Taxation refers to the way by which a government finances its expenditure or encourages or discourage certain economic matters through imposing charges on its citizens and corporate entities.

The tax is based on the assessed value of the assets and income streams. The various economic activities and assets that are taxed create tax bases. The amount the government collects therefore depends on the size of the tax base, the income of the tax bases and the tax rate. The challenge is most African countries have too narrow tax bases and therefore the burden of tax is on the few citizens and corporate institutions

Who pays tax?

The tax payers include the following;

• Employees
• Corporate entities
• Individuals in business
• Investors
• Property landlord
• Consumers

Challenges of increasing the tax base

• The  African tax authorities  often do not have the means and capacity to increase the tax bases
• Improper transfer pricing complicates the issue
• African tax administrations  are still struggling to collect from the narrow tax base
• There are limited number of tax experts to advice the tax payers
• The African economies are yet developed to become market economy.

Increasing tax base

Tax register

The tax register should be expanded to include a number of businesses operating in the informal sector.

Educating the citizens

A number of potential tax payers have a lot of fears about tax because they do not understand it. The tax authorities have to intensify tax education.

Start off with simpler tax

In order to increase the tax base, the tax authorities should start off with simpler taxes  like presumptive taxes aimed at bringing potential tax payers on the tax register.

Establishing working relationship

The tax authorities should establish working relationship with chambers of commerce, trade association, bodies of professionals involved in advising private sector with the aim of helping the potential tax payers to become tax compliant.

Growing the economy

The governments should put a lot of emphasis on growing the economy through attracting both local and foreigners. The investors become new tax payers .

Conclusion

Africa still has the highest total tax rate of any region at almost 53%, compared to the world average of 43% but yet the revenue collected is not much because of the narrow tax base. In order to increase tax revenue governments have to focus on increasing the tax bases and the income of its residents.

 Author: John Muhaise-Bikalemesa,
Director Big Drum Advisory Services,
john.muhaise@bigdrumassociates.com

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