The report, published yesterday by the UN-affiliated Better Than Cash Alliance, found that by digitising value added tax (VAT) returns and supporting the formalisation of various small businesses, the government could collect an additional $477 million annually.
This would be a substantial windfall for Tanzania as a country with a gross domestic product (GDP) of around $47bn and a tax-to-GDP ratio of just 12 per cent, the report said.
It noted that 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 per cent.
Digital payments could also accelerate economic modernisation, improve transparency, and drive sustainable growth and financial inclusion in the country, the report added.
It highlighted the “very impressive” results Tanzania has already achieved by digitising the payments that businesses and individuals make to the government.
These include a 40 per cent reduction in leakage from cash payments in the tourism industry, such as conservation park fees, and cutting customs clearance times for imports from nine days to less than one day simply 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, the report continued.
According to Better Than Cash Alliance managing director Ruth Goodwin-Groen:
“(Tanzania) 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 per cent in some countries since 2000.
The Better Than Cash Alliance also cited Kenya, Uganda and Rwanda as countries 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 per cent in a single year, while in Rwanda, nearly 80 per cent of small- and medium-sized firms have now adopted electronic VAT payments, the report noted.