Tax compliance cost: the hidden effect on international trade in Africa

Abstract

International trade in Africa could be one of the antidotes to the precarious poverty and economic deficiency in which the continent finds itself. An outward orientation towards international trade opens the continent to increases in productivity and development of redistributive channels for both natural and manufactured products. However, one of the major bottlenecks affecting the growth of international trade in the continent is tax compliance cost measured by the time and cost involved in complying with various tax regulations. Adopting the institutional theory, this study investigated the impact of tax compliance cost on international trade in Africa. The evidence shows that the number of taxes paid by firms in a year, coupled with the corporate tax rate which is a percentage of the business profit has a negative impact on international trade in Africa. However, the time taken for tax registration/compliance and post-tax filing time of firms seem not to have any immediate impact on international trade in Africa. This paper, therefore, argues that Africa needs tax reforms in the form of self-assessments, simplification of tax administration, risk-based inspections and electronic submissions of tax returns in order to reduce the current level of tax compliance burden on firms in Africa.