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How African govts can improve revenue collection impacted by COVID-19
Most if not all economies on the continent reported a decline in tax collections as a result of the COVID-19 pandemic, but with the increased deficit spending pressures could the tax authorities shore up collections in the upcoming financial year? The Head of Indirect Tax at PricewaterhouseCoopers, Job Kabochi joins CNBC Africa for more.
Wed, 19 May 2021 10:35:46 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Adopting technology for enhanced compliance in tax collection, particularly in areas like value-added tax (VAT)
- Opportunities and challenges of the African Continental Free Trade Area (AfCFTA) for revenue collection and boosting domestic taxes
- Focus on indirect taxes as a key component of total tax collection, with policymakers increasingly turning attention to these levies
The COVID-19 pandemic has had a significant impact on economies across Africa, leading to a decline in tax collections. With increased deficit spending, there are mounting pressures on tax authorities to shore up collections in the upcoming financial year. Job Kabochie, the Head of Indirect Tax at PricewaterhouseCoopers, shared insights on how African governments can improve revenue collection strategies during a recent interview on CNBC Africa.
Kabochie highlighted the importance of efficient and heightened compliance in tax collection. He emphasized the need for revenue authorities to adopt technology to enhance compliance, particularly in taxing areas like value-added tax (VAT). Real-time reporting of taxes charged and collected by various suppliers of goods and services can play a crucial role in improving tax collection.
The implementation of the African Continental Free Trade Area (AfCFTA) presents both challenges and opportunities for revenue collection. While some argue that it may lead to a loss of revenue due to tax exemptions and trade barriers, Kabochie pointed out that the AfCFTA can create employment opportunities and boost domestic taxes. By focusing on local employment and increasing spending power, governments can offset potential revenue losses from cross-border taxes.
In the realm of tax policy, indirect taxes have been receiving increased attention from policymakers. Kabochie explained that indirect taxes, which are levied on the supply of goods and services, are viewed as regressive as they do not consider an individual's ability to pay. However, governments favor these taxes for their consistency in collection throughout a fiscal cycle. Indirect taxes are now contributing significantly to total tax collection, accounting for over 40% of government revenues globally.
As governments face pressure to make up for lost tax revenue, Kabochie highlighted two key areas of focus. Firstly, enhancing compliance by bringing potential taxpayers into the tax net is essential. The recent finance bill proposes changes to improve compliance and empower revenue authorities to enforce tax collection effectively. Secondly, governments are targeting sectors that have traditionally been untaxed, such as the digital economy. The shift towards digital interactions during the pandemic has led to increased focus on taxing online transactions and digital services.
In conclusion, Kabochie emphasized the importance of balancing revenue collection strategies in the face of fiscal challenges. While there are concerns about potential revenue losses, leveraging technology, enhancing compliance, and tapping into new sectors like the digital economy can help African governments improve revenue collection and drive economic growth.
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