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An independent analysis suggests that integrating Ethiopia’s national ID system, Fayda, with its tax system could yield numerous advantages, including enhancing tax data quality, improving taxpayer experience, and bolstering compliance monitoring and enforcement. This integration could also contribute to expanding the country’s tax base.
The International Centre for Tax & Development (ICTD) has outlined five potential benefits for Ethiopia based on a recent analysis of tax reforms in Uganda and Ghana, published by the Institute of Development Studies. Both Uganda and Ghana successfully integrated their national digital IDs with their tax systems as part of broader digitization initiatives, showcasing early successes. Furthermore, Nigeria’s President has been discussing a similar integration between the country’s national ID and taxation systems.
The integration of Fayda was finalized in December, with all taxpayer identification numbers (TINs) linked to individuals’ Fayda numbers. Notably, TIN registration already involved biometrics collection, enabling the use of credentials for accessing other public services. By shifting the responsibility of biometrics collection to the national ID system, supported by international development partners, the system becomes more cost-effective.
These changes could facilitate the Ethiopian tax authorities’ transition to data-centric operations. However, the report highlights potential barriers to adoption, such as misconceptions leading to mistrust of the system. Overcoming these hurdles would be crucial for the tax system to realize the anticipated benefits highlighted by ICTD. Establishing a robust data protection regime could aid in addressing these concerns.
Interestingly, a similar move by Kenya was considered by The Conversation last year, indicating growing interest and discussions surrounding the integration of digital ID and tax systems across various countries.
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