Since March 2020, the world and our way of life have been disrupted by the COVID-19 crisis. As the virus spread across the globe, governments implemented unprecedented measures to curtail the pandemic, global economic activity plummeted, resulting in a worldwide recession, reduced tax revenues and increased unemployment. Although until now, Africa has been less affected, from the perspective of infections and mortality rates, our economies have been affected. International trade and trade between African states and other countries have drastically reduced as a result of lockdowns, movement restrictions and closure of borders and airports. According to the AU (2020b), Africa’s GDP growth is projected to contract by between -4.9% and -2.1% in 2020; which would lead to a reduction of between US$135 billion and US$204 billion from pre-COVID–19 GDP of $2.59 trillion. The crisis has also increased poverty, as the African Development Bank (Revised AEO, 2020b) estimates that COVID-19 will push between 28.2 million and 49.2 million more Africans into extreme poverty.
As would be expected, the effects of the pandemic have adversely impacted Domestic Revenue Mobilisation (DRM) efforts, as African countries are reporting a reduction in tax revenues. Additionally, the pandemic has deepened the loss of tax revenues as we see a decline in revenues from especially the non-digitalised sectors, which African countries mainly depend on for tax revenues. The decline in the prices and demand for commodities and the impact of the pandemic of the travel and tourism sectors have led to revenue losses for many African countries. Oil-producing African countries have mostly been affected, with revenue losses of up to 80 per cent. To close this fiscal gap, African countries have to rethink their economic and fiscal policies to ensure that the recovery after COVID-19 is faster, with a more significant impact on the lives of their citizens. Regarding tax policy and tax administration measures, now more than ever is a critical time for tax practitioners on the continent to collaborate and pursue tax measures that will shore up revenue that will not only contribute to the economic development of African states but will bridge the gap from reduced aid, considering that this too is likely to drop as donors work on their own recovery.
Although the COVID-19 crisis has impacted our lives, economies and livelihoods, the crisis has also made us more dependent on digital services as these remain most feasible given the need for social distancing. As African citizens continue to acquire more digital services, the growth, expansion and remote presence of digital multinationals in Africa will continue to impact tax revenues across the continent.
It is for this reason, and the greater need to increase tax revenues resulting from the negative effect of COVID-19, that the 4th High-Level Tax Policy Dialogue will focus on the collaboration between tax policy and tax administration in ensuring African taxing rights are pursued, and what pain points Africa needs to look out for and resolve. The theme also provides an opportunity for tax policymakers and tax administrators to chart a way forward on how they can collaborate in improving tax policies that lead to increased revenues on the continent, which is the main objective of the Nexus Project.
