TANZANIA: THE African Development Bank (AfDB) has said Tanzania needs to enhance the efficiency of public spending and tax collection to close the huge financing gap for structural transformation.
“Closing the financing gap to realise Tanzania’s transformation objectives will require further efforts to mobilise domestic resources,” the AfDB said in 2024 Tanzania Country report launched in Abidjan, Ivory Coast recently.
The report titled ‘Driving Tanzania’s Transformation – Reforming the Global Financial Architecture’ stated that Tanzania will need to mobilise significant additional tax revenues to bridge the estimated financing gap to fast-track structural transformation.
The Bank report said also that Tanzania will require an increase in tax to GDP ratio of 14.2 percentage points to achieve the SDGs by 2030 and of 2.5 percentage points to achieve the Agenda 2063 objectives.
Furthermore, Tanzania requires increase of 14.2 and 2.5 percentage points to meet the 2030 SDG targets and Agenda 2063 respectively which are similar to the estimated median increases of 13.2 and 2.3 percentage points for African countries.
The report highlighted also that one of the major reasons for Tanzania’s stagnant tax to GDP ratio is the high level of informality in the economy.
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Tanzania’s revenue to GDP ratio has stagnated at around 12 per cent for several years, while total expenditures have averaged 18 per cent of GDP in recent years.
As highlighted in the previous section, the current revenue effort clearly falls short of the level needed to close the estimated annual financing gap to fast-track Tanzania’s structural transformation.
Tax exemptions, inefficiencies in enforcement and frequent non-compliance have contributed further to the problem.
Improving the efficiency of value-added tax (VAT) collection (measured as the ratio of VAT revenue as a percentage of GDP to the VAT rate) alone could significantly boost tax revenue.
“Using data from the AfDB’s African Economic Outlook (AEO 2024), we estimate that, with a 25 per cent VAT efficiency rate, Tanzania could potentially increase tax revenue by more than 2.5 per cent of GDP, while an efficiency rate of 50 per cent could increase tax revenue by more than 5 per cent of GDP,” stated the report.
These additional revenues could be allocated to financing the country’s structural transformation.
Improving the efficiency rate in the collection of other types of tax revenues such as corporate income, excise, personal income and property taxes could also help the country to self-finance a significant share of its financing gap for structural transformation.
