Tax amnesty programme: Lessons from Zambia’s success story

In the recent Budget speech, the Minister of Finance and Planning Phillip Mpango announced a 100 per cent tax amnesty programme - a commendable move warmly welcomed by most Tanzanians, both good taxpayers and defaulters.

I certainly applauded the move particularly given my experience in Zambia, where I am currently working as part of a two year secondment.

For those readers who might find this term foreign, a “tax amnesty” is a limited-time opportunity granted to defaulting taxpayers to pay their tax liabilities that should have been paid in previous tax periods in exchange for forgiveness on penalties and interest and without fear of criminal prosecution.

The government’s objective for implementing the tax amnesty is to improve tax compliance by 10 per cent and in the process score additional domestic tax revenue.

In addition, the government whilst wanting compliance is also responding to concerns that some of the drive to collect back taxes and related interest and penalties risks putting businesses out of business – and ultimately negating the tax collection objective.

The proposed amnesty window will exist for six months starting from 1st July 2018 to 31st December 2018. For taxpayers who have defaulted their tax obligations, it is time to come clean and have a fresh start.

Tax amnesty has proved to be highly successful in various other jurisdictions in enabling the tax authorities earn more revenue through voluntary disclosures of non-compliance and payment of principal tax while offering taxpayers an opportunity to come on board and put their tax matters in order through correcting past errors or omissions without penalties. However, the tax amnesty proposed by the Minister is not crystal clear as regards the extent of the application of the programmes.

This begs the following questions: Who is eligible for the amnesty? Will the amnesty only be limited to non-filing of returns and payment of tax due? Will the tax forgiveness apply for tax payers who are currently undergoing audit by the TRA? What about interest and penalties relating to customs duty and those that have been determined by the courts?

For successful implementation of the program the government will have to make legislative amendments and issue guidelines for both taxpayers and the Tanzania Revenue Authority (TRA) which will address these questions.

Certainly, our Government can take a leaf from successful implementation of the amnesty program in Zambia. In March 2017, the Zambian Revenue Authority (ZRA) introduced tax amnesty on interest and penalties, initially for a three month period and then subsequently extended.

This initiative received a tremendous response from taxpayers. In particular, in the first 100 days from the programme launch the ZRA received a total of 848,788 tax amnesty applications leading to a total additional revenue collection of $71.9 million (for reference do go to www.zra.go.zm).

One key factor behind this tremendous achievement was ZRA’s flexibility in the implementation of the programme. In addition, the ZRA was given adequate capacity to handle the influx of tax payers to ensure that they were handled both professionally and expeditiously.

The defaulters who came forward were given enough time to comply - for example, through entering into “Time to Pay Agreements” for taxpayers to settle the principal liability for periods even beyond the amnesty period taking into consideration the cash flow restrictions of the tax payer.

The ZRA also considered extending the amnesty period on a case by case basis provided taxpayers made the amnesty application within the amnesty period even if their internal reviews would not have been completed by the amnesty deadline.

For those taxpayers who enjoy the adrenaline rush of the 11th hour, they were also accommodated and given more time to clean up their accounts.

The ZRA was also lenient in ensuring all those applicants who qualified for the amnesty were waived the penalties and interest. The qualifying conditions were clear and there was no ambiguity on who qualifies for such amnesty – for example, the amnesty did not apply to tax payers undergoing audit and / or litigation.

Government made full use of the media and education to the public to ensure that all tax payers were aware of the amnesty program. Certainly, everyone did become aware that this was a unique opportunity to rectify any past non-compliance.

As a wise man once said, “people who save their money for a rainy day end up getting soaked by the government”. So, for the next six months, let’s all clean our tax accounts and have a fresh start!

Mr Magesa is a senior associate, currently on a two year secondment to PwC Zambia from PwC Tanzania. The views expressed here do not necessarily represent those of PwC.