Mobilization of tax revenues in Africa State of play and policy options

  • Brahima S. Coulibly, Dhruv Gandhi
  • Oct 2018
  • Brookings
  • International

Sub-Saharan Africa faces a sizeable shortfall in financing for investment, estimated at about $230 billion a year, on average, over the next five years. This shortfall is due to low domestic savings rates, partly as tax revenue collection continues to underperform notwithstanding recent improvements. In this brief, we develop an analytical framework to guide our understanding of the factors still restraining the region’s revenue collection and to discern the fundamental drivers of the increase in past years. We find that the region’s still-lower tax revenues are due to both lower taxation capacities—about 20 percent of GDP on average—and to inefficiencies in revenue collection. Addressing both factors can significantly boost revenues in sub-Saharan Africa to levels comparable to those of OECD countries. Addressing both of these can help mobilize up to $110 billion annually, on average, over the next five years. This amount is more than double the $44 billion in official development assistance to the region in 2016, and almost one-half of the estimated $230 billion average financing gap.