A common way to increase tax compliance is through tax enforcement by the authorities, but this method has its limitations. To improve tax compliance, governments must consider additional measures. In Zambia, the emergence of the gig economy presents a unique challenge to taxation due to the short-term nature of its labor supply and the digital elements involved in its economic activities. The gig economy is characterized by temporary jobs, facilitated through digital platforms, such as advertising, software development, ride-hailing, food delivery, and online training.
Unfortunately, tax compliance in this sector has been low, prompting the government to take action. As part of the 2023 national budget, the government has expanded the application of the turnover tax regime to service providers in the gig economy with the aim of boosting compliance.
To effectively increase tax compliance in the gig economy, it is crucial to understand the reasons behind the low levels of compliance. Firstly, the intangible nature of goods produced and the use of digital automation in services make activities in the gig economy less transparent. Additionally, the short-term contracts involved in the gig economy create difficulty in imposing and collecting certain income taxes, such as pay-as-you-earn. Another challenge is that many players in the gig economy get low wages and lack employment benefits, which can make it less appealing for them to pay taxes. For businesses operating in ride-hailing services, it is particularly challenging for revenue authorities to estimate earnings accurately. Furthermore, workers in the gig economy often operate as freelancers and may not be part of a registered organization, making it harder for authorities to monitor and collect taxes. To address these challenges and increase tax compliance, there is a need for innovative solutions that take into account the unique characteristics of the gig economy.
The factors affecting tax compliance in the gig economy vary in severity and complexity, making it important to adopt a multifaceted approach to address the issue. While a turnover tax is a simple tax regime that reduces the administrative burden on both taxpayers and revenue authorities, it may not necessarily increase tax compliance for businesses operating on digital platforms. This is because the challenge lies not in the type of tax, but rather in accurately calculating tax liability and enforcing tax collection. Therefore, to effectively address low tax compliance in the gig economy, it is necessary to implement a range of measures that take into account the unique characteristics of gig economy businesses and the challenges they face in complying with tax regulations.
To improve tax compliance in the gig economy, the following can be done:
1. ZRA should sensitize taxpayers in the gig economy on its online platforms that may enable service providers to register, file and pay their taxes conveniently. The goal is to make it more convenient and reduce the compliance burden.
2. Improving Tax Education amongst gig economy service providers. Many service providers in the gig economy might not have adequate information about their tax obligations. The government could enhance the already existing tax education programs to that help raise awareness of tax compliance requirements. This education can also focus on sensitizing the taxpayers in the gig economy on the need to keep accurate records and report incomes honestly. This can be facilitated through social media campaigns and other tailored programmes targeting small businesses and workers.
3. Collecting taxes by tracking transactions through digital payments such as point-of-sell and mobile money. This will require the government to work closely with digital payment providers who can even track and collect on behalf of the government.
4. Finally, understanding the specific challenges by engaging the Gig Economy community will help design tailored solutions to their needs. This is also helpful in building taxpayer-tax collector trust and enhancing voluntary compliance.
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