Business

Africans want to see real benefits before they pay taxes

A group of Sierra Leone women
Image caption People want to see what their government is doing for them before giving it any money in taxation

Motorists in Sierra Leone's capital are not happy having to pay taxes when roads are full of pot holes, and piped water is nothing more than a pipe dream.

It is a Catch 22 situation. Without money, the government cannot improve the infrastructure and yet, without that infrastructure, people do not want to pay taxes.

Governments need to collect money from its citizens to pay for health, education, transport networks, public salaries and security, which, even at a basic level, allow the economy to function properly.

But many people are reluctant to pay taxes because they believe that tax money is not being spent in the right places. Governments say that tax evasion leaves them without money to provide the services people want.

Wake-up call

Tax inspectors in Africa often have to cope with insufficient resources and are faced with the daunting prospect of extracting money from a population that, generally speaking, is extremely reluctant to pay up.

Progress has been made in some countries but it remains problematic for many administrations.

According to Nkosana Moyo of the African Development Bank, taxation is a sophisticated social arrangement between citizens and companies, and the government.

"It is a contractual relationship - I pay my taxes, but there has to be value given back," he says.

"African governments must wake up to this fact," he adds. "The more you get value for your tax dollars, the more people will be prepared to say they are building their country."

Success stories

Even in countries that have discovered new oil riches, it can be difficult to get the taxes rolling in from individuals and businesses.

Professor Paul Collier, director of the Centre for the Study of African Economies at Oxford University, maintains that every state needs a working tax system.

"Historically, the sequence of building capable states has started with the provision of security, and that comes from a tax base," he says.

He points out that much of the economy in Africa is informal and it is harder to tax people.

Because of endemic corruption, he also believes that governments need to build integrity into the tax collection system.

He says that the governor of Lagos State, Nigeria, has done a very good job of building the tax base and has spent money well.

"By breaking the infrastructure bottlenecks that were jamming Lagos up, citizens are beginning to see that they are getting something for their taxes and they are much more willing to pay them," he says.

Image caption Trade from Africa might well increase if the issue of corruption is tackled effectively

In neighbouring Sierra Leone, strict enforcement is making more people pay.

A local tax has been introduced, and a goods and services tax replaces seven taxes which had previously existed but were rarely paid.

"We have to simplify our tax system and make sure they are affordable at the end of the day," says Sierra Leone finance minister Dr Samura Kamara.

Collecting taxes in Sierra Leone has been made easier with better trained staff, computers and more resources.

But many people, scraping a tiny profit, avoid getting registered formally to escape paying taxes.

Big companies, meanwhile, tend to be over-taxed.

"But if you broaden that base, you could then afford to reduce the tax imposed on individual companies," says Professor Collier.

"If you broaden it and make taxes lower, you will actually capture more," he asserts.

Corruption concerns

Corruption is a burden on ordinary people, acting as an indiscriminate tax.

Some people pay and some do not, while the gatherers use the money they collect for nobody's benefit except their own.

Although Africa does not have a monopoly, it is the most corrupt continent according to Transparency International, the organisation which monitors corruption worldwide.

On a recent visit to Ghana, US President Barack Obama highlighted the problem: "No business wants to invest in a country where the government skims 20% off the top."

Donald Kaberuka, the current president of the African Development Bank, believes the situation is improving.

"Corruption is an issue on top of our minds," he says.

He maintains that accountability is now anchored and strongly defended by the African people themselves.

"We seem to have pockets of difficulties but I believe we are making progress," he insists.

Some people argue that corruption can help an economy - that the greasing of palms can make an enterprise easier to trade.

Mr Kaberuka does not agree: "I cannot imagine a situation where corruption helps the poor or the rich, because it is a taxation - it is a cost."

The president of Ivory Coast's chamber of commerce Jean-Louis Bignon feels the same: "Corruption is high, so it is difficult to do business in the Ivory Coast."

"A business like cashew nuts could not function just because of road blocks and corruption.

"The price of the goods is less than what you have to pay on the way to the port [in bribes], therefore people working in this business just stopped operating."

If corruption can be tackled effectively, and governments can raise capital with taxation, the continent might attract more foreign investment.

That would in turn increase trade and business and, ultimately, improve the livelihoods of ordinary people.

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