Global economies continue to reel from the domino effect caused by Covid-19. The contagion has particularly ravaged the East African economies, some of which were struggling even before the advent of the pandemic. A recent report by Deloitte, Economic impact of the Covid-19 pandemic on East African economies: Summary of government intervention measures and Deloitte insights, Kenya Revenue Authority is projected to record a sharper decline in revenue collections on the back of the pandemic which has disrupted businesses and the labour market. Tanzania’s economy, mostly dependent on tourism, has been adversely affected by travel restrictions and closed borders. In Rwanda, taxable avenues in travel, hospitality, entertainment, and tourism were all halted, while disruptions were felt in supply chains that support export in mining, agribusiness and textile. The fall in revenues will drastically hamper public development projects and force the government to seek more foreign aid and assistance to foot its annual budget. When Covid-19 reared its ugly head, causing a major economic slowdown, tax administrations within the region employed various measures to cushion taxpayers. Among the measures put in place are extension of filing deadlines, reduction of taxes and in some cases, a total waiver. But the East African tax administrations have been grappling with compliance challenges even before the onset of Covid-19. The question is: How can revenue agencies tackle the effects of Covid-19 while at the same time ensuring compliance? The best way would be to take advantage of technology to bring more people into the tax compliance net. But to ensure the compliance of this digital ecosystem with national laws and regulation, as well as its economic sustainability. Tax administrations should look at using technology and digital support to help navigate the very stormy waters of tax collection during the pandemic. To aid administrations in this, there are different RegTech solutions available to them. Indeed, driven by revenue pressures and shrinking headcounts, tax authorities across the globe are increasingly relying on digital methods to collect taxpayer data and administer their tax systems. As the demand for tax transparency by governments and international organisations increases, tax administrations have deployed robust data-gathering platforms that enable matching and sharing of taxpayer data. They are then using data analytics to mine this data to help increase tax collections, target compliance initiatives and improve overall efficiency. Already, several countries including Ethiopia and Rwanda have implemented programmes to adopt electronic platforms for reporting or collecting taxes. This can help improve efficiency by lowering compliance costs, reducing leakages, and streamlining the tax collection process. Further, it can help raise tax capacity through digitisation efforts that formalise informal businesses and expand the tax base. This can include interventions to increase access to financial services, provide business support services and training for entrepreneurs. Tax administrations need to embrace technological solutions to ensure they meet revenue targets and enhance compliance amongst the tax base. They should also re-design their strategies post-Covid-19 as there will be large public sector debts and deficits to plug. The strategies should aim at sources of revenue that are currently under-taxed, including incomes and assets of the rich. In addition, they should consider more long-term incentives that will present a chance for the sector to bounce back and ultimately contribute to the tax revenue of the economy. The author is a professor of entrepreneurship at the University of Nairobi and former Cabinet minister. The views expressed in this article are of the writer.
