of finance togrant ad hoc exemptions. When there has been a depar-ture from the principle that legislation on exemptionsshould be restrictive, considerable pressure has oftenbeen exerted on ministry staff to grant more exemptions,leading to a proliferation of exemptions. These pres-sures, however, may have had their origin in excessiveduties which, if applied, would preclude certain import-

9


Ill • TAXATION OF IMPORTS

ers—particularly manufacturers—from operating effi-ciently. In these circumstances, investment laws andother incentive schemes under which the authorities areempowered to grant exemptions gradually becomeimportant policy instruments, while the customs tariffloses its importance. To a large extent, this has been thecase in Senegal and the member countries of the CentralAfrican Customs and Economic Union (UDEAC).

These widespread exemptions and the low taxation ofcertain imports need to be re-examined in the light ofthe countries' medium-term objectives. Thus, the ex-emption or low taxation of oil imports by some coun-tries might have been justified before 1973 on groundsof the need to aid industrialization and the developmentof transport facilities, but it now runs counter to energyconservation efforts. In addition, it introduces distor-tions in the allocation of foreign exchange by makingimported oil relatively cheaper than dutiable raw mate-rials and intermediate inputs used by other industries.In some cases, it may even happen that preference isgiven to imported goods even when locally producedgoods of equivalent quality are available, particularlyif the exemption has resulted in removal of a protectiveduty. No less damaging is the zero rating of essentialfood. Although always predicated on equity grounds asa means of helping the needy, this policy encouragesimportation—and discourages domestic production—ofstaple foods such as rice, maize, and fish. Similarly,there is no good reason to exempt government imports,imports needed to carry out government contracts,or goods imported by quasi-government institutions.Such exemptions tend to decrease artificially the costsof government services and consequently to establishimplicit subsidies, since the prices charged for thoseservices will not reflect actual costs. It also encouragesthe use of imported materials and leads to abuses andleakages. The argument that this policy does not havea net revenue effect is, therefore, neither entirely correctnor relevant.

Contrary to the case of protection, where quick actionis usually ruled out until a number of complex studiesare completed, governments can generally take immedi-ate steps to remedy, at least partially, the erosion of thetaxable base caused by exemptions. It is not uncommonfor governments in urgent need of additional revenue tomove quickly to levy minimum or additional customsduties on oil and on essential foods. Such a move alsohelps a country to achieve its medium-term energy con-servation objectives (in the case of oil) and to encour-age its agricultural production (in the case of essentialfoods). Equally, exemptions on government imports andon imports needed to carry out government contractscan be removed without delay. In general, all exemp-tions should be reviewed with a view to removing themunless their raison d'etre is beyond doubt. In doing so,

however, international agreements, laws, and other legalarrangements that may have been used to grant exemp-tions over specified periods of time should not be vio-lated. In these cases, it may be necessary to wait untilsuch exemptions have lapsed.

Regional Groupings

Affiliation of many sub-Saharan African countrieswith regional agreements, such as customs unions andother arrangements, has inevitably limited their freedomto use customs tariffs as policy instruments. Examplesof these arrangements are the Mano River Union Agree-ment, involving Liberia and Sierra Leone; the UDEAC,which includes Cameroon, the Central African Repub-lic, the People's Republic of the Congo, and Gabon;and the Economic Community of West African States(ECOWAS), which comprises Benin, The Gambia,Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia,Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone,Togo, and Upper Volta. Normally, these customs unionshave common external tariffs, and tariff changes haveto be effected through central committees on which allmember states are represented. Agreement among mem-bers is not easily reached, and this has often led toinelasticity of customs revenue and has narrowed thebase of import taxes.

Some of these regional arrangements contain provi-sions for the imposition of special taxes by individualmember states, particularly where rate differentiationamong them has seemed desirable. One example is theUDEAC's complementary tax. Since these special taxesare the only instrument available to member countriesfor conducting a tariff policy of their own, they havebeen allowed to proliferate. This has resulted in a re-duction in the uniformity of import taxation and in adistortion of the effects of the common tariff. Evenwhen the regional agreements do not have these escapeclauses, some member countries have introduced taxeson imports, disguised under a variety of names, to makeup for the loss of revenue caused by adoption of thecommon tariff.

The advantages of regional integration are many andcomplex and cannot be evaluated solely from the view-point of taxation policy. Nevertheless, the existence ofa customs union and a common external tariff shouldnot be construed by the member states as an obligationto renounce sound principles of tariff reform. On thecontrary, it seems imperative that the member coun-tries pursue these principles relentlessly, workingthrough available regional channels. Thus, simplificationof the common tariff objectives, minimization of exemp-tions that are not sufficiently justified, and harmoniza-

10


Administrative Considerations

tiori of tariffs with indirect internal taxes appear to bejust as reasonable targets for regional groupings ofcountries as they are for a single country.

Import Taxes and Exchange Rate

In some cases, the authorities of a country maychoose to raise import duties to compensate for anovervalued currency. Although the ultimate objective—to increase the cost of imports to a realistic level—isachieved without going through a politically less de-sirable currency devaluation, the action has a basic flaw;the tariff is not particularly well suited for this use.Not only does raising import taxes not help exports (incontrast to the effects of a devaluation), it actuallyraises their costs to the extent that exporters' inputs areimported and that no refund or drawback system isavailable. However, the most important considerationis that manipulation of the tariff substantially distortsits protective function and may have other harmfulallocative effects.


Proliferation of Duties and Taxes

It is not uncommon in the sub-Saharan region to findthat imports are subject to a variety of duties, fees, andother levies. For example, in Sierra Leone there is(a) a customs tariff, (b) two import fees (the invoiceentry fee and the import licensing fee), and (c) a foreignexchange user charge levied on import licenses. InSomalia, imports are subject to an import duty (customsduty plus fiscal duty) and to an administrative andfiscal duty; in addition, there are wharfage and storagefees, and an ad valorem stamp duty. In UDEAC coun-tries, a customs duty, an entry duty, a turnover tax onimports, and a complementary tax coexist.

This proliferation of import taxes is due mainly toad hoc attempts to raise additional revenue by superim-posing new charges over the original tariff, sometimeseven using across-the-board flat rates. It is also theresult of efforts to differentiate taxation of importsaccording to their origin in certain cases where therehave been agreements with other countries to lowertariff barriers; the mutually agreed reductions wouldapply to some, but not all, of the various levies. Aclassic example is the experience of the UDEAC. Beforethe 1975 Lome Convention, the UDEAC, as an asso-

ciate member of the European Economic Community(EEC), exempted imports from the Community and itsassociated African countries from customs duties. Forrevenue purposes, the common external UDEAC tariffincluded another levy called the entry duty. Althoughthe differentiation of imports according to origin nolonger occurs, the two levies have continued to exist sideby side. In some cases, charges such as statistical taxes,which had been originally introduced to defray the costsof certain services, became a part of the tariff's ratestructure and ceased to bear any relation to those costs.The rate structure of the tariff is often unnecessarilycomplicated, with negligible differences among rates.For example, there are 28 ad valorem rates in Sudan,including 6 that range from 5 per cent to 15 per cent.The same problem was observed in 1977 in Togo,where 9 rates of the fiscal import duty ranged from zeroto 30 per cent.

This complex structure of import taxation greatlycomplicates administration and may result in inconsis-tent rate patterns. First, the calculations required toassess the tax liability are numerous, increasing thepossibility of errors. Second, the complex structuremakes it difficult to put together in one publication orvolume the various taxes and duties on imports. Theresult is that self-assessment by importers or customsbrokers—a labor-saving device for the customs depart-ment that becomes indispensable as the volume of tradegrows—is not feasible. Third, proliferation of dutiesand taxes leads to extreme difficulty in readily identify-ing total tax burdens on particular items, thereby in-creasing the problems of rational policy formulation.It is also incompatible with the effort being made inmost of the countries in the region to introduce a ra-tional classification standard, such as the one providedby the Brussels Tariff Nomenclature.

To remedy this situation, the first step should be toconsolidate into one or two charges the customs dutiesand all additional levies having an equivalent effect.5 Itshould then be possible to simplify the tariff structureby establishing a small number of even-modal rates anda maximum rate that would be in accordance with therate distribution of the original tariff in the absence ofnew policy directives. In the long run, when—as dis-cussed previously—the desired degree of protection tobe given to each industry has been determined andother necessary changes have been introduced in the taxsystem, a comprehensive realignment of import dutyrates should be undertaken in the framework of a com-prehensive development strategy.

5 In some cases, a second duty is necessary to allow for agree-ments already negotiated with other countries or to give thecountry an advantageous point of departure for future negotia-tions of tariff reductions.

11


Ill • TAXATION OF IMPORTS

Use of Specific Rates

Generalized use of specific, rather than ad valoremrates, has also been an important factor—particularlyin many nonfrancophone countries—contributing to theinelasticity of customs revenues. The case of SierraLeone is an example. In the fiscal year 1977/78, asmuch as 15 per cent of this country's total importswere subject to specific rates of customs duty. Thispreference for specific rates has usually been justifiedon grounds of administrative convenience, as theserates are applied irrespective of values and are thereforeeasier to administer than ad valorem rates. However, intimes of rising prices, specific duties simply mean asteadily decreasing effective rate of taxation of imports,which tends to undermine the objectives of the originaltariff, including that of protection. This is the reasonthat many countries around the world have increasinglyresorted to ad valorem duties in the last 50 or 60 years.

The solution to the problem involves two separatesteps. First, it is necessary to review carefully the justifi-cation for each existing specific rate. Then, when thereis not sufficient reason to maintain a specific rate, itshould be converted to an ad valorem rate; if, on theother hand, conversion to ad valorem rates is undesir-able, a mechanism should be introduced to permit fre-quent increases in specific rates in order to maintainthe level of import taxation in real terms as importvalues change.

In any case, even a limited minimum price list forvaluation purposes (discussed below) is easier to up-date than specific duties and is, therefore, preferableto them.

Reliance on Administrative Values

Lack of adequately trained personnel has been themain factor precluding many sub-Saharan Africancountries from following sound principles of valuation.One of the most important functions of any customsadministration is to make sure that imports are correctlyvalued in accordance with widely accepted methods.For this reason, standards such as the Brussels Defini-tion of Value and, more recently, the General Agree-ment on Tariffs and Trade (GATT) Definition ofValue have been developed by international agencies.Unfortunately, application of these standards requires ahigh degree of technical knowledge and experience onthe part of customs personnel. This requirement hasproved extremely difficult to fulfill.

To prevent underinvoicing, many countries havetherefore resorted to establishing price lists, against

which the values declared by importers or shown onthe respective invoice are checked.6 If the listed price isgreater than the value obtained from the importer, theformer is used for customs purposes. Such systems aresimple to administer, but they have shortcomings. Onerelates to the degree of trade unfairness that these sys-tems make possible. If a country that uses a list ofadministrative values decides to confer a high level ofprotection on a certain item that is domestically pro-duced, all it has to do is inflate artificially the list priceof competing imported products. This obviates the needto go through the highly visible process of raising thetariff level. However, the most serious shortcoming,particularly from the standpoint of revenue, is that thelist has to be updated at frequent intervals, especially attimes of worldwide inflation. If this updating is notdone, revenue erosion occurs in much the same way aswhen specific rates of duty are not adjusted for pricechanges. The cases of Somalia and Chad illustrate this.The list used in Somalia in March 1980 had not beenupdated since February 1977. Meanwhile, wholesale orindustrial prices in the countries from which Somalia'simports mainly originate went up by between 9 per cent(Federal Republic of Germany) and 39 per cent (Italy)over the period 1977-79. Equally, in Chad, standardvalues established in 1970 were still being used in late1976.

In the long run, all customs administrations will haveto rely on internationally accepted valuation standardsif they are to avoid disputes and minimize differences ofopinion with trading partners. Because it will take timeto familiarize the trading community with the newstandards and to establish the administrative capabilityrequired to apply them, it would be wise to start as soonas possible. Recruitment and training of qualified per-sonnel, introduction of needed legal changes, setting upof a valuation unit within the customs department, andcompilation of information that is relevant for valuationpurposes are all tasks that cannot be performed over ashort period. In view of this, it is generally admittedthat some countries will have to continue using mini-mum price lists in the near future. In these countries,use should be restricted to goods known to be under-invoiced, and every effort should be made to set realisticprices. To avoid the revenue-eroding effect mentionedabove, however, it is imperative that the price lists beupdated frequently. This could be done by compilingcomprehensive and reliable data on prices from foreigntrade journals, retail and wholesale catalogs, and othersources. In addition, customs officers should be aware

6 In countries with exchange controls, insofar as for manyrelatively low-duty items the foreign exchange premium may behigher than the import tax penalty, overinvoicing may be wide-spread. Since this deviation from actual prices is only in thedirection of enhancing customs revenue, it is not discussed here.

12


of the value of their own daily work for purposes ofupdating the price list.

Customs Procedures and Personnel Problems

Many countries of sub-Saharan Africa have paidattention to the organization of customs departmentsand to customs legislation in general. It is in the areasof customs procedures and personnel matters where themost serious deficiencies are still discovered. A compre-hensive review of these aspects could suggest changesthat would have a meaningful positive effect on theefficiency of the customs operations.

Included in this review should be adequacy of ware-housing provisions and charges for allowing surveillanceof goods, as well as availability of bonded warehousing;controls for duty-free concessions, temporary importa-tion, and transit; prevention of leakages through provi-sional clearance under guarantee, and refunds and draw-back schemes; quality of the examination of goods forclearance; quality of the systems for payment of duties;arrangements governing the activities of customs agents;


methods used for lodgment., registration, and postauditof import entries; flow of documents within the customsadministration; and efficiency of the statistical reportingsystem. Once the review of these and other procedureshas been concluded and shortcomings have been identi-fied, new procedures should be designed and imple-mented. Of paramount importance in avoiding failureis the introduction of training programs. These shouldhave detailed instruction manuals, prepared with a viewto ensuring uniform application of the new proceduresthroughout each country. Other procedural changes willbe necessary upon reform of the system of customsvaluation along the lines discussed above. Finally, muchmore attention should be paid to increasing the salariesof the staff and improving their working conditions.Failure to do so will only result in increased corruption—to which customs work is particularly vulnerable—orin an acceleration of the exodus of the best-qualified andbest-trained personnel to the private sector. In the finalanalysis, the success or failure of carefully planned poli-cies depends to a large extent on the suitability andmotivation of the staff responsible for carrying themout.

13


IV Taxation of Consumption

Introduction

Like countries in other regions of the world, sub-Saharan African countries are using several tax instru-ments to collect revenue from domestic consumption.7

Two of them, however, tend to outweigh the others interms of revenue: excises and general sales taxes. Dis-tinctions between these two categories of taxes are notalways easy to make, but the scope of coverage and thenumber of rates are probably the features most widelyused for this purpose. While excises usually consist ofdifferent rates imposed upon the production or sale ofparticular commodities (or services), a general sales taxis normally levied with one rate or a few rates appli-cable to sales of a wide range of goods (or services). Itshould be noted, however, that a widespread system ofexcises and a general sales tax with numerous rates andexemptions would be quite similar in coverage and ratestructure.

Excises on goods are common throughout the sub-Saharan region, and general sales taxes, which originallywere found only in francophone countries, have alsobecome common in the former British colonies. Thus,between 1968 and 1973, the three East African coun-tries (Kenya, Tanzania, and Uganda) and Zambiaintroduced general sales taxes. In many cases, bothexcises and general sales taxes are also levied onservices.

Like taxation of imports, taxation of domestic con-sumption may be unnecessarily complex. This has oftenbeen the result of regional agreements, coupled withad hoc measures to increase revenues that have beendesigned and put into effect under pressure and withoutconsideration of the tax system as a whole. The case ofCameroon exemplifies the problem. It has an internaltax, the UDEAC single tax, a national single tax, andan internal production tax. In addition, there are a few

7 For most of the countries in the region, taxes on goods andservices range from 10 to 30 per cent; but the share exceeds30 per cent in Ghana, Kenya, Malawi, Niger, Sudan, Tanzania,and Zambia (see Part II).

special excises, whose rates and exemptions are diverseand whose administration is divided between the Cus-toms and Tax Departments. Excise taxes produced, onaverage, one fourth of total tax revenues in Cameroonover the period 1974-78.

In addition to excises and general sales taxes, somecountries operate fiscal monopolies from which profitsare derived. These profits should be considered theequivalent of taxes. Equally, certain types of stamptaxes, such as the stamp tax on receipts from sales, arecloser to turnover taxes than to any other type of tax.Other taxes that are sometimes included in this groupof taxes on domestic consumption are business andprofessional licenses and motor vehicle taxes.

Taxation of domestic consumption also reflects, asdoes other taxation, the influence of former colonialpatterns. For example, francophone countries havebeen applying variants of the French production tax of1936 that evolved into a value-added tax in Ivory Coastand Senegal. In addition, the consumption tax in someof the UDEAC countries today is highly reminiscent ofthat in France before the enactment of the 1936 tax,when single taxes were widely applied and a generalturnover tax was in existence. It is not uncommon tofind that the structure of taxes on domestic consumptionis still basically the same as that introduced beforeindependence. The tax structure has probably becamemore complex since independence, however, becauserevenue needs and other considerations have tended toerase the simplicity that was the most valuable charac-teristic of consumption taxes when they were first intro-duced. Reform, however, must be undertaken withextreme care in view of the fairly large share of totaltax revenue derived from taxes on domestic consumption.

The coverage of this section is restricted to the mainissues related to excises and general sales taxes. Thelatter have been singled out for more extensive discus-sion, in view of the likelihood that they will play apivotal role in the revenue systems of most sub-SaharanAfrican countries. Some of the other domestic taxes ongoods and services mentioned previously are coveredelsewhere.

14


The Case for Taxes on Domestic Consumption

The Case for Taxes on Domestic Consumption

Role of Excises and General Sales Taxes

When domestic production of goods begins to expandfollowing diversification of economic activity, it becomesapparent that the tariff can no longer be considered thesole important instrument for collecting the revenueneeded to finance government activities. Not only doesdomestic production emerge as a new source of govern-ment revenue but also—as mentioned in the precedingsection—the composition of imports changes from onein which high-duty consumer goods prevails to one inwhich the share of capital goods and raw materials(generally subject to lower duties) becomes dominant.In these circumstances, increasing recourse to taxes ondomestic consumption seems feasible, desirable, andperhaps unavoidable.

Historically, excises have preceded general salestaxes, largely because there is no reason to use broad-based taxes when production is not diversified. Excisesare similar to customs duties and therefore can gener-ally be administered without requiring extensive retrain-ing of customs personnel; in particular, the same classi-fication and valuation techniques used in customs workare normally applicable to excise administration. In aneconomy where the manufacturing sector is small andis dominated by a few products—a case that is fairlycommon in the early stages of economic development—the ease with which excises can be administered relativeto general sales taxes makes excises preferable from theviewpoint of collecting revenue. An example of this isSierra Leone, where excise taxes on goods have aver-aged about 15 per cent of total revenues in the past tenyears, even though they are imposed only on domesticoutput. Five groups of products—tobacco, petroleum,beer and stout, soap, and confectionery—account forabout 97 per cent of excises on goods.

At a later stage of economic development, however,the revenue function is best performed by general salestaxes. These taxes are especially suitable when domesticvalue added by industries and by purely commercialenterprises has become sizable. As the number of tax-able products increases, the rate differentiation providedby an excise tax system is no longer feasible. Gradualexpansion of the base, however, enhances the revenueproduction of a general sales tax and tends to increasethe elasticity of a revenue system. A general sales taxbecomes fairly easy to administer, produces minimaldistortion of the allocation of economic resources, andkeeps pace with economic growth and changes in theeconomy. Its addition to a tax system does not mean,however, that excises should be discarded. Selectiveexcises should supplement a general sales tax by impos-

ing additional taxes on goods and services whose con-sumption the government wishes to discourage or whichit considers luxuries instead of necessities.

Coordination with Import Duties

As mentioned in the preceding section, the mainobjective of an import tariff should be to protect domes-tic industry from foreign competition. A general salestax should be used mainly to raise revenue through ageneral levy on domestic consumption of imported ordomestically produced goods and should be as broad-based and have as few rates as possible. The excise taxsystem should constitute the only other major compo-nent of taxation of domestic transactions, and it couldapply a higher tax to certain items—whether importedor domestically produced—for equity purposes or todiscourage their consumption. The key characteristic ofthis arrangement is that neither the general sales tax northe excise tax system would be used to discriminateagainst imports, while protection would be pursuedonly through the import tariff.8

Even if this were achieved, there still would be theneed for a careful review—and a realignment, ifrequired—of rates in order to ensure that the total bur-den on any particular product is compatible with theobjectives of each of the applicable tax instruments.Care should be taken to avoid excessive rates on certainproducts as a result of expanding the coverage of thesales tax and the excises to imports in cases wherebefore they covered only domestic production.

Elasticity

As in the case of import taxation, the elasticity ofdomestic taxes on consumption, particularly excisetaxes, can be severely limited by the use of specific rateswhen these are not frequently adjusted for inflation.Excises with specific rates are predominant in manycountries (see Part II, Table 16). In Somalia, forexample, all excises have specific rates, with the soleexception of that on soap and shampoo. One of themost visible cases is that of excises on petroleum prod-

8 It should be noted that, although excises, rather than gen-eral sales taxes, have been preferred for the purpose of treatingimports and locally produced goods differently, there have beencases in which general sales taxes were used to provide protec-tion. In Uganda, goods such as building materials and certaintextile products are subject to higher sales tax rates if they areimported than if they are manufactured domestically. Malawiand Zambia raise values when imposing the sales tax on im-ports, arguing that domestic manufacturers perform more of awholesale, and even a retail, function than is included in theimport price. Such actions may also be construed as discrimina-tion against imports.

15


IV • TAXATION OF CONSUMPTION

ucts, which are fairly common and important in manysub-Saharan African countries. While domestic prices ofoil products have generally been adjusted upward fol-lowing the price increases imposed by the oil exportingcountries, specific rates of excise duty on these productshave not been changed or, more frequently, have beenincreased by a percentage smaller than that of prices.Failure to take commensurate action on duties vis-a-visprices has substantially reduced the effective rates ofexcise taxes.

Although elasticity may be rectified through frequentadjustments, a more lasting solution would be the con-version of specific rates to ad valorem rates. This step,however, would make valuation necessary and wouldcomplicate administration. On the other hand, it wouldhave the advantage of imparting complete automaticityto the adjustment, making it unnecessary for the gov-ernment to take discretionary action each time priceschange. If prices are administered by the government,the need for ad valorem rates is probably greater, sinceotherwise the government will be forced to decide ontwo discretionary changes (price and tax) instead of onprice alone to keep revenue from the excise tax systemresponsive to changing values.

The argument that specific rates should be usedrather than ad valorem rates because the former areeasier to administer is no longer valid in some countriesof sub-Saharan Africa. There are cases in which a gen-eral sales tax with ad valorem rates has been introducedafter excise taxes have been effective for many years,and some items are subject to both taxes. There exists,therefore, an explicit valuation procedure that couldbe used for purposes of an ad valorem excise tax system.For example, this has been used in Sudan since a gen-eral sales tax on all domestically manufactured goods,the so-called development tax, was introduced in 1974.

Equity and Conservation Objectives

Assuming that general sales taxes are used mainly toraise revenue, excise taxes must play the role of pro-moting equity when consumption of the items to whichthey apply increases with income. In many countries,however, excises—and often sales taxes—have tradi-tionally been levied on mass consumption goods, suchas cigarettes, beer, and kerosene; and the most recentdata on expenditure patterns show that consumption ofthese items tends to bear little relation to income.Whenever this occurs, these taxes are regressive. Anexample can be found in Zambia, where several studieshave concluded that, from a burden distribution stand-point, the tax most seriously affecting the lowest-incomegroups was the excise on beer, which accounted foralmost 18 per cent of total tax revenue in 1976. Heavy

taxation of beer has been, of course, a deliberate policychoice on the part of the Zambian authorities.

Regressivity could be alleviated by reducing theexcise duties on mass consumption goods, but thiswould conflict with other objectives—such as revenueand elasticity—that may have been assigned to theexcise tax system. These conflicts could be minimizedif each tax instrument could, as was discussed before,be chiefly used for a different purpose. Another aspectdeserving attention is the possibility of introducinginequities through extensive use of nondifferentiatedspecific rates, which are a common feature of excisetaxes. When there are different qualities of a given com-modity, ad valorem rates produce automatic differentia-tion, since the amount of tax is always proportional tothe price. It is true that the same effect can be achievedby a set of different specific rates that would be appli-cable, depending on the sale price of the commodity,but this appears unnecessarily complicated.

Excise taxes can also be designed to discourage con-sumption of certain goods and services. Perhaps theclearest case in point in recent years has been theincreased use of excises on petroleum products by somecountries to encourage conservation of energy and for-eign exchange. It is important to bear in mind, however,that the objective of conserving energy may well conflictwith the objective of equity unless the rates of exciseduties differentiate appropriately among petroleumproducts (for example, by being higher for gasolinethan for kerosene).

General Sales Taxes

Choice of Form of Sales Tax

The extent to which a sales tax can be applied tosales of a large number of goods and services is, ofcourse, determined by the social objectives of the par-ticular government and by the administrative constraintsit faces. It should be borne in mind, however, thatneutrality is enhanced, and resource allocation is leastdistorted, by a broad-based sales tax which has fewexceptions. Moreover, a sales tax of this type also raisesmore revenue.

In choosing the preferred form of general sales tax,the experience of other countries—insofar as this istransferable to a particular national or regional situa-tion—may be one of the most valuable guides. Thisexperience seems to indicate that a multistage value-added tax and a single stage manufacturer-importersales tax are the two most appropriate forms for coun-tries in sub-Saharan Africa.

