Malawi’s development relies on tax revenues

 

12 January 2017 

His Excellency, President Peter Mutharika, has called on all Malawians to always demand EFD receipts after acquiring items and services from Value Added Tax (VAT) registered businesses.

 

The country relies on the revenues generated from efficient tax collection, and tax evasion could hinder the country’s development.

 

“Malawi has been running on locally generated resources for three years now without any budgetary support from donors. We have built schools, hospitals and all these roads you see are from our money, your money which is paid in taxes. We are now on our own and operating public services using taxes. This is why I would like to remind everyone to be paying taxes. If you go to a shop you must always request for [EFD] receipts and you must insist that whoever sells you something gives you [EFD] receipts. This is good for your record and it also ensures that necessary taxes are paid,” President Mutharika said. 

 

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Digital payment systems drive growth in emerging countries

 

20 October 2016

Digital payment systems can drive sustainable growth in emerging countries. Many emerging countries are grappling with the challenge of how to modernise their economies, improve transparency, advance financial inclusion and, most of all, drive sustainable growth. One country that has achieved very strong results through its digital payment initiatives is Tanzania.

 

By digitising the payments made to the government by businesses and people, Tanzania has already:

  • empowered its tourism sector, by reducing, by over 40%, economic leakage from cash payments such as entrance fees for conservation parks, thus supporting investment and employment in the process
  • cut inefficiencies, including the reduction of customs clearance times for imports from nine days to less than one day
  • increased transparency between citizens and the government by digitising tax payments, which provides electronic proofs of payment and protects people against fraud.

 

Tanzania’s results in driving the transition from cash to digital payments are very impressive. “The country has developed significant experience that has enabled it to achieve revenue gains 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—a global partnership of governments, companies and international organisations that aims to accelerate the shift from cash to digital payments in order to drive inclusive growth and reduce poverty.

 

Other countries in the region have put in place initiatives to digitise payments and, while many are in the early stages of their transition, the benefits are quickly being realised and becoming evident:

  • Kenya is targeting to double tax collections over the next three years through its electronic tax filing system iTax.
  • In Uganda, the Kampala City Authority’s automated tax collection system boosted revenue by 167% in a single year.
  • Rwanda drove by nearly 80% the adoption of electronic VAT payments by SMMEs.

 

Another way in which the governments of emerging countries can boost tax revenues is through an electronic fiscal system. Avatar Technologies offers the only Electronic Revenue Assurance (ERA) solution which has been specifically designed to address tax compliance issues. This ERA solution can effectively support the tax systems of emerging countries. It is Cloud-based and highly secure and works in real-time to create an environment that promotes tax compliance. In this way, it benefits both taxpayers and governments.

 

The ERA solution is simple and affordable. It promotes fairness and transparency, thus supporting the World Bank’s three pillars of reform:

  • simpler and cheaper
  • fair
  • transparent

 

Already-existing devices and Smartphones can be seamlessly integrated into the solution and the ERA devices are robust and have a high level of autonomy. This means they allow for both remote audit and activation, and, as such, can be used in businesses which are located in remote areas.

 

The Avatar solution provides the governments of countries that have adopted it with an Innovative Financing mechanism enabling them to secure funds for development, while compensating for dwindling foreign aid and avoiding additional dependence on foreign debt.

 

The real-time electronic invoicing—also called e-invoicing— which Avatar Technologies can make possible could be a real boon for the government. In addition, to encourage tax compliance, several African countries have embarked on innovative initiatives such as receipt-based fiscal lotteries. While obtaining a receipt for any legal transaction does not cost the consumer anything extra, it becomes valuable as it serves as lottery ticket. In this way, transactions are more likely to be part of the official (not the shadow) economy and VAT can be collected by the tax authorities. For the tax authority, the cost of administering the lottery and of paying the related prizes is, in turn, far outweighed by the extra revenue of an increased tax base and the citizen-policing effect of detecting VAT-dodging businesses.

 

Specific steps that countries can take to increase their fiscal space include:

  • strengthening tax audits
  • simplifying tax systems
  • increasing the focus on larger taxpayers
  • modernising collections.

 

The electronic fiscal solution Avatar Technologies can provide would standardise and simplify internal processes, close major tax loopholes and improve collection procedures. Given the tremendous funding needs to meet the continent’s development goals and the scope to raise revenues from a diversity of sources, Avatar’s ERA solution represents a major opportunity for African countries. The time to boost revenues through digital payment systems is now.

 

 

Zimra could double VAT collection through automation

 

28 November 2016

The Zimbabwe Revenue Authority (Zimra) is plagued by revenue leakages due mainly to the fact that their systems are not fully automated. A recent United Nations Capital Development Fund (UNCDF) study has shown that the digitisation of VAT could significantly increase revenues. The current Zimra board has therefore been mandated to accelerate automation. The UNCDF report stated that the transition from cash to electronic payments could provide the way to a broader range of financial services.

 

Willia Bonyongwe, Zimra’s chairperson, said in an interview that the impact of automation or digitisation of payments would be most marked on VAT. [The impact of automation] “is 17% from the first quarter and we expect it to be double that at the end of this month. If we continue with this momentum, then by year end, we could double our VAT on local sales. We have leakages because of using semi-automated systems and we, indeed, need full automation to plug the serious revenue leakages we are facing as emerging markets,” she said. “The first thing is to agree with the UN report that, as Zimbabwe, we are lagging behind some of our counterparts in many respects.”

 

The advantages of automation were already demonstrated when the tax management system was implemented. Many tax evaders were caught in the net, including those who did not pay PAYE (Pay As You Earn) and VAT.

