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Why EAC should embrace digital tax solutions

Why EAC should embrace digital tax solutions

THE six member states of the East African Community (EAC) are counting down on tabling of budget estimates for the financial year 2021/2022 in their respective parliaments concurrently next Thursday, as it has been the norm for years now.

Given the economic slow down worldwide due to Covid-19 pandemic, it remains to be seen how Finance Ministers from each of the members will highlight remedial measures to cushion the economies of their countries.

In some circles hopes are high that the ministers will dwell on measures to widen the tax base in productive sectors and at the same time spare the ordinary people from the burden of increased taxes. For those who are new in the region, the EAC comprises six countries namely Tanzania, Kenya and Uganda being the founding members, which were later joined by Rwanda, Burundi and South Sudan.

The six members of the regional bloc are not an Island and hence they have been affected by the negative impact of Covid-19 as it has been with other countries globally. For instance in July last year, Safari.bookings.com surveyed 306 safari operators in Africa and found out that over 90 per cent of them had their bookings shrunk by 75 per cent owing to the pandemic.

The World Travel and Tourism Council (WTTC) predicted that African countries’ gross domestic product (GDP) stand to lose between US 53 and US 120 billion dollars from the tourism industry.

 In Tanzania, tourism contributes 17.2 per cent to the GDP and it is the country’s primary foreign exchange earner at 25 per cent to the GDP.

The sector provides direct and indirect jobs to over 800,000 people. It is most likely that Tanzania and its neighbors will somehow lose revenues from the lucrative, and thus need to look for remedial measures to cushion their economies. Among other measures, electronic collection of revenues has been touted as among best alternatives to widen tax base, check tax evaders and counterfeiters who deny requisite taxes to the government.

There have been significant achievements in all the three EAC member countries which have embraced digital solutions for collecting revenues.

Tanzania, Kenya and Uganda have so far introduced electronic collection of taxes for some goods while Rwanda is reportedly on the line to introduce the system. Among the three countries which have already rolled out the technology, each of them has selected some products to which digital tax stamps are affixed.

Apart from excisable goods, Uganda, through the Uganda Revenue Authority (URA), became the first country in the EAC to introduce the electronic stamps for cement and sugar since April, this year. Before that, the URA had rolled out initial phases of the technology which covered tobacco products, bottled water, carbonated soft drinks and all alcoholic drinks, both imported and locally produced.

The technology, dubbed digital tax stamps (DTS) in Uganda, contains sophisticated security features and codes to prevent counterfeiting of goods through tracing and tracking capabilities. As such, its application enables revenue collection authorities to track real-time production at factories and imports and eventually facilitates smooth collection of taxes.

The electronic stamps as well make it easy for the government to detect smuggled and fake goods in the local market. This is crucial for protecting the health of the people from consuming substandard products.

By curbing trafficked and counterfeit products in the market they as well play an important role in checking unfair competition posed by smuggled and bogus products to local producers. In Tanzania, the technology is known as Electronic Tax Stamps (ETS) and was first introduced in January 2019 for a range of products namely cigarettes and alcoholic drinks.

It was later extended in a second phase to carbonated soft drinks, bottled water, fruit and vegetable juices in addition to music and film products. After its introduction, data availed then by the Tanzania Revenue Authority (TRA) showed that collection of excise duty increased from 24bn/- in January to 28bn/- in April, 2019.

Based on the success story, the Parliamentary Budget Committee last year proposed that the digital stamps should as well be affixed on other products such as human and veterinary medicines, farm inputs and cosmetics, among others.

The team pointed to the fact that Tanzania and other countries in the region face a challenge of substandard and smuggled products which deny revenues to the governments.

Apart from taxes, the bogus products in the market pose health risks to consumers, low productivity to farmers and unfair playing grounds against local manufacturers. On its part, the Kenya Revenue Authority (KRA) in November 2019 introduced digital tax stamps for bottled water, juices, energy drinks and carbonated soft drinks in a move it said will deal a blow to tax evaders and counterfeiters.

The KRA thus instructed all manufacturers and importers of such products to affix the highly secure Excisable Goods Management System (EGMS) stamps effective November, 2019. Available shows that the three East African countries of Kenya, Tanzania and Uganda, have been losing close to US 3.5 billion dollars each year through cross-border illicit trade.

As East Africans count down for the reading of the budget estimates next week, it is hoped that respective finance ministers will spell out measures to widen the tax base but spare common people for high taxes.

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