Joint ATAF-KOREA and ADB Conference on Domestic Resources Mobilization

1. 23 April 2009 Strengthening Domestic Resource Mobilization in Africa Mr. Lobe NDOUMBE Director, Governance Economic and Financial Reforms Department (OSGE) African Development Bank Joint ATAF-KOREA and ADB Conference on Domestic Resources Mobilization Cape Town 4-7 April 2011

2. Public Resources Mobilization 1 Why Public Resources Mobilization 2 Some Stylized Facts 3 Challenges and Opportunities

3. Why Domestic Resources Mobilization • Risks for African Economies of over reliance on external flow for their revenues • The existence of a structural financing gap: recurrent current account deficits and unsustainable fiscal deficits (excluding grants) • Effectively Promoting the Development Process and Poverty Reduction

4. PART 1: WHY DOMESTIC RESOURCE MOBILIZATION? Domestic resources mobilization as timely topic Cornerstone of broad-based development & Part of on-going global debate ODA < 50% tax revenue ODA > 50% tax revenue No available data

5. Domestic resources mobilization as timely topic Domestic resources mobilization as timely topic

6. Domestic resources mobilization as timely topic Domestic resources mobilization as timely topic

7. PART 2: SOME STYLIZED FACTS Encouraging upward trend in tax mobilization … • But share of taxes remains remarkably different across income groups Source: AEO, 2010.

8. Encouraging upward trend in tax mobilization …

9. Encouraging stronger tax mobilization in Non-Resource Rich Countries… Domestic resources mobilization as timely topic

10. PART 2: SOME STYLIZED FACTS Mobilizing more public resources is achievable • In many countries, ODA per capita exceeds tax revenue per capita Source: AEO, 2010.

11. PART 2: SOME STYLIZED FACTS But, widening disparities in tax collection per capita • Gap between MICs and LICs doubled (20% to 40%) over a decade Source: AEO, 2010.

12. PART 2: SOME STYLIZED FACTS Mostly resource-driven increase in tax revenues … • Concerns about volatility and unbalanced sources of tax revenue Source: AEO, 2010.

13. PART 2: SOME STYLIZED FACTS Untapped resources for resource-rich countries… • Some non resource-rich countries have performed better in terms of tax effort (Tax effort = actual tax revenue/potential tax revenue) Source: AEO, 2010.

14. PART 3: CHALLENGES Large informal sectors with untapped potential • Differentiated potential fiscal returns from large vs. small informal actors • Differences in collection costs between large vs. small informal actors Short term: reach out for bigger informal activities and transactions Medium term: Stimulate private sector development Strengthen fiscal legitimacy

15. PART 3: CHALLENGES Key Challenges • INFORMAL SECTOR: • Trade-off between formalization to facilitate taxation and supporting a source for livelihood and employment creation • CAPACITY TO TAX: • Broader framework (not just TA; but also training, IT capacity, governance, …) • PRIVATE SECTOR AND TAX BURDEN: • Trade-off between raising government revenue and stimulating private sector activity • BROADER PUBLIC EXPENDITURE MANAGEMENT ISSUES: • Given the limited space for redistributive taxation, more needs to be done to tackle inequality and poverty through expenditure management.

16. PART 3: KEY OPPORTUNITIES Key Opportunities • BROADENING THE TAX BASE: • The most effective way of increasing public revenue is through policies that increase the tax-base through sustained economic growth • Improving tax administration: • Efficient tax collection system strengthens public resource mobilization without over-taxing the economy • Modernization of the system, procedures and rules will also improve the efficiency of tax administration therfore the capability of collecting more domestic resources • DEEPENING THE TAXE BASE WHEN FEASIBLE: • The tax base is a set of economic activities and assets that is taxed. In many African countries the amount of tax raised is below the potential. For example: Tunisia has increased its own at a yearly average of 3.5% and South Africa has more than doubled its tax base.

17. PART 3: CHALLENGES About 35% of the Bank’s governance programs now include components supporting tax reform and tax capacity. : • Swaziland Revenue Authority: • The Bank supports the establishment of the Swaziland Revenue Authority (SRA) as a semi - autonomous revenue Authority to enfance revenue Mobilization and tax administration • Liberia : • The Bank supports policy and institutional reforms in public financial management and revenue and customs administration( one-stop service facility in customs) through a policy-based grant (USD 24 million, 2008-2010) • Provides technical assistance for a feasibility study on the establishment of the Liberia Revenue Authority and smooth introduction of the VAT • At the Regional Level: • Supports partnership and regional institutions and networks Particularly ATAF, CABRI and EITI

18. Bank’s Support to DRM The Bank and ATAF Cooperation on DRM • The African Development Bank has been your partner since your very first steps. This solid partnership is reflected in our hosting of the 2nd Council meeting of the African Tax Administration Forum held in Tunis, on 15 – 16 November 2010 as guests of Dr Donald KABERUKA, the President of the African Development Bank (ADB) Group.

19. The Bank and ATAF Cooperation on DRM • The Bank is committed to further strengthen this cooperation, demonstrating our shared commitment to mobilizing domestic resources more effectively and increasing the accountability of our states to our citizens. To this end, the African Development Bank intends to become an associate member of ATAF in accordance with its Agreement and its Rules and Procedures.

20. Africa can contribute to international tax dialogue

21. Thank you Joint ATAF-KOREA and ADB Conference on Domestic Resource Mobilization Challenges to African Tax Policy and Administration Cape Town: 4-7 April 2011