One of the few advantages that developing countries hold is the ability to technologically leapfrog. Instead of being stuck with older legacy infrastructure, these countries can implement the latest technology when building new systems. This digital-first approach can be applied to everything from public transport to banking.
In Africa, tax and revenue systems are now being built using the latest fintech tools. These systems are designed to address one of the biggest problems that every developing country faces: how do you formalise the grey economy?
Research suggests that nearly 90% of jobs in sub-Saharan Africa are informal, from small-scale artisans to market traders. The informal sector may also account for up to 36% of GDP, compared with global averages of 40% for informal jobs and 25% for GDP. For developing countries, a major challenge is collecting tax revenue from these activities. Formalising the informal sector would significantly improve the fiscal positions of these countries, strengthening their budgets, credit ratings and ability to fund public services.
Efforts to bring about this formalisation have focused on building out digital tax and revenue systems. One country in particular, Tanzania, has ambitiously committed to fully digitalise its revenue ecosystem. Presenting the 2026/7 budget, which kicks in from July, Finance Minister Khamis Mussa Omar detailed plans that included mandatory digital payments in certain sectors, the expansion of electronic fiscal devices, the rollout of a national digital ID and the use of AI-driven tax administration.
This could provide a major fillip to Tanzania’s budget. A study in 2021 by the UN-affiliated Better Than Cash Alliance predicted that Tanzania’s budget revenue could rise by around $500 million a year if digital payments were used more widely.
Starting this year, the government will mandate that the transfer of certain assets, such as land, vehicles, and buildings, must be paid for digitally. The same will apply to specific business sectors including mining, agriculture, livestock, forestry and fisheries. This law will simultaneously increase registration of these transactions for tax purposes and encourage the adoption of bank and mobile payment channels instead of cash, reducing corruption in the private sector. This fits into President Samia’s broader goal of digitalising the economy by 2034.
The reforms will be supported by the rollout of Jamii Namba: Tanzania’s national digital identity system. Imitating systems found in East Asia, it merges previously fragmented identification records from various agencies to make individuals identifiable across tax administration, banking, government services, licensing systems, and property ownership records. The ID will be assigned at birth and use biometric data to establish unique numbers. The result of this will be to allow the government to cross-reference information in order to find and collect undeclared income or economic activity.
Alongside this, the government will mount a campaign to expand the use of Electronic Fiscal Devices (EFDs) such as Fiscal Cash Registers or Electronic Signature Devices. These devices produce electronic receipts which allow the efficient transfer of data to tax authorities while improving VAT compliance.
To accelerate uptake, Samia’s government is introducing an EFD receipt lottery, the ‘Tuzo ya Uzalendo’, where electronic receipts can be entered into prize draws. By turning consumer behaviour into a compliance mechanism, the lottery will maximise tax revenues and accelerate the digitalisation of the entire revenue and wider economic system. Unlike top-down schemes intended to coerce informal activity into the formal economy, this provides incentives to local people to participate out of their own interest.
This stroke of astute behavioural economics is what makes the Tanzanian government’s formalisation push more likely to succeed where others have struggled. Previous attempts have often failed to sufficiently incentivise African workers to participate in a formal sector whose inconveniences outweigh any benefits of formal legal systems and credit networks. In order to succeed, the government must ensure the local legal system is robust enough to protect property and contract, and quickly and fairly resolve disputes. The expansion of digital taxation must also go hand in hand with the expansion of digital banking and credit. This way, formalisation is beneficial to both businesses and treasuries.
This digitalisation follows the East Asian model, maximising tax revenue and technology adoption across the economy. Tanzania could ultimately look more like China, where a unified digital payments system groups financial transactions with social media, e-commerce, government services, public infrastructure and cross-border settlements.
If Tanzania succeeds, the implications will be dramatic across Africa and the wider developing world. It would create a blueprint for similar African states to formalise their informal sectors, increase their tax revenue and transform their development prospects. Whatever the success of this plan, the Tanzanian government deserves enormous credit for the boldness of its agenda and the innovative implementation tools it has proposed. Africa’s digital tax revolution could well begin in Dodoma.
Opinion piece by Frenny Jowi
Award- winning Journalist