Why Tanzania needs to expand its tax base

Dar es Salaam. One day before the government presents its 2022/23 budget in Parliament, some players expect it will come up with deliberate measures to expand the tax base.

In its 2022/23 pre-budget statement, Policy Forum’s Tax Justice Working Group, says given the rapid population increase, there was an urgent need for the mobilisation of domestic resources for vital service delivery.

Current projections put Tanzania’s population at around 60 million people yet latest statistical report for mainland Tanzania by the National Bureau of Statistics (NBS) indicated that only 2.7 million people were registered taxpayers by 2017/2018, representing at least 4.5 percent of population.

“It is widely known that the taxes have been a burden to workers as they are highly taxed (over 44 percent of the total tax), yet the number of those taxed is small currying the burden of those outside the formal tax payment structure,” part of the statement reads.

It suggested that the government through TRA should consider expanding its tax base by identifying and registering about 7.5 million taxpayers which are equivalent to 50 percent of potential taxpayers.

This should be done by TRA employing more staff able to reach the informal sector countrywide, equipping tax administrators with appropriate tools and skills in raising revenue, as well as the attainment of a fully integrated domestic tax system and having an enhanced business intelligence unity.

“The move to identify and register new taxpayers is a must and TRA should make it a priority,” says a managing partner at ST Financial Consult, Dr Ossy Tarimo.

According to him, since the ‘informal sector’ was a growing component of the country’s economy, TRA needs to seek ways to collect revenues from them as a means to increase the country’s revenue and thus to fund government expenditures.

But, for an expert in taxation from Zimbabwe, Dr Favourate Sebele, there was a view that the informal sector in developing countries has been considered a hindrance to effective domestic revenue mobilisation, hence it was crucial to revive the focus of bringing the sector into the tax baskets.

In her recent critical literature review dubbed ‘Informal Sector Taxation and Enforcement in African Countries: How plausible and achievable are the motives behind,’ Dr Sebele has indicated that domestic revenue mobilisation has become topical in contemporary development agendas.

According to her, taxation is one crucial way through which the government can mobilise revenue and it is said to be at the core of the implicit social contract between the state and its citizens.

“Transparent, equitable and efficient taxation frameworks and systems that ultimately culminate into effective domestic revenue mobilisation are argued to be critical in the achievement of Sustainable Development Goals (SDGs) in African Countries,” she says.

She recognised attempts to collect taxes from the informal sector but urged that there is a need to also look at issues such as the proportion of the informal sector paying tax and the amount collected as a proportion of total revenues.

Other issues to look upon are the costs incurred in collecting the said taxes and the tax administration’s ability to encourage quasi-voluntary compliance. It is said that overall tax collections in relation to a percentage of the country’s GDP, tend to be low, but the notion is due to the fact that average incomes are low.

Therefore, a need to ensure that the tax system is fair and equitable, as governments need to balance goals such as increased revenue mobilisation, sustainable growth, and reduced compliance costs with ensuring that the tax system is fair and equitable.