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COMPILATION OF ABSTRACTS ON TAX SYSTEMS IN AFRICA 2019 COMPILATION DES RÉSUMÉS SUR LES SYSTÈMES FISCAUX EN AFRIQUE 2019
Series: ATAF’s Compilation of Tax Research Abstracts ISBN: 978-0-9584218-6-7 Pdf ISBN: 978-0-9584218-5-0 Print Droits d’auteur relatifs à cette publication et à ses composantes. Toute publication, transmission, transcription, traduction ou autres formes de duplications du présent document, dans son entièreté ou en partie, sous un format linguistique ou informatique quelconque, quelle qu’en soit la forme ou le moyen, sans autorisation écrite préalable du Forum sur l’administration fiscale africaine (ATAF), une organisation internationale de pleine capacité juridique et établie conformément à la Convention de Vienne du 8 octobre 2012 sur le droit des traités, est formellement interdite. Toute reproduction ou adaptation non-autorisée de cette publication constitue une violation des droits d’auteur, passible de poursuites judiciaires aussi bien civiles que pénales. Restrictions d’utilisation Les informations contenues dans cette publication sont des informations privilégiées appartenant à l’ATAF, à ses membres et éventuelles branches. Ces informations sont fournies en toute confidentialité, dans l’entendement qu’elles ne peuvent être utilisées à des fins autres que celles prévues par ce document, sans autorisation préalable de l’ATAF. Série : Compilation des résumés de recherche en fiscalité de l’ATAF ISBN: 978-0-9584218-6-7 Pdf ISBN: 978-0-9584218-5-0 Print
COMPILATION OF ABSTRACTS ON
TAX SYSTEMS IN AFRICA 2019
COMPILATION DES RÉSUMÉS SUR LES
SYSTÈMES FISCAUX EN AFRIQUE 2019
ATAF Secretariat
Research Directorate
Postnet Suite 430
Private Bag 15, Menlo Park
Pretoria 0102
South Africa
Telephone: +27 12 451 8800
E-Mail: info@ataftax.org
www.ataftax.org
––––––––––––––––––––––––––––
Secrétariat de l’ATAF
Direction de la recherche
Postnet Suite 430
Private Bag 15, Menlo Park
Pretoria 0102
South Africa
Téléphone: +27 12 451 8800
E-Mail: info@ataftax.org
www.ataftax.org
1RIGHTS AND PERMISSIONS
ALL RIGHTS RESERVED
The text and data in this publication may be reproduced provided the source is cited. Reproduction
for commercial purposes is forbidden. The intellectual property rights of each publication remain
vested in the respective authors and the African Tax Administration Forum (ATAF) has limited rights
thereof. The Compilation of Abstracts on Tax systems in Africa disseminates the findings of tax related
research work in progress, preliminary research results, good practices, development experience
and lessons in Africa, to encourage the exchange of ideas and innovative thinking and further tax-
related research among tax administrators, researchers, development practitioners, policy makers,
and donors. The findings, interpretations, and conclusions expressed in this ATAF’s publication are
entirely those of the author(s) and do not necessarily represent the view of ATAF or the countries they
represent.
DROITS ET AUTORISATIONS
TOUS DROITS RÉSERVÉS
Le texte et les données de cette publication peuvent être reproduits à condition que la source soit
citée. Toute reproduction à des fins commerciales est interdite. Les droits de propriété intellectuelle
de chaque publication restent la propriété de leurs auteurs respectifs et les droits du Forum sur
l’administration fiscale africaine (ATAF) sont limités. La compilation des résumés sur les systèmes
fiscaux en Afrique diffuse les résultats des travaux de recherche sur la fiscalité, les résultats de
recherche préliminaires, les bonnes pratiques, l’expérience et les enseignements en matière de
développement en Afrique, afin d’encourager l’échange d’idées et de réflexions novatrices, ainsi que
la poursuite des recherches sur la fiscalité parmi les administrateurs fiscaux, chercheurs, praticiens
du développement, décideurs et donateurs. Les résultats, interprétations et conclusions exprimés
dans cette publication de l’ATAF sont entièrement ceux du ou des auteurs et ne représentent pas
nécessairement le point de vue de l’ATAF ou des pays que ces auteurs représentent.
2FOREWORD
T he African Tax
Administration
Forum (ATAF) is
the challenges, achieving the continent’s
domestic resource mobilization potential is
possible, as suggested by the innovative ideas
pleased to present and solutions proposed by the authors.
the first edition of
The ATAF Compilation of Abstracts on Tax
our Compilation of
systems in Africa is meant to be a resource tool
Abstracts on Tax
available to ATAF members countries, heads
systems in Africa.
of African tax administrations, researchers
and policy makers, to provide access to
This publication contributes to ATAF’s
research available in the area of taxation. It
vision of building efficient and effective
also aims at providing readily available and
tax administrations in Africa. It highlights
accessible practical solutions, good practices
summaries of research work from three main
and recommendations to challenges facing
sources:
tax systems on the continent. The authors of
• research accepted and published in the the research work summarized here, are from
African Tax Research Network Working various tax administrations, academia, private
(ATRN) Paper Series and Policy Brief; sector and institutions that directly or indirectly
work with tax issues in Africa. They are
• best dissertations and transfer Projects
African researchers and experts who devise
emanating from the ATAF’s Executive
implementable solutions to tax challenges
Master’s in Taxation (EMT); and
from different perspectives. These various
• the best essays from ATAF’s annual Tax approaches enrich the quality of proposed
Essay Competition (ATEC). solutions to solve the tax challenges of our
times.
