Revolutionizing taxation for inclusive development: Insights from the tax and development workshop

Recently, we had the opportunity to speak with two experts from the South African Revenue Service (SARS), Mamiky Leolo and Pumla Bam. Leolo serves as the Executive Manager of the Macro Economic Research unit within the National Revenue and Compliance Management Division, while Bam is a Senior Specialist in Data Analytics at SARS. Both Leolo and Bam attended a Tax and Development Workshop in Kampala, Uganda, which brought together researchers, tax experts, and practitioners to exchange experiences on using administrative tax data for research purposes in their respective countries. The workshop highlighted tax research findings in South Africa, Uganda, Tanzania, and Zambia as part of UNU-WIDER's Building up efficient and fair tax systems – lessons based on administrative tax data project.

In the following interview, Leolo and Bam provide insights on their work at SARS, their experience of  collaborating with the Southern Africa – Towards Inclusive Economic Development (SA-TIED) programme, the significance of tax and development for Africa, as well as their experiences at the workshop.

What has been your key takeaway from this workshop?

Leolo: It was refreshing to see and hear about the progress made by some tax authorities in using tax administration data to improve domestic resource mobilization efforts in their respective countries. We also had an on-site visit to the Ugandan Revenue Authority Head Office, which provided a practical perspective on the progress made by the organization and its plans. Overall, the workshop helped us gain insights into how other tax administration authorities are using tax administration data to improve revenue collection, compliance, and decision-making, which is informed by insights derived from data. We found it valuable to hear about the experiences of other countries and tax authorities, and we believe that sharing knowledge and best practices can help improve tax and development outcomes on the continent.

 

How do you think the information shared here will help you in your work going forward?

Leolo: During the workshop, we came across valuable perspectives that may support our work going forward. As the leader of the team responsible for providing data to National Treasury Secure Data Facility in South Africa, Bam: I found it easy to share my experiences with other tax authorities. I was particularly interested in the research done using tax administration data to inform tax policy, as well as the presentation by Rwanda on tax audits with the inclusion of risk scores. The approach, challenges, experiences, and opportunities realized were all quite interesting.

Leolo: For me, the workshop provided practical lessons on how research results are actively deployed by countries such as Uganda, Zambia, Tanzania, Rwanda, and Pakistan to improve domestic resource mobilization efforts. This information will be helpful in shaping our approach to our work at SARS.

Can you share a specific project or initiative that your organization is working on that is particularly relevant to the topics discussed at the workshop?

Leolo: At SARS, we are working on several initiatives that are relevant to the topics discussed at the workshop. One of them is the development of microsimulation models of the main tax types based on tax administration return data and on the standardised EUROMOD platform. We are doing this with the assistance of Southern African Social Policy Research Institute (SASPRI) experts under the auspices of and funding by UNU-WIDER. The working paper presented on the personal income tax pension fund reform option is simulated on the Personal Income Tax Microsimulation Model (PITMOD) microsimulation model. In addition, we have compliance initiatives in the form of revenue recovery, where we use third-party data from various organizations to identify non-compliant behaviour and fraud where applicable. These initiatives are part of our efforts to improve domestic resource mobilization and ensure that tax administration data is used effectively to enhance revenue collection, compliance, and decision-making Bam: Another relevant topic was the compliance initiatives in the form of revenue recovery, where third party data from various organizations is used to identify non-compliant behaviour and fraud.

Mamiky Leolo presents during the “Perspectives for revenue mobilization and research collaborations” panel discussion. 

Since collaborating with SA-TIED, what have you been able to achieve that you wouldn’t have otherwise?

Leolo: The establishment of the National Treasury Secure Data Facility is an important step to provide access to researchers to tax administration data. Furthermore, the construction of a standardized personal income tax microsimulation model is a major achievement that is currently under construction for the regions as well. The model not only simulates tax policy reform options but also contains the detailed information needed for tax administration and to provide greater insight into the tax base by source of income, deductions, and exemptions combined with the distribution of taxpayers and income. Personal income tax with a share close to 40% of total tax revenue is the major source of tax revenue income in South Africa. Bam: On a more practical level, we have been exposed to different ways of cleaning and quality-assuring tax administration data, creating metadata, and analysing data to derive insights to inform various areas within the organization.

How do you think the collaboration between SA-TIED and your organization has changed how you worked over the past years? What have you achieved?

Leolo: There has been an increase in the awareness of the importance of tax administrative data in the administration of tax revenue. The SA-TIED collaboration has improved the technical skills of employees and increased the appetite for taxation research with the support of SA-TIED experts. Bam: There is also the creation of opportunities for greater collaboration between SARS and other departments, especially National Treasury and the research community, including academia. We have also been able to collaborate with each other to create panel data sets and make use of data to inform economic and tax research.

Pumla Bam presents on simulating personal income tax in South Africa using the UNU-WIDER supported Personal Income Tax Microsimulation Model

Have you seen changes implemented by tax authorities based on research? How has this changed in your career thus far?

Leolo:  Plenty of taxation research has been conducted since the democratization of South Africa in 1994. Two Tax Commissions were tasked with specific aspects of the tax system. Recommendations based on in-depth research were implemented. Some of the legislative changes in no particular order include, a single personal income tax system for all taxpayers, the annual adjustment of the personal income tax system for inflation, broadening the personal income tax system, introducing a capital gains tax, the switch from a medical tax deduction to a medical tax credit, reform to the contributions to retirement funds, an increase in the top marginal income tax rate, the reduction in the corporate income tax rate,  the switch to a dividend shareholder tax from a secondary corporate income tax, an increase in the standard VAT rate, zero-rating of basic goods, taxation on sugary beverages, customs tariff reform, and tax incentives reform for the motor industry.

How can tax authorities and researchers work together more effectively to influence policymaking?

Leolo:  Researchers could team up with operational teams working within the value-added stream of tax authorities. This will ensure that practical operational knowledge is paired with theoretical knowledge and application of tax legislation is paired with researchers who have more experience writing academic research papers but do not necessarily have experience in the day-to day practical application of tax laws and procedures to collect tax revenue. 

How do you see the role of tax authorities evolving in the next few years, and what implications will this have for economic research?

Leolo: The role of tax authorities will increase in importance due to the increasing need for sufficient stable tax revenue with the increased need for government to intervene on account of market failures to distribute income and wealth in a more equitable manner. Furthermore, the advancement in technology, the digital economy with digital currencies, the globalization of economic activities and mobility of human capital, are posing increasing demands on governments to protect their tax bases. Tax authorities need to be informed and be technically prepared to address changes in their tax efforts and the size of the compliance revenue gap in monetary terms and as a share of the potential tax revenue to be received and collected.