Digital payment set to boost tax collection Tanzania

By digitizing Value Added Tax (VAT) payments, Tanzania could increase its tax revenue by 477 million US dollars a year, which would help push up the country’s tax/GDP ratio, currently estimated at 12 per cent, the UN-based Better Than Cash Alliance has found.

“Tanzania’s results in driving the shift from cash to digital payments are very impressive. The country has developed significant experience that has led it to achieve gains in revenue at double digit rates while also delivering social benefits for its citizens,” said Dr Ruth Goodwin- Groen, Managing director of the Better Than Cash Alliance (BTCA).

Tanzania has a GDP of 47 billion US dollars and a tax/ GDP ratio of approximately 12 per cent.

The government has projected tax revenue at 13.8 per cent of GDP in 2016/17 financial year up from 13.1 per cent in the 2015/16. “Many emerging economies are grappling with how to modernize their economies, improve transparency, drive sustainable growth and advance financial inclusion.

This study on Tanzania’s digital payment initiatives reveals the very strong results achieved by the government so far.” Goodwin-Groen says Tanzania has reduced “leakage” in the tourism sector by 40 per cent by switching cash payments from things like conservation park fees; while cutting bureaucratic inefficiencies, that include reducing import customs clearance times from nine days to one.

“Tanzania is building a firm foundation for strong and inclusive growth and we look forward to further progress,” she said. The new report reveals how Tanzania overcame obstacles of adopting digital Personto- Government (P2G) and Business-To-Government (B2G) payments.

For example, when small traders were reluctant to digitize their point-of-sale payment capabilities because they were required to bear the full costs of purchasing electronic billing machines, the government partnered with the Tanzania Trader’s Association to subsidize the costs.

Furthermore, these digitization efforts contribute to benefits beyond just the economy. They have wide-ranging positive impacts across society, such as driving social inclusion within Tanzania.

It quoted a customer, Sheru Hadha, who noted how digital financial inclusion has empowered her in her daily life. “Digital payments help women be more independent. Before, when we just had cash, it was very tough.

To transfer money, I had to go to the bank, and they would ask me for a lot of information and require documentation. I had to line up for a long time, more than three hours. It was a big hassle,” she noted.

Meanwhile according to BTCA report, digitisation efforts in neighbouring countries have Kenya aiming to double its tax collections over the next three years through its iTax tax-filing electronic system, while the Kampala Capital City Authority’s automated tax collection system boosted revenue by 167 per cent in a single year.
In Rwanda, some 80 per cent of VAT payments made by SME businesses are via electronic VAT payments, the alliance says.

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