No development without tax revenue

Every year, almost 20 million young people in Africa enter the labour market. Across the continent, investments in additional infrastructure are needed. Schools, universities and roads need to be built; water and energy supplies need to be provided. The United Nations estimates that, to achieve the UN Sustainable Development Goals, Africa will need investments worth 600 billion dollars – per year! A steep hill to climb, and official development assistance alone will not get us to the top.

This calls for a new dimension in our cooperation with Africa which involves all policy areas. That is what the Marshall Plan with Africa which Federal Development Minister Gerd Müller presented at the beginning of the year is all about. In addition, the German G20 presidency has launched a new investment partnership with Africa in which we are joining ranks with the large industrialised countries of the world in order to promote investment in Africa. Investment is not only about improving the business environment for the private sector or stepping up public funding for development cooperation. Many of our African partners very rightly believe that increasing domestic revenue from tax, tariffs and levies and fighting tax evasion is the key to investment.

Sufficient revenue is the backbone of an effective state. For a state to properly perform its function it needs to be in a position to fund its activities. In other words, there can be no development without taxes. In Africa, the tax ratio, that is the tax-to-GNI ratio, is frequently below 20 %, often even below 10 %. By comparison, the tax ratio in Europe is approximately 35 %.

Taxes, therefore, have long been an important aspect in development cooperation. The German Development Ministry is already working with some 30 countries on these issues, including Ghana, Malawi, Zambia and Uganda. This cooperation is not only about increasing the tax ratio but also about ensuring greater transparency in tax systems and investing tax revenue efficiently. Tax receipts can be increased, for instance, by abolishing unwarranted tax breaks or simplifying tax charges for small and medium-sized enterprises.

Countries’ efforts to develop efficient tax systems must also include efforts to fight tax avoidance, tax evasion and illicit financial flows. Every year, African countries lose more than 50 billion dollars. This is money that is urgently needed for investments. That means, the loss in revenue is even higher than the total of global official development assistance that is invested in Africa every year.

That is why, at the G20 Africa conference which we hosted in mid June, the German government introduced an initiative to fight illicit financial flows from Africa. Together with the governments of Kenya and Italy and the OECD, Germany launched the African Academy for Tax and Financial Crime Investigation. It will train African tax inspectors and legal officers in Nairobi with a view to building more capacities to tackle tax avoidance and other financial crimes more effectively.

Transparent, fair and efficient tax systems are an important building block in efforts to ensure that Africa not only continues to be a continent of opportunities, but also has a real chance of establishing itself as a dynamic economic region and offering its people sufficient jobs and opportunities.

Thomas Silberhorn is parliamentary state secretary at Germany’s Federal Ministry for Economic Cooperation and Development (BMZ).
http://www.bmz.de