STAKEHOLDER CONFERENCE GOOD FINANCIAL GOVERNANCE 3 November 2010 Ramada Hotel – Tunis, Tunisia Key Priorities in Good Tax Governance Overview of the Good Tax Governance Research Paper

OVERVIEW OF TAX IN AFRICA Colonial history – mainly poll / head tax, income tax and customs duties and administration organised around tax-type / product Renewed interest in tax – driven by African reform agendas and spurred on by global financial crisis to create tax compact between state and citizen Tax bases – mainly four: direct, indirect, trade and natural resources – with resources taxation on the increase – tax as % of GDP generally low in Africa DRM – demands that tax base needs to be extended to incorporate host of other tax bases – land, property and wealth Local government taxation – central government 5% of population vs. local government 30%

TAX GOVERNANCE IN AFRICA Institutional reforms – autonomous or embedded within Treasury / Finance Ministry; organisational culture shift to service and compliance Shifts – from product to functional organisation and some even to hybrid market segmentation structures Professional service – drive to strong culture of honesty / ethical behaviour Autonomous administration – sense of belonging, conditions better, target- orientated, become victims of own success by taking on non-tax duties Autonomy – jury still out on positive impact on corruption, perceptions still negative Clear shift – customer orientation by “making it easier & cheaper to comply” Heightened awareness – electronic administration to improve service through education & increase compliance based on risk identification

AFRICAN TAX GOVERNANCE CHALLENGES Change – slow, implementation difficult, lack of ownership, coordination with other reforms, conflicting demands and lack of customisation Tax expenditures – exemptions, holiday, special dispensations to attract FDI – arbitrary, unfair and uncertain plus corrupt undermines confidence Illicit financial flows – via tax havens to offshore financial institutions from evasion, corruption, theft and transfer pricing Sophisticated evasion – complex erosion of tax base due to lack of capacity and capability and lack of international collaboration Tax literacy – misdirected and don’t deal with non-compliance culture to address state building and taxation Tax paid and service provision – tenuous link erodes accountability, trust and legitimacy Lack of harmonisation – 14 sub-regional groupings to promote integration, trade and monetary/fiscal policies but taxation systems vastly different

PRIORITIES FOR IMPROVING GOVERNANCE (1) Compliance focus – evasion – internal (large vs. informal sectors, complexity vs. simplified/presumptive) – external (illicit financial flows, tax havens and offshore financial institutions, transfer pricing, info exchange) Administrative capacity – complex financial arrangements, base broadening, resource mobilisation and perceived unfairness of tax burden on poor Enforcement equity – focus on soft targets, lack of risk-based approach Corruption – legitimacy → improved conditions for employees, compliance costs for business and service delivery codes

PRIORITIES FOR IMPROVING GOVERNANCE (2) Tax preferences – curtail special dispensations for vested interests, protect tax base against tax competition DRM – not just tax collected but how collected – legitimate, fair, soft targets, capacity and corruption Compliance culture – tax paying and benefit provision nexus, cost of non-compliance, customer orientation, targeted education campaigns Natural resource taxation – extractive industries – lack of legal capacity Politics – Legitimising reforms → social consensus and state support, nation building

Acknowledgements Prof Joseph Ayee – Lead Researcher Mr Aidan Keanly – Researcher Dr Odd-Helge Fjeldstad – Reviewer Mr James Sethibe – Botswana Unified Revenue Service (BURS); Mr Denis Mukama – Rwanda Revenue Authority (RRA); and Mr Brian Kgomo – South African Revenue Service (SARS).