TANZANIA: WELCOME back to the continuation of the final part of our series where we discuss the IMF’s strategic recommendations aimed at revolutionising Tanzania’s tax system.
Dive into our discussion on how these vital reforms are set to catalyse growth, bolster resilience and usher in prosperity for all Tanzanians.
Medium-term revenue strategy
As Tanzania continues to refine its fiscal framework, the adoption of a strategic approach to revenue generation, as recommended by the International Monetary Fund (IMF), is crucial. Developing a Medium-Term Revenue Strategy (MTRS) is essential for ensuring sustainable fiscal practices that align with both immediate economic needs and long-term growth objectives.
This strategy should include comprehensive revenue goals based on realistic assessments of economic conditions and the potential for tax base expansion.
It must also focus on tax policy reforms aimed at broadening the tax base, eliminating loopholes and simplifying the tax code to enhance compliance and reduce administrative burdens. Additionally, strengthening tax administration is vital, necessitating investments in technology to streamline collection processes and training for personnel to effectively enforce policies.
Ms Florida Diu, a financial analyst, detailed how Papua New Guinea launched its MTRS in 2017, addressing a significant decline in its tax-to-GDP ratio which had decreased from around 19 per cent in 2012-2014 to about 13 per cent by 2017. She explained that the MTRS, developed with support from the IMF, was integrated into the government’s 2018 budget process.
Its main goal was to reverse the downward revenue trend and elevate revenues to at least 14.0 per cent of GDP by 2022, thereby aligning with Papua New Guinea’s long-term development objectives and the Medium-Term Fiscal Strategy for 2018–2022.
During an interview, Ms Diu noted, “The MTRS included a comprehensive roadmap for tax system reform that encompassed policy measures, enhancements in revenue administration and adjustments to the legal framework.”
This strategy was ratified through the 2018 budget process, which facilitated the introduction and implementation of specific policy measures.
However, she highlighted that despite early progress, the momentum of implementation waned in the following years, underscoring the challenges of consistent execution in mediumterm fiscal strategies. This situation underscores the critical need for sustained government commitment and strategic planning to effectively execute fiscal reforms, which are essential for stabilising and bolstering a country’s economic resilience.
Engaging stakeholders such as businesses, civil society and international partners is crucial to ensure the MTRS reflects diverse interests and garners widespread support.
Robust legal and regulatory frameworks must be established to support policy implementation and protect against evasion and corruption.
Finally, a robust monitoring and evaluation system is needed to assess the strategy’s effectiveness, make necessary adjustments and maintain transparency and public trust. By integrating these key elements, Tanzania can create a robust MTRS that not only meets its current fiscal needs but also sets the stage for future economic resilience and prosperity.
Strengthening tax administration
To bolster Tanzania’s capacity for tax collection and administration, the IMF has provided specific recommendations aimed at enhancing the effectiveness of the Tanzania Revenue Authority (TRA). Central to these recommendations is the necessity to build the institutional capacity of the TRA, ensuring that it can efficiently manage and improve tax collection processes across the country.
A key aspect of these recommendations involves significant technological upgrades. The IMF advises the adoption of advanced tax administration systems that integrate the latest in digital and database technologies. This move is designed to streamline tax collection procedures, reducing errors and enhancing the speed and accuracy of processing tax payments and compliance checks.
Implementing such technologies will also help in widening the tax net, ensuring that all eligible taxpayers are effectively brought into the system, thereby increasing the overall tax base.
Furthermore, the IMF underscores the importance of continuous training and development programmes for TRA staff. These training programs are crucial in ensuring that personnel are wellversed in the latest tax laws, digital tools and compliance strategies.
Education initiatives should focus on improving technical skills, such as data analysis and digital system management, while also fostering a deep understanding of complex tax regulations and enforcement tactics.
A study by Akitoby et al (2018) revealed that Senegal experienced a significant increase in tax revenue, rising from 18 per cent of GDP in 2009 to 20.9 per cent of GDP in 2017, following a revenue shortfall in 2008.
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This improvement is attributed to comprehensive revenue administration reforms, which were complemented by the simplification and recentralisation of the tax system.
By embracing these recommendations, Tanzania can ensure a more robust and efficient tax administration framework, which is vital for the nation’s economic stability and growth. Such enhancements will not only improve revenue collection but also build trust in the taxation system among taxpayers, which is essential for long-term fiscal sustainability.
Legislative proposals
The IMF recommends simplifying tax codes as a strategic approach to enhance tax compliance and ease of doing business. Simplifying the tax code can make it easier for taxpayers to understand and meet their obligations, thereby increasing compliance rates and reducing the administrative burden on businesses and the tax authority. To actualise these IMF recommendations, legislative adjustments are necessary.
