Stakeholders propose reforms to drive growth

Tax exemptions on these devices would reduce barriers to entry, especially in underserved areas and empower individuals and businesses to participate in the digital economy
CHAIRPERSON of the Tanzania Mobile Network Operators Association (TAMNOA), Hilda Bujiku, presents her recommendations on tax reforms to the Presidential Commission on Tax Reforms in Dar es Salaam yesterday. (Photo by Samwel Mwalongo)

TANZANIA: STAKEHOLDERS have recommended tax exemptions on smart devices, noting that increased usage would have a positive impact on the country’s economy.

The government aims to connect all wards to the National ICT Broadband Backbone (NICTBB) by 2026, and these exemptions are seen as a key measure to support digital inclusion and expand access to the digital economy.

The digital connectivity becomes increasingly essential for economic development, charging Value Added Tax (VAT) of 18 per cent for citizens to have access to affordable smart devices.

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Tax exemptions on these devices would reduce barriers to entry, especially in underserved areas and empower individuals and businesses to participate in the digital economy.

The digital connectivity becomes increasingly essential for economic development, charging Value Added Tax (VAT) of 18 per cent for citizens to have access to affordable smart devices.

Tax exemptions on these devices would reduce barriers to entry, especially in underserved areas and empower individuals and businesses to participate in the digital economy.

Additionally, according to Tanzania Mobile Network Operators Association (TAMNOA), the broader adoption of smart devices would enhance access to educational resources, improve healthcare delivery and facilitate e-commerce, ultimately contributing to the nation’s overall growth and development.

TAMNOA member, Mr Francis Temba, said that the exemption will also make the broadband infrastructure construction more meaningful and accelerate its impact.

“Broadband coverage currently reaches 88 per cent for 3G and 80 per cent for 4G of the population, thanks to investments made by members of TAMNOA and the government, through UCSAF, to ensure broadband access is available everywhere,” Mr Temba, who is also the YAS Tanzania Head of Tax, said: “The problem is that while we have been successful in ensuring broadband facilities are available everywhere, we have not been successful in bridging the usage gap.”

TAMNOA said that if smart devices are granted an exemption for a sustained period longer than 12 months, as was the case before in 2019, it could lead to an increase in data collection from usage. This, in turn, may have significant economic implications, including growth in the datadriven economy and increased tax revenues generated by the use of digital devices, while also helping to curb tax avoidance.

The association recently presented its tax views before the Presidential Commission on Tax Reform, chaired by Amb Ombeni Sefue, in Dar es Salaam. The commission has been given six months to propose reforms aimed at overhauling the country’s tax structure and increase its contribution to GDP.

The commission’s main task is to address the ongoing tax challenges and enhance the country’s tax system to foster a more conducive business environment.

The commission will recommend strategies aimed at promoting voluntary tax compliance, expanding the tax base and addressing public grievances regarding taxation.

Among other things, he said that the affordability of smart devices is a major barrier to the usage of the infrastructure installed across the country.

“The uptake of smartphones and digital devices is crucial for internet adoption. Without affordable devices, this adoption will be significantly hindered,” Mr Temba said.

Contribution of telecommunication sector

The TAMNOA Chairperson, Ms Hilda Bujiku said the telco sector’s contribution to the GDP is around 5.0 per cent and has employed some 1.5 million people. Ms Bujiku, who is also Vodacom Tanzania Chief Financial Officer (CFO), said National Financial Inclusion Framework NFI (2023 – 2028) aims to increase financial inclusion to 75 per cent come 2028.

The meeting was also attended by various stakeholders, including the Media Owners Association of Tanzania (MOAT), where they had the opportunity to present their recommendations on improving the tax system, particularly in relation to excise duty.

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MOAT Board Member, Ms Jacqueline Lawrence, suggested that reducing excise duty from 5.0 per cent to zero could be offset by the revenue generated from encrypting Freeto-Air (FTA) channels, which would help boost VAT.

“We propose reducing the excise duty on subscription revenue from 5 per cent to zero per cent to make Pay-TV services more affordable, drive market growth and increase revenue collection.

“To offset potential revenue losses, we recommend encrypting Free-To-Air (FTA) channels, except the Tanzania Broadcasting Corporation (TBC) and Zanzibar Broadcasting Corporation (ZBC), thereby bringing millions of currently non-paying viewers into the taxable subscription base,” she said.

The country has over 8 million TV users, but only 20 per cent pay for subscriptions. “Encryption will eliminate universal decoders, significantly boosting both excise duty and VAT collections.” she underscores.

Withholding tax on channel procurement and local film

Moreover, she proposes the reduction of withholding tax on foreign and local channels from 15 per cent to 5 per cent, and zero per cent on local films to encourage investment.

