COVID-19: African Union Predicts a US$500bn Loss in Tax Revenue

• The African Union issued a report that African countries could lose up to US$500 billion in revenue from taxes, due to the COVID-19 pandemic.
• The report public resources will be seriously affected due to the lack of resources that the coronavirus pandemic will create.
• The African Union report added that the shortage of revenue generated as a result of the coronavirus pandemic would seriously impact social amenities.

A report by the African Union has shown that African countries could lose up to US$500 billion in revenue from taxes, due to the COVID-19 pandemic.

The report stated that this will cause Africa’s economy to shrink by 9% and a loss of about 30% in fiscal revenue and this will leave African countries at the mercy of international borrowers.

The report disclosed that Africa’s greatest source of tax revenues is from duties on goods and services since the continent is more import driven.

The AU report reported that in 2017, 53.7 per cent of tax revenue was raised from import duties. Nevertheless, with COVID-19 limiting movements and closing borders across the world, imports have decreased dramatically.

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In Africa, the average GDP tax rate is now much too low at 17.2%, compared to 22.8% in Latin America and 34.2% in the OECD. This, the study said, would force most countries on the continent to borrow to fill the vacuum – even though some countries either suffer from debt or are at high risk.

The AU said, “Governments will have no option other than to rely on international markets, which may increase countries debt levels. Debt should be used for productive investment or growth-enhancing investments rather than maintaining their spending plans. There is a high probability that many countries could face an implosion in the stock of external debt and servicing costs due to the increase in fiscal deficits, as more emphasis will be put on fulfilling social needs – including health care systems, socioeconomic stimulus to householders, SMEs, and enterprises.

Yet, one-third of African countries are already, or about to be, at high risk as a result of recent sharp increases in debt levels owing to the favourable international rise of bilateral donors and non-residents’ subscriptions to nationally issued bonds on the African market. Debt in many African countries is on concessional terms, and multilateral institutions have no other choice than to help countries secure even easier terms. However, countries with commercial debt from emerging economies will need to refinance in the current economic crisis”.

The African Union report added that the shortage of revenue generated as a result of the coronavirus pandemic would seriously affect public resources.