(Ecofin Agency) - African countries need to reform their tax systems, which currently average around 17% of GDP, according to UNECA. Key priorities include broadening the tax base and integrating the informal sector. However, beyond national reforms, a fairer international tax system is essential to address the annual losses of $75 billion.

A recent report from the United Nations Economic Commission for Africa (UNECA) emphasizes the importance of a fair tax system for achieving lasting prosperity. Released on September 18, the analysis highlights that tax rates in most African countries remain below 17% of GDP, limiting governments’ ability to fund essential public services such as education, healthcare, and infrastructure. This also hampers their capacity to respond to external shocks like COVID-19 and other international tensions.

To address these challenges, the report suggests broadening the tax base, particularly by gradually integrating the informal sector into the tax system. This sector, which often eludes tax authorities, makes up a significant part of Africa's economy. By strengthening tax administration capabilities and modernizing revenue management systems, governments could collect more domestic resources, according to UNECA.

The fight against illicit financial flows (IFF) and tax evasion is another key priority. UNECA estimates that Africa loses between $60 billion and $75 billion annually due to these practices, including fraudulent invoicing in trade. Implementing more effective detection and sanction mechanisms in sectors like natural resource extraction could help curb these losses.

Another suggestion is the establishment of more progressive tax systems. These reforms aim to ensure that those with higher incomes contribute more, thereby reducing economic and social inequalities. The goal is to fund social programs and infrastructure that benefit the entire population.

Many studies, including those by the World Bank, support the idea that tax systems based on individual income levels encourage greater contributions from the population. However, a persistent challenge over the past few decades has been the unfavorable international tax system for poorer countries.

Organizations like the Tax Justice Network advocate for a fairer global tax system, arguing that capable tax administrations alone are not enough to improve revenue collection. In the extractive and industrial sectors, which are central to many sub-Saharan African economies, jurisdictions known for opaque financial systems and tax frameworks conducive to avoidance are often among the top investors.

The urgency for Africa to mobilize as many tax resources as possible stems from increasing population needs. Basic rights such as access to reliable electricity, healthcare, and education are still not guaranteed. Unlike other regions, African countries cannot easily raise funds in international capital markets or, if they can, often face excessively high interest rates.