 

The UNCDF is running an awareness campaign under the “Better Than Cash Alliance” banner as an attempt to increase the digitisation of payment systems, especially in emerging countries. Electronic payments save costs and provide transparency for governments, developmental organisations and stakeholders in the private sector. The digitisation of payments could also accelerate economic modernisation.

 

Avatar Technologies offers an Electronic Revenue Assurance (ERA) solution which has been specifically designed to address tax compliance issues successfully in both developed and developing countries. This ERA solution can effectively support the tax system of emerging countries.

 

While tax compliance is a worldwide issue, it is particularly problematic in emerging countries, where the difference between the tax (VAT) due to the State and the amount actually collected is 50% to 60%, compared with 7% to 13% in developed countries. In Africa alone, an estimated USD 50 billion is lost each year due to fraud and tax avoidance. Governments must be at the forefront of modernisation initiatives to develop the necessary capacities in their countries, because they are losing out on a huge amount of revenue as a result of tax evasion.

 

There is major scope to increase Zimbabwe’s tax base—as the introduction of electronic systems can simplify, and boost efficiency in, the collection of tax payments. Simple and efficient, Avatar’s solution is much more than a tax management system, as it provides the governments of countries that adopt it with an innovative financing mechanism enabling them to secure much-needed funds for development, while compensating for dwindling foreign aid and avoiding additional dependence on foreign debt. The real-time invoicing which Avatar Technologies can make possible in Zimbabwe could be a real boon for the government. It allows for more effective monitoring and makes fraud and evasion more difficult, as transaction data transmitted in real time is harder to manipulate and/or delete (anti-zapping capacities). Furthermore, already-existing devices and Smartphones can be seamlessly integrated into the solution.

 

The electronic invoicing solution Avatar Technologies provides would standardise and simplify internal processes, close major tax loopholes and improve collection procedures.

 

 

 

Avatar Technologies can increase revenue in Botswana

 

25 August 2016

Tax compliance is a worldwide issue but it is particularly problematic in emerging countries, where the difference between the tax (VAT) due to the State and what is actually collected is as much as 50% to 60%, compared with 7% to 13% in developed countries. In Africa alone, an estimated USD 50 billion is lost each year due to fraud and tax avoidance.

 

Of all the challenges Botswana has had to face in the past decade, tax collection has been one of the most difficult. The Africa Capacity Report (ACR) for 2015 reveals that in 2012, Botswana collected direct and indirect tax amounting to USD 4.45 billion (47.9 billion pula) and was ranked 18th out of 45 countries.

 

The Commissioner-General of Botswana’s tax agency, the Botswana Unified Revenue Service (BURS), has acknowledged that it is still not able to collect the optimum tax and customs revenues that could potentially be collected. The Commissioner said that the BURS faced the following constraints:

  • the lack of capacity to undertake more enforcement activities to cover the whole of Botswana
  • public ignorance of the importance of tax—which causes low compliance levels
  • the lack of an enterprise risk management function for increased collection efficiency

 

The ACR report states: “Tax performance in African countries leaves much to be desired, tax systems are still inefficient, costly and significant amounts of revenue are lost to tax exemptions and tax avoidance.” The report suggested that investing in the capacity of revenue authorities must be part of a broader fiscal reform agenda that includes simplifying and rationalising tax systems. Staff must be better trained, retained with the right financial incentives, and allowed to work free of political interference. Revenue authorities must also build the capacity to engage with taxpayers and foster a culture of compliance where taxation is seen as contributing to essential services. This means that governments must be transparent and efficient about their expenditures—citizens must be aware of what services they are getting in return for their tax contributions. Governments must invest in tax awareness and education campaigns.

 

According to the most recent data for 2012, illicit financial flows from Africa were higher than the money flowing into the country through remittances (USD 82.5 billion versus USD 51.4 billion). This is a significant difference. Despite the global financial crisis, remittance flows have continued to increase (with the exception of 2009) and have been higher than Official Development Assistance (ODA).

 

Mobilising domestic resources and curbing illicit financial flows will be key to structural economic transformation, growth and the reduction of poverty. Governments must be at the forefront of initiatives to develop the necessary capacities in their countries, because they are losing a huge amount of revenue which could be employed to put in place modern and progressive tax systems and to finance socio-economic development projects.

 

There is considerable scope to enlarge Botswana’s tax base—as the introduction of electronic systems can simplify and boost efficiency in the collection of tax payments.

 

Avatar Technologies offers an Electronic Revenue Assurance (ERA) solution which has been specifically designed to address tax compliance issues successfully in both developed and developing countries. This ERA solution can effectively support the tax system of emerging countries. It is Cloud-based, highly secure, and works in real-time to create an environment that promotes tax compliance. In this way, it benefits both taxpayers and governments. The real-time invoicing which Avatar Technologies can make possible could be a real boon for the Botswana government. It allows for more effective monitoring and makes fraud and evasion more difficult as transaction data transmitted in real time is harder to manipulate and/or delete (anti-zapping capacities).

 

To encourage tax compliance, several African countries have embarked on innovative initiatives such as receipt-based fiscal lotteries. While obtaining a receipt for any legal transaction does not cost the consumer anything extra, it becomes valuable as it serves as lottery ticket. In this way, transactions are more likely to be part of the official (not the shadow) economy and VAT can be collected by the tax authorities. For the tax authority, the cost of administering the lottery and of paying for the corresponding prizes is, in turn, far outweighed by the extra revenue of an increased tax base and by the citizen-policing effect of detecting VAT-dodging businesses.

 

The electronic fiscal solution Avatar Technologies can provide would standardise and simplify internal processes, close major tax loopholes, and improve collection procedures. Given the tremendous funding needs to meet Africa’s development goals and the scope to raise revenues from a diversity of sources, Avatar’s ERA solution represents a major opportunity for Botswana—there is no better time than now to optimise tax collection in the country.

 

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