West Africa is a region of great economic potential, with a young and growing population and abundant natural resources. However, the region also faces a number of challenges, including low tax revenue collection. In 2020, tax revenue as a percentage of GDP in West Africa was just 18.2%, compared to the global average of 24.2%. This low tax revenue collection limits the ability of governments in the region to provide essential services and invest in infrastructure and development.
There are a number of factors that contribute to low tax revenue collection in West Africa. One factor is the informal economy, which is estimated to account for up to 60% of economic activity in the region. The informal economy is difficult to tax because businesses and individuals in the informal sector often operate outside of the formal legal and regulatory framework.
Another factor that contributes to low tax revenue collection is weak tax administration. Tax administrations in West Africa are often under-resourced and lack the capacity to effectively collect taxes. This is due to a number of factors, including corruption, political interference, and a lack of political will to reform tax systems.
Despite these challenges, there are a number of opportunities to improve tax revenue collection in West Africa. One opportunity is to focus on increasing formalization of the economy. This can be done by creating a more business-friendly environment, providing better access to finance, and strengthening the rule of law. Another opportunity is to improve tax administration. This can be done by strengthening institutions, increasing transparency, and simplifying tax laws.
There are also a number of international initiatives that can help West African countries improve tax revenue collection. These initiatives include the West African Tax Administration Forum (WATAF), which works to promote efficient and effective tax administration in the region. The WATAF also provides technical assistance to tax administrations in West Africa.
Another international initiative is the Global Tax Initiative (GTI), which works to improve tax systems in developing countries. The GTI provides technical assistance, research, and advocacy to help countries improve their tax systems.
Improving tax revenue collection in West Africa is essential for economic development. By addressing the challenges and taking advantage of the opportunities, West African countries can increase tax revenue collection and improve the lives of their citizens.
In addition to the challenges and opportunities mentioned above, here are some other key issues related to tax in West Africa:
- The high cost of doing business in West Africa can discourage investment and make it difficult for businesses to comply with tax laws.
- The lack of a harmonized tax system across West Africa can make it difficult for businesses to operate across borders.
- The use of informal channels to move money can make it difficult for governments to track tax revenue.
- Corruption can undermine tax collection efforts.
Despite these challenges, there are a number of countries in West Africa that have made significant progress in improving tax revenue collection. For example, Ghana has increased tax revenue collection by more than 50% in the past decade. This has been achieved through a number of reforms, including strengthening tax administration, simplifying tax laws, and increasing formalization of the economy.
The progress made by Ghana shows that it is possible to improve tax revenue collection in West Africa. By addressing the challenges and taking advantage of the opportunities, West African countries can increase tax revenue collection and improve the lives of their citizens.