Taxes in Africa: the virtuous circle gets vicious…
May 29, 2018
A functioning state should be able to collect funds through a right taxation and to redistribute them through the offer of public services: security, education, retirements, infrastructure.
For example, every year, Italian government gets 480 billion euros from direct taxes, indirect taxes and corporate income taxes. It produces 74 billion euros from other incomes, achieving a balance of 570 billion euros, which it spends in a diversified way: 260 billion for retirement plans, 120 billion for health and 40 billion for education. We must then add 40 billion euros of capital gain which are used to support infrastructure (data from programmed balance of the state 2016 – 2018).
In this case we should say that state takes care of Italian citizens’ education, health, future after their working life. And it is not moved by kindness: during their lives citizens pay for these services with taxes. The mechanism is the same in all western countries, with different investments in each sector. Each country’s virtuous circle consists in allowing its citizens to have a per capita income which is sufficient to pay for taxes used to create those services people need.
We can state that, in this case, there is a balance which allows citizens to benefit from a good service offer.
In Africa, especially in sub-Saharan area, this balance hasn’t been gained and strong demographic pressures will make the goal unreachable. Taxes’ distribution in African countries is almost ridiculous: except for South Africa – which has a “western” proportion – all countries have taxes for 15% of their GDPs. Nigeria is an exception, with 4%, because of its petroleum’s sales, which make government earn shares which are accredited as taxes.
Each African citizen, being an adult or a child, has a low per capita income of 1,800 dollars a year. With these incomes, whichever taxation would be not enough, even if the continent had an almost homogenous situation. These are figures which cannot start the virtuous circle we were talking about.
Another element is very important: if costs of work in Africa are cheap, instead health and infrastructure have costs that are similar to western ones, if not higher.
Therefore, in this situation there is a two-speed channel: while taxes are paid with African incomes, services’ costs often follow western mechanisms.
If we add data about demographic growth and about longer life expectancy to this contradiction, the risk that the system may collapse and not find a sustainable development system gets more real.