The Role Of ICT in Delivering Efficient Revenue Collection in Developing Countries: The Tanzanian Experience
Globally local governments are under pressure to deliver basic services to their citizens. To fund amenities such as clean drinking water, waste management, adequate power supply and healthcare, sub-national/city administrations are under financial stress. The development of an integrated revenue collection system provides the necessary platform to support municipal administration to more efficiently collect own source revenue and to assist the decision making process through improved data collection, visual data representation, sophisticated reports and analytical metrics. Utilizing a case study approach this paper will demonstrate how the use of ICT through an integrated Local Government Revenue Collection Information System (LGRCIS) improved local government revenue collection, with initial promising results in selected secondary cities in Tanzania.
Tanzania has sustained robust economic growth averaging seven per cent over the past decade1. A major challenge has been to translate growth into poverty reduction, even as the recent rebasing of the national accounts has raised average PCI to almost US$ 1,000, putting the country closer to achieving middle income status. Nevertheless, approximately 40 percent of Tanzania’s adult population still earns less than US$ 1.25 per day, while nine out of 10 Tanzanians earn less than US$ 3 per day2.
The Tanzania Development Vision 2025 emphasizes the need for more inclusive growth and poverty reduction, underpinned by the structural transformation of the economy from a low-productivity agricultural economy to a semi-industrialized one. Well-functioning and productive urban centers are essential to catalyzing and supporting the achievement of this vision, as cities have consistently been the engines of the country’s economic growth.
Central Government transfers constitute the main source of financing for local government authorities. Not only do competing demands on limited Government resources mean that these transfers fall short of the need, but they also often suffer delays, constraining city capacity to manage development planning. In addition to central government transfers, local authorities raise revenues from resources which are directly under their legal purview, such as property tax, service levy, business license, hotel levy and billboard levy, etc. However, for any tax system to be effective, it needs to be stable, predictable, and easy to administer.
Own source revenue collection is a fundamental task of local government that is typically inefficient and generally is reducing in many countries as a proportion of their total revenue, whichresults in a vicious cycle of overreliance on transfers from the national government. Revenue collection is a major challenge facing many jurisdictions/countries worldwide but the challenges tend to be more acute in developing countries in comparison to developed countries.
Creating a sustainable administrative revenue system that can administer own source revenues in an easy, efficient and cost effective manner is a goal that many national and sub-national governments around the world share. To improve efficiency and reduce administrative costs are central issues for revenue departments. The following are key objectives of developing a revenue collection system: (1) raise more revenue; (2) improve internal organisation; (3) ensure greater accountability, transparency and integrity; (4) improve taxpayer compliance; and (5) improve service delivery to taxpayers.
Collecting revenue from large numbers of businesses and citizens is an ongoing challenge for any government, especially in developing economies. There is constantly increasing pressure to collect more revenue with fewer resources and reduced budgets. Revenue collection departments also face customer demands for faster, easier and more transparent services with increased targets, better customer service and improved value for money.
To address these challenges and with recent advances in information and communication technology (ICT), there has been a strong drive to use ICT across developing economies to increase the efficient collection of tax revenues. Few would dispute that ICT presents many advantages for both taxpayers and governments. ICT can increase services to taxpayers (for example, by providing a range of e-services and e-payment options) so that the process of paying taxes/fees becomes simpler, faster and easier to understand. Thereby making voluntary compliance easier and more efficient.
The use of ICT also presents many benefits for revenue departments, including faster processing of information and data, requiring fewer resources and reducing the cost of collection. It also increases transparency and is therefore a powerful tool in tackling corruption and reducing the opportunities for bribery. Using ICT to compile a database of information enables revenue authorities to identify and address non-compliant taxpayers.
ICT administration projects are complex, expensive and take time to realise the benefits and savings. It is therefore important for revenue departments to make the right decisions. This is particularly important in a developing economy, where purchasing an ‘off-the-shelf’ system may not be suitable. ICT solutions have to meet the needs of the surrounding environment. This may mean that simpler, more robust systems are the best option.
Before the introduction of automated systems of revenue collection, local authorities used manual systems of collections by using manual receipts and manual recording. Problems such as high collection costs, fraud, underpayment and other revenue leakages were evident (Fjeldstad and Heggstad, 2012). Leakages that occur because of untimely collection, corruption and under-collection can be reduced by streamlining and automating the revenue collection process. With a modern system of revenue collection, sub-national government can more effectively manage existing revenue streams as well as mobilizing additional revenue by increasing collection efficiency as well as by expanding its revenue base.
