In a recent publication, Bento, a leading digital payroll and HR Management (HRM) platform in Africa, introduced its White Paper titled “Statutory Remittances in Africa.” This detailed document presents a comprehensive analysis of taxation systems across 53 African countries, illustrating the critical advantages of digital solutions in government tax collection processes.
Key Insights into African Taxation
With the International Monetary Fund (IMF) advising Sub-Saharan African countries to pivot from expenditure cuts to more robust revenue-generating strategies, Bento’s White Paper arrives at an opportune time. It promotes the adoption of innovative digital platforms for tax collection, a move that could address the continent’s staggering $60 billion annual financial drain.
Bento’s research reveals the importance of income tax, which constitutes about 33% of total revenue in African economies. However, tax rates vary widely, from Lesotho’s 20-30% to Namibia’s 0-37%, underscoring the challenges tax authorities face in maximizing revenue generation.
Bridging the Tax Gap with Technology
Public services, crucial for societal welfare, are funded by tax revenues. However, the White Paper recognizes that tax collection in Africa faces its own set of challenges, particularly in tapping into the informal sector. This sector, which is largely unregulated and comprises up to 85% of the population (90% in Sub-Saharan Africa), currently contributes little to Domestic Resource Mobilisation (DRM).
To tackle these issues, Bento’s White Paper encourages the use of digital platforms. For example, since 2016, Kenya has required the electronic filing of taxes, improving taxpayer identification and lowering compliance costs. This digital shift is seen as essential in enhancing tax collection efficiency across the continent.
A Call for Digital Revolution
Ebun Okubanjo, Co-Founder and CEO at Bento, stresses that effective taxation is key to making Africa self-sufficient, allowing nations to better manage their budgets and foster economic growth. He suggests that digital tax collection can aid in accurate revenue forecasting, resource allocation, and public service development.
The White Paper also sheds light on the losses incurred due to inefficient tax systems, pointing out that Africa loses at least $60 billion in taxes annually. Okubanjo emphasizes that with digital solutions like Bento’s software, tax reports and payments could be generated and submitted electronically, streamlining administrative procedures and reducing the scope for evasion.
Raising the Tax-to-GDP Ratio
Currently, Africa’s average tax-to-GDP ratio stands at 16.5%, trailing behind Latin America, the Caribbean, and OECD countries. Bento’s White Paper suggests that adopting tech-enabled digital platforms for tax collection could significantly increase this ratio, subsequently enhancing the quality of life for African citizens.
Bento’s initiative to publish the “Statutory Remittances in Africa” White Paper reflects a step towards technological advancement in tax systems on the continent. This comprehensive analysis provides valuable insights and actionable recommendations that could empower African nations to harness technology for a more prosperous future.