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After the pandemic - an opening for tax reforms Post-Covid taxation challenges across Africa

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One of the most efficient ways of promoting long-term inclusive development is to ensure domestic financing through a stable, broad-based and fair tax system. At the present moment, as policy makers across the world are preparing post-pandemic policies, there is an opportunity to open the way to tax reform and to boost inclusive development in many African countries – provided the correct measures are chosen.

JÖRGEN LEVIN, SENIOR RESEARCHER, THE NORDIC AFRICA INSTITUTE

Domestic tax revenues offer a long-term source of financing for social security programmes, but only if the tax system is built both on the readiness of people to comply with their tax obligations and on their trust in the state. Even if tax revenue performance in African countries has improved significantly over the past two decades, the economic recession caused by the pandemic has taken its toll. In addition, many African countries temporarily extended the deadline for filing tax returns, reduced income tax rates and cut indirect taxes, in order to ease the tax burden during the pandemic. For example, in 2020 the parliament in Mozambique approved a value-added tax (VAT) exemption for inputs in the food-processing industry. Nigeria introduced a VAT exemption on food, medical and pharmaceutical products, and also waived import duties on medical equipment required for the treatment and management of Covid-19.

As societies gradually open up again and phase out Covid regulations, the tax authorities are reverting to the pre-pandemic tax structures – and are even introducing new taxes. In Kenya, the VAT rate is back to 16 per cent and the corporate profit tax rate has been raised to its pre-pandemic level of 30 per cent, following a temporary reduction to 25 per cent. In Ghana, a new Covid-19 health recovery fund is being paid for by increased fuel taxation. The revenue authorities have also stepped up their efforts to simplify tax payment procedures by swiftly moving over to digital platforms. For example, since mid-2021 all domestic taxpayers in Ghana have had to pay their taxes either using the tax authority’s online platform or at one of several designated banks. In early 2020, the Mozambican tax authorities announced the introduction of an electronic platform to allow for the e-filing of tax returns. And the tax authorities in Nigeria have also been encouraging tax-payers to use e-platforms to file their returns.

But even if governments do succeed in restoring revenue to pre-coronavirus levels, they will still be under pressure to improve revenue mobilisation further, in order to develop welfare systems that not only are prepared for future shocks similar to the Covid-19 pandemic, but that also support the Sustainable Development Goals agenda.