Topic: The Sunnyside of COVID-19: Digitalization
Author: Nathaniel Mabetwa
Title: Regional Director for Gauteng North region of the South African Revenue Service
COVID-19: THE SOUTH AFRICAN EXPERIENCE
Since the last 10 months of the year 2020, the outbreak of the Coronavirus has ravaged the people of South Africa, and adversely affected tax administration and revenue collection.
As the virus dispensed great hardship and fatigue while slowing down economic activities, the World Health Organization (WHO) predicted a rise in the number of infections under an anticipated second wave. Besides, statistics showed that 51 million people had been infected globally with at least 1.2 million losing their lives to the virus. This was amidst fears that Africa would witness the worst impact the world has ever seen, and a scientific prediction that the virus would remain present for the next few years.
In July 2020 the country registered 12,000 new infections daily, being the height of the storm. Since then the number of new infections remained relatively stable at below 2,000 a day, and the number of deaths and hospitalization declined. Nonetheless, a second wave was experienced in two out of nine provinces of the country, that is, Eastern and Western Cape in South Africa. These statistics made the country to be the first in Africa to endure the worst of the storm, with over 700,000 infections towards the end of the year.
It is this state of affair that saw to the Government taking decisive measures to stem the spread of the pandemic.
With the fight against the spread of COVID-19 being collective, the revenue collection agency, South African Revenue Service (SARS) also joined in to strengthen efforts. Even though SARS is the lifeblood of the State, the organization recognized that the 13,000 staff members at the frontline were most vulnerable to infection, owing to the nature of services provided.
During the onset of the pandemic 703 staff members were infected with the virus and 9 unfortunately succumbed to the disease. This called for adoption of strategies that eased processes for taxpayers and traders as they met their tax obligations, but also enhanced the safety of staff.
Since the onset of the pandemic the Government of South Africa recorded a total of 743,394 infections, with a recovery rate of 92% towards the end of the year 2020. However, the greatest blow was in the 20,011 confirmed deaths.
While the fatality rate was relatively low compared to many other countries, we cannot begin to calculate the loss and anguish caused by these deaths. So, what did we do?
Since the health crisis struck, SARS has actively sought to save lives and protect livelihoods. For example, internal strategies have involved supporting staff to work from home, through call centres and or virtual engagements.
It is worth noting that the annual filing season (annual submission of returns by individual tax payers) for SARS, coincided with the lock down period. Measures executed to ensure success were; automatic assessment using 3rd party data for 3.6 million tax payers who used the SARS Mobi Application to either accept or amend their assessment, limiting physical visits or walk-ins into branches; physical branch visits strictly via appointment through a special toll free call-centre number; special social distancing measures while in wait and designated service times to minimize stay; request for appointments for virtual assistance offered by SARS consultants working from home; and use of a special Help-You-eFile process put in place at branches with free Wi-Fi provided and taxpayers assisted to complete their own submissions electronically.
These interventions led to 66% of taxpayers migrating from physical channels to electronic channels, a feat that would have taken years. Worth noting is that all this was made possible by an acceleration of Information Technology developments, with close to 18 new applications being rapidly deployed during this period.
In addition to these measures the National Treasury and SARS introduced a massive economic and social relief package including tax relief measures, to limit the effects of the pandemic on companies, workers, households and communities. These were necessary to keep businesses afloat, protect jobs, and prevent millions of people from going hungry and included; employment tax incentive extension, employees’ tax deferral, provisional tax deferral, extension of time periods, streamlined special tax dispensation for funds established to assist with COVID-19 disaster relief efforts, skills development levy holiday, fast-tracking Value Added Tax (VAT) refunds, deferral for payment of excise taxes on alcohol and tobacco, deferral for filing and first payment of carbon tax, expanding access to living annuity funds, increasing deduction available for donations to Solidarity Fund, adjusting employees’ tax for donations to Solidarity Fund made through an employer, postponing implementation of some Budget 2020 measures, and application to SARS for waiving of penalties.
Over the last few months, the economy has steadily opened up easing restrictions to movement and activity. Therefore, focus has shifted from the above emergency measures towards an ambitious plan for economic reconstruction (relief to recovery). It is a change that will see to the winding down of several measures held within the relief packages.
OVERVIEW OF 4IR IN AFRICA
As earlier mentioned, acceleration of Information Technology development in South Africa played a major role towards business continuity. Therefore, it is important that we dissect in brief the Fourth Industrial Revolution (4IR).
The Fourth Industrial Revolution (4IR) — characterized by the fusion of the digital, biological, and physical worlds, as well as the growing utilization of new technologies such as Artificial Intelligence (AI), cloud computing, robotics, 3D printing, the Internet of Things (IoT), and advanced wireless technologies, among others — has ushered in a new era of economic disruption with uncertain socio-economic consequences for Africa.
With past industrial revolutions and related technological developments having left Africa behind, the obvious question is, if this will still be the case this time around? Moreover, will the COVID-19 experience not provide Africa with an opportunity to catch up?
