Tax incidence Analysis in Africa: The experience of Ghana, Tanzania and South Africa

Presenter: Gemini Mtei, Ifakara Health Institute

Abstract

Introduction

In the majority of less developed countries, tax financing is the major source of health care financing, along with out of pocket payments. Very few studies have been conducted in less developed countries (especially in Africa) to examine the distribution of tax payment burdens across different socio-economic groups.

Objective

The study will evaluate the distributional impact of health care financing through tax contribution by quantifying the relative progressivity of the tax system in Ghana, Tanzania and South Africa.

Method

The paper draws on national household survey data to quantify the burden of various taxes (personal income tax, corporate tax, value added tax (VAT), fuel levy, excise tax, import and export duties) on different socio-economic groups in the three countries. Socio-economic status was defined in terms of a composite index of socio-economic status and consumption expenditure. Due to large under reporting of income and income tax payment in the national surveys in Tanzania and Ghana, we calculated income tax payments using consumption expenditure as a proxy for income (with a few appropriate adjustments). Innovative methods were used to determine the distribution of fuel consumption between users of public and private transport and transport for business purposes. As public transport is substantial in less developed countries, and fuel taxes can be a large component of overall tax revenue, it is important to accurately distribute the burden of this tax across socio-economic groups. The figures estimated on the basis of the national household surveys were then triangulated with reported revenue from each country’s tax collection authority and adjusted where there were discrepancies.

Results

Preliminary findings indicate that income tax is highly progressive in all three countries, consistent with studies conducted in high income countries. Contrary to many other studies, VAT was found to be progressive in Tanzania while it was regressive in South Africa. In South Africa, the fuel levy and excise taxes (particularly those on tobacco and alcohol products) were also found to be regressive. The results from this study will help to measure the relative progressivity of each individual tax and of tax payments overall. It will also be used as a basis for comparing tax with mandatory insurance options, to assess how best to promote equitable health care financing in each country.