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Another Opportunity For Amnesty

01 January 2012   (0 Comments)
Posted by: Author: Logan Wort
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Another Opportunity For Amnesty...

In January 2012, Deloitte hosted a seminar on `Global Tax and Regulatory Trends’. The key note speaker was the well-known head of African Tax Administration Forum, Mr Logan Wort. Below is an edited version of his well-informed presentation.

As Europe deals with its impending financial crisis and the world prepares to be cautious in spending, Africa has become a destination to invest and develop. For many years the continent was seen as an unstable region and unsuitable for business, but with six out of ten fastest-growing economies coming out of Africa, the tide is changing. Many investors have taken a shine to Africa with specialist private equity firms grabbing opportunities in East Africa, as well as tantalizing prospects offered by the west of Africa through countries such as Ghana and Nigeria.

The global world has had a poor turn in form, but Africa has been resilient to some extent, even boasting stability and growth where it may have not been predicted. Industries on the continent continue to battle some of the legislation and protectionism of developed countries. However, with a continent of rich minerals and resources, the constructive and positive management of these will result in Africa’s enhanced development and an overall better quality of life.

In 2011, the continent experienced a record number of 28 national-level elections in 20 countries. An outstanding electoral event has been Southern Sudan’s peaceful January referendum in favour of separation from Northern Sudan. The Arab Spring has caused unrest in the northern parts of Africa, and this may have a negative effect on the business opportunities in the regions. However, the continent as a whole remains resilient and the growth figures are proof of that.

As an investment destination, Africa is now a recognised growth market. In addition to being an innovative environment in the mobile communication technology arena, the continent offers immense opportunities in the form of water reserves, arable land and unexploited mineral and natural resources. With a market of nearly one billion consumers and host to some of the fastest-growing economies in the world, Africa offers new frontiers for both the West and the East.

The African continent enjoyed good growth and yielded positive economic signs in the period 2006 to 2008, with an average annual growth amounting to approximately 6% and a growth in gross domestic product (GDP) per capita reaching almost 4%. Furthermore, a strong rebound after the tumultuous global financial and economic crisis in late 2008 and 2009 was evident as the continent’s average growth rate for 2010 amounted to 4.9%, up from 3.1% for the previous year. More over, positive and strong growth is forecast for the continent in 2012 at an expected rate of 5.8%.

Sub-Saharan Africa had also proved reassuringly resilient to the global financial crisis in 2008–09. Although South Africa and other middle-income economies were unable to escape the global recession, most low-income countries continued to grow at strong rates. Indeed, for most of the 2000s, sub-Saharan Africa’s performance surpassed the global average, in both rain and shine. As IMF MD Christine Lagarde observed during her recent three-country tour of Africa that encompassed Nigeria, Niger, and South Africa, ‘good economic policies provided a platform for higher growth, for more investment, and for less poverty’. This was a welcome contrast to the weak growth and long recessions of the previous decades. 

With the amount of figures and growth states that are being professed for Africa, the challenge remains with coordinating all the amounts and flows into a sustainable and proactive development charter. Africa still remains gripped by poverty and inequalities. Labour remains polarised in some parts of sub-Saharan Africa and perceptions remain that Africa cannot deal with its own problems.

Much of the development that needs to take place should be coordinated by the countries that need specific areas to develop. One of the most creative ways to ensure positive development is to do so through tax administration reform. The collection of revenue boasts a couple of factors, and at the top of the list is the harvesting of a positive relationship between citizen and state. 

Objectives and key functions of tax administrations:

The objective of a revenue authority is to raise domestic revenues by taxing individuals and businesses in that country in order to facilitate the funding of development needs. In this regard, the revenue authority is in place to collect capital for a country so that a country limits its use of foreign aid and uses its own money to develop infrastructure, economic participation and social needs such as schools and hospitals.  


It takes time to establish good tax systems with political legitimacy, but the need for increased revenues creates great pressure to implement tax reforms as quickly as possible. Raising the level of taxes without changing the design of the tax system may exacerbate existing disparities, which may in turn have adverse financial and distributive consequences.

Strategies for moving forward include, inter alia, disciplined macro-economic policies and fiscal policy, including clear goals for the mobilization of tax and non-tax revenues, and responsible public spending on basic education and health, the rural sector and women.

It is recognised that developing countries and economies in transition should set up an effective, efficient, transparent and accountable system for mobilizing public resources and managing their use. It is also recognised that there is a the need to secure fiscal sustainability, along with equitable and efficient tax systems and administration, as well as improvements in public spending that do not crowd out productive private investment.

The choice of a revenue authority model aimed partly to limit direct political interference by the Ministry of Finance, and partly to free the tax administration from the constraints of the civil service system.

It would be in their interest to overhaul the strategies for the mobilisation of domestic and external financial resources through tax and non-tax instruments that are fair, equitable, and create minimal disincentives for economic efficiency, and initiate tax reforms to simplify and rationalize the tax structure. A good tax system should generate revenue increase in line with nominal growth of GDP and without frequent changes in tax rates. That makes it predictable for both the administration and the business community.

Reason for reform to autonomy:

Newly established semi-autonomous revenue authorities are equipped, in law, with some autonomy from central executive power, partly with the purpose of limiting direct political interference in its day-to-day operations. More over, a revenue authority is meant, in principle, to be quite independent of the financing and personnel rules that govern the public sector in general.

The advantage of this view is that managers can recruit the best people they want, as well as source the best qualifications and structure for the exact needs for the job. This method makes for attractive salaries making individuals who work for these organisations to be better motivated in carrying out their work.

Central government taxes are integrated into one system, which is the one designed by the revenue authority. The immediate advantage of this is that external funders are able to donate aid better through smaller and better managed structures as opposed to large public enterprises that have political interference.

There is strong motivation by African states, especially in sub-Saharan Africa, that allow Revenue Authorities to assume a semi-autonomous state: Give the revenue agency a separate legal status, as a corporate body with clear legal responsibilities and duties, and wide powers to own assets, borrow money, etc.

Put it under the control of a management board whose members are independent of government by virtue of (a) being nominated from a diversity of sources, both inside and outside government; (b) having relatively long, fixed periods of tenure, revocable only on clear criteria and through open and legal processes; and (c) having remuneration arrangements that cannot be affected by the current government.

Place all staff clearly and directly under the authority of the chief executive, who will in turn be chosen by and answerable only to the management board.

Provide an operational budget that is independent of the normal annual national budgeting process, either through constitutional provisions or by allowing the authority to fund itself by appropriating a fixed share of the revenues it collects.

Another important aspect that is linked with the reform in tax administrations is the relationship between the head of the revenue authority as well as the president of the State or the Minister of Finance. At first it may seem that the very nature of autonomy is not maintained here, but these close relationships between heads of ARAs and heads of state have been used both to protect the tax collection process from the corrosive routine pressures of corruption and politicking, and to advance the immediate political interests of the head of state.

Source: By Mr Logan Wort, Global Tax Trends (Tax Professional)


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