Anorak | Christian Aid’s Hugely Amusing Ideas About Tax In Africa

Christian Aid’s Hugely Amusing Ideas About Tax In Africa

by | 25th, February 2014

CHRISTIAN Aid has a new report out about how tax should work in Africa. And it’s a hugely amusing report. Amusing for devotees of blinkered ideologues ignoring reality that is.

The page is here and the actual report here .

Here’s the basic problem. In this part they are correct:

After a decade of high growth, a new narrative of optimism has taken hold about Africa and its economic prospects. Alongside buoyant growth rates, there has been some poverty reduction and some positive progress in sectors such as health and education.

That’s excellent, after a couple of decades of stumbling around we’ve finally been able to work out some economic policies that allow Africa to grow. This is good, no doubt about it. but then there’s this:

While illicit financial flows undermine the scope for African governments to put in place progressive tax systems, tax systems have also been heavily influenced by the tax consensus, led by the International Monetary Fund (IMF) and supported by other multilateral institutions, bilateral donors and tax professionals. The tax consensus has focused on reducing corporate and, to a lesser extent, personal income tax rates while expanding the base for consumption taxes and value added tax (VAT) in particular. Its impacts have been well documented and have contributed to a heavy reliance on indirect taxation at the expense of more progressive income and wealth taxes. While the neglect of direct taxation is a major shortcoming, the tax consensus in Africa can be judged to have failed on its own terms. Revenue trends have barely risen over several decades and this report confirms that progress in recent years is not significantly affecting this picture.

Now that all might seem a little dry but there’s an important point at the heart of this. So, why did all those people form this tax consensus? That these countries should move away from corporation and high income taxes to consumption taxes?

Well, actually, because the standard economics of taxation states that, for the same tax revenue, you’ll get more growth if you tax consumption than if you tax incomes and corporations. And given that what we wanted to see in the African

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Posted: 25th, February 2014 | In: Money, News Comment (1) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink