East Africa Pushes Digital Overhaul for VAT Compliance, URA Reports 50% Boost

East African member states are being challenged to urgently transform their digital revenue collection systems to bridge persistent Value Added Tax (VAT) compliance gaps and administrative inefficiencies. This critical call to action emerged from a recent seminar held in Nairobi, Kenya, and virtually, bringing together government officials, tax administrators, and private sector innovators from across the continent.

VAT remains a cornerstone of revenue for many African economies, yet it continues to be plagued by challenges, including compliance gaps, administrative bottlenecks, and insufficient digital infrastructure. Dr. Kennedy K. Mbekeani, Africa Development Bank’s Director General for the Southern Africa region, underscored the imperative for regional countries to embrace new technologies in VAT and to robustly train their revenue collection bodies to ensure taxpayer compliance.

The seminar, themed “Driving Smarter VAT Compliance,” served as a crucial platform for knowledge sharing and showcased innovative practices in e-invoicing, e-filing, and audit automation. Participants explored how digital technologies can enhance the efficiency, transparency, and equity of VAT systems across Africa, with practical experiences and case studies from successful implementations in East African countries forming a key part of the discussions. The African Development Bank reaffirmed its ongoing support for tax reforms and the promotion of public-private partnerships in the digital tax space.

Among East African nations, Kenya, Uganda, and Tanzania have demonstrated the most significant legislative developments in e-Tax compliance in recent years. Kenya, notably, stands out alongside Senegal and South Africa as one of the first African countries to actively champion e-Tax solutions.

George Obell, Commissioner for Micro and Small Taxpayers at the Kenya Revenue Authority (KRA), highlighted the transformative role of digital tools in 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,” Obell stated. “Through innovation, we are creating new avenues to enhance compliance, improve administrative efficiency, and broaden the tax net transparently and inclusively.” KRA itself has successfully implemented e-filing, e-invoicing, and data-driven solutions in its VAT collections.

Representing the Uganda Revenue Authority (URA), Festo Kasirye, a Tax Revenue Officer, shared Uganda’s positive experience with digital adaptation. Kasirye revealed that the adoption of data-driven solutions and digital tools, particularly the Electronic Fiscal Receipting and Invoicing System (EFRIS), has led to a remarkable increase in VAT collections by close to 50%. Introduced in January 2022, EFRIS mandates e-invoicing for all taxpayers, requiring them to transmit e-invoices to the system via electronic fiscal devices (EFDs). Kasirye noted that while some businesses initially resisted EFRIS due to its thoroughness in assessing tax liabilities, many medium and large players have gradually appreciated its effectiveness in accurately declaring sales and production.

Uganda’s EFRIS system, based on business-to-business (B2B) invoicing, is proving instrumental in managing transactions smoothly. VAT, unlike direct taxes, operates through agents where businesses collect VAT on sales (output tax) and claim it on purchases (input tax). This structure, traditionally reliant on trust and documentation, has been vulnerable to manipulation through fictitious invoicing or undeclared sales. The technological leap, significantly propelled by the COVID-19 pandemic, has enabled tax administrations like URA to move beyond physical cargo scanners and tracking devices to real-time electronic fiscal receipts for every sales transaction.

Uganda’s VAT regime, governed by the Value Added Tax Act Cap. 349 has seen recent amendments to include the taxation of non-resident digital service providers, aligning with regional trends in Kenya and Tanzania. In Uganda, VAT is levied at a standard rate of 18%, with digital services supplied to Ugandan consumers falling under the taxable category. Non-resident digital service providers are now required to register for VAT in Uganda if their annual taxable turnover exceeds UGX 150 million and must file quarterly VAT returns by the 15th day following the end of each quarter, even if no taxable supplies were made.

Emeka Nwanko, Head of Member Services at the Africa Tax Administration Forum (ATAF), presented empirical evidence of digitalisation’s profound impact on revenue mobilisation across Africa. He stressed the crucial need for alignment between government and taxpayer digitalisation efforts. Nwanko explained that VAT contributes, on average, 30% to total collections in Africa. 

 A recent ATAF study highlighted that while e-commerce presents immense economic opportunity, its VAT implications must be carefully appraised, given that the ability of online businesses not to own physical inventory or assets results in low or no visibility on e-commerce transactions for 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,” the study noted. ATAF has provided technical assistance to URA, focusing specifically on policy, legislation, and administrative considerations for effective VAT compliance in the digital era.

As the business landscape in Africa rapidly transforms in this digital age, so too do the challenges for tax compliance. The surge in e-commerce, online marketplaces, and digital services necessitates that businesses adapt to evolving tax regulations. The push for digital transformation in VAT collection is seen as a vital step towards enhancing tax equity, transparency, and efficiency, ultimately boosting domestic revenue mobilisation, crucial for Africa’s sustainable development.