Africa's tax systems face challenges

African countries face significant challenges in respect of the effectiveness of their tax systems, according to Logan Wort, CEO of the African Tax Administration Forum.

Wort was addressing the 2011 Deloitte Africa Tax Summit in Johannesburg.

He said the challenges resulted from high compliance costs, under-resourcing and the skills gap, underdeveloped compliance strategies, corruption and the quality of IT and processing systems.

"African countries also have very large informal sectors that can account from 40 to 60% of gross domestic product," he added.

Some modernisation processes, however, were underway.

For example, Wort said Tanzania's Tax Modernization Programme consisted of improving the legal framework, broadening the tax base, strengthening the Tanzania Revenue Authority to increase the efficiency and effectiveness of tax administration, and improving the administrative infrastructure.

However, taxpayer service and education needed to be continued in Africa.

"Efforts should continue in this direction to establish trust and build a tax compliance culture. Changing the culture of taxation will, however, take time and results will only be visible in the long run," Wort said.

Yet another common challenge was the tax evasion of multinationals. Transfer mispricing and false invoicing were common, he noted.

However, ATAF had made recommendations for a Transfer Pricing Project in Cairo in 2010.

"The purpose of the project is to assist in building the capacity of ATAF members to identify and address those areas of risk to their tax bases from transfer pricing and thin capitalisation issues," the chief executive said.

Wort said that the taxation system in SA was "a different world" compared to some other countries on the African continent.

"ATAF has been running training programmes for two years and when SA tax officials share their experiences during these programmes, they can be compared more to the experiences of UK or Canadian revenue authorities than those of African authorities.

"In SA you're talking about things like close collaboration between Treasury and the SA Reserve Bank- this doesn't exist in many of our African member countries," he concluded.