Binary code is a series of 0’1 and 1’s and thanks to the digital revolution that has since unfolded, these series of 0’s and 1’s and is, in multiple digits, lifting Africa out of poverty.
Take Tanzania for instance, a low income East African nation that now has the capacity to increase its annual tax base by a whopping USD 477 million should it better regulate, promote and develop the digital money industry in the country.
Other than the financial gains that are all too obvious, using digital transactions allows for increased transparency in government payments and reduced bureaucratic inefficiencies across most all government ministries and agencies.
Tanzania ranks way up there in Africa’s digital money penetration. In just a handful of years, Tanzania’s mobile money penetration has been unprecedented. With it, “Tanzania is building a firm foundation for strong and inclusive growth and we look forward to further progress,” local media quotes United Nations recent findings.
Dr. Ruth Goodwin-Groen, the Managing Director of Better Than Cash Alliance a UN advocacy for digital money is quoted praising Tanzania’s digital penetration and its positive effects.
“Tanzania’s results in driving the shift from cash to digital payments are very impressive. The country has developed significant experience that has led it to achieve gains in revenue at double digit rates while also delivering social benefits for its citizens.”
It is no news that digitizing the transaction systems in a country like Value Added Tax payments results in increased tax revenue. It even further allows more financial inclusion by creating a platform for formalization of businesses that were previously flying under the radar.
Formalizing the informal sector is very important for economic development of a country like Tanzania where its tax/GDP ratio is at a low 12 percent. By formalizing these small businesses the government increase tax collection and on their side the small businesses become recognized and can now access financial backing from banks and other lenders.
Digitizing Tanzania UN’s – Better Than Cash Alliance
The Better Than Cash Alliance is managed by the United Nations Capital Development Fund and is a partnership between governments, companies, and international organizations designed to accelerate the transition from cash to digital payments.
Digitizing financial transaction, as mentioned, has multiple benefits especially for countries plagued with corruption. It is advocated that digital payments go a long way to reduce poverty and drive inclusive growth because of the transparency aspect they bring to the table.
In fact for third world countries like Tanzania, the digital revolution especially in the monetary systems has skyrocketed the country from stone age barter trade and cash transactions to 21st century digital trade, in other words it has served to ferry the country to economic modernization.
According to the UN study, “Many emerging economies are grappling with how to modernize their economies, improve transparency, drive sustainable growth and advance financial inclusion. This study on Tanzania’s digital payment initiatives reveals very strong results achieved by the deepening.”
For example, digitizing Value Added Tax payments led to Tanzania’s smooth adoption of digital Person-to-Government (P2G) and Business-To-Government (B2G) payments. The government of Tanzania is well aware of these benefits and under the leadership of its current president John Magufuli, the country encouraged traders to adopt digital payment systems or what is more commonly known in the country as use of Electronic Fiscal Devices or EFDs.
Granted traders were reluctant to use the EFDs, their main complain? The rather high price of the machines. So the government stepped in and slashed down the price of the devises and even subsidized their importation.
For example, when small traders were reluctant to digitize their point-of-sale payment capabilities This was made possible through government working with the Tanzania Trader’s Association who spoke in place of the traders.
The benefits of digitization are many fold, both for the government and the general public alike including aspects like social inclusion. Traders are able to use social media networks to get closer to their customers to interact and immerse their clients through their production processes and that way buid trust with their customers.
On the other hand customers are able to create their own rating forums where they comment on traders and their goods which forces an even competition platform on one hand and also forces traders to be more conscious of the products and services allowing for better products.
Tanzania is not alone in this digital revolution for financial inclusion and increased internal revenue. Neighbouring Kenya is very much on the lead. Kenya has announced it envisages doubling its tax collection over the span of the next three years, how will it achieve this ambitious fit?
The simple solution is just a click away, so to speak. Kenya plans to digitize all payment systems and more specifically, its tax filing electronic system, or what it calls the iTax system.
The story is the same all around the five country East African Community (EAC). Rwanda has recorded in excess of 80 percent use of electronic VAT payments by Small and Medium Sized Enterprises and maybe Uganda has exhibited the most impressive results yet boosting revenues by an impressive 167 percent in just a single year, thanks to adaption of automated tax collection systems.
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