Litany of taxes ‘hurting’ tourism

Dar es Salaam. One of the challenges facing tourism sector in Tanzania is having too many and unpredictable taxes.

Tourism operators normally complain about spending too much time to comply with the regulatory charges than concentrating on the business itself.

And now, Zanzibar tourism taxpayers are complaining about complexity and uncertainty of the tax regulations.

According a study conducted by consultants Deogratius Mahangila and Wineaster Anderson in 2015, administrative burden is costing the Isles taxpayers Sh7.14 billion per year.

Assessment of Levied Taxes on Tourism Sector in Zanzibar was prepared for the Zanzibar Association of Tourism Investors (ZATI) under the sponsorship of BEST-Dialogue.

“The report reflects authors’ views only and thus, ZATI cannot be held responsible for any use of information contained therein,” states the document in the beginning.

An upcoming policy brief which was drafted by the Zanzibar Association of Tourism Investors (ZATI) basing on the same document indicate that by 2010 a typical medium-size company in Zanzibar makes 48 payments annually meaning that, on average, a taxpayer visits a bank 48 times.

Tanzania introduced the Value-Added Tax (VAT) on tourism services which was passed by the National Assembly and come into effect in July 2016.

That tax administrative burden is also said to be similar in the mainland.

A recent report states that tourism levies, licences and fees range between 10 and 115 with stringent procedures for one to enter, and they are not predictable.

According to the upcoming policy brief, taxpayers spend time and money dealing with information retrieval, requests for information to meet different requirements, keeping information, and the completion of forms, traveling to and from tax authorities: filing returns, paying taxes, seeking clarifications and registering for tax purpose, seeking profession advice; and understanding new tax laws.

The causes of the burden include weak payment and filing system, uncoordinated taxes, levies, and fees; too much paper works, and uncertainty of tax laws caused by frequent and untimely change of tax laws.

So, what should be done?

These complexities are said to threaten business growth and entry, innovation, efficiency, and even tax compliance.

In addressing the issue, the government of Zanzibar has been amending obsolete sections, consolidating tax laws, establishing taxpayer education departments, and introducing ‘one stop shops’ by having a bank branch next to a tax office.

However, the system is said to remain complex. ZATI now asks the government to adopt critical reforms by doing the following to easy the tax administration burden.

Consolidating Taxes and Fees

Currently, on average a medium sized business make 48 payments annually to government agencies. These payments include Pay As You Earn (PAYE), social security contribution, value added tax, corporate tax and other fees. There should be a single payment and reporting of PAYE, Pension Funds, and Health Contributions because all of them are payable fifteen (15) days after the end of the month. The process would reduce number of payments to 1 rather than three payments each time.

Similarly, combination of taxes which target same taxpayers or tax bases should continue. However, the process requires a strong public-private partnership to establish modality of harmonizing their receipts.

Introducing Electronic Tax System (e-tax)

Electronic system will allow taxpayers to complete necessary documentation online and file returns faster, conveniently and reduce interactions with tax authorities. It also speeds up data processing, improves data collection, and reduces error rates, is secure and accessible 24 hours.

The electronic filling is easily accessible, audited by tax authorities, and data entry activities are eliminated and allow tax officials to focus on taxpayer support and compliance.

E-tax in Rwanda has reduced domestic tax process time from 23.5 days to a few minutes, according to ICF.

For now, there is no return, registration or payment made electronically in Zanzibar.

The government should provide fee Electronic Fiscal Devices (EFDs) and make the tax systems accessible through internet and mobile phones.

Elimination of Duplication of Information to government agency, and creation of One-Stop Shop

Currently, businesses are required to file annual returns to TRA-Zanzibar, ZRB, Business Registration Licencing Agency (BRELA), Local Government Authorities, Zanzibar Investment Promotion Agency and Zanzibar Tourism Commission but there is no efficient information sharing among the authorities.

The efficient information sharing procedure between TRA Zanzibar and other authorities is proposed to reduce duplication in data submission as well as administration costs.

Make business owners aware of new regulations

Deficiency of taxpayer’s knowledge in their tax obligations may lead to unintentional tax non-compliance and probably penalized subsequently. It is reported that some taxpayers are not aware that input tax paid in Mainland Tanzania is no longer deductible in Zanzibar. The lack of awareness risks government revenue, adds tax administrative burden as the taxpayers have to re-do their returns, increased complains about ZRB and sometimes face tax penalties.

The document suggests that Zanzibar tax regime should consult with business persons before any change of regulation takes place.

Creation of call centre

TRA-Zanzibar and ZRB have taxpayer education departments dedicated to providing tax information to taxpayers. To improve delivery with this good initiative, TRA and ZRB jointly can form a toll free call centre with tax experts to provide free professional services to taxpayers.