‘Tax more wealthy people’
TANZANIA: THE government should consider taxing more the high-net wealthy individuals and large enterprises to boost its revenue collection, a World Bank senior economist has advised.
Mr Jaffar Al-Rikabi said during the launch of the World Bank’s 19th Tanzania Economic Update this week that the high-net wealthy individuals and large enterprises have shown greater capability to shoulder increasing tax burden.
“Starting taxation at the top tier would enable the country increase its fiscal revenue and improve equity,” he said through a video-conference at the launch of the report titled “the Efficiency and Effectiveness of Fiscal Policy in Tanzania.”
He said introducing a more rigorous system for taxing income from capital and immovable property could bolster the government’s revenue position, while updating cross-border taxation policies could reduce the risks associated with base erosion and profit-shifting by multinational corporations.
The economist advised the government to improve efficiency of Value Added Tax (VAT).
He said although the VAT rate in Tanzania was higher than most of its peers, its collection was lower compared to the peers.
“Tanzania needs to improve efficiency of VAT. The collections are lower compared to the peers although, at the level of 18 per cent in Mainland Tanzania, the rate is higher in sub-Saharan Africa and low-income countries, with average VAT standing 15.2 per cent and 12 per cent respectively.
The standard rate of VAT is 18 per cent in Mainland Tanzania and 15 per cent in Zanzibar.
He said overall, Tanzania had made progress in increasing tax collection but there was a room for improvements as the collection rates were still below peer countries.
“Tanzania is a county with a lower middle-income economy, yet it collects taxes at the level of low-income countries. Tax collection to the GDP ratio was around 11.6 per cent in 2022 compared to 14.2 per cent average of sub-Saharan Africa,” he said.
Country Senior Partner of PwC Tanzania, Mr David Tarimo suggested that the government should invest more in digital solution to ease tax administration and improve voluntary compliance for the Small and Medium Enterprises.
Mr Tarimo, who is currently the chairman of the Board of Directors of CEO Roundtable of Tanzania, told the ‘Daily News’ that leveraging on digital technology was important to streamline tax operations, enhance efficiency and foster compliance on SMEs.
“Make tax system simple and invest in digital solution to make administration and compliance easier. That will make it simple for SMEs to comply,” he urged.
Broadening of tax base by taxing the Small and Micro Entrepreneurs (SMEs) was one of the issues that featured at the panel discussion after the launch of the World Bank report.
More than 95 per cent of businesses in Tanzania are small enterprises, according to the Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA). The World Bank says in another study that it is estimated that Tanzania’s SME sector consists of more than three million enterprises which contribute to 27 per cent of overall GDP.
The launched World Bank report says Tanzania made steady progress in expanding tax collection between 2000 and 2015, but the gains have not been sustained.
From collecting less than 10 per cent of GDP in tax revenue between 2000/2001 and 2004/2005 financial years, Tanzania improved its tax-to-GDP ratio to 13.3 percent in 2015/16 financial year.
It said increasing revenue collection helped Tanzania formally achieve lower-middle income status in 2020, although the tax-to-GDP ratio remains close to the lower income countries (LIC) average.
According to the report, between 2000 and 2020, Tanzania’s tax-to-GDP ratio was below the level of structural comparators such as Pakistan and Nepal, as well as aspirational peers such as Vietnam, and the sub-Saharan Africa average.
It suggests that the government can further increase tax productivity by adjusting rates, rationalizing exemptions, expanding the tax base, leveraging digital technologies to enhance tax administration, and improving compliance management.
It says introducing a more rigorous system for taxing income from capital and immovable property could bolster the government’s revenue position, while updating cross-border taxation policies could reduce the risks associated with base erosion and profit-shifting by multinational corporations.
According to the report, strengthening tax administration at the top of the income distribution would improve the tax system’s equity while increasing revenue mobilization and reinforcing the social contract.
Building the capacity of the tax authorities will be essential to expand collection efficiently and equitably and could lay the groundwork for further reforms.
The authorities can complement the ongoing e-filing rollout by enhancing the integrity of the taxpayer database, which will be necessary to expand registration.
Improving data collection and data analytics, adopting a risk-based approach to compliance management, and hiring and training more auditors could help ensure that all registered taxpayers report and pay their true tax liabilities.