The value-added tax has been the choice of countries

16


General Sales Taxes

that have become members of regional economic group-ings, such as the European Community or the LatinAmerican Association for Integration and Development(formerly the Latin American Free Trade Association).Before deciding on value-added taxation, the Commu-nity member countries conducted extensive studies inorder to ascertain the best way to harmonize turnovertaxes within the Community. These studies concludedthat value-added taxes were the best option for purposesof, inter alia, promoting neutrality and uniformity ofthe tax burden and for providing incentives forincreased productivity and industrialization. The Com-munity members also concluded that the advantages ofthe tax were at their maximum when the retail stagewas included in the taxable net. Administrative difficul-ties, however, have led many developing countries toapply value-added taxes only up to the wholesale stage,as in Ivory Coast, Madagascar, and Senegal, or torestrict in some other manner the number of taxpayers.9

It should be noted, however, that previous experiencewith turnover taxes extending to the retail level hasallowed some developing countries to introduce success-fully value-added taxes with the same coverage.Although no regional economic grouping in Africa hasyet decided that its member countries should adopt avalue-added tax, this possibility has been considered inthe UDEAC countries. Up to now, the predominantrole of the UDEAC single tax, and of national taxesbased on the same principles, has been a factor in pre-cluding early adoption of a value-added tax.

Another consideration that may be important is thatthe longer the chain of taxed production and distribu-tion, the broader is the tax base and the less necessaryis it to resort to high tax rates to raise a given amountof revenue. This is an argument in favor of general salestaxes reaching beyond the manufacturing-importingstage because lower tax rates mean less incentive fortax evasion.

A manufacturer-importer sales tax should be con-sidered in countries where a large number of retail salesare made by itinerant traders and small shop ownersand where there Is not always a clear distinction betweenwholesale and retail transactions. The reason is thatimports are already subject to customs control andmanufacturing enterprises subject to the tax are few,provided that small manufacturers are exempted.

It is not possible, however, to select one form of salestax that would be superior to the others in all circum-stances. A choice must be made in each case, payingattention to factors such as amount of revenue needed,trade structure, extent of record keeping in the businesscommunity, administrative capability of the revenue

9 See also the discussion below on domestic taxation of smallbusinesses.

department, standards of voluntary compliance amongtaxpayers, and previous experience with other taxes ondomestic consumption.

Need to Avoid Cascading

The advantages of a broad-based sales tax coveringas large a number of sales of goods and services as pos-sible do not justify taxing goods and services more thanonce. Such cascading would imply that a consumer ofitems that are manufactured using taxed inputs or thatgo through a long chain of processing and distributionwould be faced with a higher tax burden than if the taxwere neutral vis-a-vis the number of stages in produc-tion and distribution. Although this anomaly may berelatively unimportant in less developed economies,where domestically manufactured products do not nor-mally use a high proportion of locally produced primaryand intermediate goods, it is desirable to introducesome mechanism to minimize cascading in order to pre-vent distortions in future economic growth. These dis-tortions would arise from the generally accepted view-point that cascading encourages undue vertical integra-tion along the chain of production and distribution. Itshould also be borne in mind that, as the structure of aneconomy becomes more complex, the chains of produc-tion and distribution tend to get longer, making it moreimportant to remove cascade effects.

One way of avoiding cascading is to use a value-added tax, which would allow each taxpayer to com-pute a credit for sales tax paid on inputs, whetherimported or purchased locally, and apply the creditagainst tax due on his sales. With this system, the taxbase would be the value of final sales by taxpayers plusthe value of imports by nontaxpayers. Sales from onetaxpayer to another or imports by taxpayers are thusnot taxed twice, even though taxes on such transactionsare actually collected on account of the tax generatedby the final sale to the consumer.

Other mechanisms to avoid cascading are in use.Francophone countries applying sales taxes based onthe 1936 French production tax (as modified in 1948)have attempted to avoid cascading by allowing taxpay-ers to deduct from gross sales the purchases of inputsthat are physically incorporated into the manufacturedproduct (the so-called physical ingredient rule). It hasbeen argued, however, that this mechanism discriminatesagainst capital equipment, since only purchases of rawmaterials and intermediate goods are deductible fromtaxable sales. Another mechanism, which is fairly com-mon under manufacturer-importer sales taxes, is toallow manufacturers registered as taxpayers to acquiretax free the locally produced goods or imported goodsused by them as inputs. This provision, by which tax is

17



suspended until sale of the final product takes place,has resulted in abuses, such as tax-free acquisition ofgoods not intended for manufacturing but rather forconsumption by the manufacturer. Prompted by theseabuses, some countries have repealed the provision andhave replaced it with a refund mechanism, which, inturn, has produced too many claims and too muchunproductive work for the administration.10

The best solution, even for a manufacturer-importersales tax, probably is a credit system similar to that inuse for value-added taxation. With this system, at leasta part of the tax is payable when the inputs are pur-chased, and any subsequent action by the manufacturerto evade taxation results in a loss of only part of the tax.

Rate Structure

Restricting the number of rates to one or two is notonly a matter of neutrality but also a prerequisite if agovernment wants to stress simplicity in the administra-tion of a general sales tax. Most sub-Saharan Africancountries that have general sales taxes use a maximumof three rates. There are, however, exceptions. In 1978,Tanzania's manufacturer-importer sales tax had 24 advalorem rates plus 24 specific rates. Also, Ugandastarted a general sales tax of the same type in 1968 withfive ad valorem rates and a few specific rates; by thebeginning of 1980, there were 19 ad valorem rates inaddition to several specific rates. Multiple rates requirethat taxpayers break down their reported sales into asmany components as there are rates, and this may provedifficult, particularly where the tax is levied beyondthe manufacturing stage. In addition, administrativechecks on compliance become less effective, becausemany of these checks are designed to ascertain the relia-bility of a taxpayer's total turnover but cannot be usedto establish the accuracy of the turnover breakdown bythe taxpayer. For this purpose, new procedures have tobe contrived, but their effectiveness may be limited andtheir application may require additional tax auditresources. When it is desirable for a particular item tobear a higher rate of taxation, the best solution is touse the excise tax system rather than to establish a dif-ferential rate under the general sales tax.

Limitation of the number of exemptions can be justi-fied for similar reasons and also to avoid the erosion ofthe taxable base that exemptions bring about, thusdetracting from the revenue role of general sales taxes.There are, however, two cases that merit special con-sideration. First, it is generally accepted that export

10 One of the countries in the region, after repealing the sus-pension mechanism, experienced a more than threefold increasein the number of refund claims.

sales should be exempt. This is necessary to ensure acountry's competitiveness in the international markets,because most countries apply the destination principleto sales taxation and therefore do not subject theirexports to tax. Second, exemptions are commonlygranted on certain goods to reduce the amount of taxultimately paid by low-income consumers; these goodsusually include unprocessed foodstuffs and items formass consumption. These exemptions undeniably helpto reduce the regressivity of the tax.

Some Special Problems

Capital Goods

It is widely accepted that capital goods should beexempt from sales tax, mainly because any tax payableupon acquisition of a capital good is eventually incor-porated in the production cost of the final product,which will again be taxable at some point before reach-ing the consumer. Thus, cascading will occur. Taxationof capital goods has sometimes been defended on thegrounds that it provides a counterbalance to the manyexemptions and incentives schemes (for example, thoseapplying to income taxation) that are available to usersof capital goods and that may make these goods prefer-able to local labor. It appears, however, that the logicalsolution to excessive exemptions or incentives is to limitthem rather than to offset them by means of other taxes.Even when incentives are not excessively generous, acase can be made for including capital goods in the salestax base in order to encourage labor-intensive, ratherthan capital-intensive, production methods. The taxa-tion of capital goods may be particularly advisable ifthe currency is overvalued and interest rates are too low.

A special problem is posed by the treatment of capi-tal goods under a value-added tax. The credit mecha-nism avoids cascading, but the timing of the credit hasto be decided. If it is given at the time of the purchase,the credit may erase a major part of the nominal taxliability on sales. This may disrupt the steady flow ofrevenue to the government, particularly if the purchasesof capital goods are substantial because of special incen-tive schemes, dismantling of exchange controls, or simi-lar reasons. A solution is to spread out the credit fortax paid on the capital good, and the best method fordoing so is to apportion it over the useful life of thegood, assuming that its output is evenly distributed overthe depreciation period. The tax is then an income-typevalue-added tax, as distinguished from the more usualconsumption-type tax under which immediate credit isallowed for capital outlays. The income-type tax isless favorable to investors and requires more complex

18


General Sales Taxes

reporting, but it ensures a steady flow of revenue to thegovernment.

Agriculture

Sales of unprocessed agricultural goods are generallyexempted from sales taxation for two main reasons.First, most unprocessed agricultural goods are fooditems which, as mentioned above, can be consideredbasic necessities for the low-income sector of the popu-lation. In exempting them, the government attempts tomitigate the regressivity of a general sales tax. Second,agricultural producers tend to be of small economicsize, geographically scattered, and extremely difficult toreach with a general sales tax. If the government desiresthem to contribute revenue, it is probably better to taxsome of their inputs.

Small Businesses

Most general sales taxes contain provisions thatexclude small businesses from coverage for administra-tive reasons. The effort that the tax administration mustmake to force small businesses to pay the sales tax isdisproportionate to the tax revenue generated. This isparticularly true in developing countries, where stan-dards of compliance are low and the keeping of accountsis not a general practice.

The first step in deciding whether to exclude smallbusinesses from a sales tax should be to evaluate thecapabilities of the taxpayers to comply with the tax lawand those of the tax administration to enforce com-pliance with it. This evaluation should lead to a deter-mination of the approximate number of taxpayers thatcan be considered manageable and then to selection ofa limiting factor—generally, total turnover—whichwould be used to draw the borders of the universe oftaxpayers. It is helpful not to establish this limit in thelaw, but rather to empower the government to do it byregulation; this provides adequate flexibility and allowsfuture increases in the number of taxpayers by succes-sively lowering the minimum annual turnover as the taxadministration gains experience and confidence.

This approach may be followed with any form ofsales tax. If the government has chosen a single-stage,manufacturer-importer sales tax, the goal should be toeliminate the small artisans and producers from theuniverse of taxpayers. On the other hand, there is noneed to exempt small importers, because the tax is gen-erally collected at customs and, in the rare cases inwhich this is not done, it can be safely assumed thateven small importers have enough capability to complywith the tax law. If the form chosen is of the multistage

variety, either cumulative as a turnover tax or noncumu-lative as a value-added tax, the reasons for limiting theuniverse of taxpayers are even more valid because thesetypes of sales taxes would, unless a limitation wereintroduced, include all taxpayers in the stages ofproduction-distribution covered by the tax. It is clearthat sub-Saharan African countries should avoid theburden of having to deal with massive numbers of smallretailers.

It has been argued that exemption of small busi-nesses gives them an advantage over larger firms thatare included in the tax net. The argument is correct,but this consideration is clearly outweighted by theadministrative considerations. In addition, the distortiveeffects of exempting small businesses are somewhat off-set because they do pay tax on some part of their inputs.In any case, the tax advantage enjoyed by small busi-nesses is probably outweighed by the economies of scalethat are inherent in larger firms.

Alternatively, some governments—mainly in thefrancophone countries—have resorted to forfait sys-tems, such as making turnover taxes of small businessesthe equivalent of some of their other taxes—forexample, the business license tax. A case in point isCameroon, where taxpayers whose turnover is betweenCFAF 5 million and CFAF 20 million pay the internalturnover tax on the basis of the forfait of the businessenterprise tax. Smaller businesses pay the equivalent oftheir business license tax as an internal turnover tax.These or similar methods of estimating assessmentswithout determining the actual transactions of smallbusinesses are generally ill suited to detecting the needto change the original estimates and, therefore, do notfunction well under the present inflationary conditions.In addition, they tend to confer too much power on thetax administration, increasing the chances for corruptivepractices.

Services

In many developing economies, services may providea suitable base for taxation. Hotels and restaurants havebeen frequently taxed, but financial and business ser-vices—such as banking, insurance, accounting, andrental and leasing services—have not, probably becausean easily quantifiable base has been difficult to define.Other services that are usually taxable, or have beenseriously considered as possibilities for taxation, includeutilities, such as telephone or electricity services.

There are at least two valid reasons to tax services.First, the contribution of the sector to gross nationalproduct is sizable, and, consequently, it may have afairly large revenue potential. Second, as most of theservices that are likely to become taxable arc used by

19



high-income sectors of the population, subjecting them the excise tax seems preferable. The main reason is thatto taxation may improve equity. services lend themselves better to selective taxation,

The question remains, however, whether a govern- both in terms of coverage and rates, than to taxationment should tax services under a general sales tax or under a general sales tax, which, ideally, should be athrough an excise tax system. Both have been tried, but broad-based tax with very few rates.

20


V Taxation of the Agricultural Sector

Introduction

Agriculture is the most important economic sector inthe majority of the countries in the sub-Saharan region(see Part II, Table 2). It is characterized by a prepon-derance of traditional agricultural pursuits. Accordingto conventional development theory, the expansion of thenonagricultural sector is part of the development pro-cess, and it is based on increases in the marketed supplyof food, in the nonagricultural labor force, and in capitalformation outside of agriculture. Agricultural taxation isone of the instruments available to governments to helpbring about all or some of these transformations.11

Agricultural taxation may affect resource allocationwithin the sector by penalizing the underutilization orinefficient use of resources—mainly land. Heavy landtaxes, as the argument goes, may paradoxically increaseagricultural productivity, because it is assumed thatthere exists unutilized potential in the sector that canbe mobilized through the combined "stick-and-carrot"approach of increasing land taxes and making otherinvestment more attractive. In addition to the develop-ment considerations mentioned above, a strong case forequity is often put forward in support of agriculturaltaxation. Heavy direct taxes, usually on land, can makethe rich landowners pay their fair share of taxes. Fur-thermore, such taxes may complement or replace landreform efforts by forcing many large landowners to sellsome of their land, thus reducing land prices by increas-ing the supply on the market and permitting small farm-ers to acquire land.

In recent years, however, an alternative view hasemerged, placing more emphasis on agricultural devel-opment as an essential component of economic develop-ment. Whether the flow of resources should be to orfrom agriculture depends, in this view, entirely upon thecircumstances of the country in question—its social andinstitutional framework, its technological and marketprospects and possibilities, the relative size and produc-

11 Various nontax policies may also be used to alter the inter-nal terms of trade between agriculture and other sectors—forexample, credit policies, subsidies and other expenditure policies,protective policies, and price controls.

tivity of the agricultural and nonagricultural sectors,and so on.

No general prescription can be expected to fit all cir-cumstances. In addition, the potential of taxation poli-cies to solve the many and varied problems underlyinglow agricultural productivity appears to have been over-estimated. Agricultural taxes should be analyzedtogether with the use that governments will make of theproceeds. For example, governments could, on the onehand, finance expenditures to improve agricultural infra-structure or to reduce the price of essential goods. Onthe other hand, they could finance urban wage increases,especially those of senior civil servants. Enhancedagricultural taxation may, by restraining agriculturaloutput, force the importation of certain food items andactually reduce the availability of foreign exchange,causing an additional constraint on development.

Greater agricultural productivity that is achievedthrough massive use of fertilizers, improved seeds, andother inputs further complicates public finance issuesin developing countries and requires a reorientation ofthe government's taxation and expenditure policies,since substantial new investment in agriculture is likelyto be needed. The immediate effect of this increasedproductivity will probably be to accentuate inequalitywithin the sector, making changes in agricultural taxa-tion policies unavoidable. Equity issues thus becomeimportant in the design of an appropriate mix of taxinstruments to tap the presumably increased taxablecapacity of agriculture.

For purposes of discussion in this section, the agri-cultural sector is divided into three subsectors: (1) sub-sistence production; (2) production of primary exportcrops on a commercial scale; and (3) production forcommercial sale on the domestic market, mainly offresh vegetables and dairy products for sale in urbanareas. Tax instruments used include income and per-sonal taxes, livestock taxes, export duties, land andland-related taxes, import duties, marketing taxes, salestaxes, and excises. In addition, there may be nontaxlevies due to operating surpluses of marketing boards,and implicit contributions due to exchange rate changes.

21


V • TAXATION OF THE AGRICULTURAL SECTOR

Although data are not available on the total contribu-tion to revenue of the agricultural sector in countriesof the sub-Saharan region, export duties constitute themajor part of agricultural taxation; their contributionto total tax revenue reached 70 per cent in 1978 inUganda, 36 per cent in 1980 in Sao Tome and Principe,26 per cent in 1977 in Ethiopia, and 26 per cent in1978 in Ghana. On the other hand, the relative share ofpersonal taxes declined in Niger from 34 per cent in1968 to 3 per cent in 1977 and in Mali from 21 per centin 1962 to 4 per cent in 1977. Land taxes contributedvery little as a result of the predominance of tribal landtenure systems in many of the sub-Saharan Africancountries.

Taxation of the Subsistence Sector

Development strategies have aimed at making funda-mental structural changes in the economy throughreducing the share of the labor and other resourcesdevoted to the agricultural sector. Some developmentprograms have used fiscal measures to accelerate thisstructural change. In recent years, however, there hasbeen a reaction against such policies, based on doubtsabout the validity and social desirability of such changeand on the increasing recognition of the inability ofother sectors to absorb the workers released from agri-culture. Moreover, as the largest numbers of chroni-cally poor people are in the agricultural sector, increasedattention to agriculture has been considered mandatoryto solve the problem of poverty. One of the majorresults has been a tendency to reduce tax rates on, orto exempt, goods purchased by the subsistence sector.

The possibility of using income taxation in the sub-sistence sector is discussed first. Farming in this sectorhas traditionally been, and still is, more a way of lifethan a commercial venture. Only a small proportion ofsubsistence farmers have taxable incomes in excess ofthe standard family allowances and other deductionsconventionally provided under an income tax. More-over, in considering how subsistence farmers could betaxed, attention should be paid to the usual conditionsfor a successful income tax: (1) existence of a predomi-nantly monetized economy, (2) a high level of literacy,(3) prevalence of reliable accounting records to deter-mine income, (4) a large degree of voluntary com-pliance, (5) an appropriate political environment, and(6) an honest and efficient tax administration.

In an attempt to overcome the difficulties of directtaxation of the subsistence sector in the sub-Saharanregion, personal taxes were introduced to replace thetraditional tribute payments. Examples of these taxesare the poll tax and the hut tax in Liberia, which are

levied on men and women between ages 18 and 61; theminimum tax in Mali, which is levied on men andwomen of age 14 and above; the head tax in Madagas-car, which is levied on men of age 20 and above; thehead tax in Chad, which is levied on men and womenbetween ages 18 and 60; the minimum tax in Malawi,which is levied on men of age 18 and above; and thepersonal tax in the Central African Republic, which islevied on men of age 18 and above. Most personal taxesare levied on persons listed on the tax rolls and do notrequire individual tax returns. As a rule, these taxeshave been levied by central governments but collectedby local authorities, with the proceeds going to bothlevels of government in many countries. In view of theircontribution to revenue and their role in inducing mon-etization of this sector, these taxes should probably bemaintained in the short run; however, their gradualtransformation into a modern income tax should beconsidered the ultimate goal because of the inherentinequities of the personal taxes, their regressive charac-ter, and their enforcement problems.12 In particular,enforcement measures involving prison sentences orforced labor for taxpayers who do not comply havebeen observed in several countries. The poll tax, assuch, has been neither understood nor generallyaccepted by the taxpaying community. Furthermore,uneven enforcement of this tax has contributed to sub-stantial tax evasion and tax arrears.

A hybrid between a poll tax and a simple income taxhas been used in some countries, following the patternof the graduated personal tax first adopted in Uganda.This Ugandan tax has been the best approximation sofar to a modern income tax. For farmers, crop incomesper acre are estimated and multiplied by acreage undercultivation; for livestock owners, income per head oflivestock is presumed and multiplied by the number ofhead owned by an individual. Income from other activ-ities is essentially presumed. The main difficulty hasbeen that wide differences exist in the level and qualityof assessments among the various districts. Complaintsof favoritism and discrimination are frequent becausethe local assessment committees rely heavily on theparish chiefs estimates. Lesotho, northern Nigeria,Swaziland, Tanzania, and Zambia apply similartechniques.

In countries where livestock production is important,a type of property tax is levied on owners of livestockas a crude substitute for the income tax. Cameroon,Mali, Sudan, and Upper Volta levy this tax. It may

12 It should be noted that not only income taxes can be usedto replace poll taxes. For example, the Tanzanian authorities,when they introduced a general sales tax in 1969, announcedthat sales tax revenues would be used, inter alia, to make upfor the revenue lost as a result of having abolished the personaltax.

22


Taxation of Primary Exports

cover cattle, sheep, goats, mules, camels, donkeys, andhorses. This tax has often been criticized for creatingenforcement problems (e.g., coping with smuggling ofherds across borders where control is difficult) and fordiscouraging marketing of livestock.

With respect to land taxation, a few governments insub-Saharan Africa have successfully assessed taxes onland values, but because of special land tenure systems,particularly the "customary" nature of most agriculturalland holdings (especially in tribal areas), such taxeshave been effectively limited to urban areas or to landowned and leased by the government. In many coun-tries, individual ownership of agricultural land is theexception rather than the rule. For instance, in Malawi,85 per cent of the land is used or occupied under cus-tomary laws, against 2.5 per cent under individual own-ership and 12.5 per cent under government ownership;in Zambia, the land tax was levied only on the Europeanfarming area, along the railway.

Another instrument used in taxing the subsistencesector is taxation of goods purchased by the people inthis sector (e.g., salt, sugar, basic clothing, kerosene,tobacco, coffee, and tea). As was explained in Sec-tion IV, traditional excises and sales taxes levied on massconsumption goods for revenue purposes have regres-sive effects on tax burden distribution. A good exampleof this outcome is seen in Kenya. According to a house-hold survey conducted there in 1974, expenditures ontaxed items were 77 per cent of household incomes inthe lowest-income rural group, but amounted to only14 per cent of household incomes for the highest-incomerural group.

Taxation of Primary Exports

Many countries in sub-Saharan Africa are producersof primary export commodities, such as coffee, cocoa,tea, tobacco, sugar, groundnuts, cotton, livestock, andtimber. Export taxes, which have traditionally raisedsubstantial revenue, have three principal forms, and acountry may apply a combination of all of them. Thefirst form is an explicit export tax levied on an advalorem or specific basis. Rates can be specific, propor-tional, or based on a sliding scale in which the ratevaries with the export price of the commodity. The sec-ond form involves the purchase and sale of exportproducts by state marketing boards, which have a statu-tory export monopoly, as their operating surpluses con-stitute an implicit tax on agriculture. The third forminvolves the exchange rate, with overvaluation of thedomestic currency resulting in the implicit taxation ofexports. In addition, profits generated in the exportsector have also been subject to income taxation.

Export Duties

Export duties are a convenient means of taxing pro-ducers of export crops because they are administrativelyeasy to levy and to collect. While export duties can beevaded through smuggling or underinvoicing, mostother taxes involve far more serious enforcement prob-lems. Export duties have sometimes been used as acrude substitute for an income tax on small and mediumfarmers. In some countries, a de facto income taxexemption is granted to producers of dutiable exportcrops. In such cases, a statutory exemption should beintroduced until the administrative machinery is estab-lished to implement an effective agricultural income tax.From the viewpoint of equity, however, export taxes donot have the virtues of an income tax levied on theentire income of an individual at progressive ratescorresponding to his ability to pay.

Fund missions to various countries in sub-SaharanAfrica have evaluated the impact on agricultural cropsof export duties on the production and export of suchcrops. In doing this, it has been difficult (1) to make afirm judgment without carrying out a detailed analysisof the cost-price structure in the export sector, and(2) to assess the potential of alternative revenue sources(e.g., land taxes and progressive income taxes), whichare not always feasible in many countries of the region.

The incidence of export duties is determined by suchfactors as the nature and organization of production,the country's share in the world market for a particularcrop, and the options open to market participants. Ifthe taxing country supplies a large part of total worldexports of a crop, such as Ghana does for cocoa, orif similar taxes are levied by several exporting countries,there is a greater possibility of shifting part of the taxburden to foreign consumers. But shifting is limitedeven in these cases by the possibility that a price risewill, in time, stimulate production elsewhere or thatother products may be substituted for the taxed onesif prices rise (for example, tea for coffee, syntheticrubber for natural rubber, and one vegetable oil foranother). International commodity agreements mayhelp, however, to regulate both the production and theprice of the commodity involved. But the main inci-dence of export duties in sub-Saharan Africa is gen-erally assumed to be on domestic producers anddistributors.

Export duties may result in lower producer prices,which, in turn, may have adverse effects on production.Experiences of several countries in the sub-Saharanregion have indicated a responsiveness of production tochanges in producer prices. Governments should becautious in setting these producer prices because of therisk of creating disincentives to agricultural production.They may, however, compensate for low producer

23


V • TAXATION OF THE AGRICULTURAL SECTOR

prices by using more of the proceeds from exportduties and net profits of marketing boards for the sup-port of agriculture. Production of certain crops regu-lated by international arrangements may need to becurtailed because the country is bound not to exceedthe limit set by its export quota. It is generally agreedthat most countries in the sub-Saharan region cannotafford to abolish export duties because of their urgentneed for tax revenue. Instead, they should review, andadjust from time to time, their existing export tax struc-ture to obtain the maximum revenue and yet maintaina reasonable relationship between production costs andexport prices.

