By: Business Daily
We have completed the first full financial year in the coronavirus pandemic (financial year 2020/2021) where governments have been forced to meet revenue targets and set agenda with the knowledge that there would inevitably be less income than in prior years.
In this budget season, Kenya and Uganda have read their respective budgets after planners and policy developers identifying how to raise revenues while spending in a manner that fosters economic growth.
A major lesson in the pandemic is the role technology plays, and this lesson can be applied to the budgeting process to limit revenue leakages and strengthen revenue assurance.
As expected last year, Kenya’s annual budget dropped to Sh2.7 trillion after crossing the Sh 3 trillion threshold in 2019. This was a result of the effect the pandemic had on the economy and the mitigation measures. This year the budget has once again risen to Sh3.66 trillion, making it the largest in the country’s history.
To fund the budget, Treasury projects a total revenue collection of Sh2.704 trillion, an increase of more than Sh200 billion from the 2020/2021 financial year. The government projects that Sh 1.78 trillion shall be raised through their activities, including collection of taxes.
Some of the measures being discussed to raise this is revising several taxation laws, including the Income Tax Act and Value Added Tax (VAT) Act. The remaining revenue is expected to be raised through Appropriation-in-Aid (AiA).
Across the border in Uganda, there was a 12.36 percent increase in their 2020 budget, setting it at USh45.5 trillion ($12.3 billion).
However, unlike in Kenya, the financial year 2021/2022 budget remains at a similar level, dropping only to USh44.7 trillion. Despite this, the issues facing the two countries are similar as both governments work towards financing their budgets and meeting their obligations while spending towards development.
As part of the Kenyan budget reading, we saw an increase in the amount of money invested in ICT and digital infrastructure. In addition to that, the onus of procuring and managing ICT and digital infrastructure has been decentralised and handed over to the individual ministries. This allows different areas of the government to employ systems and solutions that can strengthen their mandate, including collection of revenue and limiting its loss.
Data analysis is a step that has yet to be fully explored by tax administrations in East Africa, especially with the aid of technology.
Data is now an essential aspect of everyday life, more than ever. It can now be used to assess the effectiveness of policies and strategies employed by governments and regulators. It can also assist them in spotting trends and patterns that would assist in resource management.
One example of this is the extra revenue generated by Tanzania since the implementation of a mobile money monitoring system that allows the regulator to monitor transactions in real time. The effective collection and analysis of data can greatly assist data-driven decision making.
Digital technologies have also proven to be key in helping tax administrations meet their revenue assurance targets.
The use of digital technology can assist in enlarging the revenue base for governments by enhancing their capabilities when it comes to tax collection. For example, Rwanda was able to increase annual revenue collection by six percent using digital technologies. Similar effects can be had in other East African nations using the right technologies.
Technology can as well play a role in cleaning up of national and county government payrolls, an issue that continues to rear its head. If the process is not efficient and end to end, revenue shall continue to be lost. In 2014, Kenya conducted an audit to clean up the national payroll and identified about 12,000 ghost workers, costing more than Sh1.8 billion in salary payments annually.
The Treasury announced the return of ghost workers to the payroll in 2019. As recently as May 8, 2021, Nyamira County is estimated to have lost Sh2.8 billion in payments to ghost workers in financial year 2018/2019. It is possible to work towards eliminating this issue in a timely manner with the effects likely to be felt through each consecutive budget cycle.
Therefore, as we move into the third financial year impacted by the pandemic and continue to define the new normal, we can take smarter steps to ensure that year-on-year revenue targets are met more consistently and new policies are defined with greater certainty.
The adoption of data analysis and relevant technologies can play a key role in helping Kenya and other East African governments work towards revenue assurance and better management of their payment processes, both as a payer of salaries and a collector of taxes.