MANAGING TAX RISKS: Half-year tax collections laudable, but…

The current fiscal year 2019/20 started on July 1, 2019. In this fiscal year, Tanzania plans to collect and expend Sh33.1 trillion. Out of this budget, Sh19.1 trillion will come from tax. Last fiscal year (2018/19), taxpayers contributed an average of Sh1.3 trillion a month. In their totality, taxpayers are expected to fund the current budget at an average of Sh1.5 trillion per month.

We have just finished the first half of the fiscal year 2019/20. On its website, TRA has published revenue collection stats for the first half (“TRA Quarterly Revenue Collections 2019-20”) which ended 31st December 2019.

If the expected Sh19.1 trillion annual tax revenue target is to be met, then on average, taxpayers should contribute Sh1.6 trillion a month. The total tax collected for the first half of the year is Sh9.2 trillion. An average monthly collection of Sh1.5 trillion. An impressive 96 percent tax collection performance. The collections also represent a 17 percent growth from the similar period of the preceding fiscal year. Even if one also considers the inflation which now stands at less than five percent, the growth is still impressive.

It may be difficult to determine the exact reasons for this impressive collection performance for the first half. But I think it might be fair to also attribute it to the improving tax administration as well as taxpayers’ voluntary compliance.

The tax collection statistics show that around 40 percent of tax is collected from importers, 39 percent from large taxpayers and the remaining 21 percent comes from the rest of other taxpayers.

The largest chunk (around 30 percent) of tax comes from value-added tax (VAT). On income tax, employees (through PAYE) continue to top corporates and businesses. This revenue structure (sources) has not changed from previous years.

The tax collection trend so far, in my opinion, is good news. The monthly collections within the first half of 2019/20 also show a generally increasing trend. This means that the government, potentially, can meet its revenue budget. The implications for the common mwananchi are obvious. Meeting the budgeted revenue means that the government will be able to fully deliver its promises, including social services.

But to meet the excepted annual tax revenue (Sh19.1 trillion) by June 2020, a monthly average tax collection of Sh1.65 trillion needs to be met. Quite a tall order, right? Both, to the taxpayers and the TRA.

But it is important that the collection target is met by 100 percent or more. Considering that the budgeted recurrent expenditure is already more than the expected tax revenue by close to Sh2 trillion!

The implication is that taxpayers should expect more and more pressure from the tax collector (TRA) in the next five months. And it becomes imperative that taxpayers put in place strategies that will ensure full tax compliance as audit probability increases.

Mr Maurus is a Partner with Auditax International