A new study at Stellenbosch University (SU) found that tax administration in many African countries is inefficient, hindering revenue collection. This points to potential gaps that could be addressed through institutional reforms.
“Widespread inefficiencies in tax systems undermine the mobilisation of government resources, limiting their capacity to deliver public services and make essential investments. These inefficiencies create systemic gaps that foster corruption and manipulation, often exacerbating income inequality,” says Dr Onesmo Mackenzie, who is a postdoctoral research fellow in the Department of Economics at SU. He recently obtained his doctorate in Economics at the University.
As part of his study, Mackenzie used different techniques and case studies to investigate the efficiency of tax administration in 32 African countries, including South Africa, from 2000–2021. He sourced data from multiple organisations, including the African Tax Administration Forum and the World Bank.
Mackenzie says many countries in Africa lack the capacity and technological infrastructure to maintain accurate taxpayer databases.
“Tax authorities are often understaffed and lack proper data management systems to effectively track taxpayers, collect data and store records. The absence of proper records for some taxpayers further complicates this process.
“A lack of institutional coordination limits the ability of tax administrations to cross-check taxpayer data with third-party organisations.
“Perceived inefficiencies erode taxpayers’ trust in tax administration, reducing compliance and further weakening the system. Ultimately, such inefficiencies lead to significant revenue losses, diminishing fiscal capacity, hindering economic growth and development and increasing reliance on external support.”
According to Mackenzie, efficient tax administration seeks to maximise revenue within the limits of available resources and the tax base. It also prevents unequal tax burdens on particular groups, promoting fairness and enhancing taxpayers’ trust in government institutions.
“By enhancing efficiency, tax authorities in Africa can curb revenue leakages, and tackle corruption, tax evasion and avoidance to ensure stable revenue. This will, in turn, empower African countries to fund their development priorities, reduce dependence on external aid, and promote equity and trust.”
He adds that in African countries with large informal sectors, efficient tax systems can play a key role in engaging with the informal economy, thereby expanding the tax base.
Mackenzie expresses surprise at seeing that efficiency levels vary depending on the type of indicator used. “Notably, African countries excel in tax registrations, yet they struggle to translate them into revenue because taxpayers remain inactive in filing and paying taxes.”
According to Mackenzie, the continent’s low tax-to-GDP ratio—the revenue a country generates from taxes compared to its economic output—indicates the potential for revenue growth. A higher ratio means more tax revenue, while a lower one could suggest challenges with tax collection or a smaller tax base. According to Mackenzie, improving tax administration could help tap into this potential.
He also emphasises the importance of elites paying their taxes. “Their contributions are significant and when they comply, governments can collect more revenue. Elite compliance shapes broader taxpayer behaviour, as individuals often judge fairness based on the taxes paid by high-income earners. Non-compliance by the elite can increase non-compliance among other taxpayers.
“Tax authorities are more successful in ensuring compliance and meeting revenue targets when elites back tax policies and reforms, rather than resisting them. To enhance revenue mobilisation, African countries might have to prioritise strategies to improve elite compliance and effectively address their resistance to tax reforms.”
Mackenzie says tax administrations should use multiple indicators to assess their performance and ensure that registered taxpayers are actively contributing to revenue generation.
“They should also enhance taxpayer education and consider replacing the term ‘tax administration authority’ with ‘tax administration service’ to improve the relationship between tax officials and taxpayers, shifting the focus from coercion to voluntary compliance.
“They must become more responsive to the needs of taxpayers by making it easier for them to file returns, make payments, access tax information and services for personalised support, and know about tax obligations, rights and benefits.”
Mackenzie urges African governments to support tax authorities by ensuring effective use of revenue for public services and investments.
