Zimra could double VAT collection through automation

28 November 2016

The Zimbabwe Revenue Authority (Zimra) is plagued by revenue leakages due mainly to the fact that their systems are not fully automated. A recent United Nations Capital Development Fund (UNCDF) study has shown that the digitisation of VAT could significantly increase revenues. The current Zimra board has therefore been mandated to accelerate automation. The UNCDF report stated that the transition from cash to electronic payments could provide the way to a broader range of financial services.

Willia Bonyongwe, Zimra’s chairperson, said in an interview that the impact of automation or digitisation of payments would be most marked on VAT. [The impact of automation] “is 17% from the first quarter and we expect it to be double that at the end of this month. If we continue with this momentum, then by year end, we could double our VAT on local sales. We have leakages because of using semi-automated systems and we, indeed, need full automation to plug the serious revenue leakages we are facing as emerging markets,” she said. “The first thing is to agree with the UN report that, as Zimbabwe, we are lagging behind some of our counterparts in many respects.”

The advantages of automation were already demonstrated when the tax management system was implemented. Many tax evaders were caught in the net, including those who did not pay PAYE (Pay As You Earn) and VAT.

The UNCDF is running an awareness campaign under the “Better Than Cash Alliance” banner as an attempt to increase the digitisation of payment systems, especially in emerging countries. Electronic payments save costs and provide transparency for governments, developmental organisations and stakeholders in the private sector. The digitisation of payments could also accelerate economic modernisation.

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.

While tax compliance is a worldwide issue, it is particularly problematic in emerging countries, where the difference between the tax (VAT) due to the State and the amount actually collected is 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. Governments must be at the forefront of modernisation initiatives to develop the necessary capacities in their countries, because they are losing out on a huge amount of revenue as a result of tax evasion.

There is major scope to increase Zimbabwe’s tax base—as the introduction of electronic systems can simplify, and boost efficiency in, the collection of tax payments. Simple and efficient, Avatar’s solution is much more than a tax management system, as it provides the governments of countries that adopt it with an innovative financing mechanism enabling them to secure much-needed funds for development, while compensating for dwindling foreign aid and avoiding additional dependence on foreign debt. The real-time invoicing which Avatar Technologies can make possible in Zimbabwe 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). Furthermore, already-existing devices and Smartphones can be seamlessly integrated into the solution.

The electronic invoicing solution Avatar Technologies provides would standardise and simplify internal processes, close major tax loopholes and improve collection procedures.