Taxable Capacities: How has Economic Transformation and Resource Dependency Work?

Abstract

Purpose: This paper examines the impact of economic transformation and natural resource dependency on the taxable capacity of SSA countries. Theoretical framework: This paper is based on positive tax theories which is concerned with who bears the burden of various taxes, and the incidence of a particular tax. Design/Methodology/Approach: This paper employed Stochastic Tax Frontier Analysis (STFA) using annual data for thirty-three SSA countries for eighteen years that range from 2002-2019. Findings: Empirical findings from this study indicate that most Middle-Income Countries (for example, Botswana, Cameroun, Cote d’ Ivoire, Lesotho etc) dominate the High Tax Performance category. This further confirm the positive and significant influence of real per capita income in the taxable capacity model of the SSA region as well as that of the MICs. However, exception to this trend is those of countries with relatively low per capita income (for example, Mali and Burundi) but operating near their tax potential, and with appreciable tax effort. The reason that may be attributed for this exception may be the rise of mining activities (though, this may not be enough to raise 30% of the countries’ hydrocarbon revenue) by large companies. Research, Practical & Social implications: The construction and analysis of tax revenue performance matrix for the sub-Saharan Africa by this study have provided relevant information for sub-Saharan Africa countries in preparing for substantial fiscal independence and would give clear indications of the revenue productivity of existing taxes that may lessen the anxiety of the apparent fiscal deficit challenges faced by most SSA countries, and this will further provide policy directions for future tax reforms in the various countries of the region. Originality/Value: The originality of this study lies in its investigation of the taxable capacities; how has economic transformation and resource dependency works. Additionally, the study highlights the relevance of tackling regulatory issues to ensure the safe and effective use of taxable capacities.