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.