Benin – The Tax Effort in Benin: How Can Tax Gaps be Reduced?

This publication is part of the Benin Institutional Diagnostic.

Abstract:

Using a database providing information on tax revenue over the period 1980–2015, covering 42 sub-Saharan African (SSA) countries, we analyse the efforts by Benin to raise tax revenue, in regard to structural characteristics, and we explore possible determinants of, and the scope for, a greater domestic revenue mobilisation and for tax policy and administration reforms. First, the analysis aims to compare the non-resource tax-to-GDP ratio in Benin with its peers, to identify whether Benin is near to, or far away from, its tax frontier. We conclude that the tax effort in Benin has remained relatively stable during the period: collected tax revenue rises on an average to 63.5% of potential total tax revenue over the period, ranked Benin 14th out of 42 countries. The analysis identifies a higher tax effort in Togo, which exhibits a tax effort of 69.9% on average, ranking it fifth out of 42 countries. Second, we study the effect of some economic and institutional variables on tax effort. Using a logistic regression, we analyse in particular the impact of natural resources, aid, political regime and stability, transparency, corruption and accountability. Third, we investigate several ways to reduce the tax gaps in Benin. In particular, if the tax policy seems relatively constrained by reference to the West Africa Economic and Monetary Union (WAEMU) Tax Directives, the Togolese experiment of switching to a semi-autonomous revenue authority and comparison with other WAEMU countries may provide guidance to find some room to improve domestic revenue mobilisation. In particular, Benin should review the management of human resources in the tax and customs administrations, and the scope of derogatory regimes which generate tax expenditures.

Contents:

• 1 Introduction
• 2 Empirical estimation of tax effort in Benin: a stochastic frontier analysis
• 3 The determinants of tax effort: a logistic regression analysis
• 4 Tax policy or revenue administration reforms
  • 4.1 Tax policy and tax expenditures
  • 4.2 Tariff policy and informal trade with Nigeria
  • 4.3 Administration capacity
• 5 Conclusion
• Discussion of the ‘The Tax Effort in Benin: How can tax gaps be reduced ?’
  • 1 Overall point of view
  • 2 ‘Agenciation’ of the revenue services in question
  • 3 Conclusion

Editors:

Émilie Caldeira and Grégoire Rota-Graziosi, Université Clermont Auvergne

With discussion by:

Nicaise Médé, Université d’Abomey Calvi