Cash is king: the vast majority of transactions in Zambia are settled in cash, which poses a problem for the tax authorities. Most Zambian companies are not registered, not least due to logistical hurdles. To register their business, companies have to go to one of the few tax offices, which often entails long journeys and a loss of earnings. That makes it expensive and difficult for taxpayers to enter themselves in the system. As a result, the state is losing a considerable amount of revenue.
The Zambian government and the German Ministry of Development and Economic Cooperation (BMZ) decided to take a new approach to solving the problem. They introduced the Zambia Revenue Authority to ibes AG, a software firm based in Chemnitz. A workshop was held in collaboration with experts from the GIZ to develop ideas. The workshop format drew on the focused and experimental approach taken in laboratories, which also gave it its name: ‘lab of tomorrow’. The participants came up with an innovative and pragmatic idea – submitting tax returns by mobile phone (TaxOnPhone). In future, users can register, submit their tax returns and pay their taxes without a long trip to the nearest tax authority. This eliminates the need to visit a tax office, overcoming one of the main obstacles to paying taxes. The system also offers an additional incentive – the mobile solution can be used to apply for a tax number too, something that is now needed in Zambia as a condition for opening a bank account.
There was another obstacle that the working group had to tackle: even many business people in Zambia do not have a smartphone. The problem was solved by creating a programme that uses the mobile network rather than mobile internet. As a result, it works even on mobiles without internet access with the help of simple button combinations, which means that the system is available in remote areas too.
More than 300,000 Zambians had used the system by the end of 2019. Around 50,000 of these users received a tax number for the first time, allowing them to take a key step towards formalising their business. By the end of 2019, the system had processed more than 250,000 transactions. TaxOnPhone is user-friendly and has been widely accepted, so the Zambia Revenue Authority has already developed plans for a project to extend its use, adding functions for customs and electronic payments.