The majority of agricultural exports are taxed on anad valorem basis, although specific rates are applied bysome countries. For instance, specific rates are leviedon livestock in the Congo, Mali, and Somalia; on pea-nuts and peanut oil in Cameroon and Mali; on tobaccoin Benin and Malawi; on coffee in Burundi, Cameroon,the Central African Republic, the Congo, Ethiopia, andMalawi; on hides and skins in Burundi and Uganda;and on timber and logs in Ghana and Liberia. As inthe case of imports taxed at specific rates, the Fundhas generally recommended a shift to ad valorem ratesin taxing exports in order to increase the elasticity ofexport duties or, alternatively, the review of specificrates as frequently as changes in export values requireto keep the level of export taxation buoyant.13

As for ad valorem taxation of exports, the generalprinciple is reliance on f.o.b. values based on interna-tionally accepted standards. This taxation requirement,however, has posed extremely difficult problems in sev-eral sub-Saharan African countries because of the lackof trained personnel needed to cope with frequentunderinvoicing problems. Many countries have, there-fore, resorted to the establishment of minimum pricelists or administrative values for their traditional exportsas a substitute for the actual f.o.b. export price. Somaliaand most of the francophone countries in the regionuse this technique. Revenue erosion has taken place inthese countries because the administrative prices hadnot been updated at frequent intervals to reflect increas-ing world market prices of the goods involved.

Marketing Boards

The main purposes of marketing boards, when theywere organized during World War II and in the imme-

13 Other, more specialized, criteria have occasionally beenused. For example, in case of forestry product exports, Fundmissions have recommended rate differentiation in favor ofprocessed goods with higher local value added in order toencourage more employment and better utilization of trans-portation capacity, while leaving the country less exposed to theprice fluctuations of logs.

diate postwar period, were to improve facilities for themarketing of major export crops, stabilize pricesreceived by producers, and improve and standardizequality. But marketing boards can also serve as fiscalinstruments by raising revenue in lieu of export duties.Given this function of marketing boards, profits of theseboards are regarded by producers as an effective taxequal to the value of all export proceeds in excess ofthe official product price. From the government's pointof view, the large fluctuations of these profits haveadded an element of uncertainty to the flow of revenuethat has made financial management more difficult. Inaddition, the operations of marketing boards oftenrequire commodity price forecasting capabilities thatgovernments in the region do not have. With respect tothe use of the profits of marketing boards, Fund missionsgenerally have recommended that the central govern-ment should set the priorities for development purposesrather than grant these boards the power over such con-siderable investment resources, although the boardsshould be allowed a profit margin that is sufficient fortheir proper management.

Exchange Rates

As to implicit taxation through exchange rates, Fundmissions generally have advised against this practice.In addition to the basic Fund policy against it, suchtaxation discourages official exports while encouragingsmuggling and inhibiting the development of a country'sexport potential in various agricultural activities.

Income Taxation

Income taxation may be more feasible for farmerswho produce for the commercial domestic market orfor export markets than it is for farmers in the sub-sistence sector. Fund missions, in fact, have recom-mended that export duties on agricultural goods begradually replaced by improved enforcement of theincome tax on producers with rising incomes. Com-pliance is, however, rather low in countries whereagricultural incomes are subject to tax. In Cameroon,for example, the schedular tax on agricultural incomesrepresented less than 1 per cent of the total individualincome tax in fiscal year 1977/78. The ability of incometax departments to assess the income of the farmingpopulation is limited. Farm households often have mul-tiple sources of income under the African extendedfamily systems. Taxation of farmers is relatively hap-hazard, and the few tax offices outside capitals cannotreach even the medium-to-large farms. If a farmer has

24


Taxes on Produce

never filed a tax return, the departments simply do notknow that he exists. In cases where filing does takeplace, figures submitted on costs of production are nor-mally accepted without an audit. Tax departments sel-dom use norms of productivity or of costs of productionof different crops that are available to them throughfarm management surveys conducted by ministries ofagriculture; nor do they generally use data on producerprices and purchases that they might obtain from mar-keting boards.

Two major techniques are used in taxing agriculturalincomes: (1) the actual income basis, and (2) thepresumed income basis. The first technique involvesdetermination of agricultural income in exactly thesame way income figures are derived from industrialand commercial sources—i.e., through regular recordkeeping and accounting. The second technique, largelyused in francophone countries under the so-called forfaitregime, requires determination of farm income on thebasis of the kind of crop, area planted, quantity har-vested, and other factors. In essence, a national netincome per hectare is established for the various agri-cultural products and regions, and each farm's netincome is derived from this base. Except for forestryactivities, farmers are given the option of choosing theforfait regime. Although this scheme seems to be work-ing satisfactorily in France, where it originated, thedifferent conditions of land tenure, the virtual absenceof property cadastres, and the lack of comparableadministrative capabilities make it less practical inAfrican countries. Graduated personal taxes, as notedabove, are a practical but crude approximation ofpresumptive assessment of farm incomes.

In addition to enforcement difficulties, there is astatutory discrimination in favor of agricultural incometaxation in some countries of sub-Saharan Africa.Rates of schedular taxes on agricultural incomes infrancophone countries are usually lower than those onother incomes, and other favorable deductions andallowances are also granted to farmers. In Cameroon,the schedular tax rate on agricultural incomes is 15 percent, against 22 per cent on industrial and commercialincomes. In the Central African Republic, agriculturalcompanies are taxed at 25.5 per cent, compared with30 per cent on other companies, while the correspond-ing rates are 26 per cent and 35 per cent, respectively,in the Congo. Additional deductions of 15 per cent inthe Central African Republic and 20 per cent in theCongo are allowed for the agricultural schedular incometax. In Kenya, a generous depreciation allowance of37.5 per cent is granted on agricultural machinery, and

a full deduction is allowed for capital expenditures byfarmers to combat soil erosion, to clear land, and toplant permanent and semipermanent crops. These allow-ances primarily benefit rich farmers owning large,mechanized farms and may, in fact, have encouragedovermechanization to the detriment of the employmentof labor. Fund missions have generally recommendedelimination of such differentials in order to reduceinequities between farm and nonfarm incomes; and theyhave also advised strengthening tax enforcement anddeveloping a system of standard assessments on farm-ers whom they find difficult to tax.

Taxes on Produce

In several sub-Saharan African countries, taxes arelevied on marketed produce in lieu of land and incometaxes. These taxes are aimed primarily at truck farmersserving urban centers, and they are levied normally onlywhen transactions take place in relatively controlledmarkets. Production for self-consumption is, therefore,excluded from the tax. In most cases, these levies arecollected by local authorities. In Tanzania, for example,a cess ranging from 0.5 per cent to 5 per cent waslevied until 1971 on agricultural produce, hides, skins,livestock, and fish bought or sold within, or exportedfrom, a district. Today, various market dues are leviedfor the use of shops or stalls in market places main-tained by local authorities; in the cattle markets, a feeis charged on each head of cattle sold. Similar levies areapplied in other countries. In Sudan the traditional tithe(Ushur) has evolved into a market tax on agriculturalproduce sold. Types of produce that are taxed and ratesof the tax differ from province to province. The Cabana,which originated as a weighing charge in markets, isnow levied as a surtax on the Ushur. The rates of bothlevies appear to be specific rather than ad valorem ones.These levies tend to discourage commercial marketingof agricultural goods, whereas the main objective ofagricultural policy in many countries of the regionshould be to improve the supply of food to the nonagri-cultural sector. Furthermore, differential costs of pro-duction are neglected, resulting in varying degrees ofincidence on operators of different farm units. Pro-ducers of cash crops are heavily taxed, while otherswho consume most of their own produce are lightlytaxed. If, on the other hand, many or all of the market-ing taxes are shifted forward to consumers, then theselevies become the equivalent of highly regressive con-sumption taxes.

25


VI Taxation of Income and Property in the Modern Sector

Introduction

Taxation of income and property occupies a promi-nent position in most discussions of fiscal policy. Here,reference is made to these taxes as they are applied tothe modern sector of the economies of sub-SaharanAfrican countries.

Definition

The modern sector is defined largely by reference topotential taxpayers. It includes public enterprises andthe government itself; all corporations and other legalentities, including branches of foreign companies; anyother nonincorporated businesses or individual propri-etorships capable of filing tax returns; all individualswho can be subject to withholding (i.e., most of theemployees of the three categories previously men-tioned); and any other individuals who would becapable of filing returns, such as independent profes-sionals and small traders. This section does not discussthe large enterprises engaged in extraction of oil andmineral resources, since these usually have special fiscalarrangements outside the regular tax system. The mainfocus is on the tax base found in urban areas andwithin the domestic economy.

Special Characteristics

One characteristic of the sector is that its incomeelasticity to GDP is extremely high. As a country grows,a disproportionately high part of the growth will occurin urban areas and in the modern sector. This meansthat taxes levied on the modern sector, even when theirpresent yield is still a relatively small part of total gov-ernment revenue, deserve special attention because thepotential yields are exceptionally high.

Import duties, sales taxes, and other levies can allbe applied to the modern sector. However, the dis-tinguishing characteristic of the sector is that, largely

because of the greater sophistication of the taxpayersinvolved, it is more amenable to the use of complextax instruments. In particular, the individual and corpo-rate income taxes can be used. Income taxes, other thanthe most rudimentary ones, require filing of an annualreturn that includes at least a minimum of information,or they require intermediation by a withholding agentcapable of keeping reasonable accounts. Similarly, taxeson real and personal property can be applied to themodern sector. These do not necessarily require sophis-tication on the part of the taxpayers, although thiswould be desirable, but they do demand skills and re-sources on the part of the revenue administration whichusually are limited until the growth of the modern sec-tor is well advanced. The most complex taxes on wealthand property, of course, require taxpayers to file annualreturns and demand considerable expertise on the partof both taxpayers and the tax service.

Together with the application of income and propertytaxes comes a special vulnerability. These complextaxes lend themselves (or appear to lend themselves)to achievement of multiple objectives—for example, notjust raising of revenue but also improvement of incomedistribution or better allocation of property. However,it is difficult to estimate the effects of these taxes, par-ticularly when administrative inadequacies and taxpayerresistance create substantial discrepancies between thelegal and the actual tax bases. Thus, a highly progressiveincome tax rate scale may worsen horizontal equity(because of differences in administrative ability to as-certain the income of equal-income taxpayers) so muchthat gains in vertical equity are partially nullified.Throughout sub-Saharan Africa, government employeescomplain that their salaries are among the few incomesfully subject to withholding taxation and that work withthe government is correspondingly penalized. Perhapsthe extreme case is Somalia, where gross governmentsalaries were lowered in 1970 by an amount equivalentto a development levy applied to salaries in the privatesector, making future withholding unnecessary. In addi-tion, it should be remembered that, unlike private sectoremployees, government employees cannot usually shifttheir tax burden onto their employer.

26


Use of Tax Instruments in Sub-Saharan Africa

A tax on urban property so structured that construc-tion of new buildings greatly increases assessmentswhile ownership of underutilized land gives rise to littletax may encourage speculation in urban land holdingswhile delaying actual development of such land. In Li-beria, where only a low specific tax rate applies to thesite value of land in municipalities while buildings aresubject to tax at a proportional rate, it is possible thatthis tax system has delayed development of urban land.Tax incentives are especially vulnerable, of course, touses that thwart intended development. These will bediscussed in the next section. Essentially, the great flexi-bility of income and property taxes makes them attrac-tive as primary vehicles for experimentation in the taxsystem. In addition, non-African texts and technical ad-visors often are oriented toward income and propertytaxes to a greater degree than is perhaps justified atpresent in Africa. This may result in a disproportionateconcentration of intellectual, policy, and administrativeeffort on reform of these components of the tax systemsof sub-Saharan Africa and undue optimism concerningthe degree to which these taxes can be used to influencethe economy of a developing country.


Regional Characteristics

With respect to the taxes discussed here, there are twomajor groupings of countries in sub-Saharan Africa—those following the continental and European traditionsand those following the British tradition.

For taxes on income, the countries with a continentaltradition tend to have separate schedules for differentincome sources, and if there is a complementary ratescale applied to global income, it often is of less impor-tance for revenue than the other schedules. Countrieswith a British tradition tend to rely primarily on a globalincome tax with, at most, a credit for earned income.The countries with continental traditions, particularlythose following the French family quotient system, tendto give larger family allowances in the individual incometax. This system provides for dividing total family in-come into the number of parts determined by the size ofthe family, applying the progressive rate to each part,and then multiplying the results by the number of parts.The effect is to compensate for family status by loweringthe progressivity of the rate scale. At similar levels ofdevelopment, there seems to be a slightly greater reli-ance on income taxes for revenue in the countries withBritish traditions than in the others (Part II, Table 8).

Regional characteristics of taxes on property alsotend to follow the continental and British divisions.

Countries with continental traditions are less likely toconsider a general tax on real property as an importantinstrument for revenue, and some have no such tax.Most countries with British traditions have generaltaxes on both urban and rural land, although the yieldis seldom very high. Cameroon, for instance, has nogeneral annual tax on real estate; however, even incountries with British traditions, the general land taxmay be missing from the system, as in Kenya. On theother hand, duties on registration of land and stamp andother taxes on the transfer of land are more commonlyused and more important in countries with continentalbackgrounds than in the rest of sub-Saharan Africa.Finally, although both groups of countries have deathduties, in the countries with continental traditions thesetend to be assessed on the heirs, whereas in countrieswith British traditions they tend to be levied on theestate of the decedent.

Taxes on Property

Almost all kinds of taxes on property exist in sub-Saharan Africa. Real property is subject to an annualtax in many countries. Seldom is a single tax universallyapplied to all property. Often only urban property istaxed, or different rates are applied to rural and urbanland; value of urban sites may be taxed separately frombuildings, and special levies may apply to unused urbanland. Where land is assessed at market value, the assess-ment may be arrived at by capitalization of annual rentalvalues or by direct calculation.

The annual taxes on real property in sub-SaharanAfrica often have fundamental defects. First, the sub-stantive tax structure may encourage inequities, misallo-cate resources, or decrease revenue; exemptions forowner-occupied dwellings or recently constructed build-ings may mean that wealthier individuals pay less tax(in Senegal, for instance, owner-occupied dwellings areexempt from tax, as are new buildings for the first fiveyears after construction); failure to tax undevelopedurban land may lead to speculation (the example ofLiberia has been noted; to combat this effect, othercountries, such as Gabon, have introduced special taxeson underdeveloped urban land); and specific rates maylower elasticity. Second, property ownership recordsmay be confused; no cadastre, or only an inadequateone, may exist; and failure to make the tax in rem mayprevent action against the property itself. Third, lack ofadministrative resources may prevent efficient applica-tion of the law. A chief result of these problems is thatrevenue from annual taxes on real property is low andis inelastic in those sub-Saharan countries that havethese taxes. Also, assessed values are below the opti-mum level, and this underassessment has negative reper-

27


VI • TAXATION OF INCOME AND PROPERTY IN THE MODERN SECTOR

cussions not only on property tax revenue but also onrevenue from other taxes for which assessed propertyvalue forms part of the base.

Little is known about the revenue yield of other taxeson property in sub-Saharan Africa, but few are thoughtto be efficient sources of revenue. Death dutiesare often enacted as part of a registration or stamp taxlaw, and the proceeds of these duties are seldom ac-counted for separately. Where they are separate, theyyield little revenue in relation to the administrative ef-fort required, and their coverage is usually too haphaz-ard for them to increase equity substantially or influenceresource allocation. In general, the minimum exemptionfor death duties should be quite high, so that the taxadministration may concentrate on a few large cases.Personal property taxes in sub-Saharan Africa are sel-dom applied in the modern sector, except for annualtaxes on motor vehicles. Use of annual taxes on live-stock was discussed in the preceding section. Bettermentlevies are applied in a few countries. The Central Afri-can Republic, for instance, applies a betterment levy of2 per cent of the value of improvements caused by pub-lic works. Since betterment levies require considerableadministrative and economic expertise if they are to beapplied satisfactorily, their use is unlikely to be ex-panded in the near future. Finally, no country in sub-Saharan Africa has a general net wealth tax as part ofits system; again, given the difficulties such a tax pre-sents, its absence seems justifiable.

Taxes on Individual Income

All countries in the area have some form of directtaxation of individual income. Most of these taxes areon annual income and are either schedular or global.They are uniquely appropriate to the modern sector,because all require filing of a return, either by the tax-payer or by a withholding agent.

A typical income tax system for an anglophone coun-try contains a progressive rate schedule applied to an-nual income from all sources within the country, with acredit for earned income; for the typical country with acontinental background, there are as many as six orseven schedules, each with a proportional rate appliedto a particular kind of income, with a progressive ratescale applied to the sum of schedular income. The in-comes most commonly subject to separate schedules arewages and salaries, real estate rentals, interest and divi-dends, and individual business profits. Variations aremany, such as progressive rates applied to schedules,partial use of a schedular system in countries with aglobal system, and worldwide rather than territorialcoverage of the tax. Revenue from the individual in-come tax is not a major portion of total central govern-

ment revenue in any country. This observation shouldnot be construed as advocating neglect of the individualincome tax. Even if it is not a major revenue producer,its characteristics make it important for purposes of im-proving equity and income distribution.

The form of the income tax system may influence therevenue productivity of the tax and the distribution ofthe tax burden. A schedular tax system is sometimesadvocated because it reduces the revenue costs of per-sonal exemptions and differentiates the tax burdenaccording to the source of income. Earned income isusually taxed more favorably than income from othersources, as the schedular tax on wages and salaries hasa low rate and sometimes a minimum personal exemp-tion. On the other hand, a global income tax is widelyconsidered to be superior to a schedular tax. The formercan be adjusted to the particular circumstances of theindividual taxpayer more precisely than the latter. Aglobal tax considers income, regardless of its origin, asthe sole determinant of ability to pay, and therefore,horizontal and vertical equities are enhanced. It alsohas the advantage of relative simplicity vis-a-vis theschedular tax, which requires multiple tax returns andtends to present complications associated with the defi-nition of incomes.

Many problems arise with the tax on individual in-comes in sub-Saharan Africa. Some are due to the in-herent complexities of such a tax, while others are de-rived from the region's colonial heritage, leading to lawsbased on a European model that often has erroneousimplicit assumptions regarding the structure of societyand the economy and the capabilities of taxpayers andtax administrators. Subsequent revisions, which haveattempted to introduce the latest refinements from de-veloped countries or have experimented with doubtfulinnovations untested elsewhere, compound the diffi-culties.

A common problem is that of defining the taxpayingunit and the treatment of the family. Should spouses filejoint returns? Should allowances be made for depend-ents through a deduction from income, a credit againsttax, or an income split? Should only the immediate fam-ily qualify for allowances, or should others be included?Some countries have opted for separate treatment ofeach income-receiving individual, with no adjustmentfor family status or dependents. Such is the case, forinstance, in Ghana and Guinea-Bissau. Others placean absolute limit on the number of dependents thatmay be taken into consideration. None adjust fordependents or extended family arrangements based onlocal traditions rather than on European law. Since theindividual income tax applies only to the modern sector,this may present no practical difficulty. Policy recom-mendations on this point have tended to favor recogni-tion of the immediate family as the taxpaying unit, with

28



joint returns optional and with tax credits allowed fordependents; deductions from income for dependentshave been recommended on occasion, but the incomesplit, or family quotient, has been criticized as undesir-able because it reduces effective rates significantly anddiscriminates in favor of large families with incomesfalling in higher brackets.

The problem of horizontal equity—equal treatmentof taxpayers with equal incomes—is posed by virtuallyall schedular systems, since different rates are appliedto income from different sources. It is also posed wherewithholding is used, since tax collection in practice ismuch more effective with respect to income subject towithholding. Where income from foreign sources is notcovered by the income tax, another anomaly in treat-ment of equal-income individuals is created. To im-prove horizontal equity, countries of sub-Saharan Africahave tended to de-emphasize the importance of sched-ular taxes and to create or expand global income taxes.In this context, a trend to substitute a global income taxfor the schedular tax is perceptible among francophonecountries. There are difficulties, however. For instance,the global taxes adopted in Chad and in the Congo havenot achieved horizontal equity, as wages and salariescontinue to benefit from special treatment and are ex-empted from other taxes levied on incomes from othersources. Withholding should be expanded in some cases,arid administrative efficiency should be improved indealing with taxpayers whose incomes are not subjectto withholding. Wage and salary withholding creates ade facto tax bias against employees, particularly govern-ment workers, but the solution lies in effective pursuitof other taxpayers rather than abandonment of with-holding. This is an important point, because if wageand salary earners feel that they are being discriminatedagainst, both productivity and availability of nationaltechnical manpower may be adversely affected. Finally,countries which do not already do so should not extendtheir income tax to cover worldwide income; the admin-istrative difficulties and costs and the chance of creatingfurther horizontal inequity may outweigh the advan-tages. Conversely, making income from foreign sourcestaxable might be helpful in imposing taxes on the basisof outward signs of wealth or enhancement of capital,as taxpayers would not be able to hide taxable funds bydisguising them as income from foreign sources.

Another problem with the individual income tax liesin selection of the initial exemption. Some countrieshave found that a low initial exemption results in exces-sive administrative costs by requiring returns and mini-mum payments from many low-income taxpayers with-out generating a compensatory increase in revenue orequity. In general, great caution should be exercised inestablishing tax-exempt minimums, and it has occa-sionally been suggested that existing ones be raised, par-

ticularly when inflation has significantly reduced themin real terms and the number of taxpayers has increasedaccordingly.

The structure of the progressive rate scales for taxeson global income of individuals also deserves attention.Those countries with a low initial rate have found thatby raising it they could increase the efficiency of thesystem by obtaining increased revenue from low-incometaxpayers; also the lowering of the highest marginal ratesif they exceed, say, 60 per cent should be consideredby countries where it is felt that the disincentive effect istoo great.

In many countries of sub-Saharan Africa, capitalgains of individuals are not taxed unless they arise frombusiness operations. Potential or actual revenue fromtaxing capital gains is of relatively l i t t le importance tocentral government budgets. In general, taxation of suchgains has not been deemed worth the necessary invest-ment of administrative resources, given the competingclaims.

Taxes on Business and Corporate Income

All countries of sub-Saharan Africa tax business in-come, but not all of them have separate taxes on theincomes of corporations or other legal entities. Wherea tax on global income of individuals exists, a separateproportional rate tax on income of legal entities is morelikely to exist. Some countries have a schedular tax onbusiness income which applies to both legal entities andsole proprietorships or informal partnerships. Most fre-quently, the schedular tax on business (or the tax onlegal entities) has either a single proportional rate or aprogression of two or three rates. However, in somecountries, such as Sudan, it follows a f u l l progressiverate scale. In general, the heritage from previous colo-nial rule is likely to be evident; countries with Britishtraditions tend to have a separate tax on income of legalentities, whereas those with European continental tradi-tions are more likely to have a schedular tax applied toall business income. Some countries, particularly thosewith French traditions, may have both a proportionaltax on legal entity income and a schedular tax on busi-ness income of individuals.

When corporations pay a special tax on dividends,dividend income received by individuals may be exemptfrom global income tax. In other countries, creditagainst tax on global income is given for tax withheldon dividends. There is no consensus among the coun-tries of sub-Saharan Africa regarding the integration ofthe taxes on corporations and shareholders, and it ap-pears that the issue is not yet considered to be of majorimportance. It may also be that, in many countries, thecorporations showing the largest profits are owned either

29



by foreign shareholders or the government. Neverthe-less, Ghana, Malawi, Sierra Leone, and The Gambiahave integrated tax systems—and Kenya had one untilit was repealed in 1965—reflecting British traditions ina standard income tax ordinance which served as amodel for the income tax acts of many former Britishcolonies.

A special feature of the income tax systems of CFAcountries is the minimum business tax. The tax is leviedon corporations in all CFA countries and on profits ofindividuals in a few of them. Its rate is usually 1 percent of the previous year's turnover. The tax is creditedagainst the profits tax, but no refund is given if theamount of minimum business tax paid exceeds the prof-its tax payable or if the taxpayer has experiencedlosses. The minimum tax approach is generally justifiedon administrative grounds as a safeguard against under-reporting of taxable profits or as a means of counteract-ing techniques occasionally used by foreign corporationsto underestimate actual profits. There are, however,arguments against a minimum tax. If a business is notprofitable over a number of years—as is sometimes thecase for new firms—the tax can become an additionalburden that may strain further a taxpayer's financialviability. In addition, there is the danger for the taxadministration of relying too much on the existence ofa minimum tax instead of strengthening enforcement ofthe profits tax. If the taxpayers realize that this is hap-pening, they will tend to underreport profits systemati-cally and to pay the minimum tax instead of the profitstax.

When revenue from a corporate or business incometax is separately stated in government accounts, it isseldom of major budgetary importance. And when it isapparently significant, further investigation is likely toshow that most of the revenue is derived from tax paidby one or two enterprises that exploit minerals or otherbasic resources. For example, in Mauritania, an ironmining corporation provides most of the corporate taxrevenue. Thus, business in the modern sector is not yeta major contributor to government resources in mostsub-Saharan African countries. Part of the explanationis that a significant number of enterprises in the modernsector are so new that they still benefit from tax holi-days, or the enterprises are so important to the economyor balance of payments that they have been able tonegotiate favorable tax terms on an individual basis.

