Borrowed tax policies failing Africa, PwC warns

Governments across Africa are pushing through tax reforms to boost revenue collection, but many of these efforts are faltering due to over-reliance on foreign models that fail to consider local economic realities, according to Job Kabochi, PwC Africa’s Head of Indirect Taxes.

Kabochi attributed the challenges to a mismatch between imported tax policies and Africa’s predominantly informal economies.

Speaking during PwC’s Africa Tax Business Symposium in Mombasa, he stated that the lack of trust in how tax revenues are spent, and under-resourced tax administrations are further undermining the success of reforms.

“Tax reform is geared towards generating more revenues from tax collections. Part of why some of these reform measures are not working is because, as Africa, we have this tendency of borrowing a lot from what is happening elsewhere in the world,” Kabicho said.

While borrowing ideas from other regions is not inherently wrong, the PwC expert emphasised that there is a need to adapt reforms to local contexts.

“If you think about our economy, [it is] highly informal. So, if you take a reform measure that is built for a more formal kind of an economy and try and place it here, you tend to get the wrong results in terms of mobilizing that revenue.”

Kabochi emphasized that trust remains a significant obstacle to successful tax reforms in Africa.

He noted that many Africans lack confidence in how mobilized tax revenues are utilized, which often leads to resistance in fulfilling tax obligations, even when individuals are required to pay.

He also pointed out the challenges faced by tax administrations across the continent, questioning whether they possess the necessary capacity and resources to effectively implement the introduced reform measures.

According to Kabochi, these limitations are among the reasons why many tax policies fail to achieve their intended impact.

Africa’s vast informal sector, he said, is a missed opportunity for sustainable revenue growth.

He thus called for innovative approaches to bring informal businesses into the tax net without burdening them with traditional compliance processes.

“The way to raise revenues in a sustainable manner is to ensure that there is a wider contribution from the society you are looking to tax. Finding ways of formalizing what is currently informal is key,” he said.

One of the ways for formalizing informal business, according to Kabochi, is through leveraging technology to simplify compliance.

“Through the use of technology, you can get the informal part of the society to comply without necessarily having to file returns with the revenue authority. Whether it’s through consumption taxes, like paying taxes on mobile telephony talk time or basic commodities, this brings everyone into the net.”

He also called for diversification of tax bases, particularly in light of the growing digital economy.

“There is a big push at the moment towards the taxation of the digital economy. That is the general direction we are heading as a human race. The focus should be on diversifying from taxing agriculture, tourism, or manufacturing to now taxing the digital economy.”

Kabochi stressed the importance of empowering tax administrators to ensure reforms succeed.

“All these efforts will go to naught if you do not empower and upskill the officers or administrators who are supposed to be collecting these taxes. Upskilling revenue administrators is integral to enhancing sustainable revenue collection.”

He further highlighted the need to diversify tax bases, particularly with the rapid growth of the digital economy.

He observed that there is a global shift toward taxing digital activities and emphasized the importance of moving beyond traditional sectors such as agriculture, tourism, and manufacturing to include the digital economy in tax policies.

The importance of empowering tax administrators in ensuring the success of reforms was also reiterated, with Kabochi warning that without adequately upskilling and equipping the officers responsible for tax collection, efforts to enhance sustainable revenue collection would ultimately fail.

PwC’s Africa Tax Business Symposium, which brought together government officials, business leaders, and policy experts, focused on balancing predictability, fairness, and competitiveness in Africa’s tax environment.