Many African nations have resorted to imposing high tax rates, particularly on their citizens, as the concept of domestic resource mobilization takes shape in the continent as a sustainable solution to the current debt problem.
Of course, governments must levy taxes to pay for public goods and services that are necessary for society to function, but it is important to realize that high taxes hurt debt servicing since they can cause difficulty for the economy, impede innovation, and lower public morale.
This implies that the cycle of high taxes has significant effects on the citizens' and countries' economies, as well as the ability to pay off debt.
African governments mainly rely on taxes to finance their operations due to severe income constraints. However, citizens who already face a lot of poverty and little economic possibilities are frequently hit with an unfair tax burden as a result of this.
Many African nations have some of the highest tax rates in the world, with some levying taxes on personal income of up to 30% or higher.
The relationship between high taxation and debt servicing is rooted in the fact that numerous African countries have amassed substantial debt loads over time.
This debt is frequently owed to both domestic and foreign creditors, including the World Bank and the International Monetary Fund (IMF). Governments have to set aside a sizeable percentage of their tax revenue to pay down this debt.
As a result, governments are forced to impose high taxes to pay off their debt, which hinders the nation's ability to expand economically and flourish as a whole. The heavy tax burden restricts citizens' ability to save and make investments in the future, discourages investment, and stifles entrepreneurship.
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In addition, the burden of debt payment takes funds away from vital public services like healthcare, education, and infrastructure improvement. This makes the serious development issues that African nations already face worse, thereby sustaining poverty and inequality.
This entails that high taxation on the populace may have some unfavorable effects. In the first place, it may result in less money available for people to spend on necessities, let alone indulge in extravagance.
This may lead to a decline in consumer expenditure, which might impact the economy as a whole.
High taxes have the potential to stifle innovation and entrepreneurship because they make people reluctant to take chances or launch new ventures if they believe their income will be subject to high taxes.
Moreover, people who want to reduce their tax due may resort to tax evasion and avoidance as a result of excessive taxes. The government may lose money as a result of this, and public faith in the tax system may also decline.
There may be social and political repercussions from overtaxing the populace.
It may cause people to feel that they are paying too much in taxes while others are not making their fair share of contributions, which can exacerbate feelings of injustice and unfairness.
This may lead to a decline in civic involvement, political instability, and social unrest.
Governments may nevertheless feel under pressure to tax citizens heavily to generate enough money, even in the face of these threats.
A big budget deficit, the necessity to pay for costly public initiatives, or the desire to redistribute wealth and income are only a few possible causes for this.
Governments must, however, take into account the long-term effects of imposing citizens and look into alternate options, such as boosting productivity, lowering waste, and encouraging economic expansion
African governments must implement more egalitarian and sustainable tax policies that put economic development and growth ahead of debt service to break this cycle.
This can be accomplished, among other things, by enacting progressive taxation, which taxes the wealthy at a higher rate than the poor; expanding the tax base; enhancing tax administration; decreasing tax evasion and raising revenue collection; investing in economic development to spur growth and create jobs; and renegotiating debt terms to lessen the burden of debt servicing.
African countries can break the cycle of high taxes and debt payments, encourage economic growth and development, and lessen the tax burden on their inhabitants by implementing these policies
To sum up, imposing high taxes on the populace to generate enough income is a complicated matter that needs to be carefully considered in light of all possible outcomes.
Taxation must be collected by governments to pay for public goods and services, but too much taxation can harm the economy, discourage innovation, and lower public morale.
Thus, governments must look into alternate options and strive to strike a balance between taxation, economic expansion, and debt service.
- Dzobo is a policy analyst. These weekly New Perspectives articles, published in the Zimbabwe Independent, are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultants (Pvt) Ltd, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe. — kadenge.zes@gmail.com or +263 772 382 852.