Many problems arise in taxing business in the modernsector. One difficulty is that many small businesses,often unincorporated or sole proprietorships, are onlymarginally "modern." They may be barely capable offiling returns, and the tax administration may have littleconfidence in the accuracy of the data given in thereturns. Such businesses are often subject to taxationunder a special schedule or tax that typically applies a

proportional rate, or a scale of specific rates, to thebusiness on the basis of its gross sales. The gross salesmay be based on estimates, sometimes of a complextype, as in the French ]or]ait system. Often this tax is apart of the income tax, or it may be a business licensefee. The main difficulties are that such taxes are highlyarbitrary, can cause inequities and distortions inresource allocation, and may require excessive adminis-trative effort in relation to the revenue produced. Fur-ther, if they are applied too widely, such taxes maydelay the shift of growing and modernizing enterprisesto filing of full returns and payment of income tax onthe basis of regular accounts. A partial solution to thisproblem can be found in a shift to a minimum tax onbusiness that uses only a proportional rate creditableagainst regular income tax. As mentioned previously,however, this approach has shortcomings. The problemof accurately taxing small businesses in sub-SaharanAfrica, and elsewhere in the world, remains essentiallyunsolved.

At the opposite extreme of the modern sector are thelargest corporations, particularly the multinational ones.The resources and ingenuity of such taxpayers oftenexceed those of a national tax administration. Use ofdevices such as transfer pricing, assignment of homeoffice expenses, and changes in the debt-equity ratio ofthe subsidiary vis-a-vis the home office is difficult tocounteract. Helpful administrative solutions have beenthe training of national tax officers in the home coun-tries of the major trading partners and the developmentof tax treaties that permit exchange of informationbetween national tax administrations. Substantive lawcan assist by placing limits on interest rates or royaltiespayable to home corporations and by providing foradministrative redetermination of prices that fail toreflect arm's length transactions.

A general problem with taxation of business is treat-ment of depreciation. To encourage industrial growth,rapid depreciation is desired; however, rapid deprecia-tion encourages capital-intensive growth that is undesir-able in labor surplus countries. Standardization ofdepreciation methods within each country has yet to beachieved, and systems vary throughout the sub-Saharanregion. As inflation increases, the adaptation of depre-ciation and inventory accounting to inflationary condi-tions, almost nonexistent at present, will become morenecessary. Policy recommendations in this field havebeen limited to proposals for standardization and sim-plification and for caution in respect to excessively rapiddepreciation.

Another aspect that should be mentioned here is theneed for acceleration of the payment of taxes on profitsto put them on as current a basis as possible. There arethree main reasons for current tax payments: (1) toremove, at least partly, the discrimination against wage

30


Special Problems

and salary earners subject to current withholding;(2) to reduce the erosion of tax payments that takesplace under inflationary conditions because of time lags;and (3) to make government revenue more responsiveto changes in income and economic activity. The transi-tion to current payments may present the serious prob-lem of double taxation, since the taxpayer will be con-fronted with the tax liabilities of the previous year andthe current year. Two methods have usually been recom-mended to solve this problem. One method is to forgivepart or all of one year's tax liability. The second methodis to provide for a gradual shortening of the lag inpayments over a period of years (e.g., three to five),until the transition is completed. The second methodseems preferable on grounds of equity, since full for-giveness of one year's tax for businesses would undoubt-edly have an adverse effect on the distribution of thetax burden.

Poll Taxes, Registration Duties, Stamp Taxes,and Business Licenses

Direct taxation of property and income in the modernsector is complemented in many parts of sub-SaharanAfrica by a series of other levies, which often representarchaic methods of attempting to tax property or incomewhen illiteracy, evasion, or administrative inadequacymake other taxes impossible to apply satisfactorily. Tosome degree, these alternate levies fulfill useful pur-poses. However, they are no longer necessary in manycountries, yet they continue to divert administrativeresources that are urgently needed elsewhere. In Soma-lia, for instance, much more administrative effort isdevoted to the stamp tax than to the sales tax, despitethe greater revenue importance of the latter. In theworst of cases, these levies constitute vestiges of theregion's colonial past that are not suited to Africa,where there is less dependence than in Europe on theoffices of notaries and on complex legal forms for evenminor transactions.

Of these levies, the poll tax is still the most useful,providing in some countries as much as 10 per cent ofrevenue and acting as a surrogate income tax for thelowest-income members of society. An example isGuinea-Bissau, which has a simple tax system and econ-omy. However, the obvious inequities of the tax makeits elimination advisable whenever administrative capa-bilities have advanced to the stage where a withholdingsystem or other form of income tax can be used to reachmost low-income taxpayers in the modern sector.

Registration duties and stamp taxes fall on legaltransactions, most of which signify transfer of propertyor payment of income. However, they also fall on aseries of other legal operations, such as issuance of cer-

tificates and documents, which may have little economicsignificance. In the best of cases, such taxes may beviewed as alternate forms of taxation of capital gains,real property, or perhaps sales. Even then, they applyto single transactions and thus fail to consider the over-all situation of the taxpayer. In the worst of cases, theyare costly nuisances. Countries in sub-Saharan Africashould decrease the importance of such duties and taxesand, when feasible, should eliminate altogether nuisancelevies and charges with specific rates. Registration andstamp taxes that duplicate other levies should be inte-grated with the more important levies. For instance,stamp taxes on imports should be eliminated and cus-toms duties—or other taxes on imports, such as generalsales taxes—should be raised correspondingly, and reg-istration duties on rental contracts should be reduced infavor of better enforcement of the income tax on rentals.

Business license fees are the most pervasive of theminor taxes and are found in virtually all countries ofthe sub-Saharan region. Often they provide revenue formunicipalities and cannot be eliminated without adjust-ments in fiscal relations between the central and localgovernments. Usually such license fees are based ongross sales, although many other indicators can be usedto establish the tax. They may be viewed as surrogatesfor the income, sales, or property taxes. Dependingsomewhat on how they are viewed, it has been sug-gested that they be combined with, or credited against,other taxes. The revenue importance of such taxes issmall and has been decreasing, and the administrativeeffort involved in collecting them should be devotedinstead to improving enforcement of other taxes.

Special Problems

Taxation of the modern sector in a developing coun-try involves special risks that are seldom present in sucha stark form in developed countries. The first is thetrade-off between revenue elasticity and incentives todevelopment. The most elastic tax bases are often theparts of the economy that the government wishes togrow as rapidly as possible, giving them encouragementif necessary by exempting them from taxes. Thus, aque-ducts and irrigation works, which greatly increase thevalue of farm land, may be exempt from property tax;or a profitable new industry may benefit from a longincome tax holiday. Or the opposite may occur. Hightaxation of new buildings may slow development of acity, heavy taxes on the income of professionals mayencourage them to emigrate or enter other fields, or hightaxes on industries may discourage modernization.

The second, and closely related, problem is the con-flict between equity and certain goals related to resourceallocation and development. If the modern sector is

31



taxed lightly in order to encourage rapid development,then inequities in income and property taxation betweenthe modern and traditional sectors or between individ-uals with equal property holdings or incomes may beincreased. Yet heavier taxation of the modern sectormay result in a suboptimal amount of resources beingallocated to it.

Another difficulty posed by the modern sector is howthe taxes chosen should be distributed between laborand capital. Extensive use of withholding on wages andsalaries, together with substantial payroll taxes, for in-stance, might encourage more capital-intensive develop-ment. High taxes on property or on profits of capital-intensive industry might slow development. Perhaps thethorniest problems relate to taxation of small enterprisesand individuals with independent professions. Thewidely used practice of estimating income or propertyvalue on the basis of some indirect indicator oftenleads to a considerable divergence between practice andtheory and may make it unclear whether elements oflabor or capital constitute the tax base. Examples ofthis use of indicators are a tax levied on income esti-mated on the basis of square feet of floor space in astore or a tax on property whose market value is esti-mated from a notional rental. The more distant the

proxy indicator is from the element being estimated,the more the tax resembles a levy on the proxy itself;if the latter is the case, the tax may introduce unpredict-able distortions in equity and resource allocation.

An additional problem with taxation of the modernsector is the increasingly important one of adaptation toan inflationary environment. Some solutions that havebeen offered—elimination of specific rates or updatingof property values—help increase revenue, while others—such as indexing of nontaxable minimums—decreaserevenue. The effects on equity and resource allocationof adaptations or of failures to adapt are often difficultto predict.

No clear solutions to these problems have beenfound. Given the present state of the art, however, itappears that a system should preferably be as neutral aspossible with respect to resource allocation and shouldattempt to achieve the highest possible degree of hori-zontal equity while maintaining reasonable verticalequity. A key to solving many of the problems (andeven to identifying whether, and to what degree, theproblems exist) is the development of a competentadministration buttressed by accurate and well orga-nized statistical data. Unless these fundamental improve-ments are made, any solution can be only a partial one.

32


VII Special Tax Incentives

Most countries in sub-Saharan Africa offer tax incen-tives. These may be in the form of reductions in taxes,which increase the rate of return to selected factors ofproduction or to certain industries or other activities.Or they may be in the form of stabilization agreements—a feature of francophone countries—guaranteeing toa taxpayer that the tax system as applied to him willremain unchanged during a given period of time.

The incentive systems used in sub-Saharan Africausually have as a principal objective the expansion ofthe modern sector of the economy, with the hope thatthis will bring about an increase in domestic supplyand, eventually, an enlargement of the domestic taxbase. The assumption is that a temporary sacrifice inrevenue will provide an incentive for investment, willaccelerate balanced growth of the economy, and willeventually be repaid through increased tax revenue. Taxincentives do this by making the use of certain factorsof production more attractive—for instance, by liftingduties on import of capital equipment or by grantingcertain kinds of activity a higher after-tax return, thusencouraging import substitution, promoting exports,expanding agriculture, or increasing employment in adisadvantaged province.

National policies regarding incentives cannot bedetermined without a careful evaluation of what othercountries in the region are offering to the investor. Sincemost countries in sub-Saharan Africa do not possessclear comparative advantages vis-a-vis their neighbors,it could be argued that their tax incentive schemes arelikely to play a role in investors' decisions to invest. Butthe countries have recognized that offering too muchincentive will probably cause retaliation from compet-ing neighbors, while offering too little will fail to attractinvestors. Thus,, these constraints have resulted in a cer-tain degree of uniformity in the national systems of taxincentives.

Types of Incentives

Several types of incentives are used in sub-SaharanAfrica. One type is the general incentive, for which the

taxpayer needs no special approval. Representative ofthis category would be a general rollover provisionexempting sale of business assets from capital gains taxif the proceeds are reinvested in the business. Anotherexample is accelerated depreciation of capital goods topromote industrialization.

These general incentives are not usually set forth aspart of a special incentive program and are viewed moreas additional facets of the tax law. Policy recommenda-tions with respect to these provisions have usually beencouched in terms of overall improvement of the specifictax rather than of the general incentive program. Con-siderable attention has been devoted to such incentiveprovisions of particular taxes, but in this study mostcomments on the subject are made in the sections deal-ing with each specific tax.

A second type of tax incentive, to be found in almostall sub-Saharan countries, is that granted under specialincentive laws, which require that the taxpayer obtainapproval from the government—or from an investmentboard operating under authority delegated by the gov-ernment—in order to be eligible for the incentive. Onlythrough such special incentive laws, for instance, arestabilization agreements made. Usually such agreementsextend to all aspects of taxation and guarantee the bene-ficiary that no changes will be made in the rates or inthe terms of application to him of not only the incometax but also the sales taxes, import and export duties,property taxes, and others. Some incentive laws providethat stabilization agreements may extend up to 25 years.The tax incentive provisions agreed by the UDEACTreaty, for instance, provide a 25-year stabilizationperiod as the most generous of the four levels of incen-tive arrangements possible.

The incentive laws usually focus on three aspects oftaxation: (1) exemption from income tax of profits ofthe investor for a period such as 5, 10, or 20 years fromthe date of the initial investment; (2) exemption fromcustoms duties, or a special low duty rate on importedinputs for a new industry; and (3) exemption fromsales tax or a special sales tax rate on output of a newindustry. Exemptions from the real property tax, regis-

33


VII • SPECIAL TAX INCENTIVES

tration duties, and stamp tax may also be given, butthese are of lesser importance.

Member countries of the Fund seldom have requestedadvice with respect to these laws, since they constitutespecial exceptions to the general tax systems, which arethe usual focus of technical assistance. However, in afew cases special studies have been requested, and inothers the Fund staff has decided that discussion of spe-cial incentive schemes was unavoidable, given the influ-ence of the incentive laws on the general tax system.

International Agreements

Bilateral

Many countries in sub-Saharan Africa have signedbilateral treaties with developed countries, providingeither for investment guarantees or for double taxationrelief. Virtually none of these treaties, however, containspecific tax incentives. The investment guarantee trea-ties, which have been negotiated most widely with theFederal Republic of Germany, Switzerland, and theUnited States, are uniformly silent regarding fiscalprovisions. The double taxation treaties do not provideincentives in the sense discussed above; they merelyremove disincentives from the path of investment. Themost notable general concession in such treaties is theprovision, found in most treaties between France andcountries that were formerly French colonies, for a taxcredit (avoir fiscal) for tax paid in one country at thecorporate level to be available against income tax onthe individual level. In practice, this provision encour-ages investment in francophone Africa by Frenchcorporations.

Multilateral

Regional groupings of countries in sub-Saharan Africahave dealt with the issue of tax incentives in variousmultilateral treaties. Such treaties aim at standardizationand coordination of incentives so as to avoid a costlycompetition in offering incentives and, when possible, topromote integrated area-wide development. Most de-tailed of the multilateral treaties is that of the UDEAC,which sets forth for all member countries a standardlaw on incentives, with multinational approval neededfor the granting of some of the incentives. TheECOWAS Treaty, in contrast, merely calls for coordi-nation among member countries but does not set fortha model.

Problems

Revenue Loss

The most obvious problem with tax incentives is thatby granting them the government forgoes revenue thatit would have otherwise received. The benefits accruingto the economy and to the government because of theactions induced by the incentive must be worth thesacrifice or else the incentive is inefficient. In otherwords, the incentive must increase (or redirect) domes-tic supply sufficiently to justify its cost.

Unfortunately, there are several theoretical and prac-tical problems concerning the measurement of the effi-ciency of incentives. On the theoretical side, the ques-tion is whether the additional revenue would haveaccrued to the potential tax base if the incentive hadnot been granted. And if the additional revenue had notaccrued in the form encouraged by this incentive, wouldsome equally productive alternate increase in the basehave arisen? On the one hand, exemption from customsduty of goods that would not have been imported with-out the exemption is not a direct sacrifice of revenue;nor is exemption from income tax of the profits of acompany that would not have expanded without theexemption. On the other hand, exemption from prop-erty tax and income tax on rentals for five years (a fairlycommon practice) for a newly constructed building,which would have been built and rented even withoutthe exemption, is a clear loss. Thus, even when theexact amount of tax forgone can be calculated, furtherinformation is needed before the amount of the realfiscal sacrifice can be determined. Since this informationis almost always conjectural, such calculations can sel-dom be made with certainty.

An alternative is simply to quantify the total tax for-gone and compare this with other indicators, such astotal government revenue and expenditure, to estimatewhether the sacrifice appears too great. Here the prac-tical difficulties have been considerable in sub-SaharanAfrica. Most countries have, or can easily compile,statistics on the amount of customs duties forgone, sincethe value of exempt imports or exports is usually regis-tered by the customs department. However, with respectto other taxes, data on the exempt base may be missing;industries operating under incentive laws, for instance,may file no income tax returns, no sales tax returns, andno property tax returns. Or, if they do file, the returnsmay be brief and uninformative and, in any case, areunlikely to be audited for accuracy. Fund recommenda-tions in this field have centered on making reportingless haphazard and on requiring development of fuller

34


Problems

statistical information.14 This information is also neededto ensure compliance with the conditions set by theauthorities to grant the exemptions.

Regarding possible methods for limiting revenuelosses to the government, an effort should be made tominimize losses that would arise from granting excessivebenefits to new industries capable of quickly capturinga stable market for their products and of becominghighly profitable. The best way to accomplish thiswould probably be to limit the amount of benefits to aspecified percentage of the value of the investment—say, 150 per cent. Such a provision, while attractive toinvestors, would remove the government's obligation tocontinue compensating them after it has clearly becomeunnecessary.

Resource Allocation

Good tax incentives should improve the allocation ofresources and direct them according to priorities set bythe government. Unfortunately, several factors oftencombine to produce incentives that may work againstan optimum distribution of resources. A most importantfactor is the inadequacy of the planning process. Plan-ners, who are subject to extraneous pressures and oftenill trained, make decisions to their best ability about thegranting of incentives, but the beneficiaries are notalways the most appropriate ones and unforeseen effectsmay even make the incentive-induced actions highlyundesirable for the economy. Even the most orderlyprocess of granting incentives is still somewhat of agamble, since there is always a risk that the sacrifice ofrevenue may only create further unexpected distortionsin the economy.

Deepening the pitfalls inherent in the initial grantingof incentives is the long duration of the benefits, whichis usually more than five years and often ten years orlonger. Investors tend to use a high rate of interest incalculating the profitability of an investment and, there-fore, to attach little value to benefits accruing to them inthe distant future. Governments, on the other hand,have a longer time horizon and are likely to apply alower interest rate in discounting the value of futurerevenue sacrifices. In addition, most specific tax incen-tives are in the form of agreements or contracts withindividual companies regarding specific actions thatthey must take in order to obtain the tax benefits. Onlycertain actions are rewarded. If, at a later date, theenterprise wishes to change or broaden its operations,it may find that it cannot do so without losing the incen-

tive or endangering the agreement. Similarly, if the gov-ernment decides later that the activity encouraged bythe incentive is no longer desirable, it cannot withdrawthe incentive until the end of the agreed period. Thus,an incentive believed to be desirable in year 1 may inyear 10 or 20 still be encouraging the same resourceallocation, even though by then it may be perceived bythe company or the government as inappropriate orundesirable. Another shortcoming of having tax incen-tives of long duration is the element of rigidity that theyintroduce in government revenues. The enterprises ben-efiting from tax incentives usually are in sectors withfaster rates of growth than most other sectors, but gov-ernments are prevented from taxing them accordinglybecause their tax burdens are stabilized over longperiods.15

Another allocative aspect that should be mentionedis that some countries in the sub-Saharan region havepredominantly used investment allowances and otherincentives that focus specifically on capital investment,as opposed to tax holidays, which are neutral betweencapital and labor. Given the underutilization of laborthat characterizes many economies in the region, itwould appear preferable to de-emphasize incentivesthat promote only capital investment.

Finally, many incentives are so structured as to dis-courage a change of resource allocation even after thetax holiday has ended. Production methods and kindsof inputs cannot be changed easily. A business may finditself, for example, heavily dependent on supplies ofimported oil, owing to the kind of machinery it hadimported on a tax-free basis, well after the price of oilhas risen above the prices of domestic alternatives andthe privilege of tax-free imports has disappeared. Orincentives may be granted in the form of a deferral oftax until realization of profits from the sale of, say, abuilding constructed in a renewal area. The need to paymassive taxes accumulated as a result of the incentivemay delay sale of the building well past the optimumdate. In sum, because tax incentives are ill adapted tothe rapidly changing economic conditions of manydeveloping countries, they run a high risk of misallocat-ing resources in the future rather than improving theirdistribution.

Equity

A basic premise of tax incentives is that they createhorizontal inequities. The beneficiary of a tax holidaypays no income tax on his profits; the neighboring enter-

14 For instance, Fund reports have recommended that specialadministrative units be set up for compiling statistics on enter-prises benefiting from tax incentives.

15 For these reasons, Fund reports suggest that the durationof incentives, particularly stabilization agreements, be limited toten years.

35


VII • SPECIAL TAX INCENTIVES

prise does. Without this inequity, there would be noinducement to take advantage of the incentive or todirect resources toward the field encouraged by theincentive. To a large degree, the creation of tax incen-tives presupposes that the benefits that will accrue tothe general economy will outweigh the inequities.

Practical experience in sub-Saharan Africa has shownthat problems of equity, nonetheless, can be serious.First, most incentive laws provide for absolute cessationof benefits at the end of the incentive period rather thanfor a tapering off. If other potential taxpayers in thesame field still benefit from incentives, or if a large por-tion of the modern sector has been developed under thestimulus of incentives, any potential taxpayer reachingthe end of his incentive period may find himself at astrong competitive disadvantage and may be placed inan inequitable position vis-a-vis the market. In such asituation, which may easily arise if tax incentives arewidely used during the initial stage of modernization ofthe economy, the enterprise not benefiting from anincentive becomes the exception instead of the norm.The government, unable to withdraw incentives alreadygranted, may be forced to extend the web of tax conces-sions further than it desires and, consequently, will losemore revenue than is justifiable.

Second, the inequities between individual taxpayersthat are caused by incentives are mirrored by the inequi-ties between sectors. Attempts to direct investmenttoward industrialization may create a modern sectorpaying little tax while an established agricultural or min-ing sector pays heavy tax. Again, the risk is one ofexcessive spread of incentive grants because all sectorsexpect similar treatment.

Administration

Many of the problems discussed above are compli-cated by defects in the administration of incentives. Thefailure to gather adequate statistics has already beenmentioned. Two more problems are (1) the dispersionof authority in administration of the incentive process,and (2) the lack of follow-up once incentives havebeen granted. Typically, tax incentive laws are adminis-tered jointly by the planning and the finance ministries,with possible participation also of ministries of eco-nomics, commerce, and foreign affairs. However, thepurposes of the incentive may not be established orinterpreted clearly. Delays, inconveniences to taxpayersand investors, and conflicting actions or grants mayresult. Instead of a coherent set of actions, the incen-tive program may become a patchwork of laws andregulations confusing grants of privilege, losing revenue,misallocating resources, and creating inequities. Evenwhere such perils have been avoided in the process ofgranting incentives, there may be no effective follow-upduring the period the incentives are in force because noparticular agency is clearly in charge. Thus, it is notuncommon for governments to be unaware whetherincentive beneficiaries have continued to comply withall requirements (i.e., minimum percentage of domesticvalue added and minimum levels of employment), havelived up to expectations, or have justified the revenuelost. Fund advice in this area has consistently been thatone agency should be responsible for general supervi-sion of the incentive process and that the supervision ofbeneficiaries should continue throughout the period inwhich the incentives are in effect.

36


VIII General Aspects of Tax Administration

Introduction

Many countries in the sub-Saharan region have placedincreasing emphasis on the role of tax policy in theirsearch for instruments best suited to their economicdevelopment. The various kinds of taxes, as well as thecombinations and alternatives within each kind, havebeen carefully studied with the help of technical assis-tance provided by bilateral aid programs and interna-tional agencies. As a result, most governments havebeen able to introduce broad and fundamental reformsin their tax laws. Proper enforcement of the existingtaxes, on the other hand, has received considerably lessattention. Yet a more efficient tax administration wouldbe instrumental, in many cases, in providing a consider-able part of the needed additional revenue and couldmake unnecessary, or at least reduce, the proliferationof taxes. It should be noted that introduction of newlevies may place such strain on an already weak admin-istration that the quality of its enforcement activitieswould be further endangered. In addition, adoption ofnew taxes may distort the internal balance of the systemas a whole, because the rationale of the structure couldsoon be lost in a complex maze of taxes.

It is clear, therefore, that tax administration shouldreceive far greater attention than it has received in thepast if countries' tax policy goals are to be attained. Inmost cases, however, adaptation of administrativemachinery set up by a former colonial power in sub-stantially different circumstances—in terms of economicand fiscal policies, legal framework, and availability ofstaff—is a formidable task. Even so, it has to be under-taken, because it would be futile to try to close largebudgetary gaps by raising additional revenue withoutmaking coordinated efforts to strengthen the tax admin-istration. Comprehensive changes in tax laws are boundto take time. This time should be spent in improving theefficiency of the tax administration to prepare it for thesubstantive advances sought.

While the solutions to specific tax policy issues maydiffer from country to country and within the samecountry as the development process evolves, many of

the problems and goals of tax administrations are simi-lar throughout the sub-Saharan region. Generally, a taxadministrator would define his goal as the efficientassessment, collection, and enforcement of taxes legallydue, without unjustified cost to the government or thetaxpayer in terms of money, time, and convenience. Aninternational meeting of tax administrators would findcommon grounds concerning their problems and solu-tions much more quickly than would a meeting of fiscalpolicymakers. In this context, the recent launching ofthe Association of African Tax Administrators is awelcome development. The Association will provide aforum for exchange of views and discussion of issues,such as joint training facilities, and other possible ave-nues of collaboration in enforcement activities.

Caution should be exercised, however, not to under-estimate the time required for reforms of tax adminis-trations to produce more revenue. It would be safe toassume that these reforms will have a significant impacton revenues only in the medium term and in the longterm. Rapid results can reasonably be expected only ina few cases—for example, when improvements in col-lection allow quick recovery of accumulated arrears(and even in this case, success will depend on the cur-rent collectability of such arrears).

Organizational Issues

Participation in Tax Policy Formulation

In many countries of sub-Saharan Africa, tax policyplanning is not clearly assigned to a specific unit, eitherat the ministerial level or at the level of the revenueagencies. Any change in tax law is usually designed inan ad hoc manner and is based on expediency ratherthan on long-range studies. In some cases, the so-calledresearch divisions attached to the minister or to theheads of revenue departments devote their time to solv-ing day-to-day problems rather than to long-range

37


VIII • GENERAL ASPECTS OF TAX ADMINISTRATION

studies.16 Moreover, the tax statistics that are collectedare usually inadequate to allow a sound evaluation ofthe present tax system, notwithstanding the existing dataprocessing capabilities in many countries.

There is general agreement that a unit in charge oftax policy planning should be at the ministerial leveland should be staffed by economists, tax officials, andlawyers. The heads of revenue departments, however,should take part in discussions regarding changes intax law and should be given the opportunity to suggestchanges on their own initiative. Their advice on thepractical possibilities and limitations of new proposalsis essential. Also, by taking part in the policymakingprocess, they will be able to gain the understanding ofpolicy objectives needed to discharge their responsibili-ties correctly. A continuous process of tax reform plan-ning has been suggested as one means of providing anintegrated framework of decision making in the relatedfields of tax policy, legislation, and administration.

