Tax digitization… a win-win solution for all parties

 

Tax digitization… a win-win solution for all parties

By Ahmed Kamel

Undoubtedly, digitization has become a global reality with advanced and emerging countries applying sophisticated electronic systems to maximize their productive capacities and boost governance. Over the past six years, the Ministry of Finance has been working on automation and digitization of the nation’s tax and customs systems to kill two birds with one stone, i.e. fulfilling investors’ needs and increasing the state’s revenues.

In 2019, the Ministry of Finance launched a tax automation project, which is part of a comprehensive plan to modernize and develop the tax administration system in Egypt. The automation project is designed to cut time and cost of taxation procedures through electronic registration, accounting, revision and collection.

Simultaneously, the lawmakers have passed the value add tax (VAT) system to increase revenues and combat dodging.

By all means, VAT and digitization are imperative to modernize the nation’s tax system, which is the oldest in the Middle East and North Africa (MENA) region. However, there are a number of challenges to ensure a smooth transformation from the outdated manual system to the realm of computers and artificial intelligence.

How to qualify the tax officials and personnel tops these challenges, which also include efficient software. Certainly, there are universal standards governing the human and technological elements engaged in the taxation process.

Moreover, it is imperative that corporations and all taxed firms upgrade their bookkeeping and accounting systems. This will be will be the first step on the way for merging the shadow economy into the national tax system.

The Ministry of Finance has obligated the business community to use e-invoice, which is deemed to be a cornerstone move for switching to full-fledged, digital system. E-billing has been a success story in various emerging economies like China, Indonesia and Malaysia.

Definitely, a one-stop shop and fully-electronic system will save money, effort and time for the taxpayers as well as tax personnel nationwide. It will also minimize human errors as there will less paperwork.

From a legal perspective, it is obligatory that all businesses – whether small or big -- hold regular bookkeeping systems that include ledgers and other accounting requirements.

From a macroeconomic perspective, the tax digitization will in time increase public finance. Currently, taxes and customs account for more than 70 per cent of the state’s sustainable revenues.

Taxes rose by 2.5 per cent to LE676.8 billion (around $43.4 billion) in the fiscal year 2019/20, which ended on June 30. The state collected taxes worth LE660.2 billion in the fiscal year 2018/19, data from the Finance Ministry showed.

In the long run, the tax digitization will be a win-win success story for all parties, i.e. the state, the private sector, individuals and investors.