Digital tax collection could help Africa close $60bn gap, says report

Onome Amuge

Bento, a pan-African digital payroll and HRM platform, stated this in a White Paper titled Statutory Remittances in Africa. The report provides an in-depth analysis of income tax, a major source of revenue for African economies, comprising approximately 33 per cent of the total income generated. It also highlights the disparities in tax rates across the continent and explores the difficulties faced by tax authorities in effectively using income tax to generate revenue.

According to Bento, tax revenue is critical for funding essential public services such as education, healthcare, infrastructure, and defence. It noted further that the tax collection process is complex and requires careful planning to ensure a system that is efficient, fair, and sustainable. The Bento White Paper also highlights how digital tax collection could help to develop the informal sector in Africa, where economic activities are largely unregulated and taxes are not deducted from wages.

The informal sector’s limited contribution to domestic resource mobilisation (DRM) is viewed as a missed opportunity by Bento, since 85 per cent of the population is engaged in the sector (90% in sub-Saharan Africa), and yet few taxes are collected. The White Paper suggests that digital tax collection could help unlock this untapped potential and contribute to the development of Africa’s economy.

According to the White Paper, while VAT is a source of revenue for governments across Africa, the implementation of this tax differs significantly from country to country. For example, Nigeria’s VAT is 12 per cent higher than that of Niger, illustrating the disparity across the continent.

The Bento White Paper offers insights and recommendations on how African governments can better utilise technology to steer their economies towards sustainable growth. For example, Kenya has mandated the electronic filing of all taxes since 2016, including income from employment, business, and rental properties. This digital transformation, it stated, helps governments to identify and monitor taxpayers and reduce compliance costs.

Ebun Okubanjo, co-founder and CEO of Bento, noted that effective taxation has the potential to make Africa a better and more prosperous continent by giving Africans control over their own budgets. Okubanjo stated that the White Paper focuses on this important issue at a time when governments are working to stimulate economic growth. He emphasised that one potential solution is digital tax collection, which can help governments predict revenue, allocate resources, and develop public amenities more effectively.

“Our White Paper also reveals that African countries lose at least $60 billion in taxes, which is more than the amount of foreign development aid and slightly more than the GDP of The DRC. If we embrace a digital revolution, Africa will not need to rely on foreign backers for support,” Okubanjo stated.