The purpose of this publication is to examine
This compilation of abstracts is the first of its
innovative solutions to the challenges faced
kind and of many yet to come. The solutions
by the African tax systems in their efforts
presented herein are interesting in their own
to increase revenue collection. ATAF in its
right. ATAF is also aware that there is no “one
commitment to serve as an African voice on
size fits all” solution when it comes to tax
tax matters, aims at improving tax systems
issues on the continent. Yet, ATAF believes
in Africa through knowledge dissemination,
that in the diversified and well-balanced
in order to enhance Domestic Resource
menu of proposed solutions presented in
Mobilization (DRM) and thereby foster inclusive
this Compilation, the readers might find
economic growth.
inspiring ideas to be tested in their respective
Domestic Resource Mobilization refers to jurisdictions. We are fully aware that some
the generation of savings from domestic positive changes demand long-term processes
resources and their allocation to economically and therefore, entail setting reasonable
and socially productive investments. Such expectations and targets. The most important
resource allocation can come from both the however, is to keep learning from the best
public and private sectors. The public sector practices and trying to implement the available
does this through taxation and other forms of and accessible practical solutions to enhance
public revenue generation. The importance of Domestic Resource Mobilization in Africa.
domestic resource mobilization for Africa is
well recognized in each of the summaries here
presented. Most African countries have shown Mr Logan Wort
encouraging trends in DRM growth in recent Executive Secretary
years. This just confirms that, notwithstanding African Tax Administration Forum (ATAF)
3AVANT-PROPOS
L e Forum sur l’administration fiscale africaine
(ATAF) est heureux de présenter la première
édition de sa compilation des résumés sur les
proposées par les auteurs.
La compilation des résumés sur les systèmes
fiscaux en Afrique de l’ATAF se veut un outil
systèmes fiscaux en Afrique. Cette publication
de ressources à la disposition des pays
contribue à la vision de l’ATAF d’assurer
membres de l’ATAF, des responsables des
l’efficacité et l’efficience des administrations
administrations fiscales africaines, des
fiscales en Afrique. Elle met en évidence des
chercheurs et des décideurs, visant un accès
résumés de travaux de recherche provenant de
aux recherches disponibles dans le domaine
trois sources principales :
de la fiscalité. Elle a également pour but de
• Les recherches acceptées et publiées fournir des solutions pratiques, des bonnes
dans la série de documents de travail pratiques et des recommandations facilement
et des notes d’orientation du Réseau disponibles et accessibles pour relever les
africain de recherche fiscale (ATRN) ; défis auxquels sont confrontés les systèmes
fiscaux du continent. Les auteurs des travaux
• Les meilleurs mémoires et projets de de recherche résumés ici appartiennent à
transfert émanant du Master exécutif en diverses administrations fiscales, universités,
fiscalité (EMT) de l’ATAF; et secteur privé et institutions qui travaillent
• Les meilleurs essais du Concours annuel directement ou indirectement sur les questions
d’essais sur la fiscalité (ATEC) de l’ATAF. fiscales en Afrique. Ce sont des chercheurs
et des experts africains qui élaborent des
Le but de cette publication est d’examiner solutions applicables aux problèmes fiscaux
des solutions novatrices aux défis auxquels sous différents angles. Ces différentes
sont confrontés les systèmes fiscaux africains approches enrichissent la qualité des solutions
dans leurs efforts pour accroître la perception proposées pour résoudre les défis fiscaux de
des recettes. Dans son engagement à jouer notre ère.
le rôle d’interlocuteur africain en matière
fiscale, l’ATAF a pour objectif d’améliorer les Cette compilation de résumés est inédite
systèmes fiscaux en Afrique par la diffusion et de nombreuses autres suivront. Les
des connaissances, afin de renforcer la solutions présentées ici sont en elles-mêmes
mobilisation des ressources nationales et de intéressantes. L’ATAF est également conscient
favoriser ainsi une croissance économique du fait qu’il n’existe pas de solution unique
inclusive. pour les questions fiscales sur le continent.
Cependant, l’ATAF pense que, dans le menu
La mobilisation des ressources nationales fait diversifié et bien équilibré proposé dans cette
référence à la création d’économies à partir compilation, les lecteurs pourraient trouver des
de ressources nationales et à leur affectation idées inspirantes à tester dans leurs juridictions
à des investissements productifs sur les plans respectives. Nous sommes pleinement
économique et social. Cette allocation de conscients que certains changements
ressources peut provenir des secteurs public positifs exigent des processus à long terme
et privé. Le secteur public le fait par le biais de et impliquent donc de définir des attentes et
la fiscalité et d’autres formes de génération de des objectifs raisonnables. Le plus important
revenus publics. L’importance de la mobilisation cependant est de continuer à apprendre des
des ressources nationales pour l’Afrique est meilleures pratiques et d’essayer de mettre en
bien reconnue dans chacun des résumés œuvre les solutions pratiques disponibles et
présentés ici. La plupart des pays africains ont accessibles en vue d’améliorer la mobilisation
montré des tendances encourageantes dans la des ressources nationales en Afrique.
croissance de la mobilisation des ressources
nationales (DRM) ces dernières années. Cela M. Logan Wort
ne fait que confirmer que, malgré les difficultés, Secrétaire exécutif
le potentiel de mobilisation des ressources Forum sur l’administration fiscale africaine
nationales du continent est possible, comme le (ATAF)
suggèrent les idées novatrices et les solutions
4ACKNOWLEDGEMENT REMERCIEMENTS
S ummarising in two-pages a full article or
project tends to be harder than what we can
imagine. This Compilation of Abstracts would
R ésumer en deux pages un article complet
ou un projet a tendance à être plus
difficile que ce que l’on peut imaginer. Cette
not have been possible without the efforts compilation de résumés n’aurait pas été
and dedication of various researchers across possible sans les efforts et le dévouement de
the African continent and beyond. To all the divers chercheurs à travers le continent africain
authors who submitted their research summary et au-delà. À tous les auteurs qui ont soumis
to be published in this book, we would like to leur résumé de recherche pour la publication
extend our very special thanks and gratitude. dans ce livre, nous voudrions leur exprimer
This publication is a result of their efforts to nos remerciements et notre gratitude. Cette
study and understand the challenges faced publication est le résultat des efforts qu’ils ont
by African tax authorities and therefore, they déployés pour étudier et comprendre les défis
propose different implementable and feasible auxquels sont confrontées les administrations
solutions. We are especially indebted to all the fiscales africaines et, par conséquent, des
members of the African Tax Research Network propositions différentes de solutions réalistes
(ATRN) Scientific Committee, who diligently et réalisables sont présentées. Nous sommes
reviewed the full articles submitted to the ATRN particulièrement reconnaissants à tous les
Working Paper Series, that were ultimately membres du Comité scientifique du Réseau
summarised in order to be published in this africain de recherche sur la fiscalité (ATRN),
Compilation. We are further grateful to the EMT qui ont examiné avec diligence tous les articles
supervisors who worked actively to provide soumis à la série de documents de travail de
inputs and guidance to the EMT students’ l’ATRN, qui ont ultérieurement été résumés
Master thesis, the Transfer Project, of all pour leur publication dans cette compilation.
alumni of ATAF’s Executive Master’s in Taxation Nous sommes également reconnaissants aux
(EMT) for Africa. Their Transfer Projects were superviseurs EMT qui ont activement travaillé à
summarised and are displayed here to enrich apporter des contributions et des orientations
this publication. ATAF would also like to thank aux mémoires de fin d’études du Master des
the members of the jury who selected the 10 étudiants de l’EMT, le projet de transfert de
best essays out of 57 submitted to the ATAF’s tous les anciens élèves du programme du
Tax Essay Competition (AETC). Moreover, we Master exécutif en fiscalité (EMT) de l’ATAF
would like to extend our appreciation to the pour l’Afrique. Leurs projets de transfert
designers, editors, and proof-readers whose ont été résumés et sont présentés ici pour
skills contribute for a clearer and pleasant enrichir cette publication. L’ATAF aimerait
reading of this publication. Finally, we would également remercier les membres du jury qui
like to thank all ATAF Development Partners ont sélectionné les 10 meilleurs essais sur les
57 soumis au Concours d’essai fiscal de l’ATAF
and the ATAF Secretariat (the Research
(AETC). En outre, nous souhaitons exprimer
Department in particular): thank you for your
notre gratitude aux concepteurs, aux éditeurs
hard work from the beginning to the end of this
et aux correcteurs dont les compétences
great project!
contribuent à une lecture plus facile et plus
Full Working Papers are available online at: agréable de cette publication. Enfin, nous
https://www.atrnafrica.org voudrions remercier tous les partenaires de
développement de l’ATAF et le Secrétariat
de l’ATAF (le département de la recherche en
particulier): merci pour votre travail acharné du
début à la fin de ce grand projet!
Les documents de travail complets sont
disponibles en ligne à l’adresse suivante:
https://www.atrnafrica.org
5CONTENTS
Foreword..................................................... 3 Impact of International Oil Prices on
Excise Duty Collection on Oil Products
Avant-propos............................................... 3
in Kenya....................................................... 29
Acknowledgement....................................... 4
Assessing Taxpayer Compliance
Remerciements........................................... 4 Risk Identification Criteria at the
Kenya Revenue Authority............................ 31
1. Abstracts from the 2016, 2017 and
2018 ATRN Working Paper Series Negotiating Production
(English) Sharing Contracts....................................... 33
Résumés de la série des documents Factors Influencing Informal
de travail de l’ATRN Cross-Border Trade in Uganda:
2016, 2017 et 2018 (Anglais)............. 8 Case Study of the Busia Customs
Border Post................................................. 35
VAT on Mobile Phone Handsets –
The Cases of Kenya and Rwanda............... 9 Assessment of the Impact of
Corporation Tax Incentives on Foreign
VAT Efficiency and the Quality Direct Investment (FDI) in Nigeria................ 37
of Governance............................................. 11
Effective Taxation of the Telecommunications
Recognition of the Rights of Taxpayers Industry in Kenya; a mitigating tool against
and the implications thereof........................ 13 Illicit Financial Flows.................................... 39
Are Presumptive Taxes the answer to Effect of Tax Policy on Income Inequality
Informal Sector Taxation? Kenya’s in WAEMU Countries................................... 41
experience................................................... 15
Value-Added Tax Refund and Evasion
Improving Tax Compliance in the Informal in Zimbabwe................................................ 44
Sector: A Case for Public Transport
“Matatus” in Kenya...................................... 18 E-Commerce Taxation - a Framework to
Broaden the Tax Base in Nigeria................. 46
Tax Compliance, Enforcement and
Taxpayer Service in Kenya: the Case of The Status of Double Taxation
Self-employed Individual Income Agreements in Uganda: Opportunities
Taxpayers.................................................... 20 and Challenges............................................ 48
Sub-Saharan Africa’s tax treaties - The use of Geo-Spatial Mapping in
A review of six taxing rights........................ 22 identifying untapped and underutilised
sources of revenue in properties and the
VAT Revenue Productivity and Reforms informal sector............................................. 51
in Malawi: Performance Diagnosis and
Options for Further Reform......................... 24 Proposal of a new fiscal regime for
large-scale investments in Madagascar’s
The Incorporation of Double Taxation mining sector............................................... 53
Agreements Into Domestic Law:
a South African Perspective........................ 26
62. Abstracts from the 2016, 2017 and 3. 2018 ATAF’s Africa-wideTax Essay
2018 ATRN Working Paper Series Competition (ATEC) - Best Essays
(French)
Concours de rédaction de l’ATAF - .
