Digital tax collection has the potential to improve the informal sector in Africa, according to Bento, a pan-African digital payroll and HR Management (HRM) platform. The knock-on effects could be extremely helpful to the region as, in contrast to PAYE, the service can help appropriately tax activities outside of government regulation and supervision.
The Bento whitepaper delving into the subject, titled Statutory Remittances in Africa, analyses taxation systems in 53 African countries. It underscores the advantages of governments adopting digital payroll systems to collect income tax and other obligatory deductions accurately.
Bento explores the intricacies of income tax, a pivotal revenue source for African economies, comprising approximately 33 per cent of the total income generated. While specific income tax ranges differ from one country to another, with variations such as Lesotho’s 20-30 per cent and neighbouring Namibia’s 0-37 per cent, the document highlights the significant disparities in African tax rates.
“Effective taxation has the potential to make Africa a better, more prosperous continent, allowing Africans to take charge of their own budgets.” – Ebun Okubanjo
Essential public services such as education, healthcare, infrastructure, and defence are financed by tax revenue. However, taxation is a complex process that requires careful consideration to develop an effective, equitable, and sustainable system. The whitepaper also highlights the challenges faced by tax authorities in effectively harnessing this method for revenue collection.
Currently, this sector also fails to significantly contribute effectively to Domestic Resource Mobilisation (DRM). Bento considers this a missed opportunity, one that prevents African nations from capitalising on taxes from a sector where 85 per cent of its population are participants (90 per cent in sub-Saharan Africa).
Using available means
The whitepaper posits that in the face of a worldwide economic slowdown, African nations can’t rely on foreign governments for external borrowing to help alleviate their economic woes. Worryingly, the continent experiences annual losses of as much as $60billion due to illicit financial outflows. Bento believes that this ‘detrimental situation’ can be fixed.
Bento’s whitepaper also looks at VAT and finds that in contrast to the relatively uniform application of VAT in Europe, the situation in Africa is markedly different. While this tax contributes to government revenues, its implementation varies significantly from country to country. This disparity is evident when comparing Niger and Nigeria, where the VAT in the latter is 12 per cent higher than that in Africa’s most populous nation.
The whitepaper presents recommendations to better utilise technology-driven approaches now available to the countries, thus steering African economies towards a sustainable growth trajectory.
Payroll systems are slowly starting to be used as a means of tax collection on the continent. Since 2016, Kenya has mandated the electronic filing of all taxes, including employment, business, and rental income. In addition to enhancing taxpayer identification and monitoring capabilities, this digital transformation aims to reduce taxpayers’ compliance costs.
Embracing the digital revolution
The whitepaper concludes that new and more innovative means of tax collection at scale, via tech-enabled digital platforms would enable African countries to increase their average tax-to-GDP ratio of 16.5 per cent, which currently lags behind Latin America and the Caribbean (21.9 per cent). It is also behind the Organisation for Economic Co-operation and Development (OECD) countries (33.5 per cent) and can drastically improve the lives of African citizens.
Ebun Okubanjo, co-founder and CEO at Bento, said: “Effective taxation has the potential to make Africa a better, more prosperous continent, allowing Africans to take charge of their own budgets. Our whitepaper highlights the importance of this issue at a crucial moment when governments across the continent are striving to catalyse their economies.
“One solution to achieve this is through digital tax collection, which can help governments accurately predict revenue, allocate resources optimally, and strategically develop public amenities and other initiatives.
“Our whitepaper also reveals that African countries lose at least $60billion in taxes, which is more than the amount of foreign development aid and slightly more than the GDP of The DRC. If we embrace a digital revolution, Africa will not need to rely on foreign backers for support. Bento software is one of the solutions that can help African governments by enabling them to generate and submit tax reports and payments electronically, reducing administrative burdens.
“With real-time reporting, tax authorities can access up-to-date information on tax collections and trends. We have the people and the solutions to collect taxes more effectively. Efficient tax collection can significantly increase revenue generation by reducing evasion and promoting adherence to tax regulations.”