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Tanzania’s Tax System Under Scrutiny: Need for Reform to Boost Revenue

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A narrow tax base and low compliance rate have been plaguing Tanzania, resulting in inadequate revenue collection. A recent study has shed light on the major factors contributing to this problem.

Lack of Comprehensive Tax Policy Framework

According to the study, one of the primary reasons is the lack of a comprehensive tax policy framework. The Constitution provides for taxation, but there is no specific policy guiding its imposition and administration. This absence of policy has led to a multitude of taxes and levies being introduced by government agencies, local authorities, and public institutions.

Consequences

Experts point out that this multiplicity of taxes and levies has resulted in unforeseen consequences, such as:

  • Increased tax evasion
  • Reduced consumption

The Chenge Report (2013) found that increases in excise duties led to lower levels of consumption and, hence, lower tax collections.

Limited Registration of New Taxpayers

Another significant factor contributing to the narrow tax base is the limited registration of new taxpayers for Income Tax and Value-Added Tax (VAT). The study highlights the need to expand the tax base by:

  • Enforcing the registration of new taxpayers
  • Implementing an Automated Tax Stamp System to minimize tax evasion

Budget Process Criticisms

The budget process has also been criticized for lacking guidance on:

  • Maximum amount of total taxation an individual should pay
  • Number of taxes
  • Desired maximum cost of tax compliance

Revenue policies are framed with little consideration of factors such as:

  • Inflation
  • Real wages
  • Household living standards

Recommendations

To address these issues, experts recommend that the government develop a comprehensive tax policy framework that takes into account the socio-economic environment, inflation, and other factors. This would help to:

  • Reduce tax evasion
  • Increase revenue collection
  • Promote economic growth

What’s Next?

The study’s findings have sparked calls for reform of Tanzania’s tax system. The government has been urged to develop a comprehensive tax policy framework that addresses the identified challenges. The introduction of an Automated Tax Stamp System and expansion of the tax base through registration of new taxpayers are also seen as crucial steps towards increasing revenue collection.

Sources

  1. The study was commissioned by the Speaker of Parliament through a Special Speaker’s Committee chaired by Hon Andrew Chenge MP.
  2. Ministry of Finance and Planning (2017), “Guidelines for Preparation of Plans and Budget 2018/19”, Nov 2017, p. 47.
  3. Chenge Report (2013).
  4. Ministry of Finance and Planning (2017), “Report on Business Closures in Dar es Salaam and Arusha”, early 2017.

Contact

For more information or to arrange an interview with the study’s authors, please contact [insert name] at [insert email] or [insert phone number].