Résumés de la série des Meilleurs essais................................. 78
documents de travail de l’ATRN
Subnational Governance as a Tool
2016, 2017 et 2018 (Français)........... 56
for Increasing Domestic Resource
L’Evaluation des Dépenses Fiscales au Mobilisation in Africa................................... 79
Togo : Démarche pour une Meilleure
Mobilisation of Africa’s Domestic Resources
Gouvernance Fiscale................................... 57
by Eliminating Corruption: a Lesson From
Réflexion sur l’utilisation des mégadonnées Robin Hood................................................. 81
(« big data ») de la téléphonie mobile
Administering House Taxes in Tanzania...... 83
dans la détermination de l’imposition
individuelle................................................... 60 The Revenue and Corrective potential of
Motor Vehicle Ownership Tax (MVOT)......... 85
La Gestion informatique des Renseignements
fiscaux pour un meilleur Rendement à la How to increase Domestic Resource
Direction Générale des Impôts du Niger..... 62 Mobilization (DRM) in Africa........................ 87
Le Contrôle des Prix de Transfer : quel Increasing Domestic Resource
dispositif pour l’Administration fiscale Mobilisation: The Need to Redefine
sénégalaise?................................................ 64 Tax Justice in Africa..................................... 89
La Gestion des Incitations fiscales au How to increase Domestic Resource
Cameroun : Etude critique et Perspectives Mobilisation (DRM) in Africa........................ 91
d’Amélioration............................................. 66
How to Increase Domestic Resource
Analyse de l’Introduction de la Facture Mobilization in Africa................................... 93
Normalisée au Togo..................................... 68
How to increase Domestic Resource
Les Prix de Transfert et le Développement Mobilization (DRM) in Africa........................ 95
durable : quel Rôle pour les Administrations
fiscales africaines : le Cas du Togo............. 70
Les Prix de Transfert dans les Pays en
Développement. Faut-il renoncer au
Principe de pleine Concurrence dans
les Pays en Développement ?..................... 72
Perspective de fiscalisation de l’Économie
numérique en Afrique : nouvelles sources
de revenus................................................... 75
71
ABSTRACTS FROM THE 2016, 2017 AND 2018
ATRN WORKING PAPER SERIES (ENGLISH)
RÉSUMÉS DE LA SÉRIE DES DOCUMENTS
DE TRAVAIL DE L’ATRN 2016, 2017 ET 2018
(ANGLAIS)
8VAT ON MOBILE PHONE HANDSETS –
THE CASES OF KENYA AND RWANDA
Methodology
This paper summarises the literature concerning
the microeconomic and macroeconomic
impacts that mobile phones have had on
developing countries, particularly in Africa.
The paper then examines the accuracy of
the commonly used mobile phone ownership
data; namely, mobile phone subscriptions and
penetration rates.
The body of the paper considers the case study
of Kenya and the disruptive impact of VAT
policy changes on mobile phone ownership
and compares this to the current situation
within Rwanda. Finally, the question of whether
Rwanda should remove the VAT exemption
on mobile phone handsets is posed, along
Alasdair Mackintosh with a number of economic and revenue
Tax Policy Advisor considerations, including the presentation of
Rwanda Revenue Authority (RRA) an estimate of the revenue that could be raised
by this policy change, using sensitive RRA
data.
Mobile phone ownership has grown
enormously across East Africa over the past
Key findings
decade and there is increasing evidence of their
economic benefits. Both Kenya and Rwanda According to the main observations of this
sought to facilitate this growth by zero-rating paper, following the introduction of zero-rated
and exempting VAT on mobile phone handsets VAT in Kenya, there was a substantial increase
respectively. However, it is good practice for in mobile subscribers, but this growth was not
revenue authorities to regularly assess the sustained over the four years of the policy. In
impacts of all tax incentives in order to justify addition, although ownership growth did fall
the revenue cost and ensure that the incentives after the reintroduction of VAT, the quarterly
are having the desired effects on behaviour. nominal change never became negative, and
growth in mobile subscriptions subsequently
Problem statement recovered within two years. This suggests
that the effect of zero-rating VAT on mobile
In 2013, Kenya decided that the zero-rating of
phones may have largely temporary benefits to
VAT on mobile phones was no longer justifiable
ownership, whilst the impact of reintroducing
and feared that the benefits were not being
VAT is not as harmful as telecoms and traders
fully passed onto consumers. The Rwanda
may wish people to believe, particularly in a
Revenue Authority (RRA) can learn from the
growing economy.
experience of Kenya to inform its own policy
decision regarding VAT on mobile phone Comparing this with the situation in Rwanda,
handsets; including the impact of reintroducing this paper also finds evidence of a decline
VAT on mobile phone ownership in particular. in ownership growth over the duration of the
9VAT exemption policy. This is particularly phones are currently imported into Rwanda by
noticeable in the first few months of 2016, just eight firms. This reduces the demands of
where the net change in mobile subscribers auditing and the likelihood of smuggling if VAT
actually genuinely decreased month-on-month is reintroduced on mobile phones.
for the first time on record. However, although
Additional benefits for the revenue
this suggests that the exemption policy is no
administration include: increased ease of
longer having the desired effect, it also raises
auditing mobile phone sellers and reduced
the concern that the reintroduction of VAT and
likelihood of their tax evasion, alignment
subsequent price rises would lead to a decline
with the RRA Strategic Plan key priorities of
in subscribers, rather than just reduced growth
“improved VAT administration” and “widened
as in Kenya.
tax base”, and (as the only remaining East
Implications of findings African Community (EAC) member with
such a policy) constitute a step towards the
This concern is mitigated by evidence that harmonisation of tax policy with the other EAC
levels of mobile phone ownership are very high member states.
relative to current income levels, compared
to other countries in the region. In particular, Key (implementable) recommendations
the previous success of the exemption helped
Overall, while the microeconomic and
Rwanda to close the gap in mobile penetration
macroeconomic benefits of increased mobile
rates between Kenya and Rwanda to within 10
penetration are not disputed, this paper
percentage points, despite approximately half
concludes that the time is now appropriate
the level of GDP per capita.
