Increasing Tax Collection in African Countries: The Role of Information Technology

Abstract

Many African countries struggle to collect an adequate amount of tax revenue to support needed investments in public services. This paper examines how African countries may take advantage of recent advances in technology to improve tax administration. It provides an overview of the potential and challenges of different tax categories in Africa: consumption taxes, real estate taxes, trade taxes and income taxes. It then describes the ways in which technology solutions may be deployed to address these challenges by helping to identify the tax base, monitor compliance and facilitate compliance. Lastly, it provides insights from interviews with senior tax administrators across the continent on their practical experiences in adopting technology for taxation.

Finding the Missing Stone: Mobile Money and the Quality of Tax Policy and Administration

“…The ability for an official to demand a payment and to dictate that such a transaction take place in cash opens a space for corruption and decreases the likelihood of the official being identified or prosecuted. 22 Bill payment and bulk payment 23 could enable tax authorities to reach a large number of citizens and businesses and thus monitor the taxpayer's tax liability, such as professionals difficult to tax like doctors, lawyers, and architects, among others (Okunogbe and Santoro 2023). However, it is important to stress that the effectiveness of services for tax authorities depends on data sharing between tax officials and mobile money operators, which is a huge challenge in 22 https://www.gsma.com/mobilefordevelopment/programme/mobile-money/paying-taxes-through-mobile-money-initialinsights-into-p2g-and-b2g-payments/ 23 Bill payment is a payment made by a person from either their mobile money account or over the counter to a biller or billing organisation via a mobile money platform in exchange for services provided, while bulk payment is a payment made by an organisation via a mobile money platform to a person's mobile money account.…”

“…As Tanzi (1983) has pointed out, tax administration plays a crucial role in determining the effective tax system, as opposed to the statutory tax system. A perfect illustration of the importance of the quality of tax administration can be seen in developing countries, where tax administration models are characterised by a greater reliance on manual systems and direct interaction between taxpayers and tax collectors, thus worsening corruption indicators in taxation and reducing tax performance (Okunogbe and Santoro 2023). Furthermore, the current global landscape, shaped by the economic downturn from the Covid-19 pandemic, international tensions, and the climate emergency, underscores the urgency for developing countries to establish robust tax revenue systems.…”

“…Specifically, mobile money can help widen the tax base, enhance tax compliance or limit administrative burdens, improve the efficiency of back-end data, and increase revenue mobilisation (Arewa and Santoro 2022;Santoro et al 2022;Apeti and Edoh 2023). 1 Although the literature recognises the positive impact of digital technologies on tax outcomes in developing countries in a more general context (Eissa and Zeitlin 2014;Ali et al 2015;Kochanova, Hasnain and Larson 2020;Uyar et al 2021;Okunogbe and Pouliquen 2022;Brockmeyer and Sáenz Somarriba 2022;Dzansi et al 2022;Mascagni and Nell 2022;Okunogbe and Santoro 2023), relatively few studies, however, have looked at the effect of mobile money-type innovations on tax performance. In this handful of studies, Bernad et al (2023) in Rwanda report a positive impact on VAT compliance of merchants after adopting mobile money payments, which however is only short lived -as arguably merchants do not believe that mobile money data could be used for tax enforcement.…”

“…5 Indeed, with an economy dominated by the informal sector, tax administrations are likely to struggle to identify the appropriate tax base for tax policy application as many businesses operate completely outside the tax net (Mascagni and Nell 2022). The negative association that may exist between informality and the tax system is also discussed by Okunogbe and Santoro (2023). For the authors, one of the main obstacles to optimising tax systems is informality, as many individuals and companies operate outside the scope of tax administration.…”

“…For the authors, one of the main obstacles to optimising tax systems is informality, as many individuals and companies operate outside the scope of tax administration. In addition, the existence of an informal economy generates horizontal inequalities and economic distortions that can undermine tax policy and the moral fibre of a society (Okunogbe and Santoro 2023). As pointed out by Jacolin, Keneck Massil and Noah (2021), mobile money payments can reduce the size of the informal sector by increasing productivity and profitability, reducing operational costs of firms, and making commercial transactions more secure, more fluid, and less costly, thus increasing the 'opportunity cost' of staying in the informal sector.…”