Digital Payments Could Increase Tanzania Tax Revenue by USD477m per Year
Digitization of payments could
increase Tanzania’s annual tax revenue by at least USD477m per annum, improving
the country’s tax to GDP ratio, currently at 12%.
This was indicated in a recent case
study on Tanzania’s digitalization of payments by the United Nations (UN) based
Better Than Cash Alliance (BTCA).
The study examines the adoption of
Person-to-Government (P2G) and Business-to-Government (B2G) payments in
Tanzania.
A digital P2G or B2G payment is
defined as a transfer of funds, directly from the account of an individual or
business, to the account of the government using a digital channel, instrument
or store of value.
The case study calculates that the
Tanzania Revenue Authority (TRA) lost nearly USD300m to VAT tax evasion in
fiscal year 2014–2015 and another USD177m to the large number of informal
businesses outside of the financial and tax system.
“Digitization of tax payments presents a
significant opportunity for Tanzania to make further progress formalizing what
is still a highly informal economy, ultimately increasing government revenues,”
the study notes.
By digitizing P2G and B2G, Tanzania
has already: Empowered its tourism sector by reducing economic leakage from
cash payments, such as conservation park entry fees, by over 40%, supporting
investment and employment.
Cut bureaucratic inefficiencies,
including reducing import customs clearance times from 9 days to less than 1
day.
Increased transparency between
citizens and governments, by digitizing tax payments which has provided
electronic proof of payments and protects people against fraud. Further
expansion of digitalization of payments in Tanzania could be achieved through:
Well-structured incentives, like ease of gaining credit based on digital tax
history, or discounts have the potential of encouraging payments.
Enabling risk-based and easier opening of
digital accounts which has the potential to include the informal or rural
economy and increase government inflows.
Having the necessary payment
infrastructure that enables the easy acceptance of various payment instruments
and is interoperable across multiple payment channels. Reducing or eliminating
digital payment transaction cost to the end user for government payments.
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