for the reintroduction of VAT on mobile phone
The paper also considers the equity arguments handsets in Rwanda. The nature of mobile
for exempting VAT on mobile phone handsets, phone ownership and demand is such that
but not on staple goods such as sugar, salt the scope for further increases in mobile
or clothes. In addition, relatively high mobile penetration is limited, and the regressive
phone ownership means that the majority of nature of VAT is mitigated. Indeed, the
future purchases are likely to be from returning projected increase to government revenue of
customers buying upgrades and smartphones, an initial USD$ 5 million may have a greater
rather than first time buyers purchasing more impact on poor people’s livelihoods than an
basic models. Moreover, although VAT is approximately USD$ 2 increase in the price of
typically considered to be a regressive tax the most basic mobile phones. Lastly, evidence
type, the nature of demand for mobile phones on subscriptions in Kenya suggests that the
in Rwanda may mean that this regressive negative impacts of reintroducing VAT on
nature is reduced in this instance. For example, mobile phones in a strongly growing economy
where a poor family may share one phone are relatively minor and temporary. On balance,
starting from approximately USD $8, a richer this paper recommends the reintroduction of
family may purchase multiple smart phones VAT on mobile phone handsets in Rwanda.
costing as much as USD $900 each. Therefore,
a uniform price increase from VAT on mobile Recommended steps for the
phones may have a less regressive impact than implementation
VAT might have on other products.
The next steps for implementing this
In terms of revenue, sensitive RRA data and recommendation requires engaging
projections estimate that the reintroduction stakeholders and gathering political support. If
of VAT on mobile phone handsets in Rwanda this process is successful, VAT legislation can
could raise an initial USD $5 million per year. then be changed to remove the VAT exemption
This is a non-trivial amount, especially given on mobile phone handsets.
Rwanda’s ambitious development aims.
Moreover, approximately 90% of mobile
10VAT EFFICIENCY AND THE QUALITY OF GOVERNANCE
Methodology
Our contribution, which is definitively empirical,
attempts to combine economic development
and governance quality indicators to assess
VAT efficiency. We capture the latter, our
dependent variable, by the ratio between
average effective and standard statutory VAT
rates; then we measure the former by the
ratio between VAT revenue and the VAT base
Alice Sanna¹ and Marcel Gerard² approximated by aggregate consumption. The
¹Research and Teaching Assistant latter – the standard statutory rate – comes
(Université catholique de Louvain) from the USAID database.
²Professor emeritus We divide our set of explaining or independent
(Université catholique de Louvain) variables into three subsets. The first subset
gathers variables that are usually related to the
assessment of tax designs; such as population
The goal of many governments is to collect
size, degree of openness, GDP per capita,
enough revenue at domestic level while still
and belonging to a peer group based on
attracting foreign investments. For developing
income or geographic proximity. The second
countries in particular, and African countries
subset captures the possible interdependence
more specifically, the increased mobilisation
between jurisdictions: we assume that greater
of domestic resources is a key strategy to
efficiency in one jurisdiction can boost
reinforce domestic ownership of public policy
efficiency in the adjacent jurisdiction. Finally,
and achieve financial autonomy. Taxation is
specific to our approach is the third subset:
the main tool used to mobilise resources, and
governance quality indicators based on figures
is therefore the subject of much theoretical,
from the World Bank.
empirical and policy-oriented research.
We use a panel data and spatial lags
Problem statement econometrics model and proceed step by
step. First, we estimate equations using
The success of this mobilisation depends on
cross-sectional data for the year 2012; then
the efficiency of the tax system. Therefore,
we introduce a one-period time lag for the
our research question is: can we statistically
governance quality indicators. Next, we repeat
establish and assess the relationship between
the estimations for the entire 2007 – 2012
the efficiency of Value-Added Tax (VAT) on the
panel. Finally, we test the opportunity of
one hand, and the quality of governance and
introducing inter-jurisdictional effects through
the level of development on the other hand? In
spatial lags.
other words, we test whether development and
governance quality, alongside other indicators,
Key findings
increase VAT efficiency. Although the paper
focusses on VAT, the results are likely to hold The results obtained with the cross-sectional
for a wider range of taxes. approach are reported in Table 4. Low income
countries and Sub-Saharan Africa are used
as benchmarks and we observed a high
level of significance, both for the constant
11and the quality of governance. It turns out when a country is able to move from the least
that the VAT efficiency of a poorly governed favourable group to that just above it; the effect
country amounts to only 20 per cent of that is much smaller once a country is already
of a well governed one; though they are just higher ranked, denoting a threshold effect. In
orders of magnitude, these figures set forth contrast, the Moran Test suggests that spatial
that governance has a positive effect on VAT lags effects are not at work in our analysis.
efficiency (significance at 1%). Neither this paper nor its authors want to
be lesson givers: our ambition is to provide
Further inspection of the table shows that
policymakers with scientifically founded
moving from the Low Income to the Lower
arguments; some of which are present in the
Middle-Income group increases VAT efficiency
paper, as set forth above.
by 66 per cent. However, a further increase
up to the Upper Middle-Income group only Key (implementable) recommendations
produces an additional 10 per cent gain.
