According to recent reports by the Tanzania Revenue Authority (TRA), tax revenue collections reached Tsh. 7.99 trillion in the first half of the financial year 2018/19 i.e. from July to December 2018, a growth of 2.01 per cent compared to Tsh. 7.83trillion collected during the corresponding period previous year 2017. The Tsh.8trillion collection is about 89 percent of the expected revenue collection for the six-months period. One of the many reasons for such performance in which collections are about 11 percent behind the budget is the case of a narrow tax base (with Tanzania having a low domestic revenue to GDP ratio (less than 15 percent) compared with the Sub-Saharan African countries average of 17 percent.
To increase the tax base TRA have in the recent past embarked in a nationwide campaign for Taxpayer Identification Number (TIN) registration targeting new tax payers and locations of their businesses aimed at expanding the tax net base. The other recent initiative of widening the base has been on property tax whose rates of Tsh.10,000/- for ordinary houses, Tsh. 50,000/- for every floor of a storey building is meant to increase the outreach and bring more citizens in the taxpayers’ net.
Furthermore, H.E. President Dr. John Magufuli has recently issued a raft of new tax administration measures rallying on all of us to participate even more in the process of raising revenues and expand our country’s tax base. The President directed the tax administration officers to adopt a more accommodative tone towards the business community instead of being overly aggressive which makes it difficult for tax collections, in some cases.
What is at stake? the wide gap between the actual tax paying population and the total population has been a worrying trend in most countries over the years. Studies across board indicates that in most countries, especially in Africa, only a small portion of a given country’s population pay taxes.
In 2018, for instance, BusinessTech reported that only about 30 percent of the 56 million population paid taxes in South Africa. The BusinessTech further reported that although the remaining part of the population was contributing through Value Added Taxes (VAT), but that portion of the population was not contributing anything more in the form of tax revenues to the nation coffers. In Botswana the ratio is 32 percent; Namibia 24 percent; Mozambique 19 percent; etc. Now, the case for these countries in the Southern part of the continent is far much better in relative terms. For instance, in Kenya, part of their 46 million population that pays taxes is 3.9 million, i.e. about 8.4 percent. Data by the Tanzania Revenue Authority (TRA) last year indicates that the number of taxpayers who paid taxes in 2018 was about 2.27 million. Working with a population of 55 million Tanzanians, the number of those who filled for tax returns or actually paid taxes represented less than 4.5 per cent of our population.
In the case of other key parameter measuring tax payments i.e. Revenue to GDP, our revenue collections to Gross Domestic Product (GDP), at about Tsh.15trillion per annum, is just 12.8 per cent. We expect collections to reach Tsh.18 trillion in this financial year 2018/19 – however, if we manage to collect Tsh. 18million, this will still be about 15 percent of GDP. When compared to some countries in the Southern part, again, Botswana, Mozambique, South Africa – there tax revenue to GDP ratios are: 14 percent; 18 percent; and 26 percent respectively.
This trend can only point to one thing; the country’s economy is being driven (at least from the tax revenue resource mobilization perspective) by a very small portion of the country’s total population. This points to the dire need for us as citizens to do more. The recently introduced presumptive tax for small scale and medium-sized enterprises and hawkers and small traders’ Identity Cards, for instance, are without doubt an apt platform to give Tanzanians outside the current tax brackets an opportunity to participate in the contribution to the national coffers.
A tax, charged at a moderate rate, say 10 or 15 percent of the business permit or trade license fees, or indicated above the Tsh. 10,000 or Tsh. 50,000 paid as property tax, are good strategies towards expanding the country’s tax base. Despite its implementation challenges and eliciting mixed reactions, but such measures, are some of the easiest taxes to comply with, and to administer. What is important is that the targeted market should fully embrace these taxes and take it as an opportunity to play the civic duty for each citizen on tax payments, especially now that there are vivid cases of better use of tax payers’ money in supporting our socio-economic development, underlying the necessity of social contract.
With these efforts, and others targeting monetary policies and investment attractiveness, from the economic perspective, we have a significant potential to largely sustain ourselves and emancipate from the burden of foreign aid and assistances which sometimes carries a lot of conditionalities, to the detriment of compromising our freedom, our cultural set-ups and our political processes. The Ministry and the Revenue Authority, should keep up the spirit of exploring more tax base expansion strategies, without necessarily imposing additional taxes to the already taxed sectors and segment of the economy and/or society. That way a substantial size of the population will have an opportunity to contribute to the national coffers.