Tax reforms in selected African countries

Abstract

The paper investigates the tall reforms undertaken in a sample of randomly selected five African countries, taken together, namely Egypt, Senegal, Gabon, Kenya and Zambia. Reflecting the government's greatly expanding role in the economy, total public sector expenditure increased rapidly over the last two decades. However, public sector revenue growth has not matched public expenditure growth. Mobilizing resources to finance the public sector activities has necessitated tax reforms in those countries, the most important of which was the gradual conversion of taxes on sales of good and services into the value added tax (VAT). The paper spells out the issues involved in reforming each tax instrument, graphs the incidence of tax reforms on consumer and producer taxpayers, and tests the various determinants of the tax ratio to GDP. The empirical results show that, despite the emphasis on domestic taxation, the reforming African countries continue to rely relatively more on the international trade taxes than on domestic taxes in order to mobilize resources to finance their public expenditures. The paper concludes that the tax policy in those countries should be reformulated in such a way that it allows a small distortive impact on market equilibrium, while having a distributive impact that reduce social inequalities.