Enhancing voluntary tax compliance to expand the Tanzania Tax regime

A narrow tax base is a reason behind developing countries’ failure to self-sufficiency among many issues for so many decades. Regardless of the huge improvement in revenue collection by TRA, collecting an average of TZS 1.5 trillion a month from less than a trillion (850 billion) in 2015. H.E Samia Suluhu Hassan pointed out in her maiden speech that few Tanzanians are paying taxes thus necessitating the need to expand the tax base. The President further highlighted that tax revenue collected by the Customs and Excise Department is 40% doubling that collected by the Domestic Revenue Department (DRD) as of 2020. This is shocking as our budget depends much on taxing importation. That is, our domestic base cannot raise enough revenue to support the national budget. 

However, one may ask whether this is a result of protectionism measures that is, revenue collected by the Customs and Excise Department is high because of the high tax rates (import duty) charged on imports.

In terms of tax, VAT is a broad-based tax compared to the rest of the tax types. It is designed to cover a large part of the tax base and that is GDP (value of the economy). However, its productivity in terms of the base (GDP) is very low. For example, the estimated VAT revenue for the Financial Year 2020/21 is TZS 6.1 trillion only in comparison to the nominal GDP valued at TZS 157 trillion (budget speech 2020/21). Therefore, the ratio of VAT revenue to GDP is still below the agreeable target which ranges from 10 to 15 percent of GDP

Nevertheless, in reaction to this, the President envisaged the need to;

  • Conduct policy and legal reforms while amending or removing provisions that discourage or impede domestic investments;
  • Improve the Business environment by ensuring the Blueprint for regulatory reforms is comprehensively implemented;
  • Restore investors’ confidence by addressing bureaucracy in the issuance of investment permits and other requirements; and
  • Provide special tax incentives to strategic investors.

ATE will therefore continue to play its mandatory role to identify policy and administrative challenges impeding employers from attaining potential business growth.

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