Africa’s digital finance research gets Bill and Melinda Gates funding

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The International Centre for Tax and Development (ICTD) has been granted $4.5 million by the Bill & Melinda Gates Foundation to establish a 3-year research and capacity building program on tax in relation to digital financial services, and their use, as well as digital ID infrastructure, in enabling low-income countries to more efficiently and equitably raise tax revenue, ICTD press release reads.

ICTD is a research network that aims at improving the quality of tax policy and administration in sub-Saharan Africa. It works with African partners to collaboratively generate policy-relevant research and build African research capacity in the area of taxation.

The funding came amidst an important convergence of over 450 tax officials, experts, and policymakers who are in Uganda-Kampala, participating in the Fourth International Conference on ICT and Accessibility (ICTA), themed: Innovation—digitalization and harnessing Technology to Improve Tax Systems.

More importantly, Increasing domestic resource mobilization is a priority for low-income countries, as a critical means to finance and achieve the Sustainable Development Goals (SDGs).

According to ICTA, the conference anticipates to fish out vital issues, as the ICTA 2019 states that: it is expected to explore innovative solutions to the policy challenges that countries face in dealing with the taxation of digitalized economy which will inform the global tax debate over the next decade, as well as African policy challenges including international and domestic aspects of the taxation of other key sectors.

Further, discussions will look at innovation through the use of technology in Africa to strengthen tax systems and develop solutions to tax base broadening, dealing with high net worth individuals, assessment and collection to increase tax efficiency and effectiveness.

In June 2019, Bill and Melinda gates foundation in collaboration with other partners gave the digital finance boost of $11.3 million to African Development Bank (AfDB), with the clear intent of ensuring at least 320 million more Africans, of which nearly 60% are women, have access to digital financial services.

READ: Rooting for sustainable finance in Africa

The new research program fund goes after two vital parameters which are to investigate digital financial services, digital ID and Taxation.

ICTD’s CEO, Professor Mick Moore was quoted saying that, “The goal of this program is to provide developing country governments with clear, evidence-based policy recommendations around how to leverage fintech, as well as digital ID, to raise tax revenues more effectively and equitably. We anticipate research in this new area will help identify opportunities to broaden the tax base via formalization of the informal economy and increase the efficiency of value-added, among other taxes.”

On the same note, the Commissioner-General of the Uganda Revenue Authority (URA), Doris Akol said that: “So as we kick off the 4th International Conference on Tax in Africa, we shall center efforts on innovating ways to handle the digital economy and harness technology to improve our tax systems.”

At present various African governments including Benin, Kenya, Uganda, Cote d’Ivoire, TanzaniaZambia, and Zimbabwe have already imposed taxes on mobile money and in some cases also on over the top (OTT) media services.

Further, such taxes risk reducing the adoption of digital financial services, and therefore threaten financial inclusion, as well as undermine the potential for revenue collection these instruments could enable. Such charges might also bear particularly heavily on poorer or more vulnerable groups, including women.

This reality is substantiated by Professor Annet Oguttu, University of Pretoria, who said that “Excise taxes on e-services like those on social media & mobile money in Uganda have a significant impact on investment, innovation and for the larger picture, economic growth. Such policies can lead to economic double taxation and other cascading effects.”

According to ICTD: digital payments and digital ID provide both welcome opportunities to advance financing development and inducements for governments to take tax policy decisions that can have adverse consequences. On the positive side, the increasing use of digital personal identification (ID) and the scope for using digital technologies in revenue administration, including digital payments, can improve the efficiency, convenience and reach of revenue collection, as well as reduce costs for both governments and taxpayers. On the negative side, the rapid growth in the use of digital financial services, especially mobile money, tempts governments to try to raise revenue easily and at low cost by imposing taxes directly on mobile money and similar transactions.

Africa has a vast potential to expand its digital finance landscape, which stands to draw innovation employment and curb poverty headcount rate significantly by 0.7 per cent per year.

The program, titled “DIGITAX: Digital Financial Services, Digital ID and Tax,” will also aim to increase the understanding of both the financial inclusion and domestic resource mobilization communities on this greenfield topic via demand-driven engagements, research partnerships, and communications.

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Padili Mikomangwa is an environmentalist based in Tanzania. . He is passionate about helping communities be aware of critical issues cutting across, environmental economics and natural resources management. He holds a bachelors degree in Geography and Environmental Studies from University of Dar es Salaam, Tanzania.

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