Commission pushes cashless tax transformation

DAR ES SALAAM: I WAS afforded the opportunity to attentively listen to the report’s submission yesterday morning, as were all Tanzanians who were lucky enough to listen live.

In the same way that each listener may have their own interpretation, my reflection unmistakably indicates that this is the pivotal moment for our national tax system. For what reason?

The submittal of the Presidential Commission report on tax system reforms yesterday is one of the most significant fiscal policy moments in the country’s recent economic history.

The Commission was established in October 2024 to review inefficiencies in tax administration and propose structural reforms.

The Commission’s work reflects a growing national consensus: Tanzania’s development ambitions cannot be realised without transforming how taxes are collected, monitored and integrated into a modern digital economy, as evidenced by my inputs published in this highly respected paper.

I believe that the commission’s primary objective is to facilitate the transition to a cashless economy, not as an end in itself, but as a strategic instrument to enhance fiscal transparency, formalise economic activity and broaden the tax base. This was my conclusion after listening to the commission chairman’s presentation.

It is undeniable that the country’s economic growth over the past decade has not always led to proportional increases in domestic revenue mobilisation.

However, there remains a desire to improve collection efforts to establish a sustainable solution.

The gap between actual circumstances and potential has prompted policymakers to reconsider tax collection systems and implement reforms that promote voluntary compliance and reduce informality.

Therefore, promoting digital transactions offers an opportunity to create verifiable financial records, reduce income underreporting and bring millions of micro-enterprises into the formal tax system.

Digitalisation could significantly transform the fiscal landscape in a country where many transactions are still conducted in cash, especially in informal urban areas and rural markets.

The Commission’s report, which was presented to President Samia and the public yesterday, is timely, as the government is also striving to finance ambitious infrastructure and industrialisation projects.

Tanzania is at risk of becoming overly dependent on external borrowing if it fails to strengthen domestic revenue systems, which could expose the economy to global financial disruptions.

In a previous article published in the Daily News, I explicitly stated that a digital economy improves tax enforcement by increasing transaction traceability.

Electronic payment platforms make it easier to collect real-time data on sales turnover and business activity, which complicates the process of firms hiding income or operating outside regulatory oversight.

Based on a brief research study I conducted on a few selected firms two years ago, Tanzania could raise its tax-to-GDP ratio by between 2.0 per cent and 3.0 per cent points over the medium term if digital compliance mechanisms are effectively implemented.

The basis for this projection is the comparative experiences of emerging economies that have adopted electronic invoicing, digital VAT systems and mobile payment integration.

The broader mandate of the Presidential Commission, chaired by Amb Ombeni Sefue, which aims to improve transparency, efficiency and impartiality in taxation, aligns with the shift towards data-driven tax administration. Conversely, expanding the tax base through digitalisation requires careful sequencing.

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Reforms might be seen as punitive rather than supportive by small merchants, especially those operating within small and medium-sized enterprises, if implemented without appropriate incentives. This could lead to delayed adoption of cashless systems and increased resistance.

Therefore, formalising the country’s informal sector could be the most significant impact of encouraging a cashless economy.

Administrative complexity, limited awareness and lack of access to finance are the main reasons why millions of small businesses operate outside the tax system, rather than intentionally evading it.

These enterprises may acquire financial identities through digital payments.

Traders can gain eligibility for bank loans, insurance products and government support programmes without the traditional rule of thumb of requesting collateral or raising a high-risk premium once transaction histories are established.

This transition has the potential to boost productivity across sectors such as agriculture, transport services and retail trade.

Formalisation also enables more accurate economic planning by improving the quality of national statistics and business registries.

However, digital inclusion remains uneven.

Without infrastructure investment and targeted financial literacy programmes, rural connectivity gaps and limited smartphone penetration may hinder progress.

It is important to recognise that promoting digital transactions also constitutes a governance reform, as shown by the presentation.

Cash-based systems in both the public and private sectors often lead to leaks, corruption and unrecorded payments. Digital payment ecosystems create audit trails, which improve accountability.

