How Does Kenya Compare To Other African Countries In Terms Of Taxation?
KEY POINTS
The average tax-to-GDP ratio for 30 African countries was 16.5% in 2018, compared to the OECD average of 34.3% and the Latin American and Caribbean (LAC) average of 23.1%.
The report covers the years 1990 to 2018 and shows that between 2010 and 2018, the average African tax-to-GDP ratio increased by 1.4 percentage points, mainly due to revenue increases from VAT and individual income taxes.
KEY TAKEAWAYS
According to World Bank data, the tax rates on income, profits, and capital gains in African countries range from 3% to 48%. On average, African countries have a higher tax rate on income, profits, and capital gains, compared to other countries, even those at similar income levels.
The Kenyan government has recently proposed new tax measures that have sparked public outrage and criticism. The proposals include a 16% value-added tax (VAT) on bread, a 10% excise duty on motorcycles, and a 1.5% digital service tax on online transactions, 15% on content generation among many others targeting the hustlers while the rich get protection to import helicopters for almost for nothing.
These taxes are expected to increase the cost of living and affect the livelihoods of many Kenyans, especially the poor and the informal sector workers.
But how does Kenya fare in comparison to other African countries when it comes to taxation? Is Kenya the most taxed country in Africa? What are the main sources of tax revenue for African governments? And how do they affect economic growth and development?
Tax-to-GDP ratio
One way to measure the level of taxation in a country is to look at the tax-to-GDP ratio, which is the total amount of taxes collected by the government as a percentage of the gross domestic product (GDP) of the country. This ratio indicates how much of the national income is used to finance public services and goods.
According to the latest report by the Organisation for Economic Co-operation and Development (OECD) on tax revenue statistics in Africa, the average tax-to-GDP ratio for 30 African countries was 16.5% in 2018, compared to the OECD average of 34.3% and the Latin American and Caribbean (LAC) average of 23.1%.
The report covers the years 1990 to 2018 and shows that between 2010 and 2018, the average African tax-to-GDP ratio increased by 1.4 percentage points, mainly due to revenue increases from VAT and individual income taxes.
However, there is a wide variation among African countries in terms of their tax-to-GDP ratios. In 2018, Seychelles (32.4%), Tunisia (32.1%), and South Africa (29.1%) had the highest tax-to-GDP ratios of the 30 countries covered. Nigeria (6.3%), Equatorial Guinea (6.3%), Chad (7.1%), and the Democratic Republic of the Congo (7.5%) had the lowest.
Kenya had a tax-to-GDP ratio of 18% in 2018, which was slightly above the African average but below the LAC average. Kenya’s tax-to-GDP ratio has increased by 2 percentage points since 2010, mainly due to higher VAT revenues.
Related Content: Taxation Systems In East African Countries: A Comparative Analysis Shows Kenya Is The Most Taxed Country In EAC
The table below shows the tax-to-GDP ratios of some selected African countries in 2018:
Sources of tax revenue
Another way to compare taxation across countries is to look at the sources of tax revenue, which indicate how different types of taxes contribute to the total tax collection.
According to the OECD report, taxes on goods and services were on average the greatest source of tax revenue for African countries, at 51.9% of total tax revenues in 2018. VAT contributed on average 29.7%, making it the most important tax on goods and services.
Corporate taxes accounted on average for 19.2% of all tax revenues, and individual taxes accounted for 17.5%. Social insurance taxes and property taxes played less significant roles, at 7.2% and 1.6%, respectively.
On average, African countries’ tax structure is relatively similar to that of LAC countries. Notable differences are Africa’s relatively higher reliance on individual taxes and lower reliance on social insurance taxes.
The average OECD tax structure differs quite substantially from that of the African average, as African countries tend to rely less on individual taxes, social insurance taxes, and property taxes, and more on corporate taxes and consumption taxes.
Between 2010 and 2018, revenue sources have shifted to VAT (an increase of 2.8 percentage points of total taxes) and individual taxes (an increase of 2.1 percentage points of total taxes). While the share of individual taxes is still lower than the share of corporate taxes, corporate tax revenue has declined by 2.3 percentage points of total tax revenue during the same time frame. Consumption taxes other than VAT have declined by 2.8 percentage points of total revenues. The decline in consumption taxes other than VAT in many African countries is partly due to lower trade tax revenues.</