Organizational Structure

The number of tax agencies in individual countries ofthe sub-Saharan region depends largely on their colo-nial heritage. In one group of countries—mainly thosefollowing British traditions—customs duties, excises,and sales taxes tend to be administered by a separateagency, whereas income taxes are entrusted to anotheragency. Other revenues—for example, motor vehicletaxes, land taxes, trade licenses, stamp duties, registra-tion fees, and mining taxes—are left to the attention ofspecialized departments that collect these charges as asubsidiary function. In another group—mainly thefrancophone countries—inland taxes, including excisesand sales taxes, are usually administered by a singleagency and customs duties by a separate agency, withor without collection responsibility. Earmarked taxes inboth groups of countries are usually administered by thedepartments to which such revenues are reserved.

Rationalization of the structure of revenue agenciesshould be based on an analysis of the interrelationshipamong the tasks to be performed in administering thevarious taxes in order to permit pooling of certain ser-vices at reasonable cost, provide efficient coordination ofassessment and collection activities, and ensure con-venience for taxpayers. Even the administration of ear-marked taxes—if such schemes are to be maintained atall—should be assigned to a tax authority in order toachieve uniformity and efficiency. The designation of an

16 In some sub-Saharan African countries, the ministry offinance has no planning office and few statistics are available, ordirectors of internal revenue and customs departments and theminister of finance each have separate research units that dealmainly with routine matters.

undersecretary, reporting directly to the minister andsupervising all revenue departments, would probablybe the best organizational arrangement to carry out thisobjective. Immediately below that level, a customsdepartment and an internal revenue department wouldgenerally be appropriate. Excises and sales taxes neednot be administered by the customs department,although the justification for doing so had been thetradition in developing countries that these levies aremostly collected on imports. However, as domestic pro-duction becomes more diversified, integration of theadministration of income taxes with that of excises andsales taxes may prove useful. Such integration by nomeans implies that the customs department should notcontinue to act as a collection agent for excises andsales taxes on imports, a task that it can perform betterthan any other office in the government. This does not,however, preclude an internal revenue department frombeing entrusted with the administration—in a muchbroader sense than collection—of these taxes, in recog-nition of the probable future broadening of their domes-tic base.

Separation of Assessment and Collection

The approach to separation of assessment and collec-tion activities varies widely in the sub-Saharan region.In some countries, assessment is carried out by variousrevenue departments, and collection is the function ofthe Treasury. This pattern is primarily observed in thefrancophone countries. In some other countries, bothassessment and collection are undertaken by a revenuedepartment. The former case is justified by its propo-nents as the best method of ensuring honesty of taxofficials, but it has been observed that this arrangementgenerally produces undesirable effects. Its main weak-ness seems to be lack of coordination between the agen-cies involved, which generally results in massive taxarrears. It appears, therefore, that a revenue departmentshould be entrusted with both assessment and collectionresponsibilities and that other methods should be usedto encourage officials to be honest.

Delegation of Authority and Decentralization

The success of revenue departments in the sub-Saharan region in fighting excessive centralization is, initself, a measure of their efficiency. In general, Fundmissions have advised that regional offices be estab-lished in accordance with availability of staff and geo-graphic distribution of high revenue potential. Activitiessuch as planning, budgeting, research, statistics, internalaudit, recruitment, training, legal and technical advice,

38


Resource Problems

appellate functions, and, in most cases, field auditshould remain the responsibility of the head office. Onthe other hand, most of the day-to-day operations ofthe service—that is, assessment and collection work—should be assigned to field offices. Monthly reporting,as well as inspection visits to review the performanceof the field offices, is recommended in order to setstandards, improve the quality of the work, and reducethe temptation to be corrupt.

Codes and Manuals

Codification of tax laws has become indispensable inmany countries to the establishment of an authoritative,up-to-date, and manageable statement of tax rules forboth taxpayers and tax officials. The proliferation oftaxes—which are imposed at different or supplementaryrates and involve different tax bases, different times ofpayment, separate returns, and separate administrativeand judicial procedures—has created a pressing need inthe sub-Saharan African countries for a single code oftax laws and regulations that contains all the requiredinformation.

Fund missions have recommended the preparation ofprocedure manuals, which should contain detailedinstructions and guidelines for the performance ofroutine tax functions. Setting standards in this mannershould facilitate uniformity in the daily work of taxoffices.

Two approaches have been suggested to solve thesalary problem: (1) making the revenue departmentsclosed units, with their own schemes of service and sal-ary scales, on the grounds that the resulting increase inthe efficiency of tax officials will produce increased taxrevenue; and (2) upgrading the revenue positions incases where salary scales must be kept uniform becauseof strict provisions regarding the civil service. Meritincreases to selected officials and frequent upgrading ofpositions in line with increased responsibilities are alsosuggested for the same purposes. Conversely, anyattempt to deal with the salary problem by instituting abonus or commission system, under which an officialreceives a percentage of the additional taxes he assessesor collects, should be discarded. Such schemes tend toencourage highly arbitrary actions on the part of offi-cials which may foster public hostility. Moreover, offi-cials who are not engaged in assessment and collectionwork cannot benefit from these plans.

Some countries in the region have training institutionsunder the ministry of finance—for example, tax schools,customs schools, financial management institutes, andaccounting schools. Usually, they can also use similarinstitutions in their former colonial mother countriesfor training purposes. Apart from this formal training,however, few opportunities exist for office or on-the-jobtraining programs, both for newly recruited staff andsenior officials. Systematic training programs should beinstituted to provide the tax officials with a better under-standing of the operation of the tax department as awhole, the relation of their specific jobs to the work ofthe department, and the requirements of their jobs.

Resource Problems

Staffing

The recruitment and retention of qualified staff mem-bers constitute serious problems in the countries of thesub-Saharan region. Low salaries, lack of training,understating for some categories of staff, and overstaff-ing for others have been major factors in creating thissituation. Staff turnover is high, and vacancy ratessometimes reach alarming proportions. In one country,for example, the income tax division had a vacancy ratein 1978 of 37 per cent for the entire staff and 45 percent for technical staff; the corresponding rates for therevenue division were 23 per cent and 29 per cent. Astechnical staff acquire expertise, they are able to findbetter jobs in the private sector or in parastatal enter-prises. Dismissal of incompetent or unsatisfactoryemployees is difficult because of both procedural bottle-necks and perennial staff shortages.

Equipment and Facilities

Physical facilities in many sub-Saharan African coun-tries are inadequate and not conducive to efficient work-ing conditions, staff morale, or taxpayers' respect forthe tax service. Moreover, equipment is often not read-ily available, and shortages of calculators, motor vehi-cles, and stationery have created frequent delays inoperations. Fund missions have suggested that taxoffices be conveniently located and provide adequatespace for the efficient conduct of operations. Revenueservices in an area should be consolidated in one build-ing or should at least be reasonably close together, bothfor ease of internal communications and for the con-venience of taxpayers. Stripping files of outdated mate-rial has also been recommended, so that active filesremain manageable and in good order, while old docu-ments are moved to archives and, in due course,discarded.

39


VIII • GENERAL ASPECTS OF TAX ADMINISTRATION

Assessment, Collection, and Enforcement

Severe difficulties in identifying and locating individ-ual taxpayers are apparent in the countries of the sub-Saharan region. In some cases, there are considerabledifferences between the number of taxpayers registeredby the tax departments and the number of persons withbusiness licenses issued by other public agencies.17 Toremedy this situation, general and specific surveys aresuggested—for example, door-to-door canvassing andcombing public and nonpublic registers, property rolls,records of new construction, membership lists of trade,merchants, and professional associations and clubs, andautomobile registrations. Exchange of informationbetween revenue departments and among other govern-ment agencies in the country should, of course, be aroutine procedure. Inexplicably, this is seldom done.Once master files are established, they should be keptcurrent, on the basis of information obtained continu-ously from all available sources. Numbering taxpayersat a centralized level is suggested in order to avoidduplicate numbers in identifying the same taxpayer indifferent areas of the country or for different taxes. Incountries where a social security system exists, it shouldbe practical to use the social security identification num-bers for taxpayer identification also.

Although, ideally, taxes ought to be assessed onactual taxable bases—for example, incomes, sales, cus-toms values, and property rentals or market values—presumptive assessments have been used in many coun-tries in the region where unsatisfactory record keepingpractices in the business community and unavailabilityof skilled tax officials have forced a departure fromideal practices. Various standards are used to reachapproximations of actual tax bases—for example,forfait regimes for income taxes and administrativevalues for property and foreign trade taxes.

Auditing of tax returns is another procedure that thesub-Saharan African countries need to institute. In viewof their limited trained staff, integrated auditing is sug-gested for closely related taxes, such as the businessincome tax, business licenses, the general sales tax, andtaxes on wages and salaries.

The existence of large amounts of tax arrears is asure sign of the ineffectiveness of the tax administration.Unfortunately, such arrears are not uncommon in thesub-Saharan region.18 Sanctions to deter delinquency

17 In one country, the number of taxpayers registered by theMinistry of Commerce in 1977 differed considerably from thenumber registered by the Tax Department.

18 In some countries, the problem has been compounded be-cause senior government officials are among the most delinquenttaxpayers. Also, noncompliance of public enterprises has beenwidely tolerated in several countries and has often been justifiedby the existence of unpaid government debts. In such cases,appropriate offsetting procedures should be established.

are generally inadequate, tending to exacerbate exces-sive statutory payment lags. These excessive lags orig-inate in provisions that allow payment of last year's taxout of the current year's income. If the current incomedrops substantially below that of the past year, delin-quency may be unavoidable. Payment dates, therefore,have to be set as close as possible to dates of realizationof income, or other tax bases. Taxes withheld on incomeand sales taxes should be remitted as frequently aspossible. Interest penalties should always be appliedfrom the due date of the tax, making it clear to taxpay-ers that an "involuntary loan" from the government isnot free. In this context, it is advisable that the interestrate charged be at least as high as the prevailing marketrate. An adequate structure of sanctions—includingcivil monetary penalties and, in extreme cases, criminalpenalties—is also needed to deter noncompliance andfraudulent conduct of taxpayers. It is imperative thattax departments be authorized to collect delinquentaccounts through imposition of liens on real property,where there is a registry system, and through distraintof property, garnishment of wages and salaries, andsimilar actions.

As an aid to collection, tax clearance certificates arerequired in many sub-Saharan African countries. Theyare demanded by the authorities on certain occasions,such as when a taxpayer is traveling abroad or obtain-ing his annual business license. In most places, thesecertificates have proved helpful. The only commonshortcoming seems to be that sometimes taxpayers areforced to experience inordinate delays and inconven-ience in obtaining them, owing to the inability of thetax administration to perform the necessary checkswithin a reasonable time. This situation should beavoided at all costs, because it can generate considerableill will on the part of the taxpayers.

Litigation systems in the countries of the sub-Saharanregion are not always organized for an effective andspeedy disposal of tax cases. Usually, the administrativereview process is not properly developed. In addition,defective drafting of tax laws is often conducive to friv-olous objections by taxpayers, which they file only todelay payment. In some countries, appeals and litiga-tions are being handled by local—and national—auton-omous bodies, composed of tax officials and representa-tives of taxpayer groups. This mixed membership hasbeen justified on the grounds that it provides protectionfor taxpayers against an arbitrary administration. How-ever, the system is unwieldy, because it lends itself tolocal prejudices and domination by local cliques.

The need for an efficient appellate system is now fullyrecognized, not only to ensure fair treatment for tax-payers but also to avoid backlogs that can clog the taxadministration. Depending on its legal and judicial sys-

40


Other Administrative Issues

terns, each country should design appeal procedures tosatisfy the two basic principles of fairness andexpediency.

Other Administrative Issues

The need for taxpayer education should be givenpriority. In countries where taxation has been associ-ated with foreign domination, such education is evenmore crucial and should receive immediate attention.Taxpayers should be convinced that (1) the tax systemis being administered fairly, and the money collectedis being spent wisely; and (2) enforcement is adequateto deter delinquency. The low level of literacy, the tech-nical nature of tax procedures, and the lack of trainedstaff constitute major difficulties in establishing the de-sired level of communication between taxpayers and thetax administration in sub-Saharan countries. Publica-tion of booklets explaining tax procedures, tax with-holding tables, bookkeeping, and requirements for filingreturns is recommended. Moreover, notices in news-papers and on radio and television are also suggested.The provision of assistance to taxpayers in meeting theirfiling requirements is also recommended.

Dishonesty and corruption have been a danger to taxdepartments in many countries of the sub-Saharanregion. Low pay scales are often cited as a major factorin attracting mainly the incompetent and in leading topart-time outside employment. But the lack of adequateinternal auditing, close supervision, and disciplinarysanctions have also been important factors in thepresent state of affairs. Transfer of staff within or out-

side tax departments in order to deter collusion andcorruption has been found to be rather counterproduc-tive, as it tends to cause serious disruptions in trainingneeds and career development. The Taxation Depart-ment of one country, for instance, has been followingthe policy of transferring staff with the objective ofpreventing the growth of friendship between taxpayersand tax officials and thus deterring an atmosphere con-ducive to collusion. An internal audit unit is a muchmore effective deterrent to collusion, bribery, and cor-ruption. Its activities should include frequent inspec-tions and investigations that are supported, wheneverneeded, by severe sanctions.

Tax statistics provide basic data for the formulationof economic and fiscal policies and are an essential toolfor managing the revenue departments. Yet the statisticscollected in the countries of the region are generallyinadequate, are in some instances unreliable and incon-sistent, and are not fully utilized when they are avail-able. Furthermore, they are not conceived—togetherwith research, planning, programming, and budgetingactivities—as an integral part of the process of super-vising and improving the operations of the tax depart-ment. The collection of statistics is not reviewed fre-quently with a view to deciding whether changes areneeded. Furthermore, the collection process is usuallyrather slow. Fund missions have frequently suggestedthat attention be paid to this important task and thatcareful studies be conducted to determine how to setup specialized units to compile statistics, to indicatewhat their location should be in the organizationalstructure, and to specify what type of information theyshould gather.

41


Part IIA Statistical Evaluation of

Taxation in Sub-Saharan Africa


I Introduction

This study provides a general statistical frameworkfor assessing the tax systems of the sub-Saharan Africancountries. It does not analyze the administrative andpolitical reasons for the revenue structures and levels inthese countries. It simply presents the statistical resultsarid attempts to link them to some relevant economiccharacteristics. A companion study (see Part I) pro-vides the analytical assessment of the effective, as wellas the statutory, tax systems and attempts to pinpointthe significant weaknesses and strengths of thosesystems.

A word of caution is in order. Because this surveycovers such a large number of very diverse countries,it was impossible to treat all of them in depth in thelimited time allotted. This study was limited also tostatistical information derived from sources immediatelyavailable within the Fund. Fund sources are quite exten-sive—possibly greater than those available in any otherinstitution—but they are not necessarily sufficient for acountry-by-couritry analysis. Although care has beentaken to be accurate in regard to details of fact andclassification, it is possible that some inaccuraciesremain. Also, in many countries, the most recent yearfor which data were available was 1978 or even 1977;thus, if some of the tax systems have experienced drasticchanges since that time, these would not be reflected inthe data.

This study deals with more than 30 countries rangingin size, population, and gross domestic product (GDP)from very large to very small (Tables 1 and 2). Interms of surface area, they range from a country as largeas Sudan, with more than 2.5 million square kilometers,to one as small as Seychelles, with only 278 squarekilometers. In population they range from 74.6 millionfor Nigeria to 60,000 for Seychelles. Even in terms ofper capita GDP the variation is remarkable, as thegroup includes countries as poor as Ethiopia, with areported annual per capita income of approximately

$100, to countries such as Ivory Coast with a per capitaincome of over $900 a year.

Other differences are also considerable and inevitablyaffect the structure of the tax systems. For example, theshare of agriculture in the total economy ranges from alow of about 15 per cent in Liberia and Zambia to ahigh of about 50 per cent in Ghana, Malawi, andRwanda, among other countries. Manufacturing in sub-Saharan Africa also varies considerably, with a share inGDP that ranges from about 3 per cent in Lesotho to26 per cent in Swaziland. Another aspect of the econ-omy that inevitably affects the tax system is its open-ness, measured by the ratio of imports to GDP (Table 1),which varies from a low of about 5 per cent in Ugandato a high of more than 75 per cent in Botswana, TheGambia, and Seychelles.

These characteristics of an economy affect the taxsystem: (1) through their influence on the demand forpublic goods and government services in general, and(2) through their effect on tax bases (in other words,through the "tax handles" available to the respectivegovernments). Therefore, a demand, as well as a supply,consideration relates to the economic structure of thesecountries. On the one hand, the structure of the econ-omy affects the governments' demand for tax revenueand, consequently, the tax level; on the other hand, itaffects the tax structure by determining the types oftaxes that are easiest to levy. An economy that is largelyagricultural has less demand (or need) for public ser-vices. Such an economy would normally provide lessusable tax bases (unless the agricultural output ismainly exported) than an urban economy, which reliessubstantially on imports and has a large manufacturingsector. Apart from these objective reasons, cultural andpolitical differences are also likely to affect both thelevel and the structure of taxation. These differences,while important, are difficult to take into considerationin the type of analysis carried out in this study.

45


II Level of Taxation

The tax systems of the countries of the sub-Saharanregion differ in many ways. One of these differences—the relationship of tax revenue to GDP—is discussed inthis section. Subsequent sections deal with the structureof these tax systems. Table 3 shows that there is a con-siderable spread in the ratio of tax revenue to GDP(i.e., in the average tax rate). It ranges from below10 per cent in countries such as Chad, Ghana, andUganda to well above 20 per cent in countries such asBotswana, the Congo, Gabon, Ivory Coast, Liberia,Nigeria, Seychelles, Somalia, Swaziland, and Zambia.In a few of these countries, the ratio exceeds 25 per cent—a high level for developing countries.

While interesting, the mechanical relationship betweentax revenue and GDP is not a satisfactory indicatoreither of the adequacy of these revenues in relation tothe government's needs (i.e., public expenditure) or tothe level of taxation that the government could raise,given the particular structure and characteristics of theeconomy at that particular time. In other words, fromthe knowledge that a given country's average tax ratiois, say, X, it cannot be stated that such a ratio is highor low in view of the country's potential nor that it isadequate to meet the country's expenditure need.

Two questions might then be asked. First, is there anyway in which these average tax ratios can be comparedamong countries, taking into account their potentialas reflected in their economic characteristics? Sec-ond, how do these ratios relate to the amount of expen-diture in these countries? The first question relates tothe issue of the potential available to a country and theextent to which this potential has been utilized. Thesecond question relates to the need for revenue by par-ticular countries, regardless of their potential.

Different approaches have been developed in the lit-erature to answer the first question, but all of them haveshortcomings that are well known and need no elabora-tion in this study. The Fiscal Affairs Department of theFund has been interested in this question over the yearsand has developed a methodology to permit a compari-son of tax burdens through an index for internationaltax comparisons. This index attempts to measure theextent to which countries are taking advantage of the

revenue possibilities available to them through thevarious tax bases. The methodology followed in a recentpaper of the Department 1 has been applied in this studyto 34 countries of the sub-Saharan region. Thisapproach consists of correlating the ratio of actual taxrevenue to GDP (T/Y) against per capita nonexpertincome (YP — XP), the share of mining in GDP (Ny), andan export ratio excluding mineral exports (Xy). Intheory, these variables are chosen because they capturethe relevant characteristics of the economies.2

The application of this method to the sub-SaharanAfrican countries yielded interesting results. The R2 was0.54, which is relatively high for this type of study, andthe coefficients of the independent variables were highlysignificant, except for per capita nonexpert income.The derived equation 3 is as follows:177=11. 1904-0.0024 (YP~XP)+0.2533 A^-f 0.4849 Xy

(8.2011) (1.5551) (4.2229) (5.8187)

The equation indicates that the share of mining in GDPand the export ratio, excluding mineral exports, are themost significant determinants of the tax ratio. Per capitaincome plays no role. The results in Table 4 have beencalculated by using this equation. The four columnsshow (1) the rate of actual tax revenue to GDP,(2) the ratio predicted from the equation, (3) the In-ternational Tax Comparison (ITC) index derived bydividing the actual tax ratio by the predicted tax ratio,and (4) the ranking. A country with an actual tax ratioequal to the one predicted by the equation has an ITCindex of 1 , whereas a country with an actual ratio abovethe predicted one has an index greater than 1. Accord-ing to these columns, the five countries that were exploit-ing their tax potential to a greater extent were Togo,Sorhalia, Zambia, Benin, and Seychelles, for all of whichthe ITC index exceeded 1.24. In a relative sense, thesecountries could be considered to be heavily taxed. On

*Alan A. Tait, Wilfrid L. M. Gratz, and Barry J. Eichen-green, "International Comparisons of Taxation for SelectedDeveloping Countries, 1972-76," International Monetary Fund,Staff Papers, Vol. 26 (March 1979), pp. 123-56.

2 Ibid.3 The figures in parentheses below the coefficients are /-ratios.

46


Level of Taxation

the other hand, Uganda, Ghana, Chad, Malawi, andSierra Leone could be considered to have a relativelylight tax burden because their ITC index was 0.80 orlower. The relative position of other countries can eas-ily be seen in the table.

Next, tax revenues can be compared with govern-ment expenditures. These results again must be usedwith caution since countries may have revenues otherthan those derived from taxes. For example, some of thesub-Saharan African countries receive substantial grantsfrom other countries, allowing them to maintain publicexpenditures greater than their tax revenue. And othersmay have access to profits from marketing boards, butthese could not be taken into account for lack of data.However, keeping in mind other sources of revenue,Table 5 is of interest. While in a few countries (Cam-eroon, Senegal, Swaziland, and Upper Volta) tax reve-nues were of the same order of magnitude as publicexpenditures, for other countries public expendituresfar exceeded tax revenues. In some of these countries(Benin, Botswana, Chad up to 1976, the Congo, Gabonup to 1977, The Gambia, Ghana, Malawi, Mauritania,Sudan, Tanzania, and Zaire up to 1977), public expen-ditures approached or were twofold the revenue fromtax receipts. This divergence has serious implications forthe balance of payments and for the behavior of prices,but these effects can only be mentioned here.

Table 5 indicates that in many sub-Saharan Africancountries the relationship between expenditure and taxrevenue has progressively worsened in recent years. Forexample, between 1973 and 1978, the ratio of expendi-ture to tax revenue, expressed as a percentage, increased

in The Gambia from 122 to 233, in Ghana it increasedfrom 157 to 253, and in Mauritania it increased from149 to 324. Significant rises are also shown in Benin,Botswana, the Congo, Ivory Coast, Liberia, Mauritius,Nigeria, Somalia, Sudan, Tanzania, and Zaire. Also,for some of the countries shown in Table 5, the ratioof expenditure to tax revenue fell over the period—forexample, Burundi, Cameroon, Gabon in 1978, Kenya,Senegal, Seychelles, Sierra Leone, and Swaziland.

This deterioration of the relationship between expen-diture and tax revenue occurred in spite of efforts by thecountries to increase their tax revenue. These efforts arebest illustrated in Table 6, which indicates the buoyancyof tax revenue with respect to GDP. The buoyancy con-cept incorporates both spontaneous changes in tax reve-nue and changes in the economy, as well as changesbrought about by discretionary measures taken by thegovernments. Table 6 shows that for the majority of thecountries the buoyancy of tax revenue exceeded 1 andin many it exceeded 1 by substantial amounts. Abuoyancy of 1 indicates an unchanged ratio of tax reve-nue to GDP, while a buoyancy greater than 1 indicatesthat the ratio has been increasing over the period. There-fore, the results in Table 6 are consistent with those inTable 3, which indicate that for the majority of thesecountries the ratios of tax revenue to GDP have risenin recent years.

In summary, the data in Tables 4, 5, and 6 suggestthat the worsening of the fiscal situation in many sub-Saharan African countries, by and large, was not theresult of inelastic tax structures but perhaps the resultof ambitious expenditure programs.

47


Ill Tax Structure

Apart from the level of taxation, it is important toconsider the structure of the tax system. As alreadyindicated, the structure of the tax system is the resultof many different forces: (1) the characteristics of theeconomy, which to a large extent determine the avail-ability of certain tax bases; (2) the expenditure pro-grams of the government, which determine the extentof use of those tax bases; and (3) the political inclina-tion of the government, which may prefer some typesof taxes over others for equity or other reasons.

In general, developing countries have relied mainlyon foreign trade taxes because they are easier to collectand often can be more easily justified in terms of somenational objective, such as maintaining domesticemployment or stimulating domestic industry. Develop-ing countries have often relied on indirect domestictaxation, and particularly on excises, as the structure ofthe economy often prevented the administration of afull-fledged general sales tax. Income taxes have oftenbeen less important than either taxes on internationaltrade or taxes on goods and services, and income taxeshave often meant taxes on only a few large corporationsand their employees and on government employees.

Table 7 analyzes the tax revenues of the countries ofthe sub-Saharan region expressed as ratios to GDP inorder to permit an easier intercountry comparison.Data are given for a beginning year and for an endingyear. Usually, the beginning year is in the early 1970swhile the ending year is 1977 or 1978. The table indi-cates that import duties account for the largest part ofrevenues. For five of the countries listed (Botswana,The Gambia, Lesotho, Somalia, and Swaziland),import duties accounted for more than 10 per cent ofGDP, which is a very high ratio; for several others, theyaccounted for more than 8 per cent of GDP. In fact,there were relatively few countries where these taxesaccounted for less than 3 per cent of GDP—includingEthiopia, Ghana, Kenya, Tanzania, Uganda, andZambia.

