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The Role of Digitization in Revenue Assurance

September 9, 2022 | Digital article
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By Susana Garcia Hiernaux

In eight years, we will all have a digital identity. The UN and World Bank envision that this is the case. Over the last decade, the digital economy has expanded at an intensely rapid rate.

According to data from GSMA, by 2021, 4.2 billion individuals globally had internet access. Sub-Saharan Africa had 495 million unique mobile subscribers, with projections showing that there will be 615 million by 2025.

There were also 300,000 jobs being formally supported by the mobile ecosystem in Sub-Saharan Africa as of 2020.

Africa has the world’s fastest-growing mobile market globally. In addition, the region has the fastest-growing tech start-up ecosystem, which plays an increasingly important role in the development of digital content and services.

This growth in digitization has brought with it new considerations especially in the field of personal identification, with the growth of the digital economy necessitating the creation of digital identities for individuals and groups that want to give or receive services in the digital marketplace.

Digital Identity promises to transform Africa’s economic and political landscape, and it holds the power to unlock more inclusive digital economies, increase access to government services, and elevate political accountability.

There have been attempts at the implementation of Digital Identity by at least 10 African countries, in full or partially.

There are foundational identity systems in Ghana, Kenya, Lesotho, Mozambique, Nigeria, Rwanda, South Africa, Tanzania, Uganda, and Zimbabwe.

There has been a misconception that digital identity is someone’s identity in digital form. In simple terms, Digital Identity is a unique identifier through a verification system on the web or mobile applications to enable people to transact, access government or business services in a more secure manner as opposed risks related to physical identifications.

Digital Identity also involves systems such as Public Key Infrastructure (PKI). PKI is the technology behind digital certificates which allows individuals to authenticate and identify themselves in the digital economy.

The implementation of Digital Identity possesses room for significant fiscal impact. Governments can use Digital Identity to improve the generation of revenue and prevent the loss of it.

The cleaning up of public payrolls would be made much simpler and effective, as it continues to be a thorn in the side of many African governments and continues to rear its ugly 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 KES 1.8 billion in salary payments annually.

The treasury announced the return of ghost workers to the payroll in 2019. As recently as 8th May 2021, Nyamira county is estimated to have lost KES 2.8 billion in payments to ghost workers in FY2018/2019.

It is possible to work towards eliminating this issue through digital identity in a timely manner with the effects likely to be felt through each consecutive budget cycle.

Digital Identity would also assist in tax collection as it would streamline citizens’ data and limit loopholes for tax evasion.

Digital technologies have already 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 6% using digital technologies. Similar effects can be had in other East African nations if the right technologies are employed.

One of the key challenges for the effective implementation of Digital Identity in Africa is precisely that many nations are still struggling to attain basic identification systems for their citizens.

For them, implementing Digital Identity means shifting from a virtually non-existent identification context to its most advanced form.

In order to make this transition effective and enduring, the digital agenda should form part of the broader policy of the States. This is the path towards the real integration of all citizens within the digital economy.

As countries kick off their new financial year with the announcement of their annual budgets, digital transformation holds the key for them in promoting revenue assurance.

The correct implementation of Digital Identity is crucial too, so as to seal any holes in the tax net and ensure effective tax collection across board to finance the budgets of African nations.

Read the original article on TechBuild Africa