1. ZAMBIA REVENUE AUTHORITY
TAX ADMINISTRATION, IMPROVING COLLECTIONS AND BROADENING THE TAX NET
Presentation (Discussion) by
EZEKIEL PHIRI At
THE AFRICA GROWTH FORUM,
ADDIS ABABA, ETHIOPIA
30th JUNE, 2015

2. Outline Introduction Tax Revenue Performance in SSA Tax Base
Tax Reforms in Africa
Opportunities/Challenges
Going Forward
Conclusion

3. Introduction
Tax revenue administrations, world over, have a mandate to administer and enforce revenue laws.
Tax revenue administration must be efficient and effective, on one hand, and fair and impartial on the other.

4. Introduction Cont’d
Tax administration is typically conducted by either departments under the country’s ministry in charge of finance or by a body mandated by law to do so on behalf of the Government.
The presentation discusses how tax administration can help improve revenue collections and broaden the tax base.

5. Tax Revenue Performance in SSA
SSA Average Tax to GDP Ratios ( )

6. Tax Revenue Performance in SSA, Cont’d
Tax revenue to GDP ratio, in SSA on average, has increased by 4.4 percentage points to 21.7% in period 1995 to 2010 from 17.3% in period 1980 to 1990.
This has largely been driven by non-resource taxes which increased by 3.0 percentage points to 15.4% from 12.4% between the two periods.
Resource taxes marginally increased by 1.4 percentage points between the two periods.

7. Tax Base (or Tax Net)
Tax base is the set of economic activities and assets that are taxed.
Many countries in SSA are grappling with the problem of widening the taxpayer net.
Broadening tax base by widening taxpayer net does not necessarily mean more revenues as cost of collection has to be considered.

8. Tax Base, Cont’d
Most African countries have broadened their taxes bases over the past two decades.
Tunisia has increased base at an annual average of 3.5%, while South Africa and Egypt have doubled it (Africa Economic Outlook, 2010)

9. Tax Base, Cont’d Broadening tax base entails:
capturing potential taxpayers into tax net;
also introducing new laws to tax emerging activities; and
to an extent, closing loopholes in existing tax legislation
Therefore, effective and efficient tax administration is key in broadening the tax base.

10. Tax Base, Cont’d
In most African countries have tax structures composed of direct and indirect taxes.
In direct taxes, economic agents that generate the incomes bear the actual incidence e.g CIT, PIT, WHT, etc.
In indirect taxes, household or firms that consume the products bear the actual incidence e.g VAT, import duty, excise duties, etc .

11. Tax Base, Cont’d
Most SSA countries are endowed with natural resources (minerals, oil) which form part of the tax base.
However this base has been eroded largely by:
trade liberalisation and integration leading to revenue loss as a result of concessions.
developmental agreements (tax incentives) that most countries signed with foreign investors.

12. Tax Base, Cont’d
Further, most SSA countries are characterised by low levels of formalisation of the economy leading to narrow tax base.
Resulted in recent realisation that broadening base requires stronger tax administration (tax reforms).

13. Tax Reforms
From 1990s, most African countries have embarked on tax policy and administration reforms with assistance from development partners IMF, WB, DfID, etc.
Reforms pursued under the auspices of IMF generally aimed at strengthening capacity of tax administration and enhancing domestic revenue mobilisation.

14. Tax Reforms, Cont’d
Fossat and Bua (2013) highlight that tax administrations reform strategies developed with IMF technical assistance focused on:
- Fostering tax compliance.
- Reducing taxpayers’ compliance costs.
- Improving taxpayer services and ensuring consistency and fairness.
- Reducing the tax administration’s costs.
- Increasing transparency and strengthening integrity.
- Developing risk management and combating tax fraud

15. Key Tax Admin Reforms in Africa
1.Revenue Authority (RA) Model
Adopted from the executive agency model, the RA model is the practice of establishing a dedicated separate organisation for revenue (tax and customs) administration with a broad range of autonomous powers, separate from formal structures of ministry of finance (or its equivalent).
Most Anglophone African countries have gone this way e.g Ghana, Uganda, Malawi, Zambia, Kenya, South Africa etc.

16. Key Tax Admin Reforms in Africa, Cont’d
Arguments for RA primarily relate to effectiveness and efficiency:
As a single purpose agency, RA can focus on its single task of revenue collection.
As an autonomous body, it can manage its affairs in a business-like way, free of day-to-day political interference (varies across countries). ???
Being outside civil service, RA can hire and retain highly qualified human resource and offer better conditions for motivation of staff (ZRA minimum qualification policy)

17. Key Tax Admin Reforms in Africa, Cont’d (Big Vs Small)

18. Key Tax Admin Reforms in Africa, Cont’d
It should however be noted that an RA is not an end in itself and should be a means for implementing tax reforms and improving revenue performance.
Evidence as to whether RA is better than ministerial tax administration is mixed.
- RA is not necessarily better!

