The year-2019 is already upon us: time for new-year wishes and hopes! After all, being a taxpayer calls for wishing and hoping.
One often has to make a case for a reduction in, or exemption from some government levy or other, despite knowing that it would result in reduced public revenue collections.
But one hopes that the reduction will have a wider positive economic impact and some benefits in the long term. So, one sincerely hopes that the government will heed one’s wish and hope...
For example, a case can be made for an increase in fuel taxation for two reasons. Fuel consumptions is inelastic –meaning that consumers will absorb any extra costs for lack of alternative options.
A huge chunk of the Tanzanian economy is informal. Therefore, the fuel tax burden is perforce shared with informal sector players. But the downside is that fuel levy increases may trigger inflation. So: how does one balance fuel levy benefits with the inherent inflationary risks?
Indeed, there are some win-win solutions that can help both the government and taxpayers this new year. Let’s call them wishes – three of which I share with my readers herein below.
1. Leveraging technology to enhance compliance and reporting
There’s lots of room to leverage technology in tax administration in Tanzania. With the exception of VAT returns, all other returns – corporate income tax, PAYE, Skills Development Levy and withholding tax – are filed manually.
Manual filing increases the cost burden for taxpayers, the risk of physical loss of documents – and is prone to human error, by omission or commission.
Online filings of such returns would lower compliance costs, and improve ease of paying taxes as a whole. It would also be in line with the digital agenda that the government has implemented in payment systems and other areas.
Another advantage would be the ease with which TRA would conduct audits, as information would now be available online. Simply put: migrating from manual to online filing of tax returns is the lowest hanging fruit I can presently think of.
2. Some relief for employees
Salaried employees are the easiest people to tax, and have limited legal channels to lower their tax burden.
But, since 2008, tax bands have largely been the same – with the exception of the lowest band whose rate went down from 11 to 9 per cent.
When we talk of the Tanzanian middle class, we refer to small business owners and employees. The typical employed Tanzanian is often very enterprising. They usually go on to start small businesses, employing one or two youths. So, some breathing room for them would have a catalytic impact on the economy.
One’d expect a revision of the top tax band that is subject to a 30 per cent rate from, say, the current Sh720,000 to around Sh1,400,000.
The other bands should also be adjusted accordingly. Not only would employees love this; it’s also the reasonable thing to do to ensure inflationary changes are factored into the personal tax rates – thus avoiding worsening taxpayers’ purchasing power.
3. Early disputes resolution and some traction on VAT refunds
Year-2018 will be remembered for the Government’s amnesty programme. That noble initiative will, hopefully, lighten the long-standing tax disputes burden.
VAT refunds are an industrialisation issue. According to the Confederation of Tanzania Industries (CTI), it takes 2-to-3 years for businesses to get their refunds.
For historical reasons related to verification of the refund claims, the government, rightly, wants to ensure that the claims are legitimate. But, the longer the verification drags on, the longer do those with legitimate claims suffer.
One would hope that a mechanism which allows taxpayers with legitimate claims to offset other tax liabilities with their refund claims is implemented.
Alternatively, a reasonable time limit should be set within which refund claims must be paid – and attract interest at market rates if and when unduly delayed.
Samwel Ndandala is a Senior Manager with Deloitte Consulting. He can be reached at firstname.lastname@example.org. The views expressed herein are those of the author and do not necessarily represent the views of Deloitte.