Implementing Samia’s tax proposals a better way to mark her second anniversary

What you need to know:

  • When it comes to reforms, those in the taxation arena could easily argue that Mama Samia should be commended for championing the change in the tone regarding tax collection measures

19th March 2021 was a historic date in Tanzania as the country witnessed the swearing of the first female president named Honourable Samia Suluhu Hassan (“Mama Samia”). Mama Samia is famed for her 4R strategy which constitutes reconciliation, resilience, reform and rebuild. In the context of reconciliation, Mama Samia should be commended for championing national reconciliation as evidenced by several measures including lifting the ban on political rallies.

When it comes to reforms, those in the taxation arena could easily argue that Mama Samia should be commended for championing the change in the tone regarding tax collection measures.

Over the course of her presidency tenure, we have witnessed a significant change regarding collection measures as Tanzania Revenue Authority (TRA) has adopted a more conservative approach thus doing away with the aggressive approach that was lamented by the business fraternity in the country.

Recently, we have witnessed TRA taking a participatory approach and encouraging more engagement with taxpayers as far as tax collection is concerned.

Mama Samia is also commended for her intervention regarding controversial taxes such as the mobile levy where her intervention led to a downward revision of such levy and withholding tax on agricultural products and fisheries where her intervention led to the scrapping of such taxes.

On 19th March 2023, Mama Samia clocked two years in her tenure as the sixth–phase president. In my opinion, a better way to celebrate such a feat is promulgating/ / putting into law her tax proposals that aim to champion the creation of a conducive business environment. To realize the promulgation of such proposals, both the Finance Ministry and the Parliament will have a role to play in form of the Ministry incorporating such tax proposals in the draft finance bill and the Parliament approving the finance bill.

Her tax proposals that could be promulgated as tax law include (i) a proposal to waive the collection of prior year taxes of more than two years, proposed last year during her speech in Kagera and (ii) a proposal for a tax grace period for new businesses, proposed this year as reiterated by Minister for Investment, Trade and Industry, Dr Ashatu Kijaji.

It is not surprising for taxpayers to receive demand notices involving alleged outstanding tax liabilities dating back as seven to ten years. Taxpayers would always complain about such demand notices since reconciling these alleged long outstanding tax liabilities is usually cumbersome and impedes business planning.

It is about time now that the relevant provisions of the Tax Administration Act 2015 (the TAA), be revised to incorporate Mama Samia’s tax proposal on collection of prior year taxes that is outstanding for more than two years.

The TAA provisions could also be revised to limit the collection of prior year taxes within the period of five (5) years to align with the document retention period stipulated under the TAA. This will likely improve accountability on TRA’s side which will likely prompt timely issuance of demand notices on tax liabilities as well as improving the frequency of tax audits to be conducted by the taxman to ensure no outstanding tax liabilities are long overdue.

Another point for consideration here should be the introduction of a tax amnesty program as the one introduced in the year of income 2018. The potential tax amnesty program will compel taxpayers to voluntarily make a declaration of their outstanding tax liabilities for the past years hence improving tax revenue collection in the process and bolstering tax compliance prospects amongst the taxpayers.

The recent announcement by the Government that there is a contemplation of granting a tax grace period / tax deferment period / tax amnesty program between six months and one year for new businesses was applauded by several stakeholders i.e., economists, tax enthusiasts and business leaders.

It is fair to point out that the considered tax grace period proposal is entirely new as the Government had previously introduced a similar proposal with regard to instalment tax payments for new businesses/investments.

The Finance Act 2019 amended the provisions of section 22 of the TAA by introducing a six-month tax grace period for new business / new investment specifically on instalment tax payments.

Mama Samia’s proposal seems to broaden the period for such a grace period to now constitute six months up to a year and the scope of taxes to be covered under the amnesty program to include more than instalment tax payments.

The move is likely to facilitate the entry of new businesses, encourage the informal sector to formally register for taxation purposes thus contributing positively to the expansion of the tax base.

However, for such potential benefits to be fully enjoyed by the taxpayers such broadened intention should be legalized into tax law. In a nutshell, there should be legal backing for the contemplated broadened tax amnesty program for new businesses. The relevant provisions of such tax law should clearly state what qualifies as new business for such broadened tax amnesty program to be applicable and the scope of taxes that will be covered under such tax amnesty program.

Further, the contemplated broadened tax amnesty program should be engineered in a way that will greatly benefit micro, small and medium enterprises (MSMEs’) and priority should be given to employment-related costs i.e., Skills and Development Levy (SDL) as well as instalment tax payment which entails making tax payments prior the operationalisation of the business undertaking.

As we celebrated Mama Samia’s second anniversary as the sixth–phase president on 19th March 2023, let’s push for the legalization of her tax proposals that will indeed champion the creation of a conducive business environment, attract more entrants in the country thereafter bolstering the expansion of tax base as well as tax revenue collection prospects in the process.

The views stated above are those of the author and not necessarily those of his employer. Benedict Kombaha is a Tax Supervisor at KPMG in Tanzania and can be reached at [email protected].