Also, if we compare Sub-Saharan Africa and Should a government wish to mobilise revenue,
the Latin America and the Caribbean region, such as VAT revenue, to achieve increased
efficiency goes up by 62 per cent. Thus, better ownership or autonomy of its economy and
governance and economic development policy, especially in low income Sub-Saharan
significantly drive up VAT efficiency, but a countries, increasing governance quality and
threshold effect seems to be at work. acting in such a way that the country becomes
more open to the world economy, moves up
The results obtained with panel data are given to a higher income group and mimics peer
in Table 5.1 They were produced using three countries from a better ranked part of the
estimation techniques, but we favour Random world, is a desirable policy which provides
Effects (RE), a choice in line with the literature potential partners with the right signals. In
and based on the Hausman Test. All in all, addition, such governments should take into
the coefficients that were already significantly account the various dimensions of governance
different from zero in Table 4 remain so when quality.
we move to panel data. Moreover, some
coefficients which were not, or not always, Recommended steps for
significantly different from zero in Table 42, are implementation
so now. Consequently, moving from 123 cross-
sectional observations to a panel data analysis Since increasing the quality of governance
of 717 indicators reinforces the strength of the is a pre-condition for development, it should
results. be targeted from the outset in the agenda of
African countries. Its completion should then
Implications of findings allow them to mobilise domestic revenue,
move up to a higher income group and mimic
It turns out that an increase in the quality of peer countries from better ranked regions.
governance and a higher level of development,
reflected by higher income levels; a more open
economy or an economy that is aligned with
countries benefitting from a more favourable
geographical position in the world – see
especially the East Asia and Pacific region
– are important drivers of VAT efficiency.
However, those effects are clearly at work
1 For table content, please read the 2016 ATRN Working Paper Series on the ATRN website.
2 Ibid.
12RECOGNITION OF THE RIGHTS OF TAXPAYERS AND
THE IMPLICATIONS THEREOF
inspired this research, which sought to assess
certain powers of the Federal Inland Revenue
Service (FIRS), derived from the Federal
Inland Revenue Service (Establishment) Act
2007 (FIRSEA). This was done using a risk-
based approach amidst the precinct of the
constitutional jurisprudence regarding the right
to property, life and privacy in Nigeria. This
research therefore identifies and assesses the
risk posed by the operationalisation of certain
provisions of the FIRSEA and proposes risk
remediation strategies capable of bringing
about a power balance, helping taxpayers
to meet their tax obligations and preventing
provisions of the FIRSEA from becoming
reason for non-compliance.
Problem Statement
Aniyie Ifeanyichukwu
Ph.D. Candidate As it is currently structured, the paper has
University of Pretoria, South Africa no clearly spelt out problem statement.
However, since the objective of the research
is to determine the constitutionality of the
The issues examined in this paper fall within provisions of the FIRSEA relating to the
the psycho-social spectrum of compliance- administration of refunds, the “pay now, argue
influencing variables. Today, the existence later” rule that is invoked at the Tax Appeal
of the ‘compliance puzzle’ and the plethora Tribunal (TAT) in the course of the pendency
of studies built on the ‘psycho-socials’ (i.e. of a tax dispute and the power of substitution;
concepts from psychology and sociology) is the same is the problem statement. This is
testament to the limitations of the economic because the objective, in addition to directing
deterrence thesis as a means of optimising the assessment and analysis, is the premise for
tax compliance. As a study that attempted to the research findings and recommendations.
hypothesise with regard to the implications of
the recognition of taxpayers’ rights, the paper Methodology
has crossed into the realm of the ‘psycho- This paper utilises a range of methods. In its
socials’. Furthermore, the work of the South entirety, the paper is a case study as it involves
African Tax Ombudsman with regard to a study of the constitutionality of Nigerian
refund administration is also an indicator of tax provisions. It is also, to a certain extent,
its relevance to Nigeria and other African tax content analysis, as tax legislation in Nigeria
administrations that have similar provisions in and the Constitution of the Federal Republic
their legislation. of Nigeria 1999 (CFRN) are examined for the
The conclusion that the powers vested in tax purpose of identifying their biases vis-à-vis
administrations introduce a power imbalance in the thematic rights (right to property, right to
their favour vis-à-vis taxpayers is popular and it life and the right to privacy) of taxpayers who
13fall within Nigeria’s federal tax system. Finally, Key (implementable) recommendations
a comparative angle was added to allow for
the benchmarking of the legal architecture of It is recommended that the FIRSEA be
tax administration in Nigeria against that of the amended:
United Kingdom, the United States of America, a. To cap the time interval for the resolution
the Republic of South Africa and Australia, with of refund claims
a view to identifying tax reform templates for
Nigeria. b. To make FIRS liable to pay: (i)
compensation to a taxpayer where
Key Findings there is delay, where the refund arises
from its maladministration, its agents or
The research revealed that within the federal
employees; (ii) interest to a taxpayer on
strata of the Nigerian tax system, the tax
the deposit made in compliance with
refund process and the “pay now, argue
the pay-before-argument-rule where
later” (pay-before-argument) rule invoked at
the appeal is resolved in the taxpayer’s
the TAT infringes on the right to property of
favour
the taxpayer; while the power of substitution
infringes on both the right to property and the c. To regiment the power of substitution to
right to life guaranteed to Nigerians by the specific types of funds as is done in the
CFRN. USA or limit the exercise of power to a
threshold, as is the case in Australia.
Implication of Findings
Implementation of Recommendations
One of the primary implications of the
research findings is providing a premise for The amendment of the FIRSEA should start with
the conclusion that from a constitutional a call for memoranda highlighting issues with
perspective, the state of affairs with regard the Act and proposing remedies. These should
to the tax refund process, the pay-before- subsequently be considered and incorporated
argument rule and the power of substitution into the amendment bill that should eventually
is unconstitutional. Furthermore, recognition be submitted to parliament as an executive bill
of these thematic rights of interest as inherent for consideration and passage into law. This
to taxpayers (natural and juristic) has the whole process could be driven by FIRS and/or
capacity to positively impact on taxpayers’ the Federal Ministry of Finance.
perception of the fairness and/or justice of
the tax system; bring about a balance in the
power dynamics that exist in the relationship
between the taxpayer and tax authorities;
improve the level of taxpayer compliance and
taxpayer behaviour; and ultimately, mobilise
the quantum of domestic resources via the tax
system.
14ARE PRESUMPTIVE TAXES THE ANSWER TO INFORMAL
SECTOR TAXATION? KENYA’S EXPERIENCE
has remained low despite the growth of the
informal sector (Kimaru and Jagongo, 2014).
