Striking a balance between an attractive tax regime and securing public revenues

Public spending has put immerse pressure on government to collect and source for more funds that will enable it to sustain the ballooning budget.

External sources of funds, however, have become too expensive for the Government due to the ever fluctuating exchange rates and extreme terms and ‘conditionalities’ that are attached to them.

Therefore, the government has turned to internal sources to finance the budget. This has led to the introduction of various new strategies/measures that are aimed at widening the tax net and improve government collection. But, have these new measures created an attractive tax regime that fosters investment?

Ranked as the fastest-growing economy in East Africa at a relatively staggering annual rate of seven per cent, Tanzania has been juggling around massive projects so as to attain a middle income economy status by 2025.

From revamping its national carrier (ATCL) to building its first standard gauge railway and a mega hydroelectric power plant along Rufiji river, Tanzania’s public spending on development projects seems to know no limit. These projects have put immerse pressure on the government to increase its tax collection targets and source for alternative avenues to finance the projects.

TRA and other government collection agencies have aggressively embarked on different strategies to collect revenues for the government and widen the tax net. However, some of these strategies have not been attractive in the business environment while others have been poorly implemented.

The tax amnesty, for example, was a strategy that was well-thought of and openly welcomed by all.

But, its implementation showed lack of preparedness on the part of the revenue authority.

For instance, in last year’s Finance minister’s speech, taxpayers thought they had twelve months to settle their tax bills.

But, in actual sense, due to late response of amnesty applications by TRA, taxpayers found themselves being given 4 - 6 months to clear their tax liabilities or else the remission of interests and penalties would be forfeited.

Another collection strategy introduced at the end of the financial year with the aim of widening the tax net, was the introduction of business identity cards to the informal sector e.g. mama lishe.

This strategy, though it adds immense benefits to entrepreneurs, its implementation has been less than desirable. I believe the strategy was aimed to be a stimulus that will allow more people to engage in self-employment avenues without the fear of being hustled by the council officers and TRA revenue collectors.

However, the implementers have been targeting anyone to obtain these cards instead of improving the business environment to enable more and more people open up businesses.

For example, recently a regional commissioner has included fuel pump station attendants and supermarket attendants to the list of people who should obtain these identity cards.

This turbulence has not spared the financial sector either, early this year - in a move by the government to regulate the money markets - we saw a closure of a large number of bureau de changes across the country creating massive ripples across the business environment.

Although banks swooped in to fill the void created, they have not yet fully succeeded to fill in the needs of the economy in a regulated manner.

As we strive to become a middle-income economy, we a need to become a 24-hour economy as well.

This should prompt banks, if they need to really fill in the gap, to shift from their normal working hours and include Sundays and public holidays in their schedules to accommodate the market.

This can be witnessed at the international airports across the country.

All these strategies to widen the tax net and curb tax evasion are good however there has to be a balance so as to preserve the investments and nurture businesses and the economy.

We expect in the upcoming budget speech swooping changes would be made to eradicate laws that hold back businesses and instead come up with laws that would foster businesses.

Mr David Urassa is a senior tax consultant at Basil & Alred. The views expressed here do not necessarily represent those of Basil & Alred.