Modernizing VATs in Africa

Most African countries are in dire need of more tax revenue. In 28 out of 45 countries with a value-added tax (VAT), total tax revenue as a percentage of GDP is around 15% or less, falling short of what is necessary to finance basic human and economic development. Far from being revenue-raising instruments, current African VATs are riddled with exemptions, exclusions, and zero rates on domestic goods and services that depress revenue, are highly distortionary, and greatly complicate the administration of VAT.

Modernizing VATs in Africa enables policymakers, professionals, and students to analyse African tax systems to ascertain how they can be modernized. It explains the case for VAT base-broadening over rate-increasing, arguing that exemptions and zero rates mainly accrue benefits for higher-income groups. Even more persuasively, it demonstrates that the net result of fiscal systems can be equalizing if the revenue of broad-based VATs is used to finance in-kind transfers, such as healthcare and education. VAT modernization should be used to enable governments to finance development; Modernizing VATs in Africa puts a compelling case forward for how and why this can be achieved.

Sijbren Cnossen, Professor of Economics, University of Pretoria, South Africa, and Academic Partner, CPB Netherlands Bureau for Economic Policy Analysis, The Netherlands

Sijbren Cnossen is Professor of Economics at the University of Pretoria and Academic Partner of CPB Netherlands Bureau for Economic Policy Analysis. He is Professor Emeritus of Economics of the University of Maastricht and Professor Emeritus of Tax Law of Erasmus University Rotterdam. Prof Cnossen previously occupied the Henry Shattuck Chair at the Law School of Harvard University, the Global Law Chair at the University of New York. He advised many countries on the design of their tax systems under the auspices of the IMF, the World Bank, USAID, OECD, EU Commission, HIID, and GTZ. He has published numerous books and articles on the effects of taxation and on tax policy, including issues pertaining to tax coordination, income, and corporation taxes, value-added tax, and excise duties.

1. Why VAT?
2. What is VAT?
3. Other Broad-Based Consumption Tax
4. Overview of VATs in Africa
5. Countries without VAT
6. Revenue Performance
7. VAT Incidence and Rate Structure
8. Economic Integration and Tax Coordination in Regional Economic Communities
9. Exemptions and Exclusions: The Achilles Heel of VAT
10. Non-Standard Exemptions and Zero Rates
11. Governments and Activities in the Public Interest
12. Immovable Property
13. Financial Services
14. Insurance
15. Lotteries and Gambling
16. Small Businesses and Farmers
17. Basic Administrative Processes
18. Agenda for VAT Modernization
Appendices
A. Africa: VAT Treatment of Essential Goods and Services, 2018
B. Africa: VAT and Excise Tax Treatment of Selected Goods and Services, 2018
C. Africa: Sales Taxes and Excise Systems in Non-VAT Countries, 2018
D. Africa: Basic Economic and Institutional Indicators in VAT Countries, 2016