Tanzania: taxation management changes versus efficiency

Friday October 4 2019

 

By BusinessWeek Reporter @TheCitizenTZ news@tz.nationmedia.com

Dar es Salaam. It’s one of the key government institutions that have had quite a high frequency of top leadership changes in the last four years - leading to mixed feelings about whether the management changes at the Tanzania Revenue Authority (TRA) go in tandem with operational reforms.

Some business community leaders see few meaningful reforms. But the taxman defends the stance, insisting that there have been positive structural transformations from time to time.

President John Magufuli has said time and again that he makes the changes in seeking to see significant improvements in tax collections.

The changes have happened amid reports that some businesses were closing shop. But, apparently, this has not stopped collections growing from a monthly average of Sh850 billion in 2015 to ovr Sh1.3 trillion in recent months.

Some stakeholders are of the view that the taxman can do better if and when the general business environment is further improved.

While the tax collections have improved, they still claim that these could increase further if and when the authority create facilitative laws, and simplify tax administration as appropriate.

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“The problem at TRA is not the leadership; it is the system that’s in place which guides tax operations. They should strive to expand the tax base; that is not happening,” says an official of the Tanzania Chamber of Commerce, Industries and Agriculture, Octavian Mshiu.

“There is this move to provide petty traders with special identification cards, which helped to reach more people. But I don’t see them being empowered enough so that they would grow their businesses and join the club of large, reliable taxpayers,” he adds.

He says Tanzania could also reduce taxation hurdles to attract more people from outside to buy local products, thus boosting exports.

“Take the example of the value-added tax in other countries where foreigners are allowed to pay it in their home country,” he says - adding that it’s a good example which Tanzania should emulate to attract foreigners to buy local products. Johnson Minja, a trader who happens to lead a segment of the business community, says the changes have brought about several improvements.

He currently sees an extension of the use of Electronic Fiscal Devices (EFDs) with the recent requirement for trucks to do so.

“Payment of taxes is more direct, and there is no need to hassle through agents to pay taxes,” he says.

“Some people associate closure of businesses with high taxes; but the two are not related. Businesses are closing down due to change of economic conditions,” he explains.

TRA defence

The TRA Taxpayer Education director, Richard Kayombo, says the taxman has been undertaking reforms from time to time to make taxation friendlier as well as widening the tax base.

“One of those reforms is adopting modern technology in paying taxes. This has helped us to reduce human interaction - which might be promoting corruption,” says Mr Kayombo.

TRA has toll-free numbers, as well as a WhatsApp number for quickly responding to customer inquiries.

He said TRA has also introduced a weekly dialogue between its district managers and taxpayers to tackle complaints and discuss how to solve them.

“We have also set targets for netting new taxpayers as one of performance indicators of our district managers,” he explains.

A University of Dar es Salaam economics lecturer, Abel Kinyondo, says TRA’s biggest challenge is lack of creativity in widening the tax base - and leave the burden mostly to employees through whom it is easy to make collections.

“It’s easy to collect taxes from workers because employers submit details of their salaried workers - and, therefore, no need to approach them directly. As a result, we’ve only around two million taxpayers,” says Dr Kinyondo. He proposes three measures going forward as a way to increase taxpayers and improve tax revenues.

The measures include reducing tax rates to make taxes affordable; simplifying tax payment; and clearly articulating the benefits of tax compliance.

“There are a lot of complications in paying taxes, including cumbersome procedures. You may notice that petty traders are paying for the special identification because it’s easy,” says Dr Kinyondo.

“The government should also clearly spell out the direct benefits for taxpayers to increase compliance. For instance, you tell them compliance can make a firm qualify for loan, or even partnership with other investors. It’s not about building tarmac roads because people want direct benefits to them,” he elaborates.

In 2015, President Magufuli fired the-then TRA commissioner general Rished Bade and replaced him with Dr Philip Mpango who was executive secretary of the Planning Commission.

Dr Mpango was later appointed minister for Finance and Planning - and his position was filled by Mr Alphayo Kidata who - prior to that - was permanent secretary in the ministry of Lands.

Mr Kidata was later replaced by Charles Kichere - and Dr Edwin Mhede was then appointed to replace Mr Kichere, who was appointed regional administrative secretary in Njombe Region.

Some analysts argue that frequent hiring and firing of the top taxman is a manifestation of serious dysfunction at the institution - as well as in some other key government institutions - rather than individual incapabilities to manage their positions.

They say systems should work instead of individual directives.

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