AU says COVID-19 exacerbates Africa’s already dire revenue situation

African Union

The African Union (AU) Commission on Friday said that the ongoing COVID-19 pandemic has exacerbated an already dire tax revenue situation across the African continent.

The statement was made by Victor Harison, AU Commissioner for Economic Affairs, emphasizing the brunt of economic challenges mounting from the ongoing COVID-19 impact on African economies.

“Undoubtedly, the unprecedented COVID-19 pandemic continues to pose a devastating situation for health systems and national incomes globally. Governments continue to strain their fiscal revenues as they implement emergency measures and recovery plans to sustain economies,” an AU statement issued on Friday quoted Harison as saying.

“This also has a significant negative effect on tax revenues, which provide a substantial source of revenue for most nations. In many African countries, the pandemic has exacerbated an already dire tax revenue situation,” the AU Economic Affairs Commissioner added.

The 2020 Revenue Statistics in Africa report produced by the AU, African Tax Administration Forum (ATAF) and the Organisation for Economic Co-operation and Development (OECD), indicated that the tax-to-GDP ratio for 26 African countries remained low at 17.2 percent, compared to the OECD average at 32.2 percent and 22.8 percent for Latin America.

Some major economies, including Nigeria, stood at 5.7 percent, while the Democratic Republic of the Congo (DRC) at 6.6 percent. “This signifies the importance for countries to strengthen their tax administration to enhance domestic resource mobilization and develop financial autonomy,” said Harison.

The AU Economic Affairs Commissioner also emphasized the imperative for African countries to properly tax the digital economy to derive the benefits therein, emphasizing that tax administrators “should be adequately equipped to overcome the constraints they face in taxing the digital economy.”

On Wednesday, the AU had also warned that the COVID-19 pandemic has amplified Africa’s need to expand resource mobilization base as the decline in the prices and demand for commodities and the impact of the pandemic of the travel and tourism sectors, which African countries mainly depend on for tax revenues, have “led to significant loss of revenues.”

The AU’s call came in line with the deliberations of African tax officials and policymakers who are meeting virtually on August 26 and 27 as part of the High-Level Policy Dialogue, which is being hosted by the AU Commission.
Figures from the 55-member pan African bloc shows that Africa’s GDP growth is projected to drop by between 4.9 percent and 2.1 percent in 2020, which would lead to a reduction of between 135 billion U.S. dollars and 204 billion U.S. dollars from pre-COVID-19 GDP of 2.59 trillion U.S. dollars.

According to the AU, the COVID-19 crisis has increased poverty with the African Development Bank (AfDB), estimating that COVID-19 pandemic will push between 28.2 million and 49.2 million more Africans into extreme poverty.

“In the light of this crisis, it is imperative that African policymakers respond with heightened urgency to the issues raised by the impact of the COVID-19 pandemic on African economies and take a closer look at the proposals for the taxation of the digital economy and their likely implications for revenue collection for the continent’s states,” the AU said.

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