East Africa Challenged On Digitization VAT Collections

East African member states have been challenged to transform their digital revenue collection to ensure compliance in Value Added Tax (VAT) payments and collection. 

Value-added tax (VAT) remains a major source of revenue in African economies.   It has however been found that VAT suffers from compliance gaps, administrative inefficiencies and digital infrastructure challenges in many countries including Uganda.

Africa Development Bank’s Director General for the Southern Africa region,Dr. Kennedy K. Mbekeani says there is need for the countries in the region to adopt new technologies on VAT and train their revenue collection bodies to ensure that the tax payers comply in remitting the taxes. 

Dr. Mbekeani was one speakers at a seminar held in Nairobi Kenya and virtually about the persistent challenge with VAT payment compliance in East Africa and Africa at large. The seminar under the theme “Driving Smarter VAT Compliance” showcased innovative practices in e-invoicing, e-filing, and audit automation, and offered a platform for knowledge sharing among East African countries. 

This seminar brought together government officials, tax administrators, private sector innovators to explore how digital technologies can enhance the efficiency, transparency, and equity of value-added tax systems across Africa.   Panelists shared practical experiences and case studies from successful implementations of VAT digitalization particularly in the East African countries.   

It was aimed at inform the participants  about the African Development  Bank’s ongoing support to tax reforms and to promote public-private partnerships in the digital tax space.  

Among the East African countries, Kenya, Uganda, and Tanzania are the ones that have presented the most legislative developments in terms of e-Tax compliance in recent years. In addition, Kenya, along with Senegal and South Africa, is one of the first countries to favor e-Tax in Africa.  

Kenya Revenue Authority’s Commissioner for Micro and Small Taxpayers, George Obell said digital tools play a critical role in transforming revenue systems across the continent. 

“VAT is a key source of revenue for many of our economies and is, therefore, central to ongoing digital reforms. Through innovation, we are creating new avenues to enhance compliance, improve administrative efficiency, and broaden the tax net in a transparent and inclusive way.” he said. 

Kenya Revenue Authority is among the countries in Africa that have so far introduced e-filing, e-invoicing, and data-driven solution in VAT collections. 

Festo Kasirye, a Tax Revenue Officer at Uganda Revenue Authority (URA) represented URA at the seminar. He said the adaption of data driven solutions and digital tools has increased VAT collections by close to 50%.

The Uganda Revenue Authority introduced EFRIS (Electronic Fiscal Receipting and Invoicing System) in January 2022. The system provides  e-Invoicing on all taxpayers. Under the system, tax payers must send e-Invoices to EFRIS through electronic fiscal devices (EFDs).   

Uganda’s system is based on B2B invoicing can make a big difference in how well you manage payments. Business-to-business (B2B) invoicing is a key process that helps businesses manage transactions smoothly.   Kasirye told URN in a telephone interview revealed that while some players in the market had resisted EFRIS, some medium and large players have gradually appreciated it in terms of declaring the sales and production. He said those resisting it have discovered it’s thoroughness in assessing the tax. 

Some business person previously under declared their volumes for purposes of paying less or no tax. Unlike direct taxes such as PAYE or WHT, VAT operates through agents. Businesses collect VAT on sales (output tax) and claim it on purchases (input tax). The net difference determines whether the taxpayer pays or gets a refund.     

The structure relies heavily on trust, documentation, and system integrity, making it vulnerable to manipulation through fictitious invoicing or undeclared sales.    

The adoption of technology in tax administration was mainly propelled by the COVID-19 pandemic. URA mainly relied on use of cargo scanners, cargo tracking device before it introduced EFRIS or issuance of electronic fiscal receipts for every sales transaction in VAT.  

Uganda’s VAT regime is governed by the Value Added Tax Act Cap. 349, with recent amendments targeting the taxation of non-resident digital service providers. 

These updates align with trends in East Africa, where countries like Kenya and Tanzania have implemented similar policies. In Uganda, VAT is levied at a standard rate of 18%, and digital services fall under the taxable category if supplied to consumers in Uganda.  

Non-resident digital service providers must register for VAT in Uganda if their annual taxable turnover exceeds UGX 150 million.          

Registered entities must file VAT returns on a quarterly basis, 15th day following the end of every quarter even if no taxable supplies were made during the period. 

The head of Member Services at the Africa Tax Administration Forum, Emeka Nwanko  said there empirical evidence of digitalization's impact on revenue mobilization in Africa. 

He emphasized the need for alignment between government and taxpayer digitalization.   In today’s digital age, the business landscape in Africa is rapidly changing, and with it, comes a new set of challenges for tax compliance.   

The digital economy is characterized by the rapid growth of e-commerce, online marketplaces, and digital services, making it increasingly difficult for businesses to keep up with the ever-evolving tax regulations.   Nwanko explained that VAT contributes an average of 30% to total collections in Africa.

A  recent study by the African Tax Administration Forum (ATAF) revealed that while e-commerce presents an economic opportunity for the continent, its Value-added tax (VAT) implications must be carefully appraised considering that the ability not to own inventory/assets or have physical nexus results in low or no visibility on e-commerce transactions by the tax administrations.   

“Thus, VAT being a consumption tax charged on the supply of goods and services will be highly affected by the dynamics of e-commerce” it said. ATAF has provided technical assistance Uganda Revenue Authority (URA) with a specific focus on the policy, legislation and administrative considerations for the effective implementation of a VAT compliance.