Table 7 also indicates that there is no clear-cut evi-dence that these ratios were lower in the ending year

than in the beginning year.4 Therefore, unlike the con-clusions reached by the literature on the change in taxstructure that accompanies economic development, noindication of a movement away from import duties isevident, at least as long as the share of such duties inGDP is emphasized.5 Table 7 also shows that exportduties were quite significant, at least in a few countries.For example, export duties accounted for over 7.00 percent of GDP in Uganda in 1978, 4.41 per cent of GDPin Rwanda in 1977, 3.27 per cent in Zaire in 1977,3.14 per cent in Sierra Leone in 1978, and 3.03 percent in Swaziland in 1977. In many countries this per-centage was at least 2. The high share of export dutiesin GDP may be considered particularly disturbing inview of the negative effects that these taxes often haveon production, allocation of resources, and exports. Onthe other hand, it can be argued that export duties, per-haps to a large extent, were considered substitutes forincome taxes and, in some cases, were levied for shortperiods to prevent exporters from obtaining unusuallyhigh profits.

Although far more evidence is needed before anydefinite conclusion can be reached, questions can beasked (1) whether taxes on international trade have notbeen fully exploited by these countries, and (2) whetherit would be wise to expect (or to recommend) substan-tial additional revenues from this source.

Taxes on goods and services range from relativelylow amounts in countries such as Botswana, The Gam-bia, Nigeria, and Swaziland, where they account for less

4 Many countries of sub-Saharan Africa have increased theircustoms duty revenue by gradually raising the rates of customsduties, especially on items of conspicuous consumption andindustrial imports in particular (on equity and effective protec-tion grounds). In addition, the Lome Convention, signed onFebruary 28, 1975, also had a favorable impact on customsduty revenues. Under this Convention, the European Communityoffered complete tax exemption for imports from 46 developingcountries of Africa, the Caribbean, and the Pacific withoutrequiring reciprocity from them. This encouraged the sub-Saharan African countries, which were signatories to the Con-vention, to remove customs duty preferences they had grantedto the imports from some or all Community member countriesin the past and, as a result, these countries earned larger cus-toms duty revenues.

5 However, the period covered is perhaps too short to test theconclusions of what is essentially a long-run proposition.

48


Tax Structure

than 1 per cent of GDP, to very high ratios in countriessuch as Zambia, Somalia, Tanzania, the Congo, andKenya, where they account for over 6 per cent of GDP.As expected, excises were generally more importantthan turnover or general sales taxes, although the latterwere significant in a few countries such as the Congo,Kenya, and Tanzania.

With respect to taxes on income and profits, a verysubstantial spread is seen in total revenues from thesesources. In comparison with taxes on international tradeand even with domestic indirect taxes, taxes on incomeand profits are relatively unimportant, except wherethey include royalties from mineral exports. However,in a few countries, including Botswana, Liberia, Nigeria,Sudan, Togo, Swaziland, and Zambia, income taxesaccounted for a sizable share of GDP (8 per cent orhigher). From the statistical information available, itwas not possible to separate clearly the relative impor-tance of income taxes paid by individuals and thosepaid by enterprises. However, it seems safe to concludethat, in general, the share of income taxes in GDP washigh only in those countries where the taxation of profitswas substantial. From the limited evidence available,it seems that a large share of the income taxes on indi-viduals was paid by government employees.

Table 8 provides the same breakdown of taxes, butthe denominator is total tax revenue rather than GDP.Therefore, this table deals exclusively with the tax struc-ture. The predominance of foreign trade taxes is evenmore pronounced than in Table 7. In eight countries—Benin, Botswana, Chad, the Comoros, The Gambia,Lesotho, Somalia, and Swaziland—import dutiesaccounted for more than 50 per cent of total tax reve-nue. In 15 countries this proportion exceeded 40 percent, and in 24 countries it exceeded 30 per cent. In afew countries (Benin, The Gambia, and Lesotho), theshare of import duties in total tax revenues exceeded60 per cent. These proportions are exceedingly high,even in the context of developing countries, where for-eign trade taxes account, on average, for less than40 per cent of total tax revenue. Such high proportionsmust inevitably raise the question whether the countrieshave given sufficient attention to developing domesticsources of revenue.

It is often found that unusually high proportions oftotal tax revenue are also derived from export duties. Ina few countries (Burundi, Ethiopia, Ghana, Rwanda,Sao Tome and Principe, and Uganda), export dutiesaccounted for at least 20 per cent of total tax revenue.Therefore, if revenues derived from import duties areadded to those from export duties, it is found that arather surprisingly large share of total taxes derive fromforeign trade. There is no doubt that the African coun-tries of the sub-Saharan region have vigorously exploitedthe "tax handle" provided by the openness of their

economies. The reliance on this tax base has made itpossible for them to raise the total level of taxationsubstantially, but they may have paid a significant pricein terms of resource allocation and efficiency.

Taxes on goods and services, although less significantthan foreign trade taxes, were still relatively important6

and, in general, more important than taxes on income.For the majority of countries, taxes on goods and ser-vices generated revenue ranging between 10 and 30 percent of the total. A few countries (Ghana, Kenya,Malawi, Niger, Sudan, Tanzania, and Zambia) hadshares exceeding 30 per cent, while a few others (Bo-tswana, The Gambia, Guinea, Nigeria, and Swaziland)had shares lower than 10 per cent. These proportionsmust be compared with those derived from incometaxes, which generally accounted for less than, and inmany cases substantially less than, 30 per cent of taxrevenue. In a few countries (Botswana, Kenya, Malawi,Nigeria, Togo, and Zambia), however, income taxesprovided more than 40 per cent of total tax revenue.

Tables 9 and 10 relate import duties to import valuesand export duties to export values, respectively, for the1972-78 period. In other words, the foreign trade taxesare related more directly to their own tax bases. Table 9shows that the average effective import duty for theperiod ranged from a low of 6.21 per cent for Zambiato a high of 35.92 per cent for the Central AfricanRepublic. For several countries (the Central AfricanRepublic, Ethiopia, Gabon, Ivory Coast, Somalia, andSudan), this percentage exceeded 25 per cent; for sev-eral others (Benin, Burundi, Cameroon, Chad, theCongo, Madagascar, Upper Volta, and Zaire), it wasbetween 20 and 25 per cent. For a few countries(Malawi, Tanzania, Togo, and Zambia), this per-centage was lower than 10 per cent. The data in Table 9indicate that the ratios of import duties to imports fluc-tuated considerably over the period, but no generaltrend is clearly evident. These ratios were relativelyhigh and were the result of high tariffs, combined withexemptions that were very significant in some countries(Sudan and Somalia). Table 9 should be studiedtogether with Table 11, which gives information aboutthe level of statutory duties in these countries.7

Table 10 shows the share of export duties to exportvalues, ranging from very low values for some countries(Nigeria, Botswana, Seychelles, and Senegal) to values

6 The distinction between "taxes on goods and services" and"foreign trade taxes" is somewhat blurred in sub-Saharan Africa,as many countries tax luxury consumption but categorize thereceipts as import duty receipts, and many others levy salestaxes but collect these taxes primarily on imports.

7 It should be realized that the ratios in Table 9 are not neces-sarily directly related to the level of nominal import duties, asvery high duties on some products, combined with exemptionson others, could distort the structure of imports to such anextent as to theoretically reduce to zero the ratio of importduties to imports.

49


Ill • TAX STRUCTURE

exceeding 20 per cent in other countries (Burundi,Ghana, Rwanda, Uganda, and Zaire). Different viewsexist about the appropriateness of using export taxes;however, taxes of this magnitude are likely to have dis-incentive effects on production and exports, especiallyif they are not temporary. What is more disturbing isthe apparent upward trend in the ratios in several coun-tries, shown in Table 10. However, to the extent thathigh export taxes are levied for limited periods, eitherto reduce the profits of exporters during devaluationsor to reduce their gains during export booms asso-ciated with sharply higher export prices (for example,the coffee boom), their disincentive effects are likely tobe limited while their stabilization effects may besubstantial.

Table 15, which gives further details on export duties,shows the tax base, the main items that are exported,whether the rates are specific or ad valorem ones, andthe rate of the export duty. For this table, too, a wordof caution is necessary. As it has been assembled fromseveral sources, the information for some countries ismore recent than for others.

An attempt to collect comparative data on the legalstructure of income taxes levied on individuals wasunsuccessful because of the complexity and the diver-sity of systems of personal income taxation. It was diffi-cult to take into account in tabular form the treatmentof the family, the schedular nature of many taxes, andthe different methods for granting personal exemptions.In general, it could be concluded that the tax rates wererelatively low on incomes of, say, up to 6 to 8 times theper capita income of the countries, and these ratesbecame very high on incomes of only a few taxpayers(incomes over 20 times the per capita income of thecountry). Table 12, on the other hand, yields somecomparative information on the legal treatment of com-pany income. The standard rate on company income isgenerally between 35 per cent and 50 per cent, which

is normal by international standards. In a few countries(Ghana, Mauritius, Sudan, and Zaire), however, thestandard rate may go up to 60 per cent, which seemshigh by international standards.

Tables 13 and 14 add information on domestic indi-rect taxes. Table 13 relates to general sales taxes, show-ing that a large number of the countries of the regionhave some kind of general sales tax, while Table 14relates to excises. In reality, these taxes are likely to befar less general than is assumed and are likely to collectmuch of the revenue at the point of entry of imports.Nevertheless, it is surprising that so many countrieshave moved beyond excises in order to extend theirindirect taxes. In most of the countries, the basic rateof these sales taxes ranged between 5 per cent and15 per cent. In several countries the sales tax was leviedat a single rate on products and a different rate onsome services. In other countries the sales tax itselfdifferentiated among products by taxing them at variousrates. In specific countries (for example, Lesotho andSenegal), the spread in the rates was substantial.

Table 14 attempts to give an idea of the fiscal impor-tance of products (petroleum, beer, and tobacco) thatcontribute mainly to revenue from excises. It showsthat, for the countries for which this information couldbe gathered, the contribution of petroleum products,expressed as a percentage of GDP, exceeded 1 in twocountries (Senegal and Zambia) and exceeded 0.50 percent in several others. Beer, on the other hand, generated1.62 per cent of GDP in Rwanda and 3.60 per cent inZambia. Cigarettes contributed more than 1 per cent inSierra Leone. Table 14 also shows that in the majorityof the countries for which data are presented the con-tribution of excises has been declining over recent years.This drop was undoubtedly due to the specific natureof these taxes, combined with inflationary situations.Table 16 shows the extent to which excises were, in fact,specific.

50


IV Highlights

In concluding this statistical description of the taxsystems of sub-Saharan Africa, it may be useful to high-light some of the major findings and present the basicquestions raised by these findings—questions that canbe answered only by a major research effort.

1. The spread in the ratio of tax revenue to GDP isconsiderable, raising the question of how some coun-tries managed to meet their needs for revenue with taxratios below 10 per cent while others had ratios of asmuch as 25 per cent. Interesting questions are: Whatkind of services are being provided by the countrieswith high tax ratios that are not being provided by thecountries with low tax ratios? Can differences be foundin public sector outputs (as measured by indices suchas life expectancy, literacy, and rates of growth) be-tween these groups?

2. Five countries (Togo, Somalia, Zambia, Benin,and Seychelles) had the highest ranking in the index ofinternational tax comparison; Uganda, Ghana, Chad,Malawi, and Sierra Leone had the lowest ranking. Itwould be interesting to compare in detail (1) the tax

structure of these two groups, (2) the public expendi-ture of the two groups, and (3) their fiscal situation.

3. In many sub-Saharan African countries, taxes havebeen offsetting a progressively smaller share of publicexpenditure in spite of the fact that, for the majority ofthese countries, the buoyancy of the tax systems hasbeen well over 1. Therefore, fiscal crisis has been causedmore by the expenditure side of the budget than by therevenue side. The question to be asked is: Why was thebuoyancy of public expenditure so much higher thanthat of taxation?

4. Import duties account for the largest share of rev-enue in these countries. Is this inevitable? And what arethe implications of this result for resource allocation,growth, income distribution, international competitive-ness?

5. Export duties have also been significant sources ofrevenue. To the extent that these duties were not tempo-rary but permanent, what was their effect on exportsand production of the products subject to these taxes?

6. Income taxes are still relatively unimportant. Whatis the scope for these taxes in the future?

51


^ M° Table 1. Selected Countries of Sub-Saharan Africa: Surface Area, Population, Per Capita Income, and Openness (Imports-Gross Domestic Product) Ratiol £, ,_j

Openness of the Economy |/>

Per Capita Beginning year Ending year n„ , Population Income Imports GDP Ratio Imports GDP Ratio ^

Area (km2) (In mllllons) SDR (In millions of (In per (In millions of (In per HCountry 1977 1972 1979 Year amount Year national currency) cent) Year national currency) cent) ^

Benin 112,622 2.87 3.47 1979 219 1970 17,600 68,700 25.71 1977 60,354 148,500 40.64 mBotswana 600,372 0.63 0.79 1980 846 1971 59 78 75.31 1978 293 341 86.06 w

Burundi 27,834 3.74 4.38 1977 115 1973 2,495 24,100 10.35 1975 4,855 32,400 14.99Cameroon 475,442 7.06 8.25 1979/80 505 1974 104,830 492,600 21.28 1977 192,400 790,900 24.33

Central AfricanRepublic 622,984 1.68 1.872 1978 177 1969 9,766 55,900 17.47 1975 14,614 102,700 14.23

Chad 1,284,000 3.79 4.42 1978 172 1972 15,675 93,600 16.75 1976 28,111 155,500 18.08Congo 342,000 1.26 1.50 1978 498 1970 16,636 71,600 23.23 1975 36,378 165,000 22.05Ethiopia 1,221,900 25.89 30.42 1980 105 1972 435 4,744 9.18 1976 729 6,004 12.15

Gambia, The 11,295 0.49 0.58 1978/79 206 1972 49 108 45.52 1978 209 216 96.85Ghana 238,537 9.09 11.32 1976 372 1972 393 2,815 13.97 1976 969 6,526 14.85Ivory Coast 322,462 5.86 7.92 1979 900 1973 157,520 566,200 27.28 1978 522,500 1,740,600 30.02Kenya 582,646 12.07 15.32 1979 267 1972 3,957 14,447 27.39 1978 13,225 41,163 32.12

Lesotho 30,355 1.11 1.31 1979 309 1970 23 49 46.64 1975 117 90 129.34Liberia 111,369 1.42 1.80 1980 585 1974 288 507 56.87 1978 480 743 64.66Malawi 118,484 4.67 5.82 1979 130 1972 102 359 28.66 1978 284 887 32.07Mali 1,240,000 5.26 6.47 1978 105 1973 47,020 184,100 25.54 1975 75,410 259,000 29.12

Mauritius 4,090 0.83 0.91 1978 750 1973 915 1,852 49.45 1978 3,076 5,522 55.71Nigeria 923,768 59.85 74.60 1980/81 782 1972 990 7,703 12.85 1977 7,159 27,924 25.64Rwanda 26,338 3.90 4.65 1979 150 1973 2,819 24,400 11.55 1977 11,405 71,600 15.93Senegal 196,722 4.55 5.52 1978/79 300 1975 124,620 406,400 30.66 1977 187,550 487,500 38.47

Seychelles 278 0.06 0.06 1977 882 1972 111 138 80.92 1977 349 460 75.98Sierra Leone 71,740 2.83 3.38 1978/79 218 1974 188 477 39.43 1978 290 814 35.70Somalia 637,657 2.94 3.54 1979 145 1972 524 1,500 34.94 1975 973 2,000 48.69Sudan 2,505,813 14.81 17.89 1979 400 1972 123 832 14.79 1976 341 1,776 19.21

Swaziland 17,363 0.45 0.54 1976/77 540 1971 47 81 59.04 1977 194 272 71.49Tanzania 945,087 14.00 17.05 1978 159 1972 2,882 11,172 25.80 1979 9,073 37,656 24.09Togo 56,785 2.07 2.47 1978 236 1972 21,381 86,720 24.66 1976 44,420 133,830 33.19Uganda 236,036 10.46 13.22 1978 280 1972 1,156 11,287 10.25 1977 1,992 48,574 3.10

Upper Volta 274,200 5.61 6.73 1978 103 1973 21,896 97,500 22.46 1977 51,357 168,100 30.55Zaire 2,345,409 22.91 27.94 1978 168 1972 312 1,157 27.02 1977 522 4,051 12.88Zambia 752,614 4.53 5.65 1978 406 1972 483 1,337 36.13 1978 584 2,250 25.86

Sources: United Nations, Statistical Yearbook, 1978; World Bank Atlas, 1979; International Monetary Fund, International Financial Statistics Yearbook, 1980; and Fundstaff estimates.

1 Imports at c.i.f. values and gross domestic product (GDP) at current market prices.2 Data relate to 1977.


Statistical Tables

Table 2. Selected Countries of Sub-Saharan Africa: Gross Domestic Product by Type of Economic Activity(In percentages)

Sectoral Distribution of GDP (Percentage of Total)

Agriculture

Country

BeninBotswanaCameroonCentral African

Republic

ChadEthiopiaGhanaIvory Coast

KenyaLesothoLiberiaMalawi

MauritiusNigeriaRwandaSenegal

SeychellesSierra LeoneSudanSwaziland

TanzaniaTogoUpper VoltaZaireZambia.

Beginning andEnding Years

1970,1971,1974,

1967,

1968,1970,1972,1973,

1972,1970,1974,1972,

1973,1970,1973,1975,

1976,1974,1972,1971,

1972,1972,1972,1972,1972,

197719761976

1970

1975197619741977

1977197419771973

1976197519761975

1977197619741973

19771976197419751977

Beginningyear

423233

32

51524728

31351452

27446130

14333834

3634441813

Endingyear

382431

31

41465123

34381449

20264930

14383932

4428421916

Manufacturingindustries

Beginningyear

510

8

78

1114

11279

1574

589

14

109

109

14

Endingyear

' '?'

11

13

11101112

11389

218

12

579

26

9

'lO1116

ConstructionBeginning

year

3104

5

1446

6244

6534

9333

45447

Endingyear

366

4

3457

4164

7644

9343

35569

Wholesale andretail trade

Beginningyear

161716

26

168

1217

9129

11

9129

20

2013167

1122151311

Endingyear

231915

20

289

13

10141012

12111520

19121611

1031151611

Sources: United Nations, Statistical Yearbook, 1978, pp. 68-69, and Yearbook of National Accounts Statistics, 1978, pp. 53-59.

53


STATISTICAL TABLES

Table 3. Selected Countries of Sub-Saharan Africa: Tax Revenue as Percentage of Gross Domestic Product, 1973—78 1

Country

BeninBotswanaBurundiCameroon

Central AfricanRepublic

ChadCongoEthiopia

GabonGambia, TheGhanaIvory Coast


MaliMauritaniaMauritiusNiger

NigeriaRwandaSenegalSeychelles

Sierra LeoneSomaliaSudanSwaziland

TanzaniaTogoUgandaUpper Volta

ZaireZambia

1973

13.3322.6510.62

12.9411.4520.64

9.88

16/739.97

22.03

13.8322.14

KX84

11.5215.1516.90

18.009.09

2l!6l

23.8*814.5723.49

14.7111.989.21

11.14

25.7021.26

1974

12.0326.2110.7612.55

12.7710.7632.94

9.86

13.'0610.2420.22

15.6724.1319.6411.04

11.7518.8213.688.95

20.8210.80

20 Al

17.2927.3312.6126.33

16.2611.937.56

12.19

28.2229.09

1975

13.0623.999.24

12.56

11.948.97

20.3210.85

24.4414.5513.7721.16

16.5423.4818.7511.66

10.7115.3117.4711.20

20.608.00

16.2120.85

14.6124.6614.3635.15

17.2025.43

8.8412.58

21.2224.63

1976

15.8115.1011.2013.78

13.808.25

22.3810.37

19.6717.6011.7321.16

15.7317.0022.5511.10

11.5915.9723.09

19.8810.3117.6418.93

13.4520.9115.1819.12

14.5926.028.35

13.84

16.5820.02

1977

15.5822.6113.7413.17

14.928.14

20.8712.78

24.7920.746.38

18.33

14.86

253412.05

13.3717.4621.93

22.1611.4217.1320.66

14.7123.8614.0427.31

15.2625.04

6.5914.55

22.3522.13

1978

14.5525.89

14!95

25'.87

18/72

19.36

223514.29

20.09

2o!66

18.10

16.38

io!o'8

21 '.67

DifferenceOver Period

+ 1.22+3.24+3.12+0.62

+ 1.98-3.31-5.69+2.90

-0.35+9.14-3.59-3.31

+5.53-5.14+2.71+3.45

+ 1.85+2.31+3.19+2.25

+4.16+2.33+3.79-0.35

+0.81-0.02-0.53+3.82

+ 1.67+ 13.06+0.87+3.41

-3.35+0.41

Sources: International Monetary Fund, Government Finance Statistics Yearbook, 1980, and Fund staff estimates.1 GDP data at current market prices.

54


Statistical Tables

Table 4. Selected Countries of Sub-Saharan Africa: International Tax Comparison Indices, Fiscal Year 1977

Country


Central African RepublicChadCongoEthiopia


KenyaLesothoLiberiaMadagascar

MalawiMaliMauritaniaMauritius

NigeriaRwandaSenegalSeychelles

Sierra LeoneSomaliaSudanSwaziland

TanzaniaTogoUgandaUpper Volta

ZaireZambia

ActualTax/ GDP Ratio1

15.5822.6113.7413.19

14.928.254

22.38 4

12.78

24.7620.74

6.3218.33

14.8617.00 4

25.3413.74

12.0513.3717.4621.93

22.1611.4217.1320.66

14.7123.8614.0427.31

15.2625.04

6.5914.55

22.3522.13

PredictedTax/GDP Ratio 2

12.0723.1215.0715.72

15.3613.5419.6213.49

24.2223.4310.6618.26

16.7214.4329.7615.45

17.0715.5017.4520.64

22.5214.1215.6216.72

18.3017.6613.4922.76

14.8014.7912.7113.06

21.7616.66

InternationalTax Comparison

Index 1

1.290.980.910.84

0.970.611.140.95

1.020.890.591.00

0.891.180.850.89

0.710.861.001.06

0.980.811.101.24

0.801.351.041.20

1.031.690.521.11

1.031.33

Ranking 3

4192228

2032

821

15253316

247

2723

31261711

1829105

302

126

131

349

143

Sources: International Monetary Fund, Government Finance Statistics Yearbook, 1980, and Fund staff estimates.1 The international tax comparison index is estimated by dividing the actual tax ratio by the predicted tax ratio. Countries with

actual tax ratios that are above average tend to have tax indices above unity, and countries with below-average tax ratios tend to havelower than average indices.

2 Following the methodology of estimating international tax comparison indices in Alan A. Tait, Wilfrid L.M. Griitz, and Barry J.Eichengreen, "International Comparisons ot Taxation for Selected Developing Countries, 1972-76," International Monetary Fund,Staff Papers, Vol. 26 (March 1979), pp. 123-56, especially equation 12, p. 128.

3 Ranking of international tax comparison indices.4 Data relate to fiscal year 1976.

55


STATISTICAL TABLES

Table 5. Selected

Country



ChadCongoEthiopia



MaliMauritaniaMauritiusNigeria

RwandaSenegalSeychellesSierra Leone

SomaliaSudanSwazilandTanzania

TogoUpper VoltaZaireZambia

Countries of Sub-Saharan Africa: Ratio of Expenditure to Tax Revenue, 1973-78

1973

101.96138.59184.34

149.18165.32149.34137.29

184.70122.17157.16100.49

147.89101.98

183/76

128.24148.89113.6771.81

138.81114.89215.30130.46

123.37147.28144.46151.84

125.50108.66152.52138.95

1974

94.42129.69194.51

142.46154.79151.39133.93

178.19139.60157.96104.96

125.53101.83102.71193.23

131.89145.00133.9066.16

131.39143.99206.06136.32

138.76131.0698.43

153.46

131.5898.62

166.0696.49

1975

176.31156.69226.63130.76

148.58152.65187.30164.45

179.47161.75157.55117.91

131.31

104!90210.99

140.52156.64127.29135.02

134.03114.83192.24187.57

141.96160.2671.51

185.81

111.20109.95167.65173.90

1976

147.09245.66193.66125.81

144.65180.68146.20183.88

239.68138.07193.70129.57

134.82

125.H176.49

133.90227.47124.78163.59

124.05112.69193.27181.09

155.76140.70118.81174.99

139.35109.61206.40176.42

1977

181.59165.95158.21110.24

142.77

158.'30151.27

222.94160.64205.30130.23

136.73

115'.06177.66

119.40238.55142.18140.94

117.73116.12164.04156.62

153.76183.48101.03165.64

138.01105.74187.87157.67

1978

180.51177.00

104.'l'd

248JO

109.17233.19252.98150.93

124.33

14o!6l176.24

123.76323.73160.85

124.9597.93

120! 8 8

168'.53

167^67

122.14

136^63

DifferenceOver Period

78.5538.41

-26.13-26.66

-6.4115.3699.3613.98

-75.53111.0295.8250.44

-23.56-0.1537.30

-7.52

-4.48174.8447.1869.13

-13.86-16.96-51.26-9.58

30.3921.25

-43.4316.13

-3.36-2.9235.35

-2.32

Sources: International Monetary Fund, Government Finance Statistics Yearbook, 1980, and Fund staff estimates.

