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Why EAC needs to embrace tech to curb revenue slump

Monday June 07 2021
EAC pic

A lorry from Kenya crosses the Namanga border into Tanzania recently. Movement of goods within the EAC bloc has gone down significantly because of Covid-19. But, hopes of recovery remain high. PHOTO | FILE

By The Citizen Reporter

Dar es Salaam. With only less than a week before Finance ministers across member states of the East African Community (EAC) present their countries’ budgets for the financial year 2021/22, pundits will be looking up to how they seek to advance the use of technology to effectively collect public revenues.

This is because the budget comes against a backdrop of shortfalls in revenue collections, precipitated primarily by the global Covid-19 pandemic.

For instance, the Bank of Tanzania (BoT) notes in its Monthly Economic Review (MER) for April 2021, that during the first quarter of the current calendar year, income taxes was down to Sh1.41 trillion from Sh1.63 trillion of the first quarter of 2020.

Similarly, non-tax revenue dropped to Sh691.4 billion from Sh911.8 billion while other taxes fell to Sh247.6 billion from Sh303.9 billion.

In terms of grants from donors, the country received less in the first quarter of 2021 as Sh123.7 billion was received, which is significantly lower than Sh359.4 billion that was received in the first quarter of 2020.

This could partly explain the fact that development partners also had their own Covid-19 related financial obligations to meet back home and thus diverting part of what they would have spent in development aid to developing countries.

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A similar situation has also been witnessed in Uganda whereby during the 2019/20 financial year, the country closed the year with deficit of about Ush2.9 trillion (about Sh1.8 trillion) due to the Covid-19 pandemic as well as tax evasion, among others.

It was precisely due to a desire to fill revenue leakage loopholes that Uganda adopted digital stamps.

“We have not been performing 100 percent, business people are not honest. There has been a lot of under-declaration, we are getting evidence with the Digital Tax Stamp (DTS) solution, things are changing,” Uganda’s Finance minister, Matia Kasaija, is on record as having said so last year.

“I do not want to embarrass the business people, but hitherto, they were saying we are producing one million bottles of something for example, but when we put that digital tax stamp system, now the production has gone to three million. Where are the two million coming from?”

Digital stamps

Uganda has since advanced in its adoption of digital revenue stamps, with fixing of DTS’ being extended to cement and sugar starting early April, 2021 in the launch that rode over a two months’ period from 1st April to 1st June 2021.

In Tanzania, the government announced plans to adopt the Electronic Tax Stamps (ETS) system in June 2018 and the first phase was conducted on January 15, 2019 whereby stamps were installed on 19 companies that produce alcohol, wine and spirits.

Phase two of the project was rolled out on August 1, 2019 when ETS’ were stamped on sweetened flavored water and other non-alcoholic beverages, like energy and malt drinks and soda.

The third phase, which involved enrolling electronic stamps on fruit juices (including grape must), vegetable juices (under Heading 20.09), bottled drinking water, was conducted November 1, 2020.

According to the budget framework for the 2021/22 financial year which was presented to parliament in March, 2021, the government seeks to raise Sh36.23 trillion during the coming financial year.

Out of the money, Sh13 trillion will be development expenditure nd will be spent primarily on execution of 13 of the priority projects.

The projects include: the Standard Gauge Railway (SGR), the Julius Nyerere Hydropower Station and Air Tanzania Company Limited (ATCL) among others.

To collect the money however the government is banking on improving the business climate, promoting the use of Information and Communication Technology (ICT) and fostering public education on tax payment among others.

“The government will strengthen an environment that will promote voluntary tax payments; it will improve and encourage the correct use of ICT collection systems and foster public education…,” the released budget framework reads in part.

The government, according to the budget framework, will also strengthen the revenue collection mechanisms and work on challenges affecting the exercise by effectively reducing tax evasion. Various fees and charges will also be streamlined.

In Kenya, the Excisable Goods Management System (EGMS) was initially launched in October 2013 to cover tobacco, wines and spirits, and later beer in early 2016.

It was until November 2019 that Kenya Revenue Authority announced the move to digitally tax bottled water, juices, energy drinks and soda in a move that was praised for dealing a blow to not only counterfeiters but also tax evaders.

Cross-border trade

East Africa has borne the brunt of cross-border illicit trade - including counterfeits, smuggling and bootlegging, with Tanzania, Kenya and Uganda reportedly losing a combined $3.2 billion in annual revenues to illicit trade.

Rwanda, which was on track to meeting its tax collection obligations for the financial year 2020/21 – largely due to the government’s covid-19 relief measures as well as the private sector’s resilience and commitment to paying taxes duly amidst the pandemic – will also be looking up to technology in its revenue collection bid.

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