African governments consider implementing a wealth tax to tackle inequality and finance essential services, but the process is complex and faces resistance from the wealthy.
African countries are facing unprecedented economic challenges, including high debt burdens, inflation, and widening income inequality.
Amidst these difficulties, there is growing momentum to impose wealth taxes on the super-rich.
Many governments struggle to find funds for essential services like healthcare, education, and infrastructure.
In Africa, the situation is particularly dire, with debt repayments often exceeding healthcare spending.
To break this cycle, governments are exploring new revenue streams.
Tax expert Alvin Mosioma argues that consumption taxes are an easy target, but they also have a limited impact on reducing inequality.
Wealth Taxes: A Necessary Evil?
In Kenya, the introduction of consumer taxes sparked widespread protests, forcing President William Ruto to withdraw the plans and replace parts of his cabinet.
The resistance was largely driven by Generation Z, who are keenly aware of the burden of living costs on poorer communities.
Similar demonstrations have taken place in Nigeria, Uganda, and Ghana, highlighting the need for a more equitable approach to taxation.
Resistance to Taxes: A Growing Trend
Implementing wealth taxes is not a straightforward process.
Each country must calculate its own level of wealth to determine how to tackle inequality effectively.
Mosioma emphasizes that wealth should be defined beyond just dollar millionaires or Forbes list members.
In Kenya, for example, someone with a fortune of 50 million shillings (around €372,000) is considered rich compared to those with no assets.
The Complexity of Wealth Taxation
Oxfam‘s latest report highlights the stark contrast between the wealthy and the poor: ‘the poorest 60% of humanity have lost US$20 billion in wealth since 2020, while all billionaires have increased their wealth by US$3.3 trillion in the same period.’
A wealth tax is not a new idea; it has been floated before, including at the G20 level.
South Africa, currently chairing the G20, has made this a priority.
The Case for a Wealth Tax
Economist Aroop Chatterjee argues that a wealth tax can help combat inequality by influencing the processes that cause it.
However, there is also the risk of capital flight, or legal tax avoidance and illegal tax evasion.
Chatterjee acknowledges this risk but believes it can be factored into calculations.
Addressing Inequality and Capital Flight
South Africa has the most millionaires and the greatest inequality in the world, according to the World Bank’s Gini coefficient.
Chatterjee blames the country’s history and institutions for perpetuating racial discrimination in land ownership and economic participation.
The ‘Africa Wealth Report’ highlights the growing number of dollar millionaires on the continent, with 37,400 in South Africa alone.
The Deterrent Effect of a Wealth Tax
Implementing a wealth tax is not without its challenges.
Tax authorities often lack knowledge about assets, and politicians may be personally affected by such a tax.
Mosioma speaks of a ‘rise of the oligarchy’ and emphasizes that effective wealth taxation requires politicians who are not pursuing their own interests.
Challenges Ahead
The new government in Senegal offers a glimmer of hope.
With a left-wing opposition winning elections by a large margin, there is potential for change.
However, much remains to be done before African governments can effectively implement a wealth tax to tackle inequality and make the richest contribute more to financing the common good.
A Beacon of Hope?
Wealth tax, also known as a net worth tax, is a type of tax levied on an individual's total 'wealth' or assets.
It is often imposed in addition to income tax and can be applied to various types of assets, including real estate, investments, and business interests.
The tax rate for weath tax varies by country, but it typically ranges from 0.5% to 2.0% of the taxpayer's net worth.
For example, in France, a wealth tax is imposed on individuals with net worth exceeding €1.3 million, while in Spain, it applies to those with assets valued at over €700,000.
Tax protests refer to organized demonstrations and movements against tax policies, laws, or government actions related to taxation.
These protests can take various forms, including peaceful marches, boycotts, and online campaigns.
According to a study by the International Monetary Fund (IMF), tax protests have become increasingly common worldwide, with over 60% of countries experiencing tax-related unrest between 2010 and 2019.
The main reasons for tax protests include high tax rates, perceived unfairness in taxation policies, and government corruption.
Wealth inequality refers to the unequal distribution of wealth among individuals and groups in a society.
According to a report by Oxfam, in 2020, the world's richest 1% held more than twice as much 'wealth' as 6.9 billion people combined.
This disparity is driven by factors such as 'inheritance,' tax policies, and access to education and job opportunities.
In the United States, for example, the top 10% of earners hold approximately 77% of the country's wealth.
Addressing wealth inequality requires a comprehensive approach that includes policy reforms, increased access to education and job training, and a more progressive tax system.
