Technology is vital in refining tax compliance, determine size of tax base

Strictly examination of the recently approved 2023/2024 national budgets for East African nationals one realises that a lot of these nations struggle to raise enough tax income to finance necessary expenditures in public services.

Views articulated here are based on the evaluation of individual fiscal national budgets for 2023/2024 presented and approved recently individually looking at how the latest technological advances could help tax administration in East African countries to boost its revenue collection.

The goal is to see how the use of technology solutions could help to enhance and detect the tax base, track compliance, and importantly facilitate compliance.

The aim is nothing else, but to attempt to come up with means to overcome these difficulties.

Although there are many diverse reasons why taxes are necessary, in my opinion, taxes are crucial for economic growth.

The provision of public goods, economic redistribution, social safety nets, and political accountability are critically intertwined with taxation.

Nations are also less dependent on foreign aid and earnings from natural resources thanks to tax revenues. But many nations for one reason or another fail to collect enough tax revenue.

Amidst this enough tax revenue collection challenge, issues uttered here attempt to look at how recent technological developments could help tax administration in East African nations.

While the digital revolution has been taking place across various industries over the past few decades, Covid-19’s outburst of remote work opportunities and demand for social isolation has hurried up the adoption of many technologies already on the market and encouraged the creation of new ones.

The focus of today’s talk is initiated with a framework of the difficulties East African economies have in maximising revenue from important tax categories, such as income taxes, real estate taxes, consumption taxes, and trade taxes.

The goal is to enlighten, through analysis carried out, potential technology applications that could be used to address these problems.

Given the encounters tax administrators faces to collect enough, especially from the emerging informal sector, to define compliance that is, to detect the tax base to monitor compliance that is, to identify tax evasion when it occurs and to facilitate compliance that is, to make it simpler for taxpayers i.e., individuals and businesses to conform with their tax obligations, I would like to demonstrate and examine how technology could be used for each of these tax categories as my support to Tanzania Revenue Authority in our case in managing and putting their house in order.

The thoughts stipulated here are based on a combination of literature analysis and insights from interviews with senior tax administrators who have retired from the East African tax authority (ies) on their real-world experiences and difficulties implementing technology for tax administration.

Most Sub-Saharan African nations, which also include East Africa, are known to only collect up to 14 per cent of their GDP in taxes, according to the literature.

But further deep diving into the data related to this subject suggests that over the past three decades, these figures have stayed constant, with most of the countries in our region collecting an average of 12-15 per cent of GDP as taxes comparatively, with the region of Europe and Central Asia has the highest prevalence at 32 per cent of GDP as taxes.

While the low tax collection is like a normal trend, analysis of the most recent year with thorough tax data from nations such as Rwanda, Sudan, Burundi, Uganda, Kenya and Tanzania to mention a few suggests that in terms of tax rates, income, profits, and capital gains are taxed at rates ranging from 3 per cent to 48 per cent suggesting that generally tax income, profits, and capital gains are at greater rates to an average 5-20 per cent rate comparable to those in other nations that is at of 15 per cent.

Africa has made impressive strides in some areas of technological innovation. In this context, the strong technology adoption could support to transition of tax administration from manual systems, which are in my view characterised by tax official discretion regarding taxpayers, laborious and error-prone data entry, and case-by-case detection of evasion, to reliance on electronic systems, where there is a more consistent and predictable experience across taxpayers, timely data for decision making, and automated detection of suspicious activity.

Due to space constraints, I will attempt to convey it to the parties one day and demonstrate how information technology may help to increase tax collection more precisely.

Income taxes i.e., personal income and pay-as-you-earn, trade taxes, and real estate taxes, are important since they serve as the main source of funding for local governments, and consumption taxes including VAT and excise taxes.

Due to their importance in promoting trade and exchange with foreign investors as well as revenue mobilisation, national customs departments could play a significant role in this.

This is primarily because tax officers have significant discretionary authority in the course of their work, and risk-based systems of control and accountability are either absent or simple to subvert.

Technology advancements will have a big impact on how trade tariffs can be administered.

Considering that there isn’t enough space to go into detail about how using IT can assist the government in increasing revenue collection more precisely and in being able to improve the current situation, all this takes place knowing that raising tax income is a top policy priority to any government.

The four main tax types of consumption taxes, real estate taxes, trade taxes, and income taxes are assessed in this discussion to help tax man see how technology might be utilised to improve revenue mobilisation building on what is on the ground.

Next, I will deal more with how the function of IT could help to refine compliance by assisting the tax administration in determining the size of the tax base, monitoring compliance by utilising different sources to identify evasion and facilitating compliance by streamlining processes and lowering tax compliance costs.

The effective use of technology for taxation depends heavily on tax officers. They may evade or avoid using the new technology if they receive insufficient training or if their incentives are not properly aligned.

Last but not least, protecting people from undesired privacy, confidentiality, data leaks, and cybersecurity repercussions is a major concern with the deployment of technology systems in tax-related concerns.

On the one hand, deficiencies in the legal and rule of law framework may make governmental surveillance and privacy abuses more likely.

On the other hand, because tax administration data management systems in our country are still in their infancy, they could potentially be compromised by hackers who get access to private data.

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