Selected issues on domestic resources mobilization
Domestic Resources Mobilization (DRM) is among the key issues in raising budgetary resources to fund provision of public goods and services. Inability of countries to mobilize enough own revenues for their budgets has been a norm than exception in Tanzanian-type economies.
This forces such countries to bridge the budgetary deficit from various other sources of funds such as borrowing and donors aid. This article focuses on selected issues on DRM in Tanzanian–type economies.
Resources mobilization
There are various kinds of resources that need to be mobilized for Tanzanian-type of economies to attain the needed meaningful economic transformation. The list of these resources logically includes human resources, financial resources, physical resources and others such as time and information.
It is by having a synchronized and optimally balanced mix of these resources that the required transformation can sustainably see the light of the day. In this article the focus is on mobilization of financial resources in Tanzania.
Domestic Resources Mobilization
DRM is all about collecting own domestic resources for a country’s development through the national budget. In Tanzania, domestic financial resources include tax and non tax revenues.
These are both central and local government revenues. Within the tax typology there are several types and rates of taxes.
This is similar in the case of non tax revenues. DRM would then imply collecting as much tax and non tax revenues as possible to fund the budget. DRM is very important for reducing and avoiding donor dependency and borrowing. The two have their set backs in the country’s development trajectory including conditionalities and swelling of national debts respectively.
Financial resources
As a category of its own, financial resources in Tanzanian context fall under various typologies. One has to differentiate between local and foreign financial sources. Within the local financial resources typology there will be a need to differentiate between central and local government resources. In each of these typologies, a distinction must be made between tax and non tax sources of financial resources. For more targeted approach, the various types of each of the taxes need to be put under microscope.
The essence of all this detailed targeting should be to help those looking for DRM of financial resources to avoid falling into the easy trap of applying one blanket approach of one size fits all. The point here is there are specific and very peculiar ways in which each category of the multitudes of financial resources can be optimized if the needed DRM is to be attained and by extension donor dependency is to be avoided.
Attaining DRM
To attain a higher DRM in Tanzania is possible but will necessarily be a tall order. The appropriate authorities including Tanzania Revenue Authority (TRA) and Local Government Authorities (LGAs) and their revenue collection agencies will need to strengthen their revenue collection efforts.
Among other things, they should increase their tax efforts. If more financial resources in the shape of tax revenue are to enter into the Government coffers, there must be reduction of unnecessary and harmful tax exemptions and incentives among others. Also the general fiscal regime including its predictability, reducing multiplicity and rates of taxes, easing tax payments and most importantly widening the tax base are very important for attaining better DRM.
Taxing Informal Sector
Attaining DRM requires proper revenue collection from the informal sector as well as from many non tax revenue sources. Mobilizing more revenue from the informal sector by luring them to go formal will be challenging.
This is because of the challenges involved in formalization of the informal sector. Various strategies have been tried to collect revenues from the informatl sector. Among these include presumtive taxation.
Alternative to DRM
When a country like Tanzania is unable to do adequate DRM, it has to look for alternatives. These alternatives are unfortunately necessary evils. Among the key alternatives include loans and grants. Loans can be commercial or concessional, domestic or foreign.
Issues with loans include possible attachment of conditions, interest to be paid and ballooning of the national debt that has to be paid. Similar to loans, grants may be attached to conditions, not issued on time and agreed amounts.
All these negative aspects of loans and grants make DRM very important for Tanzanian type economies.
The author is Associate Profesor of Economics at Mzumbe University and Principal of Mzumbe University Dar es Salaam Campus College
