A REVIEW OF THE AFRICAN TAX ADMINISTRATION FORUM POLICY DOCUMENT ON THE IMPACT OF VALUE ADDED TAX IN REVENUE STABILITY IN SOME AFRICAN COUNTRIES
In 2009, a significant number of African states recognized the need to take charge of the performance of their tax administrations by mobilizing domestic resources rather than rely solely on foreign aid, hence the establishment of the African Tax Administration Forum (ATAF). The ATAF is recognized globally as the voice of taxation in Africa, providing assistance to its member countries to better their tax systems. Its major aim remains the increment of the level of voluntary tax compliance while battling tax evasion and avoidance. In her contribution to the vital mission of the ATAF, Nigeria helps in research and also in providing expert advice and technical assistance. In light of this menacing pandemic and the urgency of the need to lessen its rippling effects on economies, the ATAF released a policy document which this paper seeks to give an overview of.
African countries have employed certain tax-relief measures in acute understanding of the challenges taxpayers may currently be facing. A major highlight of these measures is the primary and careful focus on the advancement of value-added tax (VAT) refunds collection, giving preferential treatment to smaller VAT taxpayers while also ensuring that the level of voluntary compliance does not fall too. This is majorly owed to the evident fall in revenues generated from corporate income tax caused by the pandemic. Thus, to effectively utilize the VAT collection measure in a bid to prevent the economy from suffering too much, there are two major influencing factors, as specified by the International Monetary Fund (IMF), which must be taken into careful consideration. These are the policy gap and the compliance gap. The policy gap is owed to the policy choices made on VAT expenditures etc while the compliance gap is caused by the non-compliance with required obligations by taxpayers.
The policy document provides adequate enlightenment on the improvement of the total efficiency and effectiveness of the VAT system through the increment of its collective efficiency ratio (CFE) and/or the elimination of policy gaps which may affect the efficiency. The co-efficiency ratio is basically gotten by comparing actual revenues generated from VAT and the revenues theoretically generated from applying VAT at a standardized rate to the potential taxbase. The document also provides an analysis of the CFE in some African countries and how the emergency measures as a result of the pandemic would negatively affect it. The use of targeted interventions, such as the temporary reduction of VAT standard rate for hospitality services, may however prevent the policy gaps from expanding while the increment of VAT refunds for small and medium size businesses with good compliance record would equally help the compliance gap from expanding.
The importance of implementing measures which would only positively affect the VAT system in the long run and increase the co-efficiency ratio cannot be overstressed. Thus, countries must take proper care in effecting emergency measures which may have an adverse effect on the VAT system. Hence, the policy document proposes the expansion of the tax base-especially through the reduction of tax avoidance and evasion, the enlightenment and engagement of taxpayers, the modernization and automation of the VAT registration processes and the review of tax exemptions.
With these measures effectively in place, tax administrations would be better equipped to be able to withstand future crises.
By Solomon Peace.
Peace is a 300level Law student with a budding interest in Commercial law, Taxation, Maritime Law and Energy. She is passionate about making impact in lives. You can reach her via
Twitter – @PeaceSolomonn