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Tax Evasion Schemes in Comoros Exposed, Union Faces Fiscal Challenges
The Union of the Comoros faces significant economic and fiscal challenges that hinder long-term growth. A new report reveals that the country’s economy is characterized by a small, largely informal private sector with limited value added, while labor force participation remains low.
Fiscal Policy Challenges
The Comoros Public Expenditure Review (PER) analyzed core elements of the fiscal policy and its implementation, providing advice on ways to improve public expenditure efficiency and create fiscal space.
Tax Evasion
According to the report, one major issue is tax evasion. The country’s total government revenues have been below levels observed in peer countries, with domestic revenues heavily driven by indirect taxes. Weak tax administration and unassessed tax exemptions have resulted in several tax instruments being ineffective, reducing the government’s capacity to provide public services that could unleash Comoros’ growth potential.
Recommendations
- Strengthen the tax administration
- Reduce and improve monitoring of tax exemptions
- Implement an automated exchange of information on taxpayers between the administration and key stakeholders involved in the taxation cycle
Public Investment Expenditure Efficiency
Public investments have increased significantly due to external funding, but they are less efficient than those in peer countries. The report recommends:
- Improving planning functions
- Ensuring that investment is allocated to the right sectors
- Enhancing monitoring mechanisms
- Enforcing the public procurement law to deliver productive and durable assets
Public Financial Management System
The country’s public financial management system is also inadequate, with challenges facing it at different stages of the budget cycle. The report recommends:
- Enhancing fiscal transparency
- Improving public expenditure efficiency
- Creating an internal audit function within the ministry of finance
Public Health Expenditures Efficiency
The report highlights the need to improve public health expenditures efficiency through better planning and enhanced procurement. Households still pay for a significant share of health expenditures out-of-pocket, while the pharmaceutical program is underfunded and combined with weak procurement has contributed to high stockout rates for essential medicines.
Fiscal Risks from State-Owned Enterprises (SOEs)
The report recommends reducing fiscal risks from SOEs, which make up an important part of the Comorian economy but are mostly low-performing and lacking in oversight. Updating the legal framework and enhancing monitoring could help lessen the risk and build strength in this portion of the economy.
Disaster Risk Management
The report highlights the need to enhance disaster risk management. The Union of the Comoros is exposed to a wide range of climate and natural disasters, but disaster risk management is not explicitly documented in the national budget. Better risk and vulnerability assessments, along with documenting risk reduction investments in the national budget, could boost the country’s ability to prepare for such risks.
Conclusion
The report provides a comprehensive analysis of the fiscal challenges facing Comoros and offers recommendations for improving public expenditure efficiency, creating fiscal space, and achieving inclusive growth. Addressing these challenges is crucial to unlock Comoros’ growth potential and ensure a more prosperous future for its citizens.