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Why Africa will lead the next phase of digital tax transformation

You could be forgiven for viewing the unprecedented digitalisation of tax in recent years as the preserve of western Europe, North America and a small number of other countries, including those in South America that were actually among the very first to kickstart tax’s digital revolution.

Tax teams in these regions are now expected to work faster and more efficiently than ever before; tasked with achieving greater results that are built on accuracy, reliability and compliance.

With so many digital requirements being introduced in the western world – from e-invoicing to online VAT returns – it’s no surprise that the vast majority of global organisations have opted to invest in tax technology systems over the last decade to ensure they can meet the newfound demands imposed on them.

Looking to the future

The big question now is where do we go from here?

It’s safe to say the era of digital tax transformation is only set to accelerate; encompassing more aspects of managing a tax transaction from source to settlement and seeing even harsher penalties for those that fail to conform.

While some observers would understandably position Europe and North America as the most likely to further embrace the ongoing shift towards tax technology, I have my doubts. Most big businesses in these parts of the world are saddled with legacy solutions and tools that have been welded into place over many years (sometimes decades) and cannot be easily replaced or modernised.

It’s true that tax technology systems in Europe and North America are starting from a more advanced position than in other parts of the world and there is still plenty of room for improvement. But as we look to the future, I foresee it being more difficult for both tax authorities and businesses to pivot and implement new regulations and processes en masse (at least with unitary take-up and widespread compliance).

There are simply too many differing systems, interests and processes already in place, plus the fear of crossing the line of data protection for tax utopia to ever exist in these locations.

And just as South America may not have been at the top of the list for many industry observers as the champions of e-invoicing a few years ago, I believe the next wave of digitalisation will be defined by a similarly surprising region: Africa.

Africa: The next gold standard in tax tech?

Africa is finally starting to take tax seriously. B2B e-invoicing or e-tax processes are now mandatory in 19 countries across the continent, from Egypt and Tunisia in the north to Zimbabwe, Zambia and Angola in the south.

Some 11 of those countries introduced electronic tax processes in 2022, underlining just how recent this trend is. Five more – including South Africa, home to arguably Africa’s most mature and successful VAT regime – made e-invoicing or e-tax available on a voluntary basis.

There are early signs that Africa’s fresh focus on tax is paying off. The most recent OECD statistics show the tax-to-GDP ratio in Africa grew to 16% in 2020, up from 14.4% a decade earlier.

At the heart of it all is the African Union’s Agenda 2063; a blueprint for transforming Africa into a global powerhouse of the future based upon several core missions, one of which is to build a transparent and streamlined tax and revenue collection system.

Agenda 2063 set the trend for countries to digitalise tax in motion. Subsequently, the Africa Initiative has been created to design and develop the electronic exchange of tax and accounting data throughout the continent.

It’s clear that Africa has quickly and strongly grasped the opportunity that digitalising tax offers. And that’s why I believe it is Africa – rather than Europe or North America – that boasts the greatest potential for tax transformation over the next five to ten years.

Africa is still almost a blank canvas for tax technology; the only exceptions being nations such as South Africa that are ahead of the curve when it comes to deploying automation and other modern solutions

With the desire to adopt digital solutions emerging, firms are in a strong position to build tax infrastructure from the ground up and invest in the latest technology; learning from established best practices in Europe and the US as they go.

Fast forward a decade to 2033 and I believe Africa will be ahead of countries like the UK, Germany and the US in managing tax digitally.

The benefits of tax going digital

E-invoicing and e-VAT reporting have permanently shifted the landscape for tax professionals. Tax transactions can be determined, applied and settled in vast volumes and with a level of efficiency never seen before.

It’s worth remembering the advantages of going digital extend to both tax authorities (those making the rules) and global businesses (which are generally the entities asked to implement them).

For tax authorities, the benefits include:

  • Real-time access to tax data, helping to identify and punish tax fraud.
  • Enhanced visibility and traceability of transactions, eliminating the informal economy.
  • Simplified, instant transactions ensure compliance and reduce tax evasion.
  • Increased tax collection.

For businesses, while there will understandably be some trepidation around the initial financial outlay required to digitalise tax by integrating high-quality automated solutions, focus should remain on the significant medium to long-term advantages, which include:

  • Complete accuracy in every transaction, resulting in compliance and no risk of penalties.
  • Ability to operate with unprecedented agility, speed and efficiency.
  • Improved competitiveness against rival firms by reducing operational costs and wiping out human error.

Digital tax is now mandatory in more than a third of African countries. That number will grow in 2023 and every year this decade. My advice to companies either based in Africa or trading in the continent is to embrace the change as early as possible to realise the immense potential on offer.

As always, the burden will be on you, the taxpayer, to integrate these new technologies into your own IT infrastructure. And be warned: you’ll encounter systems and solutions that, like the tax authorities of their parent companies, are creaking along on badly integrated and old ‘essential’ architecture that’s too hard to change!

For more information on how we can support your business with the move to automation, get in touch with our team of experts.