Who likes paying taxes?
No one.
In 1789 when the U.S. democracy was in its infancy, Benjamin Franklin famously wrote, “Our new constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”
We may connect death with taxes but the amount of taxes a government collects is directly related to the health of a country’s economic development.
Studies identify the general level of a country’s economic development — its openness to trade and the relative importance of agriculture in domestic production — as key characteristics bearing on a developing country’s ability to collect taxes, and thus its tax share, AfricanEconomicOutlook reports.
Some African governments have recognized the potential benefits of taxation and almost all have implemented value-added tax on goods and services, according to the AfricaResearchInstitute. However, the formal sector, the prime target of these reforms, often accounts for less than half of the total economy. If a majority of the population is only indirectly affected by taxation, citizens will not be politically engaged.
More tax revenue would not only help the governments function and pay for goods and services, but would open the way for other market and state reforms that would promote economic, social and environmental development, according to the OECDObserver.
How well are African countries doing when it comes to collecting taxes?
It depends on the data, which is poor-to-none data from many African countries, Mail&Gaurdian reports, while others are making progress in the area of tax transparency, such as Liberia, Mali, and Togo, which consistently collect data.
Africa has seen huge private-sector inflows, building on the “trade-not-aid” mantra that is currently in favor.
International Monetary Fund figures show that in about half of all developing countries, tax ratios to GDP are less than 15 percent, compared with an average of 34 percent in OECD (Organisation for Economic Co-operation and Development) countries. Many African countries fall well below 15 percent.
The higher the ratio, the more the countries are increasing growth and efficiency, Mail & Guardian reports. A higher ratio also means they are decreasing their dependence on donors.
The tax-to-GDP ratio compares the amount of taxes collected by a government to the amount of income that country receives for its products, according to Wisegeek. By comparing these amounts, economists get a rough idea of how much the economy of a specific government is fueled by its tax collection. It is important to note that comparing the tax-to-GDP ratio of different countries can be misleading because different circumstances are unique in each country and contribute to the overall economic climate.
National economies are spurred by how much people spend and the prices of the products they desire. When economists study tax-to-GDP ratios, they hope to learn how much tax revenue stimulates an economy.
Taxes paid by individuals and corporations usually account for most of the taxes collected by a government, according to Investopedia. Customs and duties paid by users of goods and services also make up a portion of tax receipts.
When tax revenues grow at a slower rate than the GDP of a country, the tax-to-GDP ratio falls.
The future of African national and municipal governments will depend on institutions and tax policies that are equitable, improve local service delivery and encourage compliance through establishing a social contract between taxpayers and the state, according to the AfricaResearchInstitute.
With a 50-percent tax-to-GDP ratio, Algerians are No. 1 by far in Africa when it comes to collecting taxes. AFKInsider listed the 10 African countries with the highest tax-to-GDP ratios.
Below are some African countries collecting the least taxes — that we know of.
No tax data is available for the following African countries: Burundi, Cameroon, Chad, Comoros, Congo Republic, Djibouti, Equatorial Guinea, Gabon, Gambia, Guinea, Guinea-Bissau, Lesotho, Libya, Malawi, Niger, Somalia, South Sudan, Sudan, Swaziland, Zimbabwe
These are the 10 African countries with low tax-to-GDP ratios based on three-year averages (unless noted) using World Bank data.
Source: OECDObserver, AfricanEconomicOutlook, AfricaResearchInstitute, Mail&GuardianAfrica, WorldBank, Investopedia, Wisegeek,
Tax-to-GDP ratio: 14
Tax-to-GDP ratio: 13.6
Tax-to-GDP ratio: 13.7
Tax-to-GDP ratio: 13
Tax-to-GDP ratio: 12
Tax-to-GDP ratio: 10.3
Tax-to-GDP ratio: 10 (based on two years of data)
Tax-to-GDP ratio: 9 (based on one year of data)
Tax-to-GDP ratio: 8.7
Tax-to-GDP ratio: 2