Failure by African governments to adopt latest technologies has been cited as one of the major hurdles undermining their effort to cast their tax net wider. PHOTO | SHUTTERSTOCK
Failure by African governments to adopt latest technologies has been cited as one of the major hurdles undermining their effort to cast their tax net wider. Most of the countries still use traditional systems, leaving huge holes that tax evaders cash in on.
To achieve at least 90 percent collection targets, experts are calling on the use of modern technologies to overcome most of the setbacks that hold the 55 states back in funding their annual budgets.
"The shortfalls in government revenue arise from money not collected rather than cash stolen. The taxman in Africa is struggling because he collects money using traditional methods," says Timothy Oriedo, chief executive of Predictive Analytics says, a Big Data firm.
A Nairobi-based software company, Tracom Services Limited, which has presence in 28 African countries, says deploying digital technologies will help eliminate enforcement drawbacks such as non-compliance and tax fraud.
Tracom Services managing director Paul Njau said using innovative tools to collect revenues will greatly enhance African economies.
According to the International Monetary Fund (IMF), government revenues on the continent average about only 17 percent of Gross Domestic Product (GDP) with Nigeria, for instance, collecting less tax than Luxembourg despite having a population that is 300 times bigger.
The same data shows that if the DRC and Ethiopia shared their tax revenues to citizens, each person would receive less than Sh8,000 per year.
Fifty-six percent of those surveyed by Afrobarometer indicates that a rich African is “very likely” to use personal connections or use bribe to evade tax. Official tax records from the Ugandan government on 71 state officials for 2013/14 shows that only one had paid personal income tax.
Estimates published by The Economist reveal that African countries lose revenues worth 2 percent of GDP through corporate tax evasion and another 1-2 percent through individual tax avoidance stashed in offshore accounts. Revenue forgone through tax expenditures is 5 percent of GDP.
A study of 26 African states done by the Organisation for Economic Co-operation and Development (OCED) published last May shows that tax revenue as a percentage of GDP from 1997 to 2017 is much lower in Africa than in other continents.
"On average, this tax to GDP ratio for those 26 countries was 17.2 percent compared to the OECD average of 34.2 percent and the Latin American average of 22.8 percent," states the report.
But by implementing digital solutions, Tracom's Kamau Kimani sees more optimism for a continent whose tax collection efforts have been plagued by lack of standardisation, invoice trafficking, manual tracking, devices lacking data transmission capabilities and non-descriptive sales receipts and invoices.
Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration says that tax administrations, much like tax policy makers, are exposed to rapid change through digitisation of the economy and the emergence of new business models and ways of working.
"The availability of new technologies, new data sources, and increasing international cooperation are providing new opportunities for tax administrations to better manage compliance, protect their tax base and reduce administrative burdens," he remarks.
But for Africa to fully computerise its tax collection systems, Mr Oriedo calls for the digitisation of all government and private sector data to ease the deployment of technogies like Artificial Intelligence (AI) that can help revenue authorities curb tax fraud.
"We have so much data in traditional storage formats that if digitsed can be relied on by tax administrators to locate businesses and monitor tax points in all supply chains. We cannot use Big Data analytics or AI if this data remains in traditional formats."
Tracom has rolled out a smart solution to help African countries to address their tax collection challenges.The firm has signed an agreement with the government of Liberia to deploy its Electronic Fiscal Device Management solution (EFDM) that it says will monitor and track transactions and sales records of businesses in the West African state, with plans to move to other African countries.
Initiated in 2018 by the country's Ministry of Commerce, the tax management solution known as 'Miliki', Swahili for 'possess', is operated alongside 20,000 Electronic Tax Register (ETR) devices.
Liberia Revenue Authority, Commissioner General Thomas Doe Nah told Digital Business that the introduction of the electronic fiscal device system is a groundbreaking intervention for the mobilisation of domestic revenues for Liberia.
"Tracking sales data of businesses marks the beginning of a more important undertaking to be initiated to promote accountability and enhance revenue collection," he said.
The solution will aggregate sales data from local businesses such as supermarkets, shops, hotels, and other business ventures. The technology seeks to boost revenue collection by promoting accountability and transparency in the filing and payment of General Services Tax in the country.
Chairperson of the National Investment Commission in Liberia Molewuleh Gray said the digital tax project will generate opportunities to augment fiscal monitoring while at the same time create jobs.
"Miliki will increase revenue collection for the Government of Liberia by improving efficiency in tax administration and entrenching professionalism amongst public and private sector actors and also create thousands of direct and indirect jobs especially for local IT firms to carry out on-site and off-site maintenance services," he said.
Mr Kimani said "There is misuse of approvals of refund claims, a direct link with VAT or annual returns is non-existent while Africa also grapples with the snags of absolute lack of a mechanism to authenticate field transactions,".
He notes that it has been difficult for the continent to manage the taxpayer life-cycle, with many governments struggling to trace purchases creating a loophole for ghost traders and receipts.
"Transaction data is not obtained centrally and some company registrations have forged documents. These are the challenges our solution will endeavour to solve," states Mr Kimani.
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