In an interview, a member of Tanzania’s parliament highlighted that aligning with the IMF’s recommendation might involve significant reforms to the nation’s tax code. The proposed changes would include consolidating various tax statutes into a single, coherent document to eliminate inconsistencies and simplify the system.
This consolidation would simplify the tax structure, reducing the number of tax rates and brackets to make it easier for taxpayers to comprehend their financial obligations.
By clarifying what taxpayers owe and minimising the complexity of navigating multiple tax rates and exceptions, compliance can be improved.
Additionally, standardising deductions and allowances could decrease filing errors and reduce the administrative burden on both businesses and individuals, streamlining the process of tax preparation and submission. These reforms aim to enhance the efficiency of the tax system, ensuring it is more manageable for both the tax authority and taxpayers.
A study conducted by Akitoby et al (2018) highlighted that Burkina Faso achieved a remarkable increase in tax revenue, equivalent to 5.0 percentage points of GDP, between 2008 and 2013.
This significant progress was facilitated by tax policy reforms implemented with support from IMF Technical Assistance (TA), which focused on simplifying the tax system and expanding the tax base. Mr Brian Kiwelu, a startup owner in the suburbs of Dar es Salaam, underscored the critical need for legislation that supports and secures digital tax filing systems.
He emphasised that such laws must safeguard the privacy and security of digital transactions and could include mandates for electronic submissions for specific groups of taxpayers or types of taxes.
Additionally, Mr Kiwelu highlighted the importance of laws that bolster ongoing taxpayer education programs. He argued that well-informed taxpayers, who understand changes in the tax code and their implications, are crucial for a compliant and efficient tax system.
To be effective long-term, these education programmes require sustained funding and legislative support, ensuring they continue to adapt and respond to the evolving tax landscape.
By implementing these legislative changes, Tanzania can foster a more streamlined and efficient tax system, which aligns with the IMF’s guidance and supports the nation’s broader economic objectives, thereby enhancing overall fiscal health and business operations.
Informal sector taxation
The IMF has outlined strategies for integrating the informal sector into the formal economy, recognising the potential benefits for revenue generation and economic monitoring.
These strategies focus on creating an environment that encourages informal businesses and workers to transition into the formal sector. One recommended approach is to simplify the tax regime for small businesses. The IMF suggests implementing simplified tax schemes with lower tax rates and less cumbersome compliance procedures.
This can make it more appealing for informal entities to register and operate formally. Additionally, providing incentives such as access to credit, legal protections and social benefits can further motivate informal businesses to formalise their operations.
Mr Abubakary Mpingo, an IT business owner in Kinondoni Municipal, emphasised the significance of streamlining registration processes and reducing entry costs into the formal economy. He pointed out that minimising bureaucratic hurdles and providing low-cost or free registration services can significantly lower the barriers that deter informal businesses from formalising.
Additionally, Mr Mpingo suggested that leveraging digital platforms for registration and tax filing could simplify these processes, making them more accessible and less daunting for business owners.
This approach not only encourages formalisation but also facilitates easier compliance with regulatory requirements, contributing to a more inclusive and structured economic environment. The benefits of integrating the informal sector into the formal economy are substantial.
For governments, it expands the tax base, leading to increased revenue without the need to raise existing tax rates. This additional revenue can be used to improve public services and infrastructure, which in turn supports economic growth.
For the informal sector, formalisation can provide greater access to financial services, legal protections and social security, which enhances business stability and employee welfare.
Research consistently demonstrates that incorporating the informal sector into the formal economy enhances economic monitoring and planning capabilities. With access to more comprehensive data on economic activities, governments are better equipped to make informed decisions regarding policy and resource allocation.
This improved transparency and data richness not only facilitates a more equitable distribution of economic benefits but also bolsters public trust in government economic management. Such advancements contribute to a stronger, more responsive economic system where both growth and equity are prioritised.
Overall, the IMF’s recommendations aim to create a win-win situation where both the state and the informal sector see tangible benefits from formalisation, promoting a more inclusive and sustainable economic growth path.
Epilogue
Our series on Tanzania’s tax reforms continues and we are dedicated to capturing and amplifying the voices of Tanzanians on this critical issue.
As the commission works to gather insights and perspectives from across the nation, we encourage everyone to participate and share their concerns and suggestions.
● You can join the conversation by calling 0655963224 or sending your thoughts via email to kelvinmsangi@protonmail.com. Your input is invaluable as it helps shape a tax system that is fair, efficient and beneficial for all Tanzanians.
