In Summary

Agriculture, gas and other natural resources are all key focus areas. Also needed is sound and robust education and health systems, and despite the president’s call (and support) on industrialization, the required infrastructure still remain an area of challenge.


Thursday, June 14, 2018 is a memorable date for the football lovers and fanatics. It will be the start of the 21st edition of worlds’ most watched sports event: the FIFA world cup to be played in Russia.

The game unites people from different walks of life, despite their different viewpoints. All this is in anticipation of the final to be played at Luzhniki Stadium in Moscow; for each team, the cup is theirs to lose.

In the build up to the presentation of the national budget, expected to be conducted in early June this year, there is a lot of ‘hope’ by key players.

The government, as the referee, is expected to set the rules, as the other key players and especially the taxpayers wait in the sidelines.

Agriculture, gas and other natural resources are all key focus areas. Also needed is sound and robust education and health systems, and despite the president’s call (and support) on industrialization, the required infrastructure still remain an area of challenge.

The Plan and Budget Guidelines (PBG) which is in its third year of the Five Year Development Plan (2016/17 – 2020/21) clearly stated that tax policies and administration interventions will be geared towards increasing tax revenue yield from 17,106 billion in 2017/18 to 18,816.9 billion in 2018/19 which translates to 14.2 percent of GDP.

Compared to the previous fiscal year, the tax revenue percentage of GDP has risen by 10 percent.

The increase in tax yield between 2015/16 and 2016/17  was mainly attributed to close monitoring of the existing revenue potentials, tax arrears recovery measures, increased compliance by Government institutions in withholding tax upon payments for goods and services.

The PBG has set ten priority areas for the Year 2018/19; electricity, minerals, transport and communications infrastructure, agriculture, livestock and fishing, health, education, clean and safe water.

In a bid to increase focus on areas such as minerals, the government has a plan to improve control over smuggling of minerals and illegal trading, enhancing tax administration to curb tax evasion loopholes in the mining sector and facilitate value addition activities on minerals within the country, which shall include construction of smelters.

A good tax system

Ideally, a tax system should be able to raise adequate revenue without excessive government borrowing. A fundamental aspect of a good tax system is the appreciation of the rights and problems of the tax payer.

It should contain the majority of such taxes which produce good effects on production and equitable distribution of national income and wealth.

A crucial aspect of a good tax system is simplicity, implying the absence of any unnecessary and avoidable complexities.

Challenges, way forward

With this in mind, does our tax system fulfil the above criteria?

We are moving in the right direction but not without challenges. There is a large informal sector, which is hard to monitor and which has low levels of compliance. This is a complex area and will require more time and careful considerations to solve.   

High ‘perceived’ tax rates, multiplicity of taxes (many small taxes, levies and fees) and tax administration challenges are all issues that need to be dealt with. With complex tax system with several rates, multiple deduction rules, multiple penalties and governing rules; a remedy should be in the making.

The revenue authority is sometimes (not always) rigid and ends up providing one sided and arbitrary conclusions and rulings; most of which take time to be resolved. This means ‘errors’ (or perceived errors) keep on being repeated without certainty.

There is a silent outcry by the financial services providers over the ‘VATability’ of the services they offer.

To add to the confusion, the motive, for example, behind making the insured party in an insurance contract ineligible to claim input tax in relation to purchase of a contract of insurance even though they are required to account for output tax is an example of such challenges. And often refunds of overpayments (such as VAT) is one of the items that needs careful scrutiny.

Revenue collection officers and relevant government authorities in charge operate in an environment of suspicion and mistrust; they often do not present a unified front to the end tax payers.

On Tuesday, May 8, for example, the speaker of the national assembly had to direct the officials of Tanzania Revenue Authority (TRA), the Office of the Chief Government Chemist and the Tanzania Bureau of Standards (TBS) to discuss measures to resolve a crisis that involved edible oil disputes which has caused a growing panic in the domestic market.

This is after two oil shipments were denied entry over failure by the custom officers to charge import tax.

When the taxpayers’ interpretation of an issue or law is from a different angle as perceived by the authorities’ officials, then a reasonable approach should be taken rather than revenue collection, to the detriment of the taxpayer.

Anticipation

A smart farmer feeds and treats their cows well; the outcome is assured; additional milk production. There has to be a clear, working and supportive tax policies, tax laws and tax administration in order to ensure increasing tax revenues. The Government is expected to continue to support voluntary compliance through strengthening a comprehensive taxpayer communication strategy and improving presumptive taxation schemes.

The ministers’ budget is expected to start addressing the current disabilities and deformities that derail the revenue collection process by looking at the system from all angles. Additionally, a balanced tax system is anticipated where proportional, progressive, and the regressive tax are all applied in the right proportions.

The country’s revenue authority has made a tremendous step in technological advancement of its system.

Notable areas are the online payments for VAT returns and recently retrieving withholding tax certificates.

It is worth noting that technology is the cornerstone of any modern institution, if all key players embrace it, then inefficiencies, time wastage and unnecessary inaccuracies can be a thing of the past.

All systems in place, the authorities can easily sieve and filter the culprits of non-compliance, and tax evaders. Let’s meet at the budget reading arena.

 

Chrispine Nsato is a tax associate at Deloitte Consulting responsible for Tax.  He can be reached at cnsato@deloitte.co.tz. The views expressed herein are his own and do not necessarily represent those of the firm