Should it be ‘hapa kazi tu’, or ‘hapa kodi tu’?

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A recent PwC China publication (titled “Forging Ahead: 2017 China tax policy review and 2018 outlook”) highlights a number of bold tax policy moves including adjusting consumption tax, individual income tax reform, legislation of property tax, relieving the tax burden of small-and-medium sized enterprises, optimising VAT tax rate brackets, optimising business environment and exploring the advance ruling mechanism.

Of course much has already been done in relation to control of expenditure, with a clear message that a position in Government is not a license to live extravagantly at the state’s expense. These changes mirror changes in China with regard to expenditure control. At the same time China’s focus on expenditure control has been allied with a robust tax reform process. A recent PwC China publication (titled “Forging Ahead: 2017 China tax policy review and 2018 outlook”) highlights a number of bold tax policy moves including adjusting consumption tax, individual income tax reform, legislation of property tax, relieving the tax burden of small-and-medium sized enterprises, optimising VAT tax rate brackets, optimising business environment and exploring the advance ruling mechanism. It notes that on 5 March 2018, Premier of the State Council, Li Keqiang, delivered a report that committed China to further reduce the taxes and non-tax burden of enterprises and individuals by over RMB800 billion and RMB300 billion respectively.

So, how is the current tax environment? While to some extent this perception will be a subjective one for different taxpayers, there are a number of studies that indicate the tax environment to be a very challenging one for business. By way of example, the World Economic Forum’s latest Global Competiveness Index (2017/2018) (which ranks Tanzania 113th out of 137 countries covered) includes in its list of most problematic factors for doing business in Tanzania the following: tax rates, tax regulations and policy instability, respectively ranked as 2nd, 6th and 8th most problematic factors. Another illustration is the World Bank’s Doing Business 2018 publication, which derives the overall ease of doing business ranking from ten indicators including a “paying taxes” indicator. Of relevance to Tanzania is that out of the 190 countries surveyed, we rank as 154th in terms of the “paying taxes” indicator. So I think we need to agree that objectively there is a challenge.

Such an approach also fosters compliance and formalisation, and thereby is a more effective means of widening the tax base. This becomes clear when you consider that indirect taxes are much simpler to collect – you simply deal with the supplier, and a relatively limited number of suppliers given the limited basket of goods and services consumed by most Tanzanians. By contrast, it is much more of a challenge for the Tanzania Revenue Authority to collect income tax from millions of potential taxpayers, particularly if the rates are perceived as high. Of course, reduced income tax rates as a way to generate additional revenues may seem counter intuitive, but there are precedents (including Mauritius) where bold reforms to rationalise and reduce taxes actually generated significant tax increases.

Should it be ‘hapa kazi tu’, or ‘hapa kodi tu’?

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