Businesses cautiously upbeat on prospects amid tax worries

Dar es Salaam. New research findings have revealed that about half of business firms in Tanzania perceive the tax system as fair and express optimism with regard to their future prospects, along with anticipated increases in profits and employment over the next five years.

Despite the optimism, however, some firms view tax as a barrier to seizing business opportunities, with the tourism sector particularly burdened by high compliance requirements.

The businesses also highlighted the need to bolster trust in the system.

The preliminary findings from the study titled How Taxation Affects Business Development in Tanzania: Implications for Reforms, conducted by the Policy Research for Development (Repoa) in collaboration with the Tanzania Chamber of Commerce, Industry, and Agriculture (TCCIA) and Chr Michelsen Institute (CMI) last October and November, shows that 50 percent of the surveyed businesses are satisfied with the tax system.

Presenting the results yesterday, an economist from CMI Prof Odd-Helge Fjedstad said, “In general there is optimism, but taxation is considered as a barrier. We have found a very interesting aspect that business people are optimistic regarding business expansion, increased profitability, and a surge in employment opportunities over the next half-decade.”

He said the government must establish a solid framework for managing the tax system and tourism stands out as one of Tanzania's most promising sectors, boasting higher growth potential than many other African nations and yielding substantial foreign exchange revenue and it is therefore crucial to foster a conducive business environment.

However, the research recommended that the government build long-term stability and predictability for investors, equal treatment of companies and simplicity for both tax administration and taxpayers.

Prof Fjedstad further highlighted in the survey that a significant portion of women are engaged in small-scale enterprises addressing the challenge of transitioning them into medium and large enterprises is essential.

Hence, the business community should prioritise supporting women entrepreneurs and facilitating the growth of their ventures.

He emphasised the necessity for the government to streamline the tax system to attract more investors in the tourism sector, additionally, stressed the importance of improving relations between taxpayers, investors, and tax administration to unleash the sector's vast potential, requiring consultation and collaboration between the private and public sectors.

Repoa executive director Donald Mmari highlighted that the research encompassed 5018 firms while 1004 firms were invited to the survey across manufacturing, tourism, and business and trade, sectors in Dar es Salaam, Zanzibar, and Arusha.

Dr Mmari said that certain sectors have witnessed an improvement in their relationship with the Tanzania Revenue Authority (TRA), expressing satisfaction with the reduced bureaucracy.

However, he noted that others have raised concerns regarding the need for a more predictable tax system to facilitate smoother business operations and tax compliance.

“It is imperative to recognize that amidst global competition for investment, a conducive business environment is crucial if our tax and value-added tax systems remain inadequate, we risk losing competitiveness. Therefore, it's essential to address loopholes and ensure equitable tax compliance across all companies,” he underscored.

Dr Mmari emphasised that when bureaucratic hurdles in tax matters become widespread among investors, it undermines government efforts to attract both local and foreign investment.

For his part, TCCIA vice president Abdul Mwilima underscored the timely nature of the study addressing fundamental issues within the tax system that necessitate reform, adding the reforms will help in ensuring appropriate tax collection and voluntary compliance from business owners.

He pointed out the significant challenges within the tourism sector, where tourists face multiple charges depending on the areas they visit, and called for an urgency of addressing these challenges to maximise revenue generation from the sector.