How we help African governments enforce tax compliance
5 May 2016
Tax compliance is a worldwide issue, but it is particularly problematic in developing and emerging countries, where the difference between the tax (VAT) due to the State and what is actually collected is 50% in-60%, compared with 7%-13% in developed countries. 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, as a result of fraud, governments are missing out on a huge amount of revenue which could be employed to put in place modern and progressive tax systems and to finance development projects.
There is major scope to enlarge Africa’s tax base —estimated at being a USD 300 billion opportunity—as the introduction of electronic systems can simplify and boost efficiency in the collection of tax payments.
Avatar Technologies offers the only electronic fiscal declaration (EFD) solution which has been specifically designed to successfully address tax compliance issues in both developed and developing countries. This EFD solution can effectively support the tax system of emerging and developing 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 EFD solution is simple and affordable. It promotes fairness and transparency, thus supporting the World Bank’s three pillars of tax reform:
- simpler and cheaper
- fair
- transparent
Already-existing devices and Smartphones can be seamlessly integrated into the solution and the EFD 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 is much more than a tax management system, as it provides the governments of countries that adopt its solution 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 invoicing which Avatar Technologies makes possible 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).
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 a 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 paying the correspondingl 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.
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 tax collection.
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 EFD solution represents a major opportunity for African countries. The time to plug leaking revenues is now.