An Analysis of Tax Effort and Tax Incidence in Namibia and South Africa

Abstract

Most Sub-Saharan African countries (SSA) have shown excessive dependence on foreign financing which with time, has led to financial debts and sustainability. Also, most Sub-Saharan African (SSA) economies have had to look for methods to increase tax revenue that will be able to fund public expenditures and ultimately narrow the shortage. A key factor for economic development in most developing economies is an effective tax system. The study used timeseries data for thirty-six years from 1980 to 2015, collected from published economic reports and World Development Indicators Report (2016) with various measures. This study uses data for Namibia and South African countries from 1970-to 2015 to compare the tax ratios and to build an index of tax effort for the two countries. The index of the tax effort is constructed as the ratio of the actual tax share to the predicted (or potential) tax share. Results indicated that in Namibia, services value added % of GDP was statistically significant at 5 %. Also GDP per capita was significant at 1% level of significance. In South Africa export share % of GDP was significant at 5% level of significance while GDP per capita was significant at 10% level of significance. The export share seems to have a strong and direct relationship with tax share. The study concludes that establishing the tax effort index, according to the actual revenues of a country to its estimated taxable amount, gives us a tempting quantity that determines countries specific fiscal, institutional and demographic traits.