Sierra Leone: Digitizing revenue collection is the next frontier

Sierra Leone is facing a wave of new economic opportunity. Rapid mobile phone penetration across the country is opening the door to better financial service offerings, making it easier than ever for people to use digital payments in their everyday lives. Adoption of digital financial services (DFS) continues to grow — active adult users increased from 6 percent to 10 percent from 2016 to 2017.

As DFS becomes more mainstream, government revenue collection has emerged as a new frontier in Sierra Leone. Here, the informal economy represents a whopping 53 percent of GDP. And at least $23 million from the cash economy is being digitized at mobile money agents, representing only a tip of the iceberg. Meanwhile, the tax to GDP ratio in Sierra Leone is at a low of 12.6 percent of GDP compared to the regional Africa average of 18 percent in 2017.

Sierra Leone’s economy is on the rise, and digital financial services can help ensure this growth is also reflected in our domestic revenue. For example, in Tanzania, digitizing tax payments has the potential to increase annual revenue by almost $500 million per year. Countries are increasingly designing secure tax payment platforms that link directly to citizens’ digital accounts, which allows for real-time monitoring of revenue collection and provides system checks and audit trails.

Below, we share key insights from the recent Better Than Cash Alliance’s Peer Exchange in Rwanda that we believe will help us seize the power of digital payments to improve Sierra Leone’s revenue administration efficiency, expand the tax base, and connect people to government (P2G) tax and service payments.

By Alfred Akibo-Betts, National Revenue Authority, Sierra Leone

Alfred Akibo-Betts, National Revenue Authority, Sierra Leone

For the past five years, I have been in charge of Sierra Leone’s “Paying Taxes” World Bank Doing Business Indicator, and I was excited to attend the peer exchange. I knew that the experience would assist me in leading reforms that will make it easier for people to comply with their taxes through digital payments.

The Rwanda peer exchange was an eye opener. I witnessed how the country has strategically increased the penetration of digital payments and increased financial inclusion in their economy through their “Smart Rwanda Master Plan” supported by their Vision 2020. This strategy, among other indicators, sets targets for mobile subscriptions and percentage of payment transactions done electronically.

Rwanda’s rise in the digital space is very clear. The country has made significant increases in financial inclusion, digital payments, mobile penetration, ATM machines, POS devices, banking card uptake and P2G payments. They have also experienced a rapid rise in the implementation of other digital solutions, such as digitizing school fees, tax payments, government services and transportation.

Over the course of the event, one key example stood out. When the Rwanda Revenue Authority (RRA) introduced the M-declaration system that enabled SMEs to file their tax returns and pay taxes using their mobile phone, it did more than generate greater tax revenue. It also improved compliance by eliminating the need for taxpayers to wait in a queue at the RRA offices.

Key Lessons Learnt from Rwanda:

1. Public sector support and private sector partnership are key to implementing digital solutions.
2. Enabling and progressive regulation drives innovation and growth of the digital financial sector.
3. Authorities can leverage USSD to service the last mile, while developing more robust app-based solutions for advanced segments with smart phones.

I am more determined than ever to push for reforms that will enable taxpayers to pay their taxes digitally through the Government of Sierra Leone’s Doing Business platform. I will champion implementation of solutions that will enable citizens to access government services digitally.

Most importantly, the peer exchange reinforced for us the positive ripple effect of digital payments. Along with increasing overall tax revenue, digitizing individual and corporate tax payments can lower transaction costs for both the government and taxpayers, increase government transparency, reduce fraud and corruption, and improve the overall efficiency of a country’s tax system.

As a member of the Better Than Cash Alliance, Sierra Leone has made the commitment to embrace digitization, invest in revenue collection infrastructure, and to create an enabling environment for DFS innovation to achieve these goals. Following the peer exchange, the National Revenue Authority (NRA) has been formally invited to join the Digital Financial Services Working Group, which now includes new stakeholders such as the National Registration Secretariat for National ID that are critical to developing the architecture required to harness the potential of digitization. Using insights from the RRA’s experience, Sierra Leone is working to implement digital payment systems for taxes, with a focus on streamlining the payment process for SMEs. And in the upcoming year, the NRA will introduce an Integrated Tax Administration System (ITAS) which makes provision for various forms of payments solutions.

Under President Julius Maada Bio’s new administration, domestic revenue collection remains a top priority in Sierra Leone, as it helps fund the government’s free education initiative and investments in key sectors such as agriculture and health. We are confident that our country’s growing digital financial inclusion, coupled with lessons learned at the peer exchange and our commitments moving forward, will help Sierra Leone seize the revenue collection opportunities that lie before us and ultimately serve citizens more effectively and efficiently.