Let’s optimise Big Data for revenue collection

In the past month, I participated as a panellist in two unrelated conferences that had a similar concern – role of big data in enhancing income – and digital transformation.

The first was the International Monetary Fund’s 5th Global Statistical Forum and the Kenya Revenue Authority’s (KRA) 3rd annual Tax Summit in Nairobi.

My KRA panel discussion focused on optimising Big Data and Advanced Analytics for enhanced Tax Administration.

Like many organisations, government agencies and other multilateral agencies globally, the KRA is worried about the emerging disruptive business models that make it difficult to recognise revenue.

Fortunately, big data analytics and visualisation may offer the much-needed tools to remain relevant in an emerging complex process of recognising revenue.

The emergence of the sharing economy presents the greatest challenge, especially to developing countries.

Many tax authorities have not understood this economic model that was started largely by online communities of sharing assets like software, leading to open source software.

It is basically a peer-to-peer based activity of sharing access to goods and services through online platforms. These platforms enable communities of people to share assets and create value in remote locations that may not be within the jurisdiction of where value is created.

For example, open source software that is widely used does not quite have a designated “home” where value created can be taxed or recognised by national accounting.

The term sometimes is used in general terms to refer to online transactions or market places and in some cases it is referred to digital transformation.

Like open source, there are other numerous internet-based technology solutions that offer free services, thus making it difficult to understand where and when to recognise revenue.

Therefore, for tax authorities to understand the trail of value chains, they must leverage on big data and other technologies like blockchain.
Even in advanced economies, the debate around taxation of online transactions is raging.

It is therefore reassuring that KRA is beginning to think about the application of these emerging strategies of revenue collection.

However, there are still challenges ahead. With the advent of Africa’s digital transformation, it isn’t just adoption that matters. There are other issues relating to cultural, social, and political environmental factors that often undermine access to data.

For example, the adoption of mobile money is heralded as the best innovation that happened in Kenya.

So far, it has helped the government to narrow the gap between enterprise informality and formality but it is being undermined by legislation.

For once it was possible to capture data from the informal sector and either use it as a basis for data collection or for computation of national accounts.

Parliament perhaps did not understand the full impact of the new innovation that includes greater inclusivity. In their wisdom, they created the National Payment Act (NPA) that effectively negates the gains made thus far.

READ: FinTech companies take on banks, telcos with Big Data arsenal

Some sections of the Act require providers to obtain up to three years of financial statements of enterprises using their services.

Yet more than 90 per cent of the users are in the informal sector with no culture of keeping books.

Strict enforcement of this law will see many in the informal sector take flight from their emerging formalisation. It is simply a disaster in the making.

To widen the tax bracket into the informal sector, it is in KRA’s interest to seek for the revision of the NPA. Part of the big data they need to understand on revenue sources in the country is what the other arms of government want to dim.

Other key steps that must be taken by KRA include developing new digital skills workforce to face an increasingly digitising environment.

Either through legislation of philanthropy, KRA has to have all forms of data from private organisations and government in order to understand financial movements that are critical to understand points of revenue recognition.

William Edwards Deming, an American management consultant, said, “Without data you’re just another person with an opinion”
Let’s stop making opinions and enable data for better tax decisions.