56


Statistical Tables

Table 6. Selected Countries of Sub-Saharan Africa: Buoyancy of Tax Revenue with Respect toGross Domestic Product, 1972/73-1978/79l

Country



ChadCongoEthiopia

Gambia, TheGhanaIvory CoastKenya

LesothoLiberiaMalawiMali

MauritiusNigerNigeriaRwanda

SenegalSeychellesSierra LeoneSomalia

SudanSwazilandTanzaniaTogo

UgandaUpper VoltaZaireZambia

1972/73

0.861.72

-0.060.930.772.23

18.91-0.28

. . .0.55

2.06

0'.93

3.57

LOO

L67

0.502.141.86

-0.86

-1.21

LOO1.75

1973/74

0.461.471.10

0.920.733.710.98

0.331.090.681.64

1.70

L091.33

0.63

L212.05

o!so3.22

0.561.371.500.99

0.071.771.432.74

1974/75

2.730.280.091.01

0.010.28

-0.12-19.28

2.183.311.371.34

1.580.751.340.67

2.494.030.940.52

Lll0.070.37

1.672.401.32

-20.27

1.451.44

-2.351.92

1975/76

2.12-0.86

L7*6

. 9

-0.85, >

0.46

1.960.24LOO0.75

6'.660.66

4.38

0*.822.58

1.720.75

-0.21

1.34-0.97

0.211.29

0.651.580.36

-0.02

1976/77

0.864.12

OJ5

...

...

1.80

Q.550.60

1.061.34

0.71

L881.68

0.551.301.46

5.*871.20

0.621.261.043.39

1977/78 1978/79 Entire Period 2

2.05 ." '. '.

...

... . . .

... ...

...

-0.27

L17 '. '. '.3.98

0'.76 '. ! ".2.91...

0.28...... ......

12.52

3. H '. '. !... . . .

L54 0*.53

2.43. . .. .

0.81

1.021.371.721.39

0.960.340.962.45

1.970.960.871.26

1.421.421.330.87

1.18

L570.98

2.000.961.091.34

0.851.311.172.02

0.861.550.641.31

Sources: International Monetary Fund, Government Finance Statistics Yearbook, 1980.1 The year-to-year buoyancy has been estimated by the following formula:

_ Tt-Tt-i I (Tt+ T t - i ) / 2*>- Yt-Yt-il (Yt+Yt-i) /2where b — year-to-year buoyancy

T = tax revenueY — GDP at current market pricest =: current year

t - i — preceding year.2 The buoyancy for the entire period has been estimated by the following formula:

* = £Cry

where B = buoyancy for the entire periodGt — compound growth rate of tax revenue over the entire periodGy — compound growth rate of GDP at current market prices over the entire period.

57


Lft CO00 Table 7. Selected Countries of Sub-Saharan Africa: Ratio of Main Taxes to Gross Domestic Product •>

• ———: *"iTaxes on Income and Profits Taxes on Goods and- Services Taxes on International Trade (/)Total Corporate Total Turnover Excises Import duties Export duties 2

Beginning and Beginning Ending Beginning Ending Beginning Ending Beginning Ending Beginning Ending Beginning Ending Beginning Ending ^Country Ending Years year year year year year year year year year year year year year year ^—i

Benin 1970, 1977 2.07 2.46 0.73 1.37 1.83 2.81 0.49 1.17 1.02 1.19 7.97 8.85 0.73 0.35 ;>Botswana 1971,1978 3.96 10.54 0.76 0.51 ... ' . . . * . . - 1 . . - 1 10.56' 14.601 0.55 0.13 WBurundi 1973,1977 2.05 ... 1.02 ... 2.24 2.16 ... 2.49 ... 1.90 ... CCameroon 1974,1977 1.90 2.08 0.58 0.63 3.22 3.30 0.77 1.08 ... ... 4.76 5.45 2.08 1.57 t»

Central AfricanRepublic 1969,1975 4.21 2.87 1.05 0.83 3.89 3.26 1.34 0.96 1.77 1.47 6.22 3.57 0.60 0.67

Chad 1972, 1976 2.02 1.80 0.70 0.72 1.48 1.28 0.85 0.73 0.41 0.32 4.54 4.28 1.79 1.60Congo 1970, 1975 4.96 7.71 2.87 5.49 7.44 6.06 6.42 5.55 0.87 0.44 6.17 5.25 1.17 0.14Ethiopia 1972,1976 2.39 2.67 0.92 1.27 2.89 2.87 0.66 0.93 2.11 1.85 2.63 2.98 1.31 2.77

Gambia, The 1972,1978 1,33 4.64 0.74 2.54 0.34 0.98 — — 0.01 0.41 10.08 17.25 2.42 2.65Ghana 1972, 1976 2.71 3.04 1.44 1.75 4.33 3.70 1.45 0.81 2.64 2.80 2.12 2.02 3.92 2.87Ivory Coast 1973,1978 2.75 2.33 1.33 1.12 4.40 4.30 1.71 1.62 1.44 1.66 8.12 7.07 4.27 2.31Kenya 1972,1977 6.49 5.78 ... 4.16 3.62 5.45 — 3.52 3.01 1.54 4.36 2.84 0.06 —

Lesotho 1970,1975 1.79 3.82 0.45 1.39 0.53 ' . . - 1 . . - 1 . ..' 12.87 > 17.08' 0.61 0.67Liberia 1974,1978 8.32 7.95 5.40 4.36 4.18 4.64 0.39 0.56 1.46 1.87 6.31 8.86 0.18 0.09Malawi 1972, 1978 4.51 6.71 2.53 4.56 3.48 4.49 2.25 3.58 0.79 0.67 2.88 3.03 — —Mali 1973, 1975 1.30 1.52 0.73 0.85 1.52 1.40 0.98 0.82 0.30 0.45 4.42 4.32 0.82 0.33

Mauritius 1973, 1978 4.19 5.13 1.95 2.39 4.29 3.91 — — 3.21 2.68 5.78 7.47 1.61 2.53Niger 1974 2.63 4.35 ... 3.13 ... 0.86 ... 1.39 ... 0.43Nigeria 1972,1977 5.88 17.69 5.872 17.682 3.59 0.63 — — 1.29 0.63 2.37 3.79 0.03 0.02Rwanda 1973,1977 1.77 1.71 0.89 1.14 1.39 1.64 — — 1.39 1.62 2.11 2.99 2.00 4.41

Senegal 1975, 1978 4.41 3.83 1.78 1.83 3.84 5.67 1.45 2.65 2.02 2.64 6.34 8.35 0.45 1.24Seychelles 1972, 1977 3.55 7.10 1.52 2.41 1.16 2.04 — — 0.22 1.22 13.33 9.86 0.43 0.09Sierra Leone 1974,1978 6.28 4.38 5.42 3.27 2.80 3.20 — — 2.39 2.82 6.32 6.86 1.82 3.14Somalia 1972,1975 2.85 2.26 0.01 0.22 6.57 7.50 — — 2.82 4.66 11.09 11.54 0.96 0.80

Sudan 1972, 1976 2.13 1.82 1.27 1.37 5.45 4.78 — — 3.41 3.42 6.33 6.23 0.94 0.68Swaziland 1971,1977 7.49 8.93 3.70 5.49 6.59 0.91 1.57 ...1 4.04 . . . * 4.91 14.291 0.02 3.03Tanzania 1972,1979 4.72 4.13 4.59 7.36 1.96 6.67 2.18 0.57 3.02 2.52 0.40 1.20Togo 1972,1976 2.37 11.23 0.99 1.13 0.83 0.99 7.63 8.51 1.71 2.45

Uganda 1972,1978 2.93 0.44 4.33 2.11 2.29 1.86 1.97 0.21 2.45 0.36 2.41 7.09Upper Volta 1973,1978 2.08 2.32 0.38 0.59 2.39 3.46 0.78 1.26 0.73 1.19 5.91 7.16 0.32 0.53Zaire 1972, 1977 5.87 6.36 2.26 2.87 3.35 2.49 0.98 1.50 2.28 0.96 7.57 2.99 7.70 3.27Zambia 1972,1978 10.98 8.88 4.47 10.50 — 2.44 4.20 7.84 3.17 1.46 — —

Sources: International Monetary Fund, Government Finance Statistics Yearbook, 1980, and Fund staff estimates.1 Included in import duties (Customs Union receipts).2 Petroleum profits tax constituted 4.96 per cent in 1972 and 15.77 per cent in 1977.


Table 8. Selected Countries of Sub-Saharan(As percentage of total tax revenue)

Africa: Composition of

Taxes on Profits and Income

Total

Country


Cape VerdeCentral African

RepublicChadComoros

CongoEthiopiaGambia, TheGhana

GuineaGuinea-BissauIvory CoastKenya

LesothoLiberiaMadagascarMalawi

MaliMauritaniaMauritiusNiger

NigeriaRwandaSao Tome and

PrincipeSenegal

SeychellesSierra LeoneSomaliaSudan

SwazilandTanzaniaTogoUganda

Upper VoltaZai'reZambia

Beginning andEnding Years

1970, 19791971, 19781973, 19771974, 1978

1975, 1980

1969, 19781972, 19761976, 1979

1970, 19761972, 19771972, 19781972, 1978

1969, 19791975, 19781973, 19781972, 1977

1970, 19761974, 19791974, 19811972, 1978

1973, 19791973, 19801973, 19781974, 1980

1972, 19771973, 1978

1975, 19801975, 1979

1972, 19771974, 19781972, 19771972, 1978

1971, 19771972, 19791972, 19801972, 1978

1973, 19791972, 19771972, 1978

Beginningyear

14.6224.4119.3015.14

25.29

25.8217.6517.25

24.0925.919.36

20.60

26.6633.5812.4943.85

10.3242.37

41.26

11.2822.4224.7929.43

49.4219.49

15.8327.24

16.9036.3212.4714.06

38.9636.8317.8123.48

18.6722.8558.88

Endingyear

13.1040.7016.5118.76

30.84

23.4021.77

6.46

36.9121.7817.9323.82

27.7824.8812.4240.59

17.6733.76

46.94

23.2631.9025.5437.08

79.8119.44

15.5219.95

34.3824.20

9.1314.39

32.7026.6743.42

4.32

17.4737.8340.96

Corporate

Beginningyear

9*.654.59

6.466.09

13.949.945.23

10.95

16.51

6*.06

2.5827.51

23.15

6.343.44

11.57

49.39 3

9.74

11.4210.98

7.2431.360.068.42

19.26

.18.64

3.428.21

Endingyear

9.777.84

7.068.74

23.8811.239.83

10.13

24.51

5*9929.24

5.9216.62

31.91

14.715.88

11.92

79.77s

11.66

7.638.80

11.6718.030.51

10.75

20.11

2J8

4.2916.6516.96

Tax Revenue by Main Categories, 1969-80

Taxes on Goods and Services

Total

Beginningyear

12.954.71

21.1325.70

23.8112.98

—

36.1831.24

2.3932.89

11.474.63

19.9524.47

3.0521.2934.2931.82

13.1813.3625.4048.60

30.2015.29

32.2723.72

5.5216.2228.7436.06

34.2735.85

7.4634.65

21.4713.0623.97

Endingyear

16.421.96

23.4523.51

26.1115.53

—

21.1520.79

3.8032.68

9.0210.3822.9638.30

22.1830.2031.40

16.7710.9119.4839.13

2.8519.52

23.3229.35

9.8817.6927.7531.89

3.3247.5113.6020.97

22.5114.8448.44

Turnover

Beginningyear

3.482

6.11

8.2011.46

—

31.217.16

—11.03

3.47

7.78—

2

2.01

20.57

8.547.19

35.03

—

8.95

—

—

8.1515.306.24

18.34

7.033.80

—

Endingyear

4.042

5.957.46

8.8917.769.44

20.087.18

—5.76

2.63

8.6824.70

2

2.68

25.03

12.955.38

28.78

—

14.93

—

—2

43X)59.19

18.47

7.208.95

11.28

Excise duties

Beginningyear

7.202

20.35

10.833.60

—

4.2422.850.06

20.06

6.5320.36

2

7.43

7.27

2.611.82

19.019.57

10.8815.16

—12.46

1.0313.8012.3322.56

20.9916.98

—15.76

6.598.89

22.53

Endingyear

7.052

16.98

12.223.91

—

2.1612.82

1.5925.84

4.99

8.8710.84

2

9.21

4.72

2.411.74

13.323.24

2.8519.28

—12.19

5.8915.5412.0831.89

2

3 '.703.042.08

8.615.72

36.18

Taxes on Foreign Trade

Import duties

Beginningyear

56.2965.07 2

23.4837.98

23.96

38.1339.7356.53

30.0028.4670.8216.10

34.7525.6736.8829.48

74.09 2

32.1326.5926.31

38.3736.0834.2215.58

19.9423.23

10.7339.10

63.4536.5648.5041.86

25.5523.5557.3019.59

53.0829.4916.99

Endingyear

62.5856.38 2

21.3448.85

24.61

33.8951.8458.85

36.4128.2766.6819.25

20.1324.1337.7319.96

70.84 2

40.1434.0721.19

32.3045.4937.2015.61

17.1133.73

11.6143.59

47.7437.9050.8945.46

52.32 2

16.2830.63

3.56

48.5317.826.46

Export duties

Beginningyear

5.143.38

17.8516.61

0.14

3.677.95

20.17

5.688.10

16.9829.77

2.965.64

19.360.42

3.520.906.81

7.141.069.554.80

0.2422.06

17.992.77

2.0710.534.206.20

0.133.146.92

19.32

2.8521.81

—

Endingyear

1.860.51

31.513.79

0.22

9.449.98

13.99

0.3926.1310.2423.69

4.3312.32

—

0.730.579.01

4.100.74

12.604.82

0.0719.84

35.561.82

0.4217.36

1.874.03

11.117.759.83

70.38

3.7211.56

—

Other Taxes *(Residual)

Beginningyear

11.002.47

18.544.57

8.5721.69

6.05

4.056.290.450.64

24.1630.4811.321.78

9.023.31

0'.61

30.0327.086.041.59

0.2019.93

23.187.17

12.060.376.091.82

1.090.63

10.512.96

3.9313.360.16

Endingyear

6.040.457.165.09

7.160.88

20.70

5.143.031.350.56

43.0436.2814.571.15

10.762.35

o!47

19.4110.965.183.36

0.167.47

13.995.29

7.582.85

10.364.23

0.551.792.520.77

7.7717.954.14

Ul

Sources: International Monetary Fund, Government Finance Statistics Yearbook, 1980, and Fund staff estimates.1 Mainly property taxes, manpower taxes, and stamp taxes.2 Customs Union receipts include excises and sales tax as well as import duties.3 Includes petroleum profits tax of 41.66 per cent in 1972 and 71.17 per cent in 1977.

o


STATISTICAL TABLES

Table 9. Selected Countries of Sub-Saharan Africa: Ratio of Import Duties to Imports, 1972-78 l

Country



ChadCongoEthiopia


KenyaLiberiaMadagascarMalawi

MaliMauritaniaMauritiusNigeria

RwandaSenegalSeychellesSierra Leone

SomaliaSudanSwazilandTanzania

TogoUpper VoltaZaireZambia

1972

26,9414.81

42.9027.1319.7028.65

22.1515.18

15.92

26! 1210.04

18^45

2L3716.48

31.7542.8219.7311.69

12.40

28'.6f8.77

1973

25.8318.2124.09

32.6523.0317.6831.21

40.1625.3710.3629.20

11.81

23. '79'9.28

12J311.6924.39

18.2720.9214.80

30,2428.1919.9811.33

10.3426.3327.097.86

1974

18.9724.3024.4422.39

36.2329.5118.3228.19

26.4017.997.74

24.02

10.3511.09

8. '60

17^658.05

17.24

19.6815.0212.6516.03

30.6923.0319.9910.06

9.0220.3221.52

6.15

1975

19.6115.4518.8222.06

25.0820.4723.8227.21

34.9514.8615.3429.21

11.609.84

6.82

10.2320.94

9.4118.36

17.5620.6712.6517.91

23.6926.7013.728.79

8.5223.5324.805.03

1976

21.168.51

16.6122.51

31.3423.6535.1124.52

31.6516.4213.5932.18

12.0910.04

7!65

13.5517.8810.8214.60

19.1919.4110.6717.17

24.6032.43

7.558.43

10.0027.0221.02

5.13

1977

21.7716.2920.9922.38

35.52

33i88

2L5615.0825.16

9.9510.53

1.15

15.4517.2711.8314.79

18.7619.6212.9819.54

22.9929.7619.995.24

7.6624.6923.24

5.13

1978

23.3216.9621.5529.86

47.75

17*.81

23.54

15.7613.70

9!67

22.1513.42

16.99

19^22

33!46

10.' 14

5.4326.14

5. *41

Average forAvailable

Years

22.5117.3621.0823.84

35.9224.7522.9328.94

33.2919.4512.8827.22

12.4911.7624.95

8.37

13.0718.1710.8717.97

18.4119.5013.3717.97

27.3330.9016.839.52

9.0524.6724.28

6.21

Sources: International Monetary Fund, Government Finance Statistics Yearbook and International Financial Statistics Yearbook,1980.

1 Import values are on a c.i.f. basis.

60


Statistical Tables

Table 10. Selected

Country



ChadCongoEthiopia


LesothoLiberiaMadagascarMali

MauritaniaMauritiusNigeriaRwanda

SenegalSeychellesSierra LeoneSomalia

SudanSwazilandTanzaniaTogo

UgandaUpper VoltaZaire

Countries of Sub-Saharan

1972

3.800.75

2.089.433.579.24

7 '.0419.54

5.S4

0'.15

3.383.53

4.'80

6.220.031.956.31

13.49

24.' 16

1973

3.910.87

18.70

5.908.981.43

11.05

3.644.38

12.5312.65

2.39

6^43

0.314.000.03

17.55

3.723.63

3/73'

5.591.093.414.96

15.955.53

29.01

Africa: Ratio of Export Duties to Exports, 1972-78 1

1974

3.890.58

13.568.61

5.5310.13

0.649.80

3.553.20

17.589.13

2.650.22

0.312.700.10

16.99

1.961.517.082.87

7.957.427.504.48

13,783.22

30.88

1975

11.090.457.08

10.11

6.7910.210.609.04

1.485.36

30.838.85

6.630.15

s!47

0.477.060.01

18.80

1.840.707.812.87

7.0816.638.104,75

37.024.66

22.27

1976

18.690.33

23.8811.15

5.878.610.35

15.42

1.506.02

19.708.65

1.030.13

8^8*3

0.487.130.02

28.83

2.800.628.512.23

6.277.603.823.29

29.437.67

14.14

1977

6.800.32

42.867.19

6.29

33.09

4*. 1425.007.62

o'.is12'.18

0.676.120.06

36.94

2.750.30

13.893.05

5.475.27

18.821.96

30.016.47

15.66

1978

7.72

4039*3.03

10.51

6^92

7!65

o!l4

0.957.04

24.95

15.*66

6.57

14!901.78

1030

Average forAvailable

Years

8.000.55

24.418.02

6.149.471.32

14.60

2.545.30

20.869.09

3.170.166.139.82

0.535.670.06

24.01

2.741.71

10.583.26

6.456.348.363.93

23.286.30

22.69

Sources: International Monetary Fund, Government Finance Statistics Yearbook and International Financial Statistics Yearbook,1980.

1 Export values are on an f.o.b. basis.

61


STATISTICAL TABLES

Table 11. Selected Countries of Sub-Saharan Africa: Import Duties(In per cent)

Country


Central African RepublicChadCongo

Ethiopia

Gambia, TheGhanaIvory CoastKenya

LesothoLiberiaMaliMalawi

MauritiusNigeriaRwandaSenegal

SeychellesSierra LeoneSomalia

Sudan7

SwazilandTanzaniaTogoUganda

Upper VoltaZaireZambia

Standard rate

525302

302

302

25 2

40 2

20-30

253530 2

22-33.3

2528

15-20

10-3033.3302

302

30-4036.5

40-70

40

2540-50

40-50

4020-25

Minimum orreduced rates

0,3,5

2.5 2

2.5 2

5 2

102

0, 10, 15

0, 5-17.5

22

0-10

0,3,5Zero22

0, 5-10

Zero0-5, 10-25

5 2

102

0, 5-250, 2.5-16

0, 11, 13.75

0,5

0,3,50, 10-30

3,60,10

0,55, 10-15

0,5,7.5, 10-15

Import Duties

Higher rates

1530-35

40-50

3560

50-70

30-5070

40 2

30-35

40, 50, 66.6

5045-5070-90

—

30-3550-75

50-75

455030

Luxury rates

50-60Over 100

75-100

60

75 2

100-200

50-60

75 2

40-45

75-100

10060-75

94-145, 170,273, 350-740

600

50-60100-200

Over 100

45-55

Other particularcategories of

duties

5-90 1

5 \ 3 3, 5 4

10-40 \5-704

10-40 1

10-40 S 5-1 5 4

10-40 S 0.2 3,5-50 4'5

I 4

5

2-45 1

10 4-5

Up to 70 1 ' 4 ' 5- 6

5-80 x

10-70 1-4

5

5

5 4,5

O-SO1,!3^4

3 3 ,6 4 - 6

5-20 4, 3 3- 5

10-254

Sources: Tax laws of various countries and data provided by country authorities.1 Fiscal duty applies to all imports.2 Customs duties apply to non-European Community imports and, wherever applicable, to non-Organisation commune africaine et

mauricienne imports.3 Statistical tax and other administrative charges.4 Import surcharge, temporary surtax, and stamp duty on imports.5 Import duties are specific rates mostly on tobacco and alcohol but sometimes also on petroleum products (Kenya, Mali, Seychelles,

Zaire), food (Ghana, Sierra Leone), and textiles (Ghana).6 Regional cooperation tax.7 Preferential rate for imports from Egypt.

62


Statistical Tables

Table 12. Selected(In per cent)

Country

Benin

Botswana

Burundi

Cameroon


Chad

Congo

Ethiopia

Gambia, The

Countries of Sub-Saharan Africa

Standard Rate Special Rates

35 50

35

20-40

35

34.5

50 45

49 36.4-49.8

50 10-40

45

: Company Income Tax

Remarks

Minimum flat rate as percentage of turnover: CFAF 150,000 onCFAF 1 million to CFAF 400,000 on CFAF 200 million.

Withholding tax of 20 per cent on payments to contractors and 15 per centon dividends to nonresidents.

Schedular taxes graduated by sources and levels of income.

Minimum flat rate taxes as percentages of turnover; foreign companiespay special taxes based on capital.

3.4 per cent being a surcharge; minimum flat rate taxes on turnover:0.5 per cent on agriculture and 1 per cent on other activities.

Minimum taxes on turnover: 0.75-1.25 per cent on industrial income;1-1.5 per cent on hotels; 1.5-2 per cent on financial institutions.

Standard rate on agriculture; lower rate on agriculture and higher rate onpetroleum companies; minimum flat rate turnover tax of 1 per cent.

Standard rate on all sources except for chance winnings (10 per cent),dividends (25 per cent), and royalties (40 per cent).

Small companies with an income of below D 5,000 pay no tax in the

Ghana

Ivory Coast

Kenya

Lesotho

Liberia

Mali

Rwanda

Senegal

60

40

45

37.5

20-over 50

50

Malawi

Mauritius

Nigeria

45

50-60

45

20-45

38.3

50

50

27.5-45

15-30

50

12.5

first year, 33.3 per cent in the second, and 66.6 per cent in third andfourth years.

Special rates for industrial, mining, agriculture, and wholly indigenouslyowned companies with a turnover below 0 200,000.

Special rates on petroleum companies; an additional 10 per cent nationaldevelopment tax on all companies; flat rate minimum tax ofCFAF 400,000 on industrial and commercial companies.

Specified mining companies taxable at 27.5 per cent in first four years;insurance companies taxable at 40 per cent; capital gains taxable at45 per cent.

No legislative provisions for withholding taxes on dividends or taxationof nonresidents.

Special rates apply to nonresidents; standard rates range between 20 percent on incomes below $10,000 to over 50 per cent on incomes above$100,000.

Standard rates apply to net business profits; minimum tax of 2 per centon turnover exceeding MF 10 million; withholding tax on dividends at18 per cent above MF 100,000.

Special rate applicable if the tax on foreign companies' country of resi-dence exceeds 45 per cent.

50 per cent on public limited liability companies, 60 per cent on privatecompanies.

Special rates on dividends paid by one company to another; companies inbuildings and construction sector taxable at 2.5 per cent of turnover if itexceeds 45 per cent tax; trading or business companies also assessableon turnover basis if their declared profits are unrealistically low.

Rates depend on the level of taxable income: 20 per cent belowRF 250,000 to 45 per cent on income over RF 1 million.

Standard rate applies to industrial, commercial, and agricultural profitsand includes a 5 per cent surcharge; there is a minimum presumptivetax of CFAF 400,000 per annum; tax rate on other incomes rangesbetween 3 and 25 per cent.

(continued overleaf)

63


STATISTICAL TABLES

Table 12 (concluded). Selected Countries of Sub-Saharan Africa: Company Income Tax(In per cent)

Country

Seychelles

Sierra Leone

Somalia

Sudan

Swaziland

Tanzania

Togo

Standard Rate

35

55

30

25-60

37.5

50

37.5

Special Rates Remarks

There is a 15 per cent withholding tax on royalties and on interest paidto nonresidents, except to financial institutions.

Small companies with incomes below Le 2,000 pay no tax in first year,33.3 per cent in the second, and 66.6 per cent in third and fourth years.

15-22.5 Special rates apply to income from buildings; 15 per cent of income upto So. Sh. 30,000 and 22.5 per cent on higher incomes.

Rates range from 25 per cent on LSd 1,000 to 60 per cent on LSd 10,000for private resident companies and LSd 30,000 on public companies.

