Of VAT, tax rebates and other fiscal incentives
Today, I dwell on tax rebates, value-added tax (VAT) and the end consumer in the search for ways and means of reducing inordinately high tax rates while improving public revenue collections as a matter of course.
To set the premise of this proposition going forward, let me build on this simple principle in Economics: that incentives influence human behaviour – but doing so in a predictable manner.
So, let’s dive in... Section 28 of the Value-Added Tax Act (CAP 148; R.E. 2019) sets forth the provision for registration of persons under the Act. Notwithstanding the provisions under the Act, value-added tax is normally charged on imports, and on sales of goods and services – exempting capital goods.
Persons registered under the Act are required to pay VAT as due under the Act, and are also obliged to regularly file Value-Added Tax Returns.
In so many instances, this is not always the case. It is, therefore, the aim of this paper to suggest measures that would make a registered taxpayer under the Income Tax Act (CAP 332) and the Tax Administration Act (CAP 438) – who is presumably also the end consumer/user – to aid in the collection of value-added tax as due.
As I noted earlier in this space, tax base expansion is a give and take affair. But how? This may need all end-consumers to have a tax identification number (TIN).
For the end-consumer to get a tax rebate, all transactions should be effectuated through his/her TIN and the tax rebate remission deposited in his/her bank account or mobile money account – with this credit transaction seen instantly by the end-consumer so as to spark in him/her an incentive to tax compliance as a matter of routine.
The tax rebate incentive will predictably drive all end consumers of goods and services to claim to use their tax identification numbers to effect transaction and demand EFD machine receipts as evidence of transactions.
This will in the process improves collection for both value-added taxes directly and income tax indirectly as all sales will tracked and fair tax assessment done and respective taxes charged justly. What does this mean?
From the outset, it may seem as drop in value added tax collection, but in both long run and real terms it is a gesture of give and take, aiding to collect what was not actually collected before.
The suggested tax rebate, in other words, is a shift of resources from political spending patterns to production spending patterns where capital remains in private sector stewardship.
If this approach of lowering tax rates by means of giving tax rebates is adopted, it may in the end contribute greatly to tax base expansion – and, indeed, effective collection of taxes.
But, there is a caveat for this approach to work. Do all Tanzanians have TIN numbers? If not, what has made them not to have them? What is an alternative way to make this approach more effective?
It may not be possible for all consumers and other end-users to have Tax Identification Numbers. But one thing is clear: many Tanzanian adults have either a National Identity Card or a national identity card number issued by the National Identification Authority (Nida).
In this regard, it would be fair to make an analogy between the current approach being used by the Business Registration and Licensing Agency (Brela) – where the registration number of the company is the TIN number of the said company – and the possibility for the Tanzania Revenue Authority (TRA) to accept the national identity card number as a temporary substitute for the tax identification number.
If this analogy is agreeable, then TRA needs to buckle up, adopt and activate all national identity card numbers as tax identification numbers to aid harmonisation of the payment systems across the country.
It may no longer be necessary for one to visit the TRA offices to get a tax identification number. Isn’t this the right way to go regarding tax base expansion; incentivising tax compliance; boosting public revenue collections, and bolstering capital in private sector activities?