“High withholding tax [15 per cent] on local or foreign channels and films discourages investment and growth.” she said, adding that declining in investment reduces local content production and competition.

Withholding Tax for Payments to Foreign Vendors for Satellite Services

Ms Bujiku said currently, satellite services are taxed 10 per cent withholding tax, which imposes heavy financial strain on Pay-TV operators. She recommended the reduction of it to 5.0 per cent to ensure sustainable operations.

GOVERNOR of the Bank of Tanzania (BoT), Emmanuel Tutuba, shares his perspective on the tax reform system during a recent event in Dar es Salaam.

On withholding tax for royalty payments to local sports entities, including the Tanzania Football Federation (TFF), which are taxed at 5.0 per cent, she says this taxation reduces the funds available for sports clubs, impacting their operational budgets and salaries.

“Globally, countries like the UK, Australia and Ireland exempt such payments from withholding tax, recognising the developmental importance of reinvesting in sports,” she said.

Furthermore, she proposed the exemption of the royalty payments to local sports entities from withholding tax to support the growth of the country’s sports sector.

Tanzania Women Lawyers Association (TAWLA)

Representing the association, TAWLA Member, Ms Madeline Kimei proposes the creation of a friendly business climate to facilitate the formalisation of the informal sector, which is predominantly driven by women.

This move, she argued, will help expand the tax base in the country. Ms Kimei’s key proposal is to offer incentives, including a six-month tax exemption for the new small-scale business owners and entrepreneurs once they started business.

She suggests that the government could issue identification cards to all registered entrepreneurs and impose a minimal tax on their businesses, especially those run by women. Additionally, she said there is a need for greater efforts in tax education in the community to raise awareness about tax compliance.

“Many people fail to meet their tax obligations due to lack of knowledge. “The lack of tax education results in low levels of voluntary tax compliance,” she said.

She suggested that TRA should partner with Non Governmental Organisations (NGOs) to provide tax education to citizens.

Furthermore, she recommended a reduction in certain government fees, particularly licensing fees from agencies such as the Business Registration and Licensing Agency (BRELA), the National Environment Management Council (NEMC), the Energy and Water Utilities Regulatory Authority (EWURA), the Fire Brigade and the Occupational Safety and Health Authority (OSHA). This fees reduction will lure SMEs to formalise their business and expand the country’s tax base.

“This will encourage investors to start businesses in various sectors, including education, petroleum, tourism and agriculture,” she said.

City Service Levy

TAWLA suggests that the levy should be based on profit rather than sales turnover, as businesses sometimes make little or no profit. Ms Kimei said currently the levy is collected regardless of whether businesses or companies make a profit or not during the collection period.

“Taxes should be collected based on profits rather than the current system of collecting from sales turnover,” she underlines.

TAWLA’s views were seconded by the Tanzania Media Women’s Association (TAMWA) who outlines various challenges affecting the tax system in the country and provides recommendations for improving the system.

Tax for small business owners

The TAMWA Executive Director, Dr Rose Reuben, said that SMEs face a heavy tax burden, which is a major challenge for them in increasing productivity and achieving their business goals due to limited resources.

Dr Reuben proposed the introduction of strategies to reduce and simplify the tax payment process for SMEs including providing a grace period, especially during the startingup phase of their businesses.

Tax Education in Improving Compliance TAMWA boss also describes lack of tax education as a challenge affecting tax collection.

“There is insufficient education about the tax system for citizens and entrepreneurs, especially the youth and women. This leads to many unaware people on how to fulfil their obligation of complying with tax issues,” she said.

In this regard, she suggests the establishment or continuation of tax education campaigns for citizens and entrepreneurs, including specific groups such as women and youth, to provide greater understanding of the importance of taxes and how to fulfill their tax obligations.

Conclusion

The proposed tax reforms, including exemptions on smart devices, the reduction of excise duty and the encryption of Free-to-Air channels, aim to drive digital inclusion, enhance broadband adoption and foster economic growth.

TAMNOA emphasised the importance of bridging the usage gap for broadband infrastructure and advocated for tax measures that would lower barriers to digital access.

MOAT suggested a reduction in excise duty and the encryption of FTA channels to boost VAT and excise duty collection, while also proposing a reduction in withholding taxes to encourage investment in local media and entertainment.

TAWLA focused on fostering a friendly business environment for women entrepreneurs and SMEs, recommending tax exemptions for small-scale businesses and better tax education to increase compliance.

The stakeholders have it that implementing these reforms, the country is poised to create a more conducive environment for economic development, improve tax compliance, and expand access to the digital economy.