19. Key Tax Admin Reforms in Africa, Cont’d
2. Streamlining tax administration
Key reform is re-organisation of tax administration along functional lines (taxpayer size) rather than by tax type.
Setting up specialised departments for large taxpayers (usually handles taxpayers that contribute 70% of domestic tax revenue); medium taxpayers; and small taxpayers.

20. Key Tax Admin Reforms in Africa, Cont’d
Most large taxpayer departments have specialised units for natural resource taxation. (ZRA Mining Unit)
Some tax administrations have set up dedicatd research, development and planning departments to aid enhanced domestic revenue mobilisation.
Most countries have merged VAT and tax departments into to domestic tax departments.???

21. Key Tax Admin Reforms in Africa, Cont’d
3. Increased use of ICT systems
ICT has enhanced revenue administration performance through, among others:
providing readily accessible historical data;
reducing errors, processing times and costs;
improving client service and promoting voluntary compliance;
minimising rent seeking opportunities by decreasing the level interaction between taxpayers and staff; and
aiding better decision-making .

22. Key Tax Admin Reforms in Africa, Cont’d
ICT platforms are used for administration of both inland and trade taxes e.g. in Zambia, we have TaxOnline for domestic taxes ad ASYCUDAWorld for trade taxes.
ICT has provided increased interface between internal (including legacy) and third-party data systems:
- More information for tax compliance management.
More information for risk profiling and audits
Is Zambia moving too fast?

23. Key Tax Admin Reforms in Africa, Cont’d
4. Risk Based Operations
There is increased adoption of comprehensive risk management and profiling practices in all aspects revenue administration.
Compliance management, audits, assessments and investigations are now commonly risk based.
Risk is also used as a guide to deployment of resources.

24. Key Tax Admin Reforms in Africa, Cont’d
5. Taxpayer Service and Education
It has been empirically proven that better tax service and improved knowledge about tax system can lead to increased voluntary compliance by the public (see Fjeldstad and Heggstad, 2012).
Efficient and fair taxpayer service are cardinal in boosting tax morale….
Increased taxpayer education and dissemination of tax information is another key factor.

25. Key Tax Admin Reforms in Africa, Cont’d
Others have suggested that transparency on the use of tax revenue is another key variable in influencing voluntary compliance.
A number of tax administrations have established dedicated departments to taxpayer service and education e.g Tax Advice Centres, Tax Call Centres, etc
Taxpayers’ Charters have been put in place e.g in Tanzania and Zambia.

26. Key Tax Admin Reforms in Africa, Cont’d
5. Governance and Integrity
Good corporate governance practices are being embraced by most tax administrations especially RAs in order to foster public confidence in the tax system.
RAs are usually overseen by Boards of Directors with representation of both public and private sector.

27. Key Tax Admin Reforms in Africa, Cont’d
Integrity committees, internal affairs departments and internal audit departments have been set up to look into staff conduct matters.
Codes of Ethics have also been put in place

28. Key Tax Admin Reforms in Africa, Cont’d
6. Strategic use of Tax Incentives
Tax incentives erode the tax base.
African Governments should aim for transparency and certainty of tax policy, lower tax compliance costs, before awarding tax incentives to foreign investors.
Studies have shown that investors are often willing to trade higher tax payments against lower compliance costs ad more predictability and transparency in assessment of their tax obligations (African Economic Outlook, 2010).

29. Key Tax Admin Reforms in Africa, Cont’d
Tax incentives could be however biased towards inducing local participation in economic activities.

30. Opportunities/Challenges
Technical capacity to address highly complex tax planning activities (How can RAs increase productivity of their workforce?)
Dealing with tax incentives and exemptions
Large informal sector (Tax gap studies)
Declining budgets
Corruption

31. Opportunities/Challenges (Zambia’s Growing Informal Sector)

32. Challenges (Levels of funding)

33. Opportunities/Challenges (Tax Revenue Contribution to Budget)

34. Going Forward
Africa to invest in technical capacity to deal with highly complex tax issues e.g through platforms such as AFRITAC, ATAF, share ideas and knowledge.
Continue increase of uptake of ICT systems in tax administration.
Extensive research in taxation of informal sector.
Whip or Carrot?

35. Conclusion
Tax administration reforms undertaken over the past 2 decades in SSA have paid- off into increased buoyancy of the system.
Average tax to GDP ratio of 21.7% in period as opposed to 17.3% in period
More needs to be done however, especially relating to informal sector and natural resource taxation.

36. THANK YOU!
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