Enhancing African Domestic Revenue Mobilization

With declining development assistance, countries — many in Africa and highly debt-stressed — need to focus more on domestic revenue mobilization (DRM) for continued financing of their socioeconomic development ambitions while ensuring debt sustainability. Evolving spending priorities of governments, however, often face fiscal constraints and capacity limitations. The IMF/ World Bank International Debt Statistics data indicates a deepening African debt crisis, straining national budgets and highlighting significant financial reform needs. Building (or restoring) fiscal institutions, particularly in fragile and conflict-affected states (FCSs),[1] thus, remains critical to development and economic growth, ensuring that countries meet their basic spending needs and deliver core services. 

Results from 10 years of “Tax Administration Diagnostic Assessment Tool” (TADAT) assessments, aimed at detecting strengths and weaknesses of tax administrations through a performance outcome approach, show that many countries lack comprehensive, accurate taxpayer registers, often struggling to register all individuals/entities for relevant tax types. Weaknesses also persist in electronic filing and payment channels, debt management, or accurate reporting and monitoring frameworks.

The last “International Survey on Revenue Administration” (ISORA 2024) — covering 166 tax and joint tax-customs administrations, including 51 African jurisdictions — contains a wider, complementary set of measures, including those for enabling frameworks. ISORA 2024 illustrates a clear global transition from paper-based, enforcement-heavy systems to digital, data-driven, preventive tax ecosystems. The main message is that countries should aim to redesign tax systems using real-time, automated data, rather than just improving existing ways of administration.

DRM objectives will require concerted, coordinated action on several fronts in order for concerned African governments to be able to support state building, debt sustainability, and long-term socioeconomic development. Steep foreign aid cuts are disproportionately affecting low income and fragile states, requiring consideration of country context in sequencing reforms. For instance, the capacity of fiscal institutions can be extremely weak due to conflict, natural disaster, or pandemic, in which case a short-term, incremental approach is more suited to reforming institutions.   

• Assess the readiness of African tax administrations to strengthen DRM. The findings of such an assessment can help in identifying capacity gaps and reform priorities to strengthen DRM through the strategic use of debt and aid during transitions, recognizing that DRM gains materialize slowly and require bridging mechanisms. Key actions can include: (i) using time-bound concessional financing tied to DRM milestones; and (ii) gradually shifting donor support from service delivery to PFM system-building. 

At the international level, the proposed DRM measures require time to materialize, prompting consideration of a new international debt restructuring effort to help African countries manage the transition. The G20 nations could propose an interim arrangement. 

• Identify priority reforms that improve tax administration performance, digitalization, tax-payer compliance and governance to enhance sustainable DRM. Administration weaknesses often cost more than the policy gaps in terms of revenues. Key actions can include: (i) digitizing tax filings, payments, and registration systems; (ii) introducing unique taxpayer identification numbers linked to national ID systems; (iii) using data analytics/ third-party data (banks, utilities, mobile money); (iv) improving tax audit targeting/ compliance risk management; and (v) strengthening large taxpayer units.

• Develop context-specific policy recommendations for strengthening fiscal institutions, particularly in FCSs. Well-designed tax systems broaden bases without discouraging growth through: (i) reducing excessive tax exemptions, holidays and discretionary incentives (extractives and special economic zones); (ii) shifting to broad-based consumption taxes (value-added taxes), while protecting basic goods; (iii) instituting/enhancing progressive personal income taxation; (iv) introducing/strengthening property/land taxes, especially in urban areas; and (v) aligning tax rates with regional peers to limit harmful tax competition.

  At the national level, development partners could focus assistance through priority reforms identified in the previous paragraphs as relevant to the country context.  

Thus, African governments can achieve relatively quick wins through targeted compliance measures. Political commitment and trust-building are key to a successful transition to greater economic independence in an era of declining aid. More substantial improvements will be achievable through medium-term structured reform processes.