How Tax Automation Can Boost SA's Digital Economy

Experts frequently assert that digital technology has the potential to boost GDP and elevate living standards, a sentiment that holds considerable weight. A study published in the Frontiers in Public Health journal in 2022 by Chinese researchers highlighted a robust correlation between GDP growth and nations with minimal digital disparities. Furthermore, research conducted by the World Bank reveals that digital economies account for nearly a fifth of global GDP and experience growth rates 2.5 times higher than those of other GDP contributors.

Digital economies serve as fertile ground for fostering efficiency and innovation, acting as pivotal catalysts for economic growth. Additionally, they offer unparalleled business intelligence capabilities, empowering enterprises to adapt with agility and resilience. Noteworthy is the ability of digital economies to attract top-tier talent; conversely, underdeveloped digital economies often witness a drain of skilled professionals, hindering their potential for GDP expansion associated with digital advancements.

Yet, digital economies are not black boxes that magically create growth. They depend on several systems to deliver results. The API economy is one of the foundational systems.

API stands for ‘application programming interface, ‘ which is another way to say ‘computer translator. ‘ Different computer systems rarely speak the same language. When you order a lift on a ride-hailing app, that service does not share the same computers as your bank. Instead, APIs mediate between the app and the bank. This mediation happens whenever you book a ride or make an e-commerce purchase. It occurs when you access a digital map, check social media feeds, and access information across integrated business systems. APIs enable the digital economy’s stakeholders to communicate effortlessly and securely.

The API economy is the nervous system of every digital economy. Without APIs, integrating services is difficult, slow, and very risky, not to mention inefficient and expensive. Those integrations are also prone to include manual processes and human intervention, leading to many errors. In contrast, APIs are transparent, auditable, and automated.

A thriving digital economy needs APIs. Yet, there is often resistance against the idea. The primary opponents are companies with legacy systems. Rather than build a new economy, they hope to keep the old one in arrested development so they are not forced to upgrade. But this is equivalent to preferring horse carts over delivery trucks. It’s a losing game where the holdouts eventually become uncompetitive, and the greater economy gets stuck.

When economies do more to protect the incumbents who refuse to modernise, they hobble the ability to grow GDP.

Still, change is risky. While the holdouts might cause damage, they have reasons to fear digital disruptions. Those fearing change must see examples of how that change can deliver results. An excellent place to start is tax.

Taxation processes benefit enormously from APIs. They can automate tax filings and audits. APIs replace the strain of spending much time on error-prone manual reconciliations. And committing tax fraud is much more challenging in an API economy, especially once you use API data to inform artificial intelligence and advanced analytics.

By using APIs, tax authorities make it convenient for businesses and software vendors to integrate and automate tax processes. This approach aligns with the South African Revenue Service’s vision to build a smart modern tax authority with unquestionable integrity, trusted and admired by Government, the public, and our international peers.

Creating digital economies isn’t easy; there are risks. It’s important to demonstrate a cohesive and supportive understanding of how we reach our economy’s digital goals. An API-driven tax system can set that benchmark. It’s already happening in countries such as the UK. Brazil and Argentina are leaders in API-driven tax automation. China has introduced real-time customs taxation through APIs. Other African countries, notably Kenya and Nigeria, are implementing real-time tax systems through APIs.

South Africa will also be on that list once we embrace the benefits of APIs. Other strategies will only delay the development of a robust digital economy. There are ways to embrace APIs and build automated taxation while helping the laggards catch up. We’re fortunate that SARS is a world leader in tax innovation. Hopefully soon, SA’s highly-respected tax authority will ignite the spark that helps create our GDP-growing digital future.