Tax compliance cost and international trade in Africa

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 many opportunities including an increase in productivity and the development of redistributive channels for both natural and manufactured products. Resources in Africa could also be efficiently allocated and other consumption opportunities will be exploited when international trade is encouraged and reformed. However, one of the major bottlenecks which affect the growth of international trade in the continent is tax compliance costs. Taxation and its compliance cost could be the most burdensome and costly business activity which has the potential to discourage business growth and investments. Tax compliance costs which include the cost and time involved in complying with various tax regulations in Africa could be a disincentive to trading firms. Adopting the institutional theory, this study has investigated the impact of tax compliance cost on international trade in Africa. The evidence shows that while the number of taxes paid by firms in a year and the tax rate as a percentage of commercial 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.