Digitization of payments could increase Tanzania’s annual tax revenue by at least USD477m per annum, improving the country’s tax to GDP ratio, currently at 12%.
This was indicated in a recent case study on Tanzania’s digitalization of payments by the United Nations (UN) based Better Than Cash Alliance (BTCA).
The study examines the adoption of Person-to-Government (P2G) and Business-to-Government (B2G) payments in Tanzania.
A digital P2G or B2G payment is defined as a transfer of funds, directly from the account of an individual or business, to the account of the government using a digital channel, instrument or store of value.
The case study calculates that the Tanzania Revenue Authority (TRA) lost nearly USD300m to VAT tax evasion in fiscal year 2014–2015 and another USD177m to the large number of informal businesses outside of the financial and tax system.
“Digitization of tax payments presents a significant opportunity for Tanzania to make further progress formalizing what is still a highly informal economy, ultimately increasing government revenues,” the study notes.
By digitizing P2G and B2G, Tanzania has already:
- Empowered its tourism sector by reducing economic leakage from cash payments, such as conservation park entry fees, by over 40%, supporting investment and employment.
- Cut bureaucratic inefficiencies, including reducing import customs clearance times from 9 days to less than 1 day.
- Increased transparency between citizens and governments, by digitizing tax payments which has provided electronic proof of payments and protects people against fraud.
Further expansion of digitalization of payments in Tanzania could be achieved through:
- Well-structured incentives, like ease of gaining credit based on digital tax history, or discounts have the potential of encouraging payments.
- Enabling risk-based and easier opening of digital accounts which has the potential to include the informal or rural economy and increase government inflows.
- Having the necessary payment infrastructure that enables the easy acceptance of various payment instruments and is interoperable across multiple payment channels.
- Reducing or eliminating digital payment transaction cost to the end user for government payments.
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