Analyzing the Potential Impact of Indirect Tax Reforms on Poverty with Limited Data: Niger

Many countries in sub-Saharan Africa are confronted with the need to raise tax revenues in order to be able to provide a range of services to their populations. Yet taxes and other government revenues as a proportion of GDP are lowest in the poorest countries that need to expand their services the most. In addition, because of high level of informality in their economies, very-low-income countries obtain a large share of tax revenues through consumption taxes which tend to be more regressive than taxes on incomes levied in richer countries. Such a situation poses a difficult dilemma. Very-low-income countries are trying to increase their tax revenues to provide better services to their populations in need, but at the same time a substantial part of the burden of increased taxation may fall on the poor. Furthermore, because the poor in very-low-income countries are often extremely poor, even small increases in the price of the goods they consume related to an increase in tax rates on those goods may have important negative implications for the households’ ability to meet their basic needs. This implies that government must be especially careful when raising taxes in order to provide social services. The type of household survey-based analysis that can be conducted to inform governments in this area is illustrated in this paper with a case study on Niger.