Monitoring government procurement, tax payments and social transfer programmes can be more efficient, thereby decreasing the risk of public funds being misused.

In the long term, increased transparency will strengthen public confidence in tax authorities, which is a vital element for encouraging voluntary compliance.

To build legitimacy and gain public support for policy changes, the tax reform process has also focused on stakeholder consultation.

Especially for nations striving to achieve economic independence, a predictable and transparent tax system is among the most vital factors in shaping investment decisions.

The aim of Tanzania’s ongoing reforms is to improve the business environment, minimise disputes and streamline procedures.

Firms can significantly cut their compliance costs by using digital taxation tools, such as automated filing systems and electronic dispute resolution platforms.

By effectively implementing all recommendations in the report, electronic reforms could improve Tanzania’s competitiveness within the East African Community by making the country a more attractive destination for investments in digital services, logistics and manufacturing.

Investors are increasingly focusing on jurisdictions that are technology-driven, efficient and less prone to discretionary enforcement.

The country has the ability to build on its experience by adopting a gradual transition model that combines regulatory enforcement with incentives, such as simplified compliance frameworks for micro-enterprises, tax rebates for digital payments and lower transaction fees, as outlined in the report and presented by the commission chairman.

In addition, a coordinated national approach could improve customs revenue collection and reduce illicit financial transfers by enhancing cross-border trade monitoring within the East African Community.

The shift to a virtual economy carries certain risks, despite its potential benefits. The cost of digital transactions remains a significant concern.

A proposal that might gain support in the upcoming financial legislation for the 2026 national budget is the possibility of excessive mobile money levies or electronic payment taxes, which could discourage adoption and push users towards informal cash systems. Cybersecurity hazards also pose an increasing challenge.

The risk of fraud, identity theft and system disruptions rises as financial systems become digitalised.

Consequently, policymakers must strengthen institutional capacity and invest in comprehensive regulatory frameworks to manage digital financial risks by offering incentives to those who have the ability to prevent such system failures.

Nevertheless, it is essential to recognise that poorly managed transitions could lead to the marginalisation of elderly populations, rural traders and low-income groups who lack digital skills or access to financial technology.

Based on the presentation and submission, along with a few subsequent comments, promoting a cashless economy has the potential to significantly alter Tanzania’s macroeconomic fundamentals if implemented successfully.

Improved fiscal sustainability would be achieved by decreasing reliance on foreign aid and external borrowing through enhanced domestic revenue mobilisation.

Furthermore, improved transaction data would enable authorities to implement more effective monetary policy by allowing them to monitor inflation trends, liquidity movements and consumption patterns in real time.

Additionally, digital financial ecosystems have the capacity to support the growth of ecommerce, entrepreneurship and innovation, which are vital for creating new jobs in the digital age.

In the context of Tanzania’s industrialisation programme, a modern tax system integrated with digital payment infrastructure could serve as a key element of economic transformation.

Tanzania should prioritise the following actions to maximise the benefits of the Commission’s recommendations: Rationalise taxes and levies on digital payments to encourage adoption, expand broadband connectivity and mobile network coverage in rural areas, promote financial literacy campaigns targeting informal sector operators, introduce incentives for businesses that adopt electronic invoicing systems, strengthen cybersecurity frameworks and consumer protection laws and foster partnerships between government, fintech firms and financial institutions; this is my assessment of the submission.

In a nutshell, the report submitted by the Presidential Commission represents a significant change in the country’s fiscal reform strategy.

The promotion of a cashless economy is not merely a technological policy; it is a structural transformation that is designed to align economic development with sustainable revenue mobilisation.

The reforms have the potential to improve investment confidence, expand the tax base and accelerate Tanzania’s transition toward a digitally integrated middle-income economy if they are meticulously implemented with a single, mission-driven mindset change message, particularly for young Tanzanians.

They could also enhance transparency. Nevertheless, success will be contingent on balancing enforcement with inclusivity, innovation with affordability and digital ambition with institutional readiness.

The true measure of Tanzania’s tax reform journey and the potential for a more resilient fiscal future is the preservation of this delicate equilibrium.