Perspectives

The impoverishment of Black Africa

By Jude Wanniski
-Guest Columnist- | Last updated: Dec 8, 2003 - 10:07:00 PM

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(FinalCall.com) - In a recent BBC report, the International Monetary Fund "admits" it is "failing Africa." The IMF concluded that the only solution for the four countries it studied was for them to get more foreign aid to support their IMF-advised spending initiatives, or to RAISE TAXES.

However, high tax rates promoted by the IMF nitwits are exactly why the four countries are in such desperate shape. It made me angry reading the BBC dispatch.

When I looked through the tax systems of the four countries mentioned—Ghana, Tanzania, Cameroon and Mozambique— here is what I found:

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Ghana
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The top personal income-tax rate is only 30 percent, but that rate is encountered at an income threshold of $5,400 per year. The 20 percent rate hits at $2,700 and the 15 percent rate hits at $270 per year. In addition, Ghanians pay a 12.5 percent Value Added Tax VAT. There is also a "wealth tax," currently suspended, but which could come back at any moment. Even the cloud of a wealth tax discourages the accumulation of wealth.

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Tanzania
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The top income-tax rate is also 30 percent, but that rate is encountered at $800 per year of taxable income when the currency conversion is made to dollars. On top of this huge bite out of such tiny income, Tanzanians pay a 20 percent VAT on the goods and services they buy.

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Cameroon
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The top personal income-tax rate is 60 percent, which is encountered at a threshold of $12,842 at the current exchange rate. The 30 percent rate is met at $3,424 and the 15 percent rate at $1,200. The VAT takes another 18.7 percent.

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Mozambique
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The top personal income-tax rate is 40 percent at $3,500, 27 percent at $1,750, and 15 percent at $438. The VAT is 17 percent.

Out of curiosity, I decided to check out Zimbabwe, which has been in the news because of the political strife between Blacks and Whites and the collapse of the economy. The top tax rate of 45 percent is encountered at a little more than $500 annual taxable income, and there is a 30 percent surcharge on top of that!! A tax on a tax! The sales tax, which is said to be converting to a VAT, is at 20 percent for practically all machinery and 15 percent for motor vehicles and most goods and services.

These are, of course, not the only taxes in these five countries. There are dozens and dozens of other business taxes and licensing fees in each. IMF economists and Nobel Prizewinners may tell you the reason there is so little tax revenue coming into the tax coffers of their treasuries is that the citizens avoid the taxes by cheating. This is nonsense.

The reason there is no tax revenue to support IMF spending projects is that these high tax rates cannot allow capital to form internally, much less attract investment from abroad. Why would anyone risk capital in an economy where the smallest success is confiscated? If you begin an investment footrace facing a series of hurdles, each of which take another big bite out of your production, you can see before you begin that nothing will remain at the finish line.

The top tax rates in Africa were higher prior to the devaluation of the dollar by former President Richard Nixon in 1971, which began the great inflation, but the thresholds at which they were encountered were much, much higher. That’s why there was, at least, a modest prosperity in the 1960s in most Black African countries.

One should look into this if one ever hopes to find the answers as to why Africa is in such a miserable condition today.

(Jude Wanniski is a political-economic analyst, and founder and chairman of Polyconomics Inc. He can be reached at [email protected])