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Thursday, 05 August 2010

Taxation for development in Africa: A shared responsibility

Africa needs more effective, efficient and fairer taxation systems. As several African nations celebrate 50 years of independence in 2010, it is time for a continent that still relies too much on often volatile and unpredictable external flows to take a new look at taxes - a potential untapped source of billions of dollars. While the primary responsibility lies with African governments, the international community must also play its part. And this time, it’s hardly about aid.

The global economic crisis has shown, yet again, how vulnerable Africa remains to falling commodity prices and export revenues, uncertain future aid flows and declines of foreign direct investment (FDI), which resulted in a general shortfall of external finance. At the same time, the continent continues to suffer from an acute hemorrhage of capital. Indeed, Kar et Cartright-Smith (2008) estimate that Africa lost US$854 billion, at least, in illicit financial outflows from 1970 through 2008. In other words, while Africa is overly-reliant on external financing, it is a net creditor to the world. The case is clear: African economies need to mobilise their domestic resources better. This is in large part the job of governments, who mobilise public resources through taxation (and debt) to fund investment in roads, power plants, schools, health facilities, etc. Over the long term, effective taxation can not only reduce a country’s dependence upon aid and largely unpredictable external finance flows, but it will also increase its ownership of the development agenda, and lay the foundation of a social contract between state, citizens and firms.

Source: Internationa Center for Trade and Sustainable Development