Afrodad tax and development reports: Mozambique, Zimbabwe
The African Forum and Network on Debt and Development (Afrodad) has published two reports:
What has Tax got to do with Development; A critical look at Mozambique’s Tax System
What has Tax got to do with Development; A critical look at Zimbabwe’s Tax System
See the overview of both, here.
In many African countries, tax issues are very new and very often not widely debated: so reports such as these, from AFRODAD, are essential. If a tax system cannot mobilize resources from its citizens, enterprises and trade, the state cannot offer essential services to the population and reduce poverty. As the reports note:
"In the past the emphasis on financing development focused on scaling aid and external borrowing. For a long time mobilising domestic revenue has been neglected, despite being a better long-term option. The reasons for this included the inherent pessimism about raising revenue, a prevalent ‘small-state’ ideology and a preference for foreign aid-led solutions."But there is more to tax than just revenue-raising:
"Taxation also plays an important role in shaping the distribution of benefits from higher income citizens to those most in need in a country. Another less discussed importance of taxation is its centrality to good governance, as it allows the government more policy space and capacity to be responsive and accountable to national objectives that are not tainted by the conditionalities of foreign aid.The Mozambique report notes how aid-dependent Mozambique is, with over 48 percent of the 2011 budget expected to come from external sources. Tax incentives for multinational corporations (MNC’s) limit necessary resources for infrastructure which are essential for private sector development. Meanwhile, according to the Mozambican Debt Group study on the Challenges of The Tax System in Mozambique, in 2005 only 29 percent of potential individual contributors paid their taxes.
Taxation is at the heart of administration of government and provides the foundation for the provision of public goods and the implementation of effective regulation and acts as a vehicle for transporting public demands for responsiveness and accountability from their elected leaders. A “correctly” applied and “fair” tax system for African countries also offers the advantage of stability in comparison with traditional development financing mechanisms like aid and loans.
. . .
Taxation acts as a stimulus to economic independence."
In Zimbabwe, amid ongoing political uncertainty, the PAYE (Pay As You Earn) system, which has historically made up about 40% of fiscal revenues, is now dwarfed by Value Added Tax (VAT,) which tends to be a more regressive tax and now made up over 35 percent of revenues in the second quarter of 2010, while PAYE had dropped to just 24%. Zimbabwe also offers a wide range of tax incentives.
Both reports contain a wealth of data and commentary.