Africa: ECA urges African countries to focus more on non-tax revenues to boost development

press release

Marrakesh, Morocco, March 23, 2019 – African countries seeking innovative ways to improve revenue collection to finance development need to focus on non-tax revenue mobilization more than in the past to achieve their objective, says the Economic Commission for Africa (ECA).

Many domestic resource mobilization efforts have concentrated on increasing tax revenues and improving the administrative efficiency of tax institutions without paying sufficient attention to non-tax revenue collection, the Commission says in its annual Economic Report on Africa (ERA) launched today in Marrakesh, Morocco.

“Non-tax revenues contribute significantly to government revenues in Africa, averaging 4.5 per cent of gross domestic product (GDP), yet a majority of countries collect below their potential,” the Report says. “Improving countries’ collecting efficiency could boost their average non-tax revenues to 4.5 per cent of (GDP) from the average 2.6 percent.”

In a section on non-tax revenues for financing sustainable development, the Report, whose theme is “Fiscal Policy for Financing Sustainable Development in Africa”, defines non-tax sources to include any government revenue that does not come from taxes.

Examples include royalties, fees for mining rights, and dividends on government investments in state-owned enterprises and in stock portfolios, sovereign wealth funds and government shares in joint ventures with private operators.

While resource-rich countries depend heavily on mining royalties on the extraction and sale of oil and minerals, mineral-poor countries rely more on administrative fees, fines and other service-related revenue sources, says the Report.

With countries experiencing declining official development assistance, rising indebtedness, limited domestic resource mobilization capabilities, poor financial management and systemic corruption, non-tax revenues are becoming more critical for Africa, yet they remain under-utilized, according to the Report says.

Despite the benefits of non-tax revenues, the Report says they could be prone to volatility as commodity prices fluctuate, and grants and miscellaneous sources of the instruments are hard to predict or plan for.

However, prudent financial management practices can help cushion the impact, the Report says.

The ERAexamines the institutional and policy reforms that can enable African countries to maximize domestic public resource mobilization to finance their development agenda, focusing on the instrumental role of fiscal policy.

The Report identifies several quick wins in Africa’s pursuit of additional fiscal space to finance achievement of the Sustainable Development Goals (SDGs) and the aspirations of Agenda 2063.

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