East African Community (EAC) member states have been urged to adopt digital solutions to enhance compliance and efficiency in Value Added Tax (VAT) collection.
VAT remains a vital revenue source for most African economies. However, it continues to face significant challenges, including compliance gaps, administrative inefficiencies, and digital infrastructure limitations, issues seen in countries like Uganda.
Dr Kennedy K. Mbekeani, director general for the Southern Africa region at the African Development Bank (AfDB), emphasized the need for regional governments to embrace digital technologies and invest in training their tax authorities. He noted that such modernization is critical to improving taxpayer compliance and boosting domestic revenue mobilization.
Mbekeani made the remarks during a seminar held in Nairobi, Kenya, and virtually, under the theme “Driving Smarter VAT Compliance.” The seminar addressed the persistent challenge of VAT compliance across East Africa and the continent more broadly.
It showcased innovations such as e-invoicing, e-filing, and automated audits, offering a platform for government officials, tax administrators, and private sector stakeholders to exchange insights. Participants discussed how digital transformation can improve the efficiency, transparency, and equity of VAT systems.
Case studies from countries like Kenya, Uganda, and Tanzania were highlighted as examples of successful legislative and technological advancements in e-Tax compliance.
AfDB also used the forum to reaffirm its support for tax reforms and promote public-private partnerships in the digital tax space. Kenya, along with Senegal and South Africa, was recognized as one of the pioneering African countries in embracing e-Tax systems.
Kenya Revenue Authority (KRA) Commissioner for Micro and Small Taxpayers, George Obell, stated that VAT is a key revenue source for many African economies and is therefore central to the digital reform agenda aimed at improving administrative efficiency, and expand the tax net in an inclusive way.”
KRA has implemented tools like e-filing, e-invoicing, and data-driven VAT collection systems. Uganda’s approach was represented by Festo Kasirye, a tax officer at the Uganda Revenue Authority (URA). He reported that the adoption of data-driven systems has increased VAT collections by nearly 50 per cent.
URA rolled out the Electronic Fiscal Receipting and Invoicing System (EFRIS) in January 2022. The system mandates that taxpayers to issue electronic invoices through Electronic Fiscal Devices (EFDs), improving transaction transparency. Uganda’s EFRIS model is based on B2B (business-to-business) invoicing, which enables more accurate tax assessments.
Kasirye noted that while some businesses initially resisted EFRIS, especially small enterprises, medium and large players have started to appreciate its benefits. Some businesses previously under-declared sales to avoid taxes, but EFRIS has minimized that practice due to its ability to track transactions in real-time.
He explained that VAT differs from direct taxes like PAYE or withholding tax. It operates through agents, where businesses collect VAT on sales (output tax) and claim VAT on purchases (input tax). The difference determines whether a taxpayer remits VAT or claims a refund.
This structure depends heavily on trust, documentation, and system integrity—vulnerabilities that digital tools are now addressing. The digital shift was accelerated by the COVID-19 pandemic, which pushed URA to move beyond tools like cargo scanners and tracking systems, toward full digital invoicing.
Uganda’s VAT regime is governed by the Value Added Tax Act Cap. 349, with recent amendments introducing VAT obligations for non-resident digital service providers. VAT is charged at a standard rate of 18%, and foreign digital platforms must register for VAT in Uganda if their annual taxable turnover exceeds Shs 150 million.
Registered entities must file quarterly VAT returns by the 15th day after the end of each quarter, even if they made no taxable sales. Emeka Nwanko, head of member services at the African Tax Administration Forum (ATAF), highlighted empirical evidence showing digitalization’s positive impact on revenue mobilization across Africa.
He stressed the importance of aligning both government systems and taxpayer practices with the realities of a digital economy.
“Africa’s business environment is evolving rapidly, and that creates new challenges for tax compliance,” Nwanko said.
He pointed to the growing complexity of tracking transactions in e-commerce, digital marketplaces, and service-based platforms, which often lack physical presence or inventory, making them difficult to regulate under traditional tax frameworks. ATAF studies show VAT contributes an average of 30% of total tax revenue in Africa.
However, the digital economy, especially e-commerce, presents both opportunities and risks. Its cross-border, intangible nature often results in limited visibility for tax authorities, risking VAT leakage.
“Being a consumption tax, VAT is particularly vulnerable to the dynamics of e-commerce,” one ATAF report noted.
ATAF has provided technical support to URA, particularly in policy development, legislation, and administrative structures to improve VAT compliance in the digital age.
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