The publication of reports detailing the cost of tax exemptions could significantly strengthen government revenue mobilisation in developing economies, with countries in sub-Saharan Africa recording an estimated 20.6 per cent increase in tax revenue after adopting the practice, according to a new study.
The finding highlights the potential revenue benefits of greater transparency in tax administration, particularly in countries where governments routinely grant tax incentives, waivers and exemptions to businesses and individuals without adequately disclosing their financial implications.
A working paper released by the Foundation for Studies and Research on International Development (FERDI) found that tax revenue in sub-Saharan African countries increased by an average of 20.6 per cent following the introduction of tax expenditure reporting.
Tax expenditure reports provide information on government revenue forgone through exemptions, deductions, reduced tax rates, tax credits and other preferential arrangements. They enable policymakers and the public to assess how much governments sacrifice through tax concessions and whether such incentives deliver sufficient economic and social benefits to justify their costs.
The study examined 151 emerging and developing countries, comprising 93 emerging market economies and 58 low-income developing countries, using 5,285 country-year observations covering the period between 1990 and 2024.
Across the full sample, tax revenue increased by approximately 10 per cent after eight years of reporting, equivalent to 1.4 percentage points of Gross Domestic Product (GDP), based on the average tax-to-GDP ratio of 14.2 per cent among the countries studied.
The researchers found that the revenue gains became more pronounced over time, suggesting that the benefits of disclosure extend beyond the immediate publication of government tax expenditure figures.
Depending on the model adopted, the estimated increase in revenue ranged from 11.3 per cent to 16.3 per cent in the sixth year after reporting began and from 12.2 per cent to 18.7 per cent in the seventh year.
The findings suggest that regular disclosure could become an important instrument for governments seeking to improve domestic revenue mobilisation without necessarily introducing additional taxes or increasing existing tax rates.
The authors drew on information from the Global Tax Expenditures Database, the Global Tax Expenditures Transparency Index and the International Monetary Fund (IMF) to establish the relationship between the introduction of reporting systems and subsequent changes in government revenue.
The research also found that the strongest revenue response came from direct taxation, particularly corporate and personal income taxes, where exemptions and other preferential arrangements can have substantial implications for government finances.
According to the estimates, direct tax revenue increases by between 6.1 per cent and 8.2 per cent in the first year after publication and between 10.5 per cent and 12.2 per cent in the second year.
The average increase across the post-publication period ranges from 16.9 per cent to 18.2 per cent, climbing to between 33.9 per cent and 36.7 per cent by the eighth year.
The researchers argue that publishing the cost of exemptions on corporate and personal income taxes can carry greater political consequences than disclosing exemptions on Value-Added Tax (VAT) and trade taxes.
This is partly because corporate income tax concessions, including tax holidays, profit exemptions, investment allowances and tax credits, often benefit identifiable businesses and investors. Once their financial implications become public, governments face greater pressure to justify why particular beneficiaries should continue enjoying preferential treatment.
The study also established that the frequency of reporting is critical to achieving sustained revenue improvements.
Countries that publish tax expenditure reports regularly record a statistically significant average revenue increase of 9.9 per cent, while those that report irregularly show no sustained improvement.
Similarly, countries that have published eight or more reports record an average revenue gain of 9.8 per cent. Those with fewer than eight reports experience only temporary changes, suggesting that a one-off disclosure exercise is unlikely to produce lasting improvements.
The findings point to the importance of making tax expenditure reporting a permanent feature of government budgeting and fiscal management rather than treating it as an occasional administrative requirement.
The differences are also pronounced across income groups and geographical regions.
Low-income developing countries record an estimated average revenue increase of 17.3 per cent, with the gains reaching 26.3 per cent in the eighth year after reporting begins.
For emerging market economies, the estimated average increase is 5.3 per cent, but the result is not statistically significant. Outside sub-Saharan Africa, the estimated average gain of 4.5 per cent is also statistically insignificant.
