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The city of Dar es Saleem, Tanzania at night
The report, published yesterday by the UN-based Better Than Cash Alliance, found that by digitising value added tax and supporting the formalisation of businesses, Tanzania could collect an additional $477m annually.
This would be a substantial windfall for a country with a GDP of around $47bn, and a tax to GDP ratio of just 12%.
Countries with such low tax collection rates are frequently urged to scale up domestic revenue collection in order to meet development challenges. In most advanced economies, tax collection is much higher. The average for OECD nations in 2014, for example, was 34.4%.
Digital payments could also accelerate economic modernisation, improve transparency and drive sustainable growth and financial inclusion in the country, the report continued.
It highlighted the “very impressive” results Tanzania has already achieved by digitising the payments businesses and individuals make to the government.
These include reducing leakage from cash payments in the tourism industry, such as conservation park fees, by 40%, and cutting import customs clearance times from nine days to less than one day by reducing inefficiencies.
Digitising tax payments has also provided electronic proof of payments to individual taxpayers and helped protect them against fraud while increasing transparency, it continued.
“Tanzania’s results are very impressive,” said Ruth Goodwin-Groen, managing director for the Better Than Cash Alliance. “The country has developed significant experience that has led it to achieve gains in revenue at a double digit rate while also delivering social benefits for its citizens.”
The report looked at how Tanzania had overcome some of the challenges to digitisation. For example, small traders were originally reluctant to digitise their point-of-sale payment mechanisms because they were required to bear the full cost of purchasing electronic billing machines.
In response, the government partnered with the Tanzania Trader’s Association to subsidise the cost.
According to a report by the OECD in April, nations across Africa are demonstrating healthy tax growth, which has grown by as much as 7% in some nations since 2000.
The Better Than Cash Alliance also highlighted Kenya, Uganda and Rwanda as using digital technology effectively to scale up revenues.
The city authority in Uganda’s capital, Kampala, for example, used an automated tax collection system to boost revenue by 167% in a single year. In Rwanda, nearly 80% of small- and medium-sized firms have now adopted electronic VAT payments.