Hence, it is important to understand whether
presumptive taxes are working, and if not why
is it the case, and what can be done. Thus,
the topic was raised to address this question,
which is critical for the future development of
the country.
Problem statement
Domestic revenue mobilisation is critical for the
sustainable development of any country (IEG,
2015; IMF, 2011). Taxes are a major source of
domestic revenue, more so in non-resource
rich countries like Kenya. Tax collection in
developing countries is low and tax potential
is underutilised; which is mainly attributed to
Anne Maina the existence of a narrow tax base (Le et al.,
Officer 2012). Developing countries have been urged
Kenya Revenue Authority (KRA) to broaden their tax base for the purpose of
development (Le et al., 2012). Like many
other developing countries, Kenya has a
Kenya has a vibrant economy with a vision to huge informal sector (Schneider et al., 2010).
be a middle-income country that provides a More than a third of the working population is
high quality of life for all of its citizens by the employed in the informal sector (KNBS, 2016).
year 2030 (Vision 2030). Raising domestic Kenya’s informal sector has been estimated at
revenue is crucial for the country to attain its 33.7 percent of GDP (Schneider et al., 2010).
development goal. Broadening the tax base The income earned from this vibrant sector
will increase the tax potential. Tapping into is unreported and goes untaxed (Schneider
the large and growing informal sector which and Enste, 2000; Ouma et al., 2007; Slemrod
pays little to no taxes will expand revenue and Weber, 2012). Its tax potential has been
collection (Ouma et al., 2007; Slemrod and estimated as 4.26 per cent of GDP (Ouma et
Weber, 2012). Presumptive tax, introduced in al., 2007). A simplified tax – presumptive tax –-
2007 and targeting businesses in the informal is commonly used for informal sector taxation
sector, has yielded minimal revenue (Kimaru to encourage tax compliance within the
and Jagongo, 2014). This has been the case informal sector. Presumptive taxes adopted by
in many other developing countries (Memon, developing countries have performed poorly
2012). Presumptive tax is a simplified tax (Memon, 2012). Kenya’s turnover tax has been
meant to ease the tax compliance process underperforming despite a large and growing
for informal businesses which, in most cases, informal sector (Kimaru and Jagongo, 2014).
lack the capacity to keep proper records. As Presumptive tax contributes about 0.1 percent
such, it is expected that people will comply. of total tax revenue (KRA, various years). It is
To the contrary, presumptive tax collection therefore essential to understand whether the
15presumptive taxes already in place are a good informal sector. TOT alone does not address
approach the taxation of the large informal the dynamism of the various segments of the
sector in developing countries particularly informal economy; nor does it and meet the
Kenya, and why they are under performing. equity and efficiency principle of taxation;
This study analyses the Kenyan experience of hence the poor revenue performance.
presumptive tax to understand the issue and
make policy recommendations. Implications of findings
Presumptive tax is one of the intervention
Methodology
measures in taxation of the informal sector.
Using Kenya’s experience, the paper checks To make it more effective and equitable,
the suitability and practicality of various the tax should be designed for a specific
forms of presumptive taxes on the different business segment. This calls for a combination
segments of the informal sector. The study of different kinds of presumptive taxes for
synthesizes the literature and tries to bring a specific business segments such as small
deeper understanding of presumptive taxes entrepreneurs, agriculture and professionals.
in Kenya and the characteristics of informal The presumptive tax design in Kenya needs
businesses in the country. From the literature, to be reviewed to deal with inefficiencies and
the author analyses the types and design of improve revenue performance. There is also a
presumptive taxes, and trends with revenue need to enforce other forms of indirect taxes
that is collected. Informal businesses are also so as to incorporate most of the underground
grouped into categories according to their economy in the tax system, such as VAT.
unique characteristics. Depending on the Measures to increase tax compliance; such
characteristics of the business, the researcher as further simplification of the regular tax
analyses the design of tax that would be most system, the enforcement of existing tax laws,
appropriate. heavier penalties, the simplification of business
regulations and increased transparency and
Key findings good governance, need to be implemented in
order to provide a lasting solution.
Turnover tax (TOT) is a simple tax, but it is
unfair and inefficient. The chances of under- African countries have a significant informal
reporting turnover are very high. Advance economy and a narrow tax base. Most of these
tax is also a simple tax which is set at a low countries face a budget deficit. To promote the
rate and considered unfair by taxpayers. development agenda, it is necessary for these
Presumptive taxes in Kenya do not cover countries to raise sufficient domestic revenue
large businesses operating in the shadow to finance their development agenda. Bringing
economy. A good understanding of the the informal sector into the tax base is crucial.
business operating environment and the Presumptive taxes have been introduced by
causes of informality is crucial to the design a number of developing countries but have
of a presumptive tax. Businesses in the performed poorly, and the informal sector
informal sector are not all the same; they can remains largely outside the tax bracket. The
be grouped into various segments such as study investigates why presumptive taxes
street traders, small entrepreneurs, agriculture, have performed poorly and recommends
professionals and large and medium-sized ways to improve their performance and
enterprises. These segments face different other intervention measures to increase
operating environments; hence, their tax tax compliance within the informal sector.
compliance might be affected by different It provides much-needed information for
factors. Thus, different designs of presumptive policymakers in African countries faced with
taxes will apply to different segments of the the problem of taxing the huge informal sector.
16Key (implementable) recommendations • Push for further simplification of the
regular tax system and heavier penalties.
• Enforce existing tax laws
• Call for the simplification of business
• Enforce indirect taxes so as to
regulations and increase in transparency
incorporate most of the underground
and good governance.
economy in the tax system, such as VAT
• Push for review of presumptive tax
design in Kenya to increase efficiency
and improve performance
17IMPROVING TAX COMPLIANCE IN THE INFORMAL SECTOR: A
CASE FOR PUBLIC TRANSPORT “MATATUS” IN KENYA
demand for transport, especially in urban
areas (Carruthers et al. 2005). The sector
pays little or no taxes on income generated.
