Africa Seeks Digital Strategies to Boost Revenue Collection

In the face of economic challenges and substantial foreign debt, many African governments are exploring new tax measures to boost revenue. However, this approach has often led to significant public resistance, as seen in Kenya’s recent experience. In June 2024, the Kenyan government introduced the Finance Bill 2024 with the intention of increasing revenue from citizens and businesses. This move sparked extensive protests, leading President William Ruto to withdraw the bill and overhaul his cabinet.

Amid these developments, Kenya's outgoing finance minister, Njuguna Ndungu, has proposed a different strategy: optimizing existing tax systems rather than introducing new taxes. Ndungu suggests that high tax rates do not necessarily lead to higher revenue and emphasizes the need to improve the efficiency of current tax instruments. His perspective underscores the importance of enhancing collection rates for existing taxes as a more viable alternative to raising new taxes.

N-Soft, a company specializing in tax collection and technological solutions, offers a case in point for successful optimization. N-Soft has worked with countries like the Democratic Republic of Congo and Sierra Leone to enhance their tax collection capabilities. In the Democratic Republic of Congo, for example, N-Soft’s intervention in monitoring the telecom sector led to a significant 60% increase in tax collection.

Prakash Sabunani, Senior Vice President and Partner at N-Soft, advocates for leveraging digital tools to improve tax collection. He points out that the future of taxation lies in digital innovation and artificial intelligence, as the digital economy—including mobile telecommunications and online services—represents a key area for generating revenue. Sabunani suggests that African governments should focus on taxing sectors such as telecommunications, pay TV services, online financial transactions, and online gaming. By tapping into these digital revenue streams, governments could substantially increase their revenue.

Sabunani also highlights the potential for optimizing domestic tax systems to reduce reliance on foreign loans. He argues that by refining their tax collection processes and maximizing revenue from existing sources, African governments could avoid accumulating excessive debt and lessen their dependence on external borrowing.

McDonald Lewanika, Country Director at Accountability Lab, echoes these concerns, criticizing the misallocation of resources and its impact on governance. He argues that poor resource management and corruption often lead to unnecessary borrowing, which in turn burdens citizens with debt. Lewanika suggests that improving tax collection and governance can help address these issues, ultimately leading to better financial stability and less need for external loans.

In conclusion, integrating advanced digital tools and optimizing current tax systems is pivotal for African governments to avert financial crises and social instability. Enhancing tax collection efficiency through digital means allows for more accurate and comprehensive revenue capture, reducing reliance on external loans and mitigating the risks of financial mismanagement.

By focusing on modern digital revenue sources such as mobile communications, pay TV, online financial services, and digital gaming and betting industries, governments can tap into significant revenue streams that are currently underutilized. This shift not only broadens the tax base but also ensures that emerging economic sectors contribute fairly to national development.

Moreover, refining tax systems to leverage technology can lead to improved governance by reducing corruption and inefficiencies in revenue collection. Transparent and effective tax administration fosters public trust and accountability, which are crucial for social stability and long-term development.

Overall, adopting these strategies will enhance economic stability, empower governments to achieve their development goals, and foster a more resilient and equitable financial environment. By prioritizing digital tools and optimizing existing systems, African nations can build a sustainable economic future and better support their populations in times of economic challenge.