Dar es Salaam, Tanzania — ZANZIBAR, the Indian Ocean archipelago, is the first African region to implement a new-generation online cash registry system aimed at tackling tax evasion.
The method - Virtual Fiscal Device Management System (VFDMS) - is hailed as a breakthrough for African economies to revive their economies post the coronavirus pandemic.
NRD Companies is putting the finishing touches on the implementation of the system in Zanzibar, where tax evasion has been a significant problem.
NRD is a global IT and consulting group of companies, specialising in governance and economic digital infrastructure development.
The new system in Zanzibar will be used for issuing fiscal digital receipts, signed by a server in real-time, for every online transaction taxpayers make.
The Zanzibari government of President Hussein Mwinyi reckons this move would help optimize revenue collection by promoting voluntary compliance and public confidence through effective, efficient, transparent and fair administration of tax laws.
At the same time it is anticipated the system would reengineer business processes and modernising technology.
Zanzibar is an autonomous region for Tanzania.
NRD Companies has urged countries to employ new-generation tax collection systems to revive their economies post the pandemic.
The World Economic Forum (WEF) predicts that global growth in 2020 will fall by 4,9 percent.
The International Monetary Fund (IMF) also forecasts that most countries around the world will experience a significant decline in tax revenue because only a portion of brick-and-mortar sales have transitioned online and others failed to materialise altogether.
The pandemic-induced tax revenue loss will be especially challenging for African countries, where already almost 86 percent of people work in the informal economy.
These include millions of small business owners and traders who are struggling with tax compliance, as well as now dealing with the pandemic.
According to experts, despite seeing unprecedented economic growth and political maturity over the last few decades, tax revenue across the sub-Saharan region has been declining for the last 15 years.
Illicit financial flows, which include tax avoidance, corruption, also cost Africa an estimated $89 billion yearly, which is around 3,7 percent of the total continent's gross domestic product.
With e-commerce on the rise, African countries might face another challenge of collecting taxes, only this time on digital trade.
Mindaugas Glodas, Chief Executive Officer at NRD Companies, said current tax collection systems and policies were ineffective, creating significant barriers for businesses to comply with tax obligations.
"As governments start to draw up post-pandemic recovery plans, it is imperative that they address the ineffectiveness of tax collection systems and policies and lend a hand to businesses themselves," Glodas said.