African governments have been trying to introduce new taxes — in part to pay off heavy foreign loans — amid economic headwinds that include rising global prices for food and energy.
In June, the Kenya government introduced Finance Bill 2024, which sought to collect more money from the public and businesses.
The move triggered weeks of angry protests that prompted President William Ruto to withdraw the bill and fire his cabinet.
‘Optimize each tax instrument’
On Monday, Kenya’s outgoing finance minister, Njuguna Ndungu, said the government does not need to introduce new taxes.
“From this notion that high taxes will raise high tax revenue, the reality is the opposite,” Ndungu said. “… So, because high taxes cannot bring you high tax revenue, what do we need to do? We need to study how we can optimize each tax instrument.”
One way is to improve collection rates on taxes already on the books.
One company, N-Soft, has helped the Democratic Republic of Congo, Sierra Leone, and several other nations supervise technological services and collect fees and taxes automatically.
N-Soft says that by setting up monitoring of the DRC’s telecom sector, it improved tax collection in that field by 60%.
Digital tools called ‘future’
Prakash Sabunani, the senior vice president and partner of N-Soft, said Africa is losing a lot of revenue in the digital space.
“Governments need to utilize digital tools. Digital tools are today the future. Everything today, as you can see, is converging toward AI. Mobile operators, mobile, telecom solution providers, device manufacturers, everybody is today focusing on AI,” said Sabunani. “And that’s where the new economy is actually targeting their new streams of income.”
N-Soft is urging African governments and tax authorities to focus on collecting taxes from phones with SIM cards, pay TV services, online financial services, and the online gaming and betting industries. By doing so, these governments could raise more money to fund their development goals.
Sabunani said African countries need to improve the tax collection system so they can avoid burdening themselves with loans.
“We encourage local governments to look at their own inner space and their own economic space to first optimize that revenue before going out of their borders to claim money or to request for loans,” said Sabunani. “They don’t need to because if they were optimized in their data, in collecting their revenue and in optimizing their sources of collection, believe me, they wouldn’t need to borrow any money.”
McDonald Lewanika, the country director at Accountability Lab, an organization that promotes good governance for Africa, said “poor prioritization” of where resources are deployed are leading to “poor performance by governments” and “poor dividends for ordinary people.”
Why, he asked, should people have to pay debts “that we were not supposed to incur in the first place, in order for them to pay for corruption and bad governance at the end of the day?”
At minimum, adopting digital tools to collect taxes may keep countries out of financial situations like Kenya’s, and help them avoid the kind of protests that brought down President Ruto’s cabinet.
