(November 12, 2010) More evidence on the growing chorus of African leaders that say a more efficient taxation system beats foreign aid in promoting development, writes Brady Yauch.

The list of politicians, experts and academics who believe an efficient and fair system of taxation is a better way to promote development in the developing world continues to grow. Seth Terkper, Ghana’s Deputy Minister of Finance & Economic Planning, speaking at a recent conference said African governments should no longer rely on foreign aid as a means to promote development in their countries.

Instead, he said, it’s time they improve their tax administrations.

The recent financial crisis, Terkper says, resulted in a decline in export revenues and falling commodity prices, which has left many African countries short on financing their national budget and led to increase debt. He says they need to find a more sustainable way to fund the development needs of their economy—and taxation is the best solution.

“What we need is a capable tax administration system that is able to collect revenue for the state, deal with tax evasion and avoidance and build a compliance culture,” he said. “Our aim must be to mobilize domestic resources to the extent that they fund the domestic development agenda.”

“This will build sustainability and enable the delivery of important basic services to the African people.”

Terkper says many African governments have already begun turning to tax revenues to fund themselves—referencing a recent report that showed the average tax to GDP ratio in sub-Sahara Africa increased from between 12 and 15 percent in the 1980s to the current level of around 18 percent.

In some countries that figure is much higher, with Kenya having a tax to GDP ratio of 22.3 percent.

Terkper’s remarks come after a number of African leaders, speaking at a conference at the World Economic Forum on Africa earlier this year, called for reform of the tax system, pointing out that Africa currently has one of the lowest tax-to-GDP ratios in the world.

South African Finance Minister Pravin Gordhan, Mozambican President Armando Guebuza and African Development Bank President Donald Kaberuka, admitted that the African continent lagged behind most other parts of the world when it comes to tax collection.

Meanwhile in Pakistan, the country’s Federal Minister for Finance and Revenues, Shaukat Tareen, has gone on record saying that if the government were able to increase revenues from tax collection, contentious foreign aid packages, such as the US Kerry-Lugar bill that sparked weeks of protests last year, would be unnecessary.

Brady Yauch, Probe International, November 12, 2010

Further Reading from Probe International:

• Like water through your hands: Most foreign aid money sent to East Timor not spent in the country
• Rewarding corruption: World Bank gives more money to corruption-riddled Uganda
• Foreign aid discredits itself
• Taxation with representation: the better way to development say experts
• Dictators and Disasters: a disaster waiting to happen
• China learning how to play the foreign aid game
• Banking on disaster: Pakistan officials accused of diverting funds from earthquake aid
  African leaders tell Britain to end aid game
• Enough is enough: British public taking a stand against foreign aid
• Foreign aid in Afghanistan: what goes in must come out
• Health charity spent millions to raise thousands
• Foreign aid to Pakistan is a victim of nepotism
• Banking on the hand that feeds: Food aid is big business in the US
• African leaders call for tax reform, not foreign aid
• Foreign aid and under-development in Africa
• Corruption biting the hand that feeds: food aid industry facing tough questions
• Moyo: international aid to Africa spurs corruption
• Aid in Haiti creates competition with local business owners
• Foreign aid takes another blow—this time in Australia
• Another foreign aid critic says there is a better way
• Banned Aid: Why international assistance does not alleviate poverty
• Thinking outside the foreign aid box
• Foreign aid on the ropes