Research into the role of ICT within revenue administration has revealed positive effects on revenue collection. Gidisu (2012) provided evidence on this positive effect in Ghana due to the introduction of automation system reducing the cost of tax administration and increasing the effectiveness of revenue collection. Mitullah (2005) did a survey of 175 local authorities in Kenya on the effectiveness of information systems. The research found that the information system was instrumental in enhancing the proper management of revenue sources in the local authorities.
The two primary approaches to revenue collection are ICT based information systems and manual systems. ICT based revenue collection system is typically a comprehensive solution for the collection of municipal taxes, fees and other charges and levies. This method attempts to deliver a cashless payment environment through the introduction of mobile money, direct bank deposits and e-transfers.
Research have been critical of the administration of own source revenue by sub-national government over the last 40-50 years (Dillinger, 1991). Studies have shown that weak administration has been core to the lack of revenue performance. It is contended that the administration is fundamentally weak in respect to a number of facets including data compilation, lack of transparency, manual paper based systems, billing, ineffective collection and weak enforcement (Almy, 2001; Kelly, 2000; Kelly and Masunu, 2000; Fjeldstad, (2004; 2006); McCluskey and Franzsen, 2005; Moore, 2013;).
Local Government Revenue Collection Information System (LGRCIS)
The utilization of ICT can bridge the gap between taxes owed and taxes collected. There are three ways that technology can help: (1) self-service by promoting voluntary compliance and convenience through easy to use payment platforms; (2) deploying high performance analytics through the use of geographic information systems to uncover, track, analyse, and address non-compliance quickly and effectively; and (3) leverage data to research and improve compliance measures and better customise taxpayer services.
Modernization of revenue administration attempts to improve tax efficiency and tax fairness as pillars to support revenue collection. Governments can streamline how they collect and manage taxpayer data. They can develop sophisticated data-tracking systems to detect delinquency, under-payments, fraud and corruption as well as develop incentives to encourage compliance. Amongst these, provide fewer forms that are easier to complete, penalty rebates, discounts, faster repayment processing, and longer filing periods. Provide training to build awareness of benefits and employee confidence in using new systems is critical. Strong communication campaigns ensure acceptance and understanding. Multiple mediums and publicity events could be utilised in addition to enhancement with websites, and mail, email and text messaging to communicate the changes and benefits to taxpayers.
An effective revenue administration system is largely about maintaining accurate property and taxpayer records which is a prerequisite for the implementation of a sound collection and enforcement system. The barriers to efficient administration include the absence of a full and up-to-date record of properties and other data on revenue streams. However, the administration system should be viewed holistically comprising different but highly inter-related components that when functioning optimally will result in good revenue raising performance.
The LGRCIS used in Tanzania by local government is a holistic system and database, underpinned by a multi-purpose Geographic Information System (GIS) platform, designed to incorporate all LGA OSR functions, to ensure they have a single view of customers, land and property, and the means to manage all revenue sources efficiently and reliably. The LGRCIS is a web-based application, accessed through a web browser, such as Mozilla Firefox, Internet Explorer or Chrome.
The core of the system is data designed to support enhanced local revenue collection (with proper billing, demand note and reminder generation, electronic and online payment through a single payment gateway, receipting, defaulter identification and mapping).
Previously, various revenue billing/collection systems were in operation within the LGA environment in Tanzania. Apart from the eight pilot LGAs that implemented LGRCIS over the period in 2014-15, a number of LGAs used the Municipal Revenue Collection Manager (MRECOM) and others, albeit predominantly smaller, rural LGAs, use (or used) iTax.
The use of LGRCIS is seen as a key tool in improving collections within LGAs. Improvements tend to be correlated with accurate taxpayer record keeping, efficient demand notice preparation and taxpayer confidence that their payments are properly recorded with electronic receipts. From a technical perspective the integration of GIS will positively contribute to the management of the collection process through the application of visualization tools and other reporting analytics. PO-RALG has now rolled out LGRCIS to all 186 LGAs.
This research will undertake a case study analysis of the results following the introduction of LGRCIS foremost in Arusha City Council, as well as six other secondary cities in Tanzania. Quantitative evidence will demonstrate the benefits of an integrated revenue collection system.
What are the expected benefits to be gained from a computerized revenue administrative system? It is to be expected in general that computerization will yield benefits of efficiency and transparency over current paper-based systems. The system should not merely be designed to limit corruption, even though a carefully designed intervention will have the benefit of constraining corruption it must have as a key objective to improve efficiency and increase tax revenue. This research will demonstrate the clear fiscal benefits from the introduction of LGRCIS within a local government authority in Tanzania.
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