27-37.5 Mining companies pay tax at 27 per cent on incomes of up to E 20,000per annum.

20-55 Tax rate of 20 per cent on capital gains; 22.5 per cent on "specified"mining companies (first four years); and 55 per cent on nonresidentcompanies.

Minimum flat rate tax of 2 per cent on turnover of industrial and com-mercial companies; new companies investing at least CFAF 2 millionexempt from flat rate tax for five years.

Uganda 45 22.5-42.5 Specified mining companies taxable (first four years) at 22.5 per cent;insurance companies at 37.5 per cent; nonresident companies at42.5 per cent.

Upper Volta 40 Flat rate minimum tax at 1 per cent of turnover with a minimum liabilityof CFAF 200,000.

Zaire 20-60 On business profits at 50 per cent; on rental income varying from 20 percent to 60 per cent on incomes below Z 1,000 to over Z 7,000; on allother investment income at 20 per cent.

Zambia 48 10-30 Standard rate excludes mineral tax, varying between 10 and 51 per cent,depending on the mineral and education levy of K 120 per annum.Special rates of withholding tax apply on payments to nonresidents,e.g., 10 per cent on rent, 25 per cent on construction and haulagecontracts, and 30 per cent on public entertainment, royalties, interest,and dividends.

Sources: International Bureau of Fiscal Documentation, Survey of African Tax Systems, and data provided by country authorities.Note: Magnitudes of data are in terms of national currencies.

64


Statistical Tables

Table 13. Selected Countries of Sub-Saharan Africa: General Sales, Turnover, or Value-Added Taxes(Rates in per cent)

Country

BeninBurundiCameroonCentral African

RepublicChadCongo

Ethiopia

GhanaIvory Coast

Kenya

Lesotho

Liberia

MaliMalawi

Mauritius

Senegal

Seychelles

Sudan

Swaziland

Tanzania

Togo

Uganda

Upper Volta

Zaire

Zambia

Type of Tax

Turnover taxTransactions taxTurnover taxTurnover and

transactions taxesTurnover taxTurnover and

transactions taxesTurnover and

transactions taxesGeneral sales taxValue-added tax

Sales tax

Sales duty

Business trade levy,general alcohol tax,and rubber sales tax

Sales taxSurtax

Sales tax

Turnover tax

Turnover tax

General sales tax

General sales tax

Sales tax

Transactions tax

Sales tax

Turnover tax

Turnover tax

Sales tax

Tax Base l

Sale of goods and servicesAll domestic transactionsInternal turnover and importsInternal transactions and

domestic consumptionInternal turnoverInternal turnover and

transactionsInternal turnover and

transactionsDomestic manufacturesDomestic production, net

of purchasesDomestic production and

importsDomestic production and

importsDomestic production and

imports

Turnover of enterprises 5

Imports and domesticmanuractures

Imports, sale of domesticmanufactures, and services

Domestic goods, imports,and hotel services

Hotel services, utilities,and insurance

Development tax on localmanufactures

Imports and domesticmanufactures


Domestic manufacturesand services 7


Domestic manufacturesand services

Domestic manufacturesand services

Sale of specific items <J

and hotel services

Basic Rates

GoodsGeneral rateGeneral rateTurnover tax

General rate 2

Turnover tax

Turnover tax

General rate :i

General rate

General rate

General rate

General rate

General rateGeneral rate

Domestic goodsImportsNormal rate

Normal rate

Normal rate

Normal rate

Normal rate

Normal rate

Normal rate

Normal rate

Normal rate

Normal rate

1328

2-12

134.5-9

2

11.59.5-19

15-30

5-30

10-2020

4-910-12

15

5

5

5

12

12

10-15

18

10

10

Other Rates

ServicesReal propertyLower/ higher ratesTransactions tax

Special rateTransactions tax

Transactions tax

Excisable goods 3

155

4, 101

1.5-103-5.3

5

5-7.5

Specific rates Various 4

Nonessentials

Lower/ higher rates

Services

Hotel accommo-dation

Other (i

Higher rate

Lower/higher rates

Services

Specific rates

Higher rate 8

Lower rate 8

Over 30

6, 15,20

12

12.55,50

20

0,90

10

Various

254

Sources: International Bureau of Fiscal Documentation, Survey of African Tax Systems, and data provided by country authorities.1 Tax base usually excludes exports, local agricultural produce, basic necessities (food, fertilizers, medicines), government imports,

imports already subjected to turnover or sales taxes, and other goods and services subjected to specific taxes (excises, petroleum taxes, etc.)2 Includes 1 per cent additional turnover tax.3 There is also a purchase tax on imported and local motor vehicles.4 On gasoline, beer, and electricity.5 Lower/higher rates are on services; water and electricity are subject to specific rates of tax.6 Sports and cultural goods are subject to 5 per cent; financial transactions and luxury imports are subject to 50 per cent.7 There are additional specific taxes on industrial goods.8 Applicable to goods and services sold by a foreign company; lower rate applies to transport services.9 Specific items include clothing, footwear, soap, sugar, radios, tires and tubes, fencing, and both imported and domestic manufactures.

65


STATISTICAL TABLES

Table 14. Selected Countries of Sub-Saharan Africa: Excises on Some Specific Goods as Percentage ofGross Domestic Product

Country YearPercentage

of GDP YearPercentage

of GDP

Petroleum productsBeninBurundi (fuel tax)Chad (fuel tax)EthiopiaIvory Coast (excises)KenyaSenegalSierra LeoneSudanUpper VoltaZambia

BeerBurundiRwandaSierra LeoneZaireZambia

Tobacco and cigarettesEthiopial

Ivory CoastMauritiusSierra LeoneSudan

1970197319721972197319721975197419731973

1973197319741972

19721973197319741972

0.710.170.240.880.840.331.130.670.790.40

1.991.380.211.03

0.070.490.561.490.37

19791977197619771978

19791978197819771978

19771978197819771978

19771978197819781978

0.570.570.280.410.70

1.240.770.520.292.21

1.620.760.343.60

0.030.270.331.070.40

Sources: International Monetary Fund, Government Finance Statistics Yearbook, 1980, and Fund staff estimates.1 Tobacco monopoly's surplus.

66


Table 15. Selected Countries of Sub-Saharan Africa: Export Duties (Base and Rates)Beverages, Tobacco,

Food Products and Related Products Minerals Other Raw Materials

Country

Benin

Botswana

Burundi

Cameroon

CentralAfricanRepublic

Chad

Congo

Ethiopia

Gambia, The

Ghana

Ivory Coast

Tax Base

F.o.b. export value

F.o.b. exports

F.o.b. exports oradministrativevalue



Fiscal duty onf.o.b. value

Turnover tax onf.o.b. value plusfiscal duty

Turnover tax onf.o.b. value plusfiscal duty

F.o.b. value plustransactions tax

F.o. b. value

Cocoa MarketingBoard's saleprice

Standard value

Items

ShrimpPalm kernels

Livestock

Peanuts

Peanut oil

Cotton,peanuts, andpalm oil

LivestockMeat

Livestock

Sugar surtax

Palm kernelGroundnutsOil, cake,

and meal

Agriculturalproducts

Rates Items

CFAF 2.5 per kg. TobaccoCFAF 1 per kg.

...

Coffee

Processedcoffee

Tea

CFAF 175-250 Coffeeper ton

CFAF 595 per Cocoaton

0.3-0.5 per cent Coffee

14 per cent14 per cent

CFAF 200- Coffee100,000 peranimal

80-95 per cent Coffee

6 per cent5.75-6 per cent

6 per cent

Cocoa

30 per cent Coffee \Cocoa /

Rates Items

CFAF 1 per pkg.

FBu 114-133per kg.

FBu 0.25-0.40per kg.

6 per cent ofFBu 66 per kg.

CFAF 3 per kg.

CFAF 1 per kg.

CFAF 5 per kg. Diamonds

Phosphate

CFAF 5 per kg. Diamonds

Br 18 per 100 kg.

Sale price less^739 per ton

23 per cent Mmroducts

Rates Items Rates

Hides and skinsIvory, trophy

Hides and skins 10 per cent ofFBu 3,616per kg.

Cotton FBu 16 per100 kg.

2-17.5 per cent Lumber logs 1 per cent

14 per cent Cotton 14 per centGum arabic 14 per cent

2 per cent Logs 3-33 per centProcessed logs 2.5-10.5 per

cent

Cottonseed surtax 40-60 per cent

23 per cent Logs 33 per cent

Remarks

Additional development taxon coffee of FBu 103per kg.

Taxes based onadministrative value

Export duties of 2-40 percent; also, a small controltax on cotton and coffee

Export duties of 0-12.3 percent and turnover tax of2 per cent

Fiscal duty of 8 per centand turnover tax of6 per cent

All exports subject to exportand fiscal duty up to13 per cent and turnovertax of 2 per cent

All exports subject to trans-actions tax of 2 per cent;additional coffee surtax ofBr 21 per 100 kg. Surtaxesare with reference toexport prices

ON

Kenya F.o.b. value Coffee 15 per cent of price(Nairobi) over K Sh 20,000

per tonOther coffee K Sh 6,000 per ton

or 10 per centf.o.b.

Tea 15 per cent of priceover K Sh 20,000per ton

Coffee sold at Nairobiauction

(continued overleaf)


0\Table 15 (continued). Selected Countries of Sub-Saharan Africa: Export Duties (Base and Rates)

Beverages, Tobacco,Food Products and Related Products Minerals

Country

Lesotho

Liberia

Mali

Malawi

Mauritius

Nigeria

Rwanda

Senegal

Seychelles

Sierra Leone

Somalia

Tax Base

F.o.b. value

F.o.b. value

F.o.b. value forad valorem rates

Weight/quantityfor specific rates

F.o.b. value

F.o.b. value

F.o.b. export value

F.o.b. export value

Diamonds, coffee,and cocoa onf.o.b. value;others on c.i.f .value

F.o.b. export value

Items

Karite butter

Livestock

Fish

Groundnuts

Groundnut oil

SugarMolasses

LivestockPalm oilEdible nuts

FlourCinnamon

extract

GroundnutsGroundnut

cake

Other ground-nut products

Other nuts

Cinnamonbark

Othercinnamonproducts

GingerPalm kernels,

cake, and oil

Animal fatButterLivestock

Rates Items Rates Items Rates

Sand and M 0.25 understones 5 tons

M 0.50 over5 tons

MF 10,000per ton

MF 500-7,000per head

MF 4 1,000per ton

MF 4,050per ton

MF 12,000per ton

Tea MK 0.30 per Ib.Tobacco MK 0.026-0.278

per Ib.

6-13. 5 per cent5 per cent

Cocoa beans. . .

130 per cent Tea 130 per cent130 per cent

20 per cent Phosphates 4 per cent10 per cent or

CFAF 7,310per ton

20 per cent

CFAF 15,000-20,000 per ton

5-20 per cent Guano and 10 per centper ton phosphates

Sey Rs 500 per ton

5 per cent Cocoa 10-35 per cent Diamonds 2.5 per cent10 per cent Coffee 10-35 per cent Titanium- 2.5 per cent

bearingminerals

17.3 per cent17.3 per cent22.4 per cent

Other Raw Materials

Items Rates

Rubber 1.5-2.5 centsper Ib.

Cotton MF 54,000per ton

Other exports 5 per cent

Hides and skins MK 0.35 toMK 1.60 perIb.

CottonRubberTimber

Pyrethrum extract 130 per cent

Gum arabic 12.2 per centHides and skins 12.2 per centIvory, horns 27.5 per centGray amber 32.6 per centLeopard furskins 58.1 per cent

Remarks

Graded to export price

MK 0.278 per Ib. on oriental(flue-cured) tobacco;MK 0.026 per Ib. on allother tobacco

Rates graded by volume ofproduction per producer

Edible nuts: palm kernels,groundnuts, and shea nuts

100 per cent fiscal duty and30 per cent customs duty

Graduated to export valueper ton of cinnamon bark

10 per cent of f.o.b. valueplus 1 per cent for everyLe 20 over Le 400 per tonfor coffee and cocoa

Tax rates include stampduty of 2.2-3.1 per cent


Table 15 (concluded). Selected Countries of Sub-Saharan Africa: Export Duties (Base and Rates)Beverages, Tobacco,

Food Products and Related Products Minerals Other Raw Materials

Country Tax Base Items Rates Items Rates Items Rates Items Rates Remarks

Sudan F.o.b. export value Groundnuts 8 per cent Cotton 5, 8, and Short-staple, medium-staple,10 per cent and long-staple,

respectivelyCotton export tax abolished

beginning with the 1979/80cotton season

Swaziland F.o.b. export value Livestock ... Gum 5 per centSugar 50 per cent of the

excess overE 132 permetric ton

Tanzania F.o.b. export Processed meat 3 per cent Coffee 12.5-60 per cent Beeswax T Sh 492.50 Marginal rates of tax onprice/value Cashewnuts 10 per cent Tea T Sh 0.15 per kg. per ton coffee, sisal, and cotton

Sisal 15-60 per cent are graded to pricesTimber 5 per cent per unitPyrethrum extract T Sh 2.20 per

kg.Cotton lint 10-40 per centCopra 5 per cent

Togo F.o.b. export value Coffee 6 per cent Phosphates 6 per cent All exports subject to fiscalCocoa 6 per cent duty of 0-30 per cent,

customs stamp duty of4 per cent, turnover tax of8 per cent, and statisticaltax of 2 per cent

Uganda F.o.b. export value Coffee 10 per cent of value Copper 5-25 per cent Cotton 5-22 cents Threshold price ofplus 80 per cent per kg. U Sh 17,000 per tonover threshold Hides and skins U Sh 16.60- Graded to unit export priceprice 109.10 per

100 kg.

Upper Volta F.o.b. export value All exports, except cotton,groundnuts, sesame, andshea nuts, subject toexport duties of 6-26per cent, statistical tax of3 per cent, and researchtax of 0.5-1.5 per cent

Zaire F.o.b. export value Palm oil 2 per cent-f- Diamonds 25 per cent -f- Rubber 5 per cent 5,20,25, and 40 per cent of3-15 per cent 7 per cent basic export tax

Copper \ 40 per cent -f Other exports 6.75 per cent Additional progressiveCobalt J 10-40 per cent surtax of 3-15 per cent on

-f- 7 per cent palm oil and of 10-40 perZinc 7 per cent cent on copper and cobaltUranium 7 per cent based on price above

threshold level7 per cent turnover tax on

diamonds, copper, cobalt,zinc, and uranium and6.5 per cent on otherexports

Additional statistical tax of1 per cent on export valueminus export tax

Q^ Source: Data provided by country authorities.VO


J 2O Table 16. Selected Countries of Sub-Saharan Africa: Excises and Selective Production Taxes £

. HAlcoholic Nonalcoholic Tobacco and Gasoline 55

^ ^, Beverages Beverages Cigarettes Products Other HTax Type of HHBase Tax Items Rates Items Rates Items Rates Items Rates Items Rates Remarks 0

>

Benin Varies Selective Beer CFAF 8-33 Gasoline CFAF 12.58 Wheat CFAF 1,200 ^excises per liter per liter flour per ton K?J

Other CFAF 16 per Kerosene CFAF 2.49 Cement CFAF 1,000 ^beverages l i ter per l i ter per ton |—i

Oil and grease CFAF 25 Textiles CFAF 10 per Wper kg. meter

Burundi Domestic Excise Beer FBu 31 per Soft d r inks FBu I per Petroleum FBu 15 per Excise on beermanufac- taxes liter first centiliter products liter includes a dcvel-ture and FBu 2 opment tax of

per centi l i ter FBu 10 per literon additionalcent i l i ters

Cameroon Ex-fac- Domestic 2-35 per centtory produc- rangesales tion

tax 'Ex-fac- Taxe 7-33 per centtory unique'* rangesalesEx-fac- Special Gas, kerosene, CFAFtory hydro- and diesel 10.02-sales carbon 12.09

tax per l i te r

Central African Ex-fac- Taxe 7-32 per centRepublic tory unique2 range

salesEx-fac- Domestic 2-35 per centtory consump- rangesales t ion

lax i

Chad Fx-fac- Taxe 5-35 per centtory unique - rangesales

Livestock CFAF 50-2,000sales depending ontax animal

Congo Ex-fac- Alcohol Alcoholtory taxsalesEx-fac- Taxe 7-33 per centtory unique 2 rangesales

Ethiopia Imports Selective Soft dr inks Br 0.2-0.5 Sugar Br 21 per Rubber andand excises per l i ter 100kg. plastic goods atdomestic Yarn Br 0.25 5 per centmanufac- per kg.lure Woven Br2.82

fabr ic per kg.Footwear Br 0.15-1.00

per pairIron and Br 1-10 persteel goods TOO kg.


Table 16 (continued). Selected Countries of Sub-Saharan Africa: Excises and Selective Production TaxesAlcoholic Nonalcoholic Tobacco and Gasoline

,,. _. , Beverages Beverages Cigarettes Products Olher

Base Tax Items Rates Items Rates Items Rates Items Rates Items Rates Remarks

Gambia, The Domestic Selective Brandy D 17.50-20 Gasoline and D O . l l p e imanufac- excises and per imperial diesel oil literture whiskey gallon

Gin D 1.25 per(local) imperial

gallonBeer D 77 per

hectoliter

Ghana Domestic Selective Beer and \ C" 20.05- Tobacco ^ 2-4 per Ib. Fuel and gas oils (£ 0.22-25 Cocoa 100 per cent Cocoa Marketingmanufac- excises Guinness j 21.50 per and snuff per gallon above price of Board sales withinture carton Cigarettes 65 per cent + Gasoline 0 0.38-90 0 2,664 per ton Ghana

if, 0.24 per Ib. per gallonLiquefied petro- <f. 0.02leum gas per Ib.

Ivory Coast Distribu- Selective Tobacco CFAF 1,300 Petroleum CFAF 11- Timber CFAF 100-300tion excises (local) per kg. products 37 per l i ter (felling) per cm.price Tobacco CFAF 2,560 Logging CFAF 10

(imported) per kg. per hectare orCFAF 125,000per loggingarea

Kenya Domestic Selective Beer K Shi .50- Cigarettes 132-150 Sugar K Sh 1 per kg.manufac- excises 2.25 per l i ter and per centture Spirits K Sh 45 per manufac- of export

proof l i ter tured sellingWine K Sh 1.30- tobacco price

3.96 per l i t e r

Lesotho Imports Beer . . . Domestic Matchesand tobacco . . .domestic Cigarettes . . .manufac-ture

Liberia Domestic Selective Liquor $2.50 per Tobacco $0.75 per 100 Hydrocarbon $0.9-0.12 permanufac- excises U.S. gal. cigarettes oils and gasoline U.S. gallonture Beer $0.50 per

U.S. gal.

Mali Domestic Selective Beer 25 per cent Domestic 40 per cent Kola nuts MF 53 per kg.manufac- excises Wine 25-35 per Imported 78 per cent Cartridges MF 5-25ture cent and bullets per limit

Other 50 per cent Matches MF 1 per boxEx-fac- Taxc Soap MF 2 per kg.lory unique2 Groundnut MF 5 per litersales oil

Malawi Domestic Excise Beer MK 3.00- Soft drinks . . . Manufac- MK 0.75- Cane sugar MK 11 per tonmanufac- duties 19.00 per tured 1.50 per kg. Fabrics MK 83.00ture hectoliter tobacco (fents) per ton C/>

Cigarettes MK2.15- Soap, etc. MK 9.20 g4.00 per kg. per ton £•

o'p_

H

^J 2->—* (continued overleaf) c/>


•~J • ~ • (/>^ Table 16 (continued). Selected Countries of Sub-Saharan Africa: Excises and Selective Production Taxes £

Alcoholic Nonalcoholic Tobacco and Gasoline 5^ f Beverages Beverages Cigarettes Products Other HTax Type of • >—iBase Tax Items Rates Items Rates Items Rates Items Rates Items Rates Remarks P

. . >f

Mauritius Domestic Excise Country Man Rs 0.78- Leaf Man Rs 25- Matches Mau Rs 1 per 60 sticks per box ^manufac- taxes liquor 1.15 per liter tobacco 35 per kg. 144 boxes J>ture Wine Mau Rs 9 Crown corks Mau Rs 1 per bd

per liter 10 units j~*Local Mau Rs 29.9 Sugar Mau Rs 15-25 gjspirits per liter per tonBeer Mau Rs 1.25-

1.35 per literImported Man Rs 1.65stout per liter

Nigeria Ex-fac- Excise General 5-10 per cent For tobacco,tory taxes rate inclusive of ex-price Luxury 25 per cent factory price

rate(e.g.,cosmetics)

Rwanda Domestic Consump- Beer RF 33 per 72 Lemonade RF 5 per 33 Soap RF 20 permanufac- tion centiliter centiliter 10kg.ture taxes bottle bottle

Senegal Domestic Selective Local 30 per cent, Soft drinks CFAF 3 per Dairy CFAF 100manufac- excises beer including l i ter products per kg.ture taxes Black and CFAF 100 Kola nuts CFAF 95

green tea per kg. per kg.Fermented CFAF 85 Tea essence CFAF 150beer per liter per kg.Wines CFAF 225 Green CFAF 50

per liter coffee per kg.Spirits CFAF 85(12 per cent) per literSpirits CFAF 750(40 per cent) per liter

Seychelles Domestic Selective Beer 22.5 per centmanufac- excises of retail priceture

Sierra Leone Domestic Selective Beer Le 0.45 per Tobacco Le 1.00 Other 6-60 per centmantifac- excises gallon per Ib. goodsture Potable Le 8.58 per

spirits gallon

Somalia Domestic Selective Alcohol So. Sh. 2,000 Beverages So. Sh. 40-65 Chewing So. Sh. 18.13 Matches So. Sh. 18.90manufac- excises per hectoliter per bottle tobacco per kg. per kg.ture Mineral So. Sh. 0.10- Cigarettes So. Sh. 88-170 Sugar So. Sh. 382

water 20 per bottle per kg. per quintalImports Liquor So. Sh. 17-25 Soap, 20 per cent

per bottle shampoo

Sudan Domestic Selective Liquor LSd 4 per Cigarettes LSd 2.75- Diesel oil LSd 20 per Sugar LSd 16.60 permanufac- excises liter 14.40 per kg. metric ton metric tonture Petroleum gas 40 per cent Shoes 20-25 per cent

Textiles 5 per cent

Swaziland Domestic Selective Beer E 17.67 per Other E l . 7 6 per Tobacco . . . Matches . . .manufac- excises 100 liters beers 100 liters Cigarettes . . .ture Spirits E 589.51 per

100 liters


Table 16 (concluded). Selected Countries of Sub-Saharan Africa: Excises and Selective Production Taxes

Alcoholic Nonalcoholic Tobacco andTHY Tvnp nf Beverages Beverages Cigarettes

Tanzania

Togo

Uganda

Upper Volta

Zaire

Zambia

Base Tax Items Rates Items Rates Items Rates

GasolineProducts Other

Items Rates Items Rates Remarks

Excises are now amalgamated with the sales tax

Domestic Selectivemanufac- excisesture andimports

Domestic Selective Beermanufac- excises Spirits,ture wines

Domestic Selective Beermanufac- excisesture

Domestic Excise Alcoholmanufac- taxesture andimports

Domestic Selective Beer,manufac- excise ale,ture taxes stout

LocalbeerLiquor

TobaccoCigarettes . . .

CFAF 15 per Beverages CFAF 2-20liter per liter

Z 1 per Mineral . . . Cigarettes 25 per centalcoholic watersdegree

K 4.07 per Soft drinks K 0.16 per Cigarettes K 8-11 perdeciliter deciliter 1,000

Tobacco K 1.10-2.25K 0.18 per per kg.deciliterK 2.70-4 perproof liter

Petroleum andproducts

Petroleumproducts

Petroleumproducts

Gasoline

Diesel oil

Fuel oil

CFAF 5-10per liter

Sugar

CFAF 2-15 Kola nuts CFAF 60per liter per kg.

Cartridges CFAF 10and bullets per unit

Z 45.5 per Cementmetric ton

K 0.50 perdeciliterKO.ll perdeciliter10 per cent

Surtax on localbeer of K 0.29-0.33 per deciliter

Source: Data provided by country authorities.1 On products sold domestically.2 On products exported to countries of the Central African Customs and Economic Union.

<l00


Occasional Papers of the International Monetary Fund

1. International Capital Markets: Recent Developments and Short-Term Prospects,by a Staff Team Headed by R. C. Williams, Exchange and Trade RelationsDepartment. 1980.

2. Economic Stabilization and Growth in Portugal, by Hans O. Schmitt. 1981.

3. External Indebtedness of Developing Countries, by a Staff Team Headed byBahram Nowzad and Richard C. Williams. 1981.

4. World Economic Outlook: A Survey by the Staff of the International MonetaryFund. 1981.

5. Trade Policy Developments in Industrial Countries, by S.J. Anjaria, Z. Iqbal,L.L. Perez, and W.S. Tseng. 1981.

6. The Multilateral System of Payments; Keynes, Convertibility, and the Interna-tional Monetary Fund's Articles of Agreement, by Joseph Gold. 1981.

7. International Capital Markets: Recent Developments and Short-Term Prospects,1981,by a Staff Team Headed by Richard C. Williams, with G.G. Johnson. 1981.

8. Taxation in Sub-Saharan Africa. Part I: Tax Policy and Administration inSub-Saharan Africa, by Carlos A. Aguirre, Peter S. Griffith, and M. ZiihtuYucelik. Part II: A Statistical Evaluation of Taxation in Sub-Saharan Africa,by Vito Tanzi. 1981.

International Monetary Fund, Washington, D.C. 20431, U.S.A.Telephone number: 202 477 2945

Cable address: Interfund


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