Digital payments could boost tax revenue and drive economic modernization in Tanzania

Digital payments could drive economic modernization in Tanzania each year, a new study has found. The study by the United Nations-based Better Than Cash Alliance also found out that the payments could boost the countries tax revenue by nearly US$500 million annual.

The study provides findings of the large potential gains for governments, businesses, and citizens when digitizing payments. 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 the very strong results achieved by the government so far.

Digital payment in Tanzania has empowered its tourism sector by reducing economic leakage from cash payments, such as conservation park entry fees, by over 40 percent, supporting investment and employment. It has also cut bureaucratic inefficiencies, including reducing import customs clearance ties from nine days to less than one day. Digital payments have also increased transparency between citizens and governments, by digitizing tax payments which have provided electronic proof of payments and protects people against fraud.

“Tanzania’s results in driving the shift from cash to digital payments are very impressive. The country has developed a significant experience that has led it to achieve gains in revenue at double digit rates while also delivering social benefits for its citizens,” said Dr. Ruth Goodwin-Groen, Managing Director of the Better Than Cash Alliance. “Tanzania is building a firm foundation for strong and inclusive growth and we look forward to further progress.”

Digitizing Value Added Tax payments and supporting formalization of businesses could increase tax revenue in Tanzania by at least US$477 million per year, a significant increase for a country with a total GDP of around $US47 billion and a low tax/GDP ratio of around 12 percent.

The new report reveals how Tanzania overcame obstacles of adopting digital Person-to-Government (P2G) and Business-To-Government (B2G) payments. For example, when small traders were reluctant to digitize their point-of-sale payment capabilities because they were required to bear the full costs of purchasing electronic billing machines, the government partnered with the Tanzania Trader’s Association to subsidize the costs.

Furthermore, these digitization efforts contribute to benefits beyond just the economy. They have wide-ranging positive impacts across society, such as driving social inclusion within Tanzania.

Other countries in the region have initiatives to digitize payments and, while many are in the early stages of their transition, the benefits are quickly being realized and becoming evident. For example:

Other countries like Kenya, for example, is targeting to double tax collections over the next three years through its tax filing electronic system, iTax. In Uganda, the Kampala Capital City Authority’s automated tax collection system boosted revenue by 167 percent in a single year.  Rwanda, on the other hand, drove nearly 80 percent adoption of electronic VAT payments made by Small and Medium Sized Enterprises.

The study also provides important insights on how further expanding digitization of payments in Tanzania can fast-track the country’s economic modernization.