Efforts to streamline the sector and make it
more compliant have always been met with
heavy resistance from players in the sector
(Schalekamp et al., 2010). An attempt to
introduce electronic payments by passengers
failed (Njoroge, 2015). Turnover tax does not
also generate the much-needed revenue from
the matatu sector, nor has research given
answers on how to increase compliance within
the informal public transport sector. This
research paper attempts to look for solutions to
increase tax compliance in the matatu industry.
Methodology
Anne Maina The study utilises both primary and secondary
Officer data. The secondary data is obtained from
Kenya Revenue Authority (KRA) government documents and relevant literature.
Data available from literature on matatus was
not sufficient for the study. It was therefore
A large and growing informal economy is necessary to collect more data for the research
an issue of concern for many developing through a survey. The target population was
countries. Public transport is largely informal owners, employees (drivers and conductors),
and usually provided by private small-scale SACCOs and regulatory authorities. The survey
operators in major cities in African countries, set out to determine the extent of revenue loss
Kenya included. The need to bring the growing in the matatu industry currently (if any) and gain
informal sector to pay taxes is evident. Taxing a deeper understanding of matatu operations
the informal sector is one way of broadening and the views and suggestions of players in the
the tax base. Apart from raising revenue, it will sector regarding tax compliance.
promote equity in taxation, economic growth
and good governance (Joshi et al., 2012). Key findings
This research topic was driven by the need
to make the growing public transport sector The survey revealed that the players in the
more compliant with tax laws so as to increase industry do not feel compelled to comply
revenue. with tax laws and regulations, and some are
not even aware of their tax obligations. The
Problem statement matatu business is a risky one, and proper
management is key for profitability. Net income
Public transport makes up a substantial part may vary widely from one matatu business
of the informal sector in Kenya. It is provided to another, depending on management and
mainly by matatus. The significance of matatus the mode of finance. The claim by some
has been increasing over the years, as their respondents that it is a loss-making business
numbers continue to rise to meet the high
18could be true in some instances, especially Key (implementable) recommendations
where there is mismanagement. It is necessary
to keep this in mind when setting a standard i) Enforcing existing laws and regulations
presumptive tax for matatus. However, it is ii) Organising tax forums for matatu
clear that there is income generated for the operators and rewarding compliant ones
owners and the crew who do not pay taxes.
iii) Working with the main stakeholders in the
Implications of findings sector on all tax-related matters
A presumptive tax for matatus based on their iv) Pushing for the introduction of
fuel consumption and the re-introduction of an a presumptive tax based on fuel
advance tax for matatu drivers and conductors consumption and the re-introduction
are recommended. Organising tax forums for of advance tax for matatu drivers and
matatu operators and rewarding those that are conductors.
compliant will increase their tax knowledge.
More effort is needed to enforce any existing Recommended steps for the
and new rules and regulations. Issuing implementation
tickets to passengers and self-regulation by
i) Advocate strict enforcement of existing
SACCOs will help enforcement. Introducing a
laws and regulations
cashless system is a big step forward. Good
governance is key to improving tax compliance ii) Organise tax education forums for matatu
in matatu industry and efforts to improve tax operators and reward those that are
collection need to involve all vested interests compliant
in the industry.
iii) Hold consultative meetings with the main
Informal public transport is the popular mode stakeholders in the sector on the way
of transport in major African cities. It is often forward to promote tax compliance
characterised by non-compliance with laws;
iv) Make budget proposals for the
especially tax laws. This research paper
introduction of a presumptive tax
provides solutions that can be widely applied
based on fuel consumption and the re-
to other African countries facing the same
introduction of advance tax for matatu
problem.
drivers and conductors.
19TAX COMPLIANCE, ENFORCEMENT AND TAXPAYER SERVICE
IN KENYA: THE CASE OF SELF-EMPLOYED INDIVIDUAL
INCOME TAXPAYERS
in prior research papers, taxpayer service is
regarded as a separate factor with a direct
effect on tax compliance.
Methodology used
This study makes use of a simple regression
analysis of aggregate variables representing
tax compliance against the probability of audit,
penalties, criminal sanctions and taxpayer
service. The period between 2003 and 2012
was chosen due to the availability of data. At
the individual level, the effect of prior audit
and penalty charge is regressed against tax
compliance. Prior audit and penalty charge are
defined as categorical variables.
Key findings
Anne Nyaga Audit and penalties have a positive relationship
Supervisor with tax compliance; taxpayer service and
Kenya Revenue Authority (KRA) criminal sanctions have a negative relationship
with tax compliance. Except for the probability
of audit, all estimators are non-significant.
Having worked in both the Audit section and
the Taxpayer service section in the Kenya Implications of findings
Revenue Authority, I became interested
The findings of this study are no different from
in exploring the divergent tax compliance
previous studies conducted in other parts
measures of enforcement and service, as
of the world, nor do they differ from theories
used by tax administrators to achieve tax
underpinning the tax compliance phenomenon.
compliance. I sought to examine their different
underpinning theories, prior studies and Overall, the study indicates that even in Kenya,
practical uses in other tax administrations. A tax compliance is a puzzle. Why? Variability in
simple review of the literature reveals that the the probability of audit accounts for only 31%
phenomenon of tax compliance is a puzzle. of the variability in tax compliance, and all other
Theorists, researchers, and even practitioners estimators show non-significant effects. Thus,
have not come to a conclusive answer to the the reason taxpayers comply in Kenya, as in
question of why people pay taxes. other parts of the world, remains an interesting
question.
Problem statement
Albeit non-significant, the effects of the
This paper aims to find out how both variables representing the different tax
enforcement policies and taxpayer services compliance measures can provide tax
representing economic factors and non- administrators with insight into improving
economic factors respectively will affect the their effects. For instance, in this study,
level of tax compliance. In this study, unlike
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