So far, it does not appear like Africa has claimed the 21st century that the Former President of South Africa, Thabo Mbeki dubbed the African Renaissance Century. Sadly, the continent still lags behind in several indicators essential for a successful digital revolution. Be that as it may, Africa has seen a disruption particularly in the area of mobile money.
According to Global System for Mobile Association (GSMA), Sub-Saharan Africa was in 2018 driving around two thirds of the total global mobile money transactions. Further, it is forecasted that by 2025 the continent will see the fastest growth in mobile money. It is this expanding mobile digital financial landscape that is the main driver towards improvement of the Information & Communications Technology (ICT) landscape. Furthermore, AI and blockchain technology are also attracting interest in Africa, owing to their potential to successfully address existing social and economic challenges.
The 4IR technology in Africa can be transformational as it cuts across various industries and segments of the society. Why? It draws benefits such as; encouraging economic growth and structural transformation, fighting poverty and inequality, reinventing labour, skills, and production, increasing financial services and investment, modernizing agriculture and agro-industries, and improving health care and human capital. These benefits though enjoyed at varied and low scale have the potential to boost further the 4IR journey on accumulation.
THE LIGHT AT THE END OF THE TUNNEL FOR SOUTH AFRICA
COVID-19 has fast-tracked digitalization, providing tax administrations with an opportunity to adopt more efficient business models.
Below are few highlighted opportunities observed within the context of South Africa;
Business Model Shift
1) Policy alignment across the Whole-of-Government.
Data sharing improving revenue collection efficiency.
2) Rapid implementation of new tax policies for economic relief
Speedier implementation of policies
Improved responsiveness to tax gap or compliance issues.
3) Development of virtual platforms
Migration of more taxpayers onto electronic platforms.
Integration of processes into the wider digital eco systems precipitating implementation of a near real time tax collection system.
Data sharing across third party providers
Auto assessment of taxpayers enabling compliance.
Linking up with taxpayer natural processes leading to compliance by design and by the taxpayer decisions.
All these shifts place the taxpayer at the centre of how tax administrations design their processes to ensure tax compliance. It is an approach the Organization for Economic Co-operation and Development (OECD) refers to as Tax Administration 3.0 which ensures that compliance and collection is near real time through integrating into the broader ecosystem and interacting with the taxpayer’s natural systems. Moreover, efficient tax administration processes ensure that the decision to comply is not with the tax payer, rather inbuilt within processes and rules and applied across the entire commercial eco system. The outcome of this approach is improved compliance, increased revenue collection, and the freeing up of staff to focus on high-end compliance challenges such as those arising from digitalization and the Gig economy.
The SARS is an example of a tax administration agency that is trying – within limited resources – to ensure that these opportunities are leveraged. Besides, the Government of South Africa recognizing the challenges ahead for businesses has implemented varied measures to ensure a rapid and sustained economic recovery. These measures include amendment of the Coronavirus COVID-19 Alert Level 1, which for example restores normal trading hours for the sale of alcohol at retail outlets. It is envisioned that as the country transitions to a new phase, this will keep most businesses afloat limiting job losses. Furthermore, in November 2020, South Africa hosted the third South Africa Investment Conference, an important indicator of the country’s continued value as an investment destination for both local and foreign investors.
With the corporate and public leadership in the country determined to drive progress on the reconstruction and recovery plan, including through the implementation of structural reforms to shift our economic trajectory, SARS will unavoidably be part of the recovery plan.
LESSONS FOR AFRICA
The COVID-19 pandemic has affected everyone negatively and as observed, some countries like America and Britain have experienced a second wave amidst reopening of economies with specific plans on operations.
The world inescapably is adapting to a new normal and these adjustments are presenting a new set of challenges and, opportunities. Besides nobody has a clear outlook on the era of post COVID-19 and frankly, the world is still not over the hedge despite increasing conversations about a vaccine.
The new normal will definitely have winners and losers and, this will not be based on social strata rather the ability to adapt, unlearn and relearn. Alvin Toffler said “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn”. Therefore, it is time for Africa to grab the opportunities that the pandemic is presenting and move with speed to improve efficiencies more so for tax administrations. It is the perfect time for Africa to align with the world by embracing the prospects that lie within the 4IR. Winston Churchill said, “Never let a good crisis go to waste”.
We have lost many lives during this pandemic and as 2021 begins we need to surpass the pain, sorrow and losses and perceive the untapped opportunities. Africa needs to fast-track adoption of digital solutions, with tax administrations deploying these solutions to improve revenue collection and facilitate trade.
Further, as Governments in Africa stimulate a Whole-of-Government Approach (WGA) in their business, we need to remember that technological change facilitates this desired collaboration.
In the counsel of the first President of South Africa Nelson Mandela, “After climbing a great hill, one only finds that there are many more hills to climb.” As a continent we need to be ready to climb the hills in the future.