Interpretation of President Hassan’s tone on taxation

The tax space in Tanzania - as is the case elsewhere - is very important in many ways. The legal, policy and regulatory frameworks (and, most importantly, practices around taxation) matter a lot for the country’s ability to collect tax revenues. They also matter a lot in attracting and retaining investments and businesses.

There are a number of issues of concern in Tanzania’s fiscal space. On April 1, 2021, President Samia Suluhu Hassan gave a very important directive on taxation in Tanzania. If implemented properly, there will be a huge improvement in the country’s fiscal space - and, by extension, in attracting and retaining investments and businesses.

On taxation

As long as people expect the government to provide the needed quantity and quality of public goods and services, payment of taxes is inevitable.

Without adequate domestic resources mobilization through taxation among others, the government has to borrow and depend on aid. These two options have many and far-reaching negative implications to the economy. The President’s tone on taxation has to be understood in this wider context.

President’s tone

The President’s tone on taxation is one of good fiscal policy and instruments for taxpayers. It is a tone of friendly and relaxed rather than cohesive taxation. It signals an expansionary rather than contractionary fiscal policy and fiscal policy instruments. It is all about taxing better than just taxing more. It is about making the tax component of business environment and investment climate in Tanzania better. It signals implementation of tax stakeholders complaints given to the tax task force among others. It is a directive for appropriate authorities to kiss goodbye tax issues of concern.

Tax issues of concern

Corporate chiefs who are captains and titans of the industry in Tanzania have a number of tax issues of concern.

These are issues that add extra burden to investments and businesses thereby reducing competitiveness and attractiveness of business and investment climate.

These issues have been communicated to authorities in various contexts including in the tax task force context and in various levels of business councils from district, regional to national level under the coordination of the Tanzania National Business Council.

Tax issues of concern in Tanzania include those around predictability of the legal, policy and regulatory frameworks, especially for long-term investments.

Others are the relatively huge number of taxes and high tax rates; delays in tax refunds that have negative implications on taxpayers’ cash flow and transaction costs related to follows-up on refunds; inadequate customer service from some of tax staff; lack of a one-stop centre for tax payments; issues around tax appeals process; issues around the use of Electronic Fiscal Devices (EFDs) - including the high cost of the gadgets; inadequate knowledge on taxes to be paid in terms of types, rates and procedures; corruption; intimidation; nonrealistic estimations; inadequate participatory and consultative approaches in tax matters... And much more!

Widening the tax base

The President ordered the taxman to widen the tax base. A narrow tax base has been among the defining characteristics of taxation in Tanzania.

Among the reasons for rather narrow tax base include limited economic activities in general and taxable ones in particular. There have been a number of economic activities that are have not been taxed as such. They include those in the informal sector.

The call is for the taxman to be more creative and innovative to identify new but taxpayer-friendly revenue sources.

It is very important to increase revenue without constraining more existing tax payers including businesses. This has to be accompanied with not just taxing more but also taxing better from the existing tax revenue sources. The taxman has attempted a number of measures towards taxing better.

These include but are not limited to various aspects of electronic taxation such as e-filing.

Going forward

The need to implement the President’s order to the taxman to the letter cannot be overemphasized. Basically all that needs to be done is well known.

If the taxman revisits the widely available taxpayers opinions given to the tax task force, business councils meetings, the tax component of easy of doing business in Tanzania among others, what remains is a matter of strategising on how to implement and fix what is broken in the tax space.

The author is Associate Professor of Economics at Mzumbe University and Principal of Mzumbe University Dar es Salaam Campus College