The centre for tax analysis in developing countries

Overseas Development Institue Institue for Fiscal Studies

Over the last 20 years, sub-Saharan African (SSA) countries have experienced significant economic growth and consequently growing levels of motorisation. Though overall levels of motorisation in SSA are still relatively low, with a high number of poor-quality vehicles concentrated in large cities, social and environmental problems associated with motoring are becoming more pressing. Because individual drivers do not consider the wider social impacts of their motoring, governments need to intervene to achieve efficient motoring outcomes.

Government policies to address the problems arising from motoring can include non-tax policies, including regulation and enforcement. For example, roadworthiness tests on imported cars are a good policy option to improve vehicle quality (UNEP, 2020), whilst taking steps to improve road safety and licensing are important to reduce road fatalities (WHO, 2018). However, in this report, we focus on the use of tax policy to appropriately price the externalities of motoring.

This report contributes to ongoing policy debates on motoring taxation in SSA by describing the principles of motoring taxation and key issues and policy options for the region. Where appropriate, we draw on case studies, including from the TaxDev programme’s four partner countries (Ethiopia, Ghana, Rwanda and Uganda). Case studies are useful to understand particular design issues and challenges in more detail.

Key findings

  1. With the exception of relatively high-income nations in southern Africa, countries in SSA have few vehicles on average (26 per 1,000 people) relative to the rest of the world (182 per 1,000 people). However, economic growth and rising household incomes mean that this number is growing and is likely to continue doing so.
  2. Despite the low number of vehicles per capita, the social costs of motoring are high in SSA countries. Deaths from air pollution are higher (187 per 100,000) than the world average (114 per 100,000), as are deaths from road traffic accidents (28 versus 16 per 100,000). Congestion is estimated to cost as much as 4% (in Kampala) and 7% (in Lagos) of citywide GDP. Motoring taxation should be designed to help manage these social costs, which depend on the amount, time and place of vehicle use, and the type of vehicle used.
  3. In contrast to many other categories of taxation, motoring taxes are not a category where SSA countries lag behind the rest of the world in terms of revenues raised. In the countries where revenue information could be obtained, motoring taxes raised between 0.8% and 2.1% of GDP, which is a comparable range to that for EU countries.
  4. The composition of these revenues is not always well targeted towards the social costs of motoring, however. Taxes on import or purchase are higher in SSA than in high-income countries: for instance, a five-year-old 1,600cc vehicle costing $5,000 pre-tax attracts an average tax of $3,840 in SSA, compared with $2,410 in middle- and upper-income countries. This may reflect industrial policy or administrative considerations, but these taxes do not target the marginal social costs of vehicle use well, and many countries could consider reducing these taxes.
  5. Taxes on fuel are better targeted at the social costs of motoring. These taxes are low in many SSA countries, with the average less than a third of that in middle- and high-income countries, although there is wide variation across SSA countries. Some SSA countries could increase official fuel taxes, eliminate under-collection or make fuel price stabilisation programmes transparent and sustainable. Such reforms are administratively feasible and would be progressive too, although mitigating measures may also be needed for low-income households.
  6. SSA countries rarely use vehicle ownership taxes, and they could consider increasing or introducing them in a way that differentiates across location (to capture congestion externalities) and vehicle emissions (to capture pollution externalities).
  7. The administration costs of congestion charging schemes are almost certainly prohibitive except in the largest cities. Elsewhere, a simpler but labour-intensive way of addressing city congestion and pollution could be parking charges and permits.

Published on: 13th September 2021

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