Tax Fraud as a National Security Threat in Developing Economies: The Case of Selected Sub-Saharan African Countries

Abstract

Tax fraud, including evasion, avoidance, and exploitation of legal loopholes, poses a significant threat to economic stability and national security in Sub-Saharan African (SSA). In many Sub-Saharan African countries, tax revenue is the primary source of government revenue to fund essential public services such as healthcare delivery systems, transport networks, water and sanitation services, social welfare programs, and educational infrastructure. However, widespread tax fraud reduces fiscal capacity, weakens institutions, and fosters vulnerabilities exploited by organized crime, terrorist financiers, and illicit financial transactions. The problem is worsened by poor enforcement and weak regulatory oversight. This study examines the long-term impact of tax fraud on national security in five Sub-Saharan African economies (Ghana, Kenya, Tanzania, Uganda, and South Africa) selected for their regional influence, availability of macroeconomic data, and diverse tax administrations systems, providing a representative sample of the region. Data were driven from the World Development Indicators (WDI) and the Global Economy (GE) database, covering the period from 1991 to 2015 due to consistent shadow economy and macroeconomic indicators. Vector Autoregression (VAR) and Dumitrescu Hurlin causality tests were used for the study and the results affirmed the research hypothesis by showing a significant long-term relationship between tax fraud and economic security indicators, with capital investment exhibiting a significant positive relationship to government expenditure (p < 0.01), with shadow economy showing a negative but statistically insignificant impact on investment. The findings suggest that tax fraud does not only hinder fiscal health of Sub-Saharan African countries but also undermines national security. The findings provide evidence-based insights to inform policymakers, and tax authorities to enhance enforcement, adopt digital tools, and enhance compliance through regional cooperation.