The researchers link the stronger performance in low-income countries and sub-Saharan Africa to weaker institutional arrangements at the beginning of the reporting process, leaving greater room for improvements in tax administration and revenue oversight.
Producing a comprehensive tax expenditure report requires governments to establish reliable legal records, consolidate administrative data, identify beneficiaries of tax concessions and improve coordination among tax authorities and other government agencies.
These processes can strengthen institutional capacity beyond the immediate exercise of calculating revenue losses. Once established, the systems can help governments identify exemptions that are no longer justified, assess the performance of existing incentives and scrutinise requests for new concessions.
The researchers explain that the publication of reports also changes the political environment surrounding tax incentives. Legislators, opposition parties, civil society organisations, the media and international development partners gain access to information that allows them to question the financial implications of government concessions.
Without such disclosure, individual exemptions may appear relatively insignificant, even when their cumulative effect substantially reduces the resources available for public spending.
The issue is particularly relevant to sub-Saharan Africa, where governments face competing demands for infrastructure, healthcare, education, security and social protection, alongside mounting pressure to improve public finances.
A separate IMF study published in October 2025, titled Tax Expenditures in Sub-Saharan Africa, identified significant data gaps, transparency challenges and weaknesses in the management of tax incentives across the region.
The IMF paper noted that tax expenditures function much like government subsidies or grants because they transfer resources to beneficiaries through reduced tax liabilities while simultaneously reducing public revenue.
Unlike direct government spending, however, some tax concessions can remain in place for extended periods without regular reassessment or the same level of budgetary scrutiny.
The IMF study also highlighted the difficulty of determining the full cost of tax incentives because some exemptions are granted outside the conventional tax framework, including through decisions by non-revenue government agencies and subnational authorities.
This makes comprehensive reporting important not only for determining how much revenue is being forgone but also for establishing whether the concessions are achieving their intended economic objectives.
The FERDI researchers identified Peru, Chile, Mexico, the Dominican Republic and Morocco among countries that adopted tax expenditure reporting early and have maintained the practice continuously for more than two decades.
Countries that started reporting in 2018 or later are mostly low-income economies in sub-Saharan Africa and Asia, many of which introduced the practice as part of economic and institutional reform programmes supported by the International Monetary Fund.
The researchers, however, found that accounting for countries’ participation in IMF programmes did not substantially change the overall results, with the estimated revenue gain remaining around 10 per cent.
This suggests that the improvement cannot be explained solely by the involvement of international financial institutions in domestic economic reforms.
Experiences from some countries also demonstrate how reporting can influence the administration of tax incentives.
Morocco, for instance, has attached its tax expenditure report to its annual budget law since 2005, bringing the cost of exemptions into regular budget discussions. Madagascar uses its annual report as a tool for reviewing tax incentives and requires the opinion of its tax policy unit before introducing new exemptions.
Guinea has also established a centralised process for reviewing exemptions, while Togo has emphasised the need to assess the potential impact of tax incentives before they are introduced.
For African governments, the findings raise questions about the effectiveness of existing tax incentive policies and the extent to which the benefits justify the revenue governments surrender.
Tax exemptions are often introduced to attract investment, encourage industrial development, support strategic sectors and protect vulnerable households from excessive tax burdens. However, without proper assessment and public disclosure, it can be difficult to determine whether the incentives generate sufficient economic benefits or simply reduce government revenue.
The FERDI study therefore makes a case for regular reporting, stronger institutional capacity and sustained political commitment to reviewing tax concessions.
It also suggests that governments should integrate tax expenditure reports into their annual budget processes and maintain competent tax policy units capable of evaluating existing incentives and assessing proposed exemptions.
For countries in sub-Saharan Africa, where the estimated revenue gains are particularly substantial, improving transparency could offer an additional avenue for strengthening public finances without relying exclusively on higher tax rates or new tax measures.
The broader implication is that tax exemptions should no longer be treated as invisible government spending. Making their costs public, reviewing their effectiveness and holding beneficiaries and policymakers accountable could help governments recover revenue needed to finance development priorities.
