MANAGING TAX RISKS: Meeting 2017/18 tax targets is tough

Implementation of Tanzania’s 2017/18 ambitious budget reached six months on 31st December 2017. The government projected that for 12 months from July 2017, it will be able to raise and expend Sh31.7 trillion. The Tanzania Revenue Authority (TRA) was tasked to collect Sh17.1 trillion. About 54 per cent of the budget. This article traverses the tax collection statistics recently issued by TRA for the first half of 2017/18 fiscal year.

In its recent statement to the public, TRA boasts to have collected a total Sh7.9 trillion in the first half of the fiscal year.

The statement indicates that the monthly collections were the lowest in July 2017 at Sh1.1 trillion and highest in December 2017 at Sh1.7 trillion.

According to the statement, tax collections have grown by 8.5 percent from a similar period in the 2016/17 fiscal year.

But how far this from the 2017/18 target? To collect 17.1 trillion in 2017/18 one would expect an average monthly collection of 1.4 trillion shillings. But, in the first six months, the actual monthly collection averages at 1.3 trillion shillings. To achieve their 2017/18 target, TRA would need to collect another 9.2 trillion shillings by 30th June 2018. The half-year collection is only 46 percent of annual collection target (17.1 trillion shillings).

Recently, the Minister of Finance and Planning, Dr. Philip Mpango revealed that in the first half of the year, the economic growth was 6.8 percent. During a similar period in 2016/17, the rate was 7.7 percent.

The minister attributed the shrinkage to industries that are cyclic in nature such agriculture and tourism. The minister, however, is optimistic that the annual growth rate target of 7 percent will be met.

TRA’s actual tax collection statistics from 2006/7 to 2016/17 indicate that in the first six-month TRA collects, on average, 49 percent of the actual annual collection.

Going with this average, the actual tax collection by June 2018 can be roughly projected at 16 trillion shillings.

This is one trillion off the target. Tax collection is largely dependent on the interplay of several economic and non-economic factors.

The tax administration capacity of the TRA and tax compliance behaviors of the taxpayers affect tax collection. Positively or negatively. The employment, consumption patterns, financial markets, FDIs, government expenditure, imports, and exports, are some of the factors.

The biggest chunk of tax collections comes from taxes on imports, PAYE and local consumption taxes (VAT and Excise Duty). External factors, for example, can easily influence the level of imports (and exports).

To what is extent do the tax collection reality is reflected in the expenditure side of our fiscal equation? The budget is prepared in such a way that expected revenue balances the expected expenditure.

This essentially tells us that even the slightest underperformance in tax collections must be somehow be compensated by other revenue sources or a corresponding reduction in expenditure.

The tax revenue target and the performance so far are likely to increase TRA’s tax collection drive.

To policymakers, tax collection performance will inform the fiscal policies reforms for the coming financial year. To taxpayers, this essentially means TRA will expect nothing less than full compliance.

This is clear if one looks at TRA’s collection target as taxpayer’s tax payment target! Therefore, taxpayers are expected to pay 17.1 trillion shillings in total by end of June 2018. And so far, taxpayers have paid 46 percent!