Africa may be getting worse, not better, at raising taxes

That is the implication of an interesting blog over at the Guardian, which argues that African GDP statistics are woefully inaccurate. A couple of years ago Ghana revised its GDP estimates dramatically upwards, by 60%, and it seems Nigeria is about to follow suit.

Consider this chart, from the influential African Economic Outlook. It’s quite typical of the way the development community measures progress in raising taxes:

“Tax revenues in Africa represent an increasing share of GDP during the last decade” Unweighted averages for Africa (Source: African Economic Outlook)

The growth in low income countries is not as dramatic as it looks, because the vertical scale starts at 10%, but if just a few  countries’ GDP estimates are  out by as much as Ghana and Nigeria’s, the solid green line should be trending downwards, not upwards, which tells a very different story about tax in Africa. Countries are getting worse, not better, at converting national income into tax revenue.

In development, measures like this don’t just influence how we see  problem, they also affect policy decisions in developing countries. The tax/GDP ratio has become such an important measure of progress that it’s included in national development plans, and target improvements to the measure are set in negotiations with the IMF.

The African Economic Outlook gives a couple of other measures in its evaluation – total tax revenue, and tax revenue per capita. But some others don’t. USAID’s Collecting Taxes website, for example, provides a treasure trove of statistics on tax revenue across the globe, but its standard approach is to compare revenues raised from each type of tax to GDP – so much so, in fact, that it doesn’t even give the raw figures.

As always with statistics, we should be extra careful to understand the background before we jump to conclusions.