CSOs push for reforms to strengthen domestic mobilisation of resources

Dar es Salaam. Members of civil society organisations (CSOs) have proposed strategies to enhance domestic resource mobilisation by reforming the Tanzania Revenue Authority (TRA), with an emphasis on modernising tax collection through technology.

The proposals include improving the tax-to-gross domestic product (GDP) ratio, increasing domestic production of essential goods to reduce the import burden, and tripling the tax base from around two million to six million taxpayers.

Other strategies involve tackling illicit financial flows (IFFs) such as tax evasion, harmful tax incentives, double taxation agreements, and internal inefficiencies.

They also suggest lowering tax rates to boost taxpayer morale and compliance, improving revenue generation at the local government level, and enhancing the management of tax arrears and disputes.

Moreover, the CSOs propose supporting Tanzania's removal from the grey list to attract investment and rejoining transparency institutions like the open government partnership (OGP) to improve the country's reputation.

The strategies, developed by the Tax Working Group (TWG), were shared with stakeholders during a recent breakfast debate organised by Policy Forum, titled Economic Growth and Social Equity: CSOs' key tax reform recommendations for Tanzania.

Speaking at the event, TWG chairman, Mr Dominic Ndunguru emphasised the need for comprehensive reform of TRA, established in 1996, to improve efficiency in DRM.

“TRA should undergo significant restructuring to become more service-oriented and capable of leveraging technology effectively in tax collection,” he said.

Mr Ndunguru, who also serves as the executive director of Open Mind, highlighted the importance of increasing domestic production, particularly to reduce reliance on imports like wheat, which accounts for 90 percent of supply and consumes a significant amount of foreign currency.

He also called for the tax base to be expanded from two million to six million taxpayers.

“Efforts to reduce IFFs such as tax evasion, harmful tax incentives, tax avoidance, and double taxation agreements should be prioritised,” he said.

“Tax rates should be lowered to enhance taxpayer morale and compliance, while revenue generation at the local government level must be improved,” he added.

He further recommended better management of tax arrears and disputes, and a focus on removing Tanzania from the grey list to boost investment.

He also stressed the need to rejoin transparency institutions like open governance partnership (OGP) to restore international trust.

Mr Ndunguru also suggested that Tanzania should actively engage in the UN Tax Convention processes to improve taxation on online businesses.

He pointed to global best practices in revenue collection, including examples from Botswana and Scandinavian countries, which have successfully increased domestic revenue through effective natural resource management and strict expenditure discipline.

He also referred to a 2012-2017 report on Tanzania's revenue losses, which identified tax evasion, capital flight, and excessive tax incentives as major contributors.

Despite revisiting the report, the losses were found to be even larger than initially estimated.

“Last year, the East African Business Council estimated that EAC member states lost Sh15 trillion due to IFFs, with Tanzania’s share at around Sh3 trillion,” he said.

He noted that the informal economy, often untaxed, creates a significant gap in revenue collection.

He also highlighted the issue of multiple taxes and contributions from firms in Tanzania, such as PAYE, social security, trade union levies, and value added tax (VAT), which contribute to a stagnant tax base.

He pointed out that politics often interferes with tax collections, as politicians fear angering voters.

“For example, bus conductors, who earn Sh50,000 daily, are not taxed despite receiving an average of Sh1.5 million annually, while vegetable vendors pay Sh1,000 in council levies daily, amounting to Sh365,000 per year,” he explained.

He also noted that small business startups are taxed immediately after registration, depleting their initial capital.

Mr Ndunguru stressed that DRM is vital for increasing revenue through domestic means.

He pointed out that, currently, 67 percent of the revenue is derived from tax and non-tax collections, with 3 percent from local councils, 10 percent from development partner grants, and 20 percent from commercial loans.

This trend, Mr Ndunguru insisted forces the country to rely heavily on commercial loans, which negatively impact the country’s financial stability.

Regarding expenditure, he proposed reversing the current allocation, with 70 percent of the national budget directed towards development and 30 percent towards recurrent costs.

An economist Mr Zacharia Msangya, a discussant at the event, linked Tanzania’s revenue loss to the black market, smuggling, and illegal trade, including narcotics.

He suggested that Tanzania should follow the example of developed countries, where even illegal businesses, such as prostitution, are taxed.

“Education should encourage voluntary tax payment,” he said, emphasising that tax payment should be seen as a vital part of national development, not just a requirement for businesses in the manufacturing or service sectors.

Another discussant, Mr Stephen Aloys, emphasised the need for social equity in taxation, particularly addressing the disparity between large corporations and small traders in Tanzania.

He advocated for a progressive tax system that reduces inequality and addresses gender disparities.

Mr Aloys, who is also the programme manager at the Governance and Economic Policy Centre (GEPC), also called for closer scrutiny of tax exemptions, particularly in the mining sector, where transfer pricing and mis-invoicing remain significant challenges.

“To combat IFFs, which cost Tanzania an estimated $1.8 billion (Sh3 trillion) annually, stricter monitoring and the use of technology to close loopholes in tax collection are essential,” he said.

He also stressed that development should not come at the expense of citizens' welfare, particularly when inequities exist within the tax system.

The Tanzania Council for Social Development (Tacosode) head of finance and administration, Mr Lwitiko Mwakaje echoed the call for TRA reforms, emphasising that tax payment should not be seen as a penalty.

He suggested that CSOs and NGOs should engage in public education on the Timportance of taxes, starting with primary school children.

A journalist, Mr Pascal Mayalla highlighted the low tax base, pointing out that tax incentives for foreign investors and insufficient education for tax officials exacerbate the issue.

Ms Suzan Maselle from the Tanzania Feminist Initiative agreed that TRA reforms would help create tax frameworks that are well understood and accepted by society, reducing disputes between citizens and tax officials.

Mr Japhet Makongo from Policy Forum emphasised that tax payments would only be meaningful if they were accompanied by improved service delivery that directly benefits citizens.

He also advocated for greater accountability and transparency in tax collection.

“Communities must take personal responsibility by reporting revenue leakage to the authorities,” he said.

The recommendations come at the time when a presidential commission is reviewing the tax system in Tanzania and provide relevant advice for possible reforms.

Last August, President Samia Suluhu Hassan formed the eight-member team, tasked with reviewing and advising on tax matters.