EAC States struggle to generate sufficient tax revenue. This struggle has been seen with these East African Community (EAC) member states find it hard to generate sufficient tax revenue to support crucial investments in public services.
In the 2022/2023 financial year, Rwanda was the only EAC member state that was able to generate tax to GDP ratio of 15%.
This is considered an underperformance for Africa as a whole because according to the World Bank (WB), any country collecting below 15% of GDP in taxes will not be able to satisfy the basic needs of its citizens and businesses.
Brookings Institution in its annual Foresight Africa report revealed that Africa’s average tax-to-GDP rate is 16.5%.
This is lower compared to other regions. Asia and Pacific collected 19.1%, Latin America and the Caribbean – 21.9%, while OECD countries generated 33.5%.
EAC States Struggle To Generate Sufficient Tax Revenue: A breakdown of some EAC member states’ performance in tax to GDP ratio
Kenya’s tax revenue to GDP is about to meet the World Bank’s minimum recommendation.
The ratio of Kenya’s tax revenue to GDP is set to reach 15.8% in the current 2023/24 fiscal year.
This was stated by the National Treasury in its final 2023/24 Budget Review and Outlook Paper published mid-this month.
It was explained that emphasis will be placed on aggressive revenue mobilisation using a combination of tax administrative and tax policy reforms.
The government also plans to put the final touches on the development of the Medium Term Revenue Strategy for the period 2023/24 to 2026/27.
For Tanzania, the tax-to-GDP ratio for the 2022/2023 financial year reached 11.9% and the government estimates that it will rise to 12.4% in the following financial year.
This was revealed in Parliament by the Minister for Finance, Mwigulu Nchemba, when he tabled the budget framework for the 2024/25 financial year.
In terms of tax to GDP ratio, the nation is underperforming, as it is generating taxes at the level of low-income countries when it has a lower middle-income economy.
According to a World Bank senior economist, Jaffar Al-Rikabi, the country had successfully increased tax collection but there is more work to do as collection rates were still below peer countries.
In 2022, Tanzania’s tax collection to the GDP ratio was around 11% compared to the 14.2% average of sub-Saharan Africa.
David Tarimo, a Country Senior Partner of PwC Tanzania, has recommended that the government take better advantage of digital technology to facilitate tax administration and enhance voluntary compliance for Small and Medium Enterprises.
Rwanda surpasses other EAC member states, with the highest tax-to-GDP ratio in the EAC since 2016.
According to Medium Term Revenue Strategy 2021-2024 by the Ministry of Finance and Economic Planning, since 1993, the tax revenue generation has risen from around 8.8% of GDP to 15.8% in the financial year 2019/2020.
The country has a target for domestic revenue mobilisation of 21.5% of GDP by 2035.
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