Avatar Technologies Can Reduce The African Debt Pile

07 April 2016

Some of the problems exacerbating the debt situation of African countries are their small tax bases, the lack of tax compliance, tax avoidance, and fraud. Although tax compliance is a worldwide issue, it is particularly problematic in developing and emerging countries where the difference between the VAT due to the State and that actually collected is 50%-60%, compared with 7%-13% in developed countries. This is a significant difference and means that governments are missing out on a huge amount of revenue and are severely hampered in their efforts to put in place modern and progressive tax systems. Not to mention the development projects that this lost revenue could finance.

It is clear that the introduction of electronic systems can simplify and boost efficiency in the collection of tax payments.

Avatar Technologies offers the only Electronic Fiscal Solution (EFD) designed to address tax compliance issues successfully in both developed and developing countries. This cloud-based and highly secure solution works in real time to create an environment that promotes tax compliance and benefits both taxpayers and governments.

Rising levels of government debt in African countries, are a cause for concern—in 2015 Africa’s sovereign debt levels rose to 44% of GDP, a 10%increase over debt levels five years ago when Africa’s debt-to GDP ratio stood at 34%.

Against this background, Avatar Technologies’s EFD solution can effectively support the tax system of emerging and developing countries. The solution is simple and affordable and promotes fairness and transparency, thus supporting the World Bank’s three pillars of reform (“simpler and cheaper”, “fair” and “transparent”). Already-existing devices and Smartphones can be seamlessly integrated into the solution. Furthermore, the devices have a high level of autonomy, they are robust allowing for both remote audit and activation, which means they can be used in businesses located in remote areas.

In a bid to encourage tax compliance several African countries have also embarked on innovative initiatives such as receipt-based lotteries

  • Egypt’s Finance Ministry has announced it will issue lottery prizes in order to motivate businesses to issue invoices and customers to demand them, to promote the soon to be introduced VAT system.
  • In Rwanda, the Rwanda Revenue Authority (RRA) has said the new consumer lottery is boosting the use of Electronic Billing Machines (EBMs) introduced to curb the evasion of Value Added Tax (VAT). According to the tax body, over 9,700 taxpayers registered for VAT have already bought the EBMs compared with the total number of VAT registered taxpayers of 12,000.
  • The Tanzanian Revenue Authority (TRA) also plans to introduce prizes. The TRA’s Principal Taxpayer Service Officer, Rose Mahendeka said at a seminar in Dar-es-Salaam that the culture of asking for receipts after buying goods will check revenue loss. She said the practice will not only boost revenue collection but curb leakages used by some traders in dodging tax. According to the tax body, over 9,700 taxpayers registered for VAT have already bought the EBMs compared with the total number of VAT registered taxpayers of 12,000.

While obtaining a receipt for any legal transaction does not cost the consumer anything extra, it becomes valuable as it serves as a lottery ticket. For the tax authority, the cost of paying prizes and administering the lottery is, in turn, outweighed by the extra revenue of an increased tax base and by the citizen-policing effect of detecting VAT-dodging businesses. 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/government. Further improvement in technology use is set to augment further collections as more traders acquire and use the Electronic Fiscal Devices (EFDs).

Furthermore, AVATAR TECHNOLOGIES can assist tax authorities by making real-time invoicing a reality. A key element for successful tax collection starts with a committed and accountable leadership that sets the right tone at the top. In Africa alone, an estimated US$50 billion is lost each year due to fraud and tax avoidance. Governments must be at the forefront of initiatives to develop the necessary capacities in their countries because this is lost revenue that could be used for development.

Much more than a tax management system, the Avatar solution provides the government of countries that adopt its solution with an innovative financing mechanism enabling it to secure funds for development while compensating for dwindling foreign aid.