Tanzania Eyes 20 Per Cent of GDP in Tax Collection

By ADAM IHUCHA --Tanzania has set an ambitious target of nearly 20 percent of GDP in tax collection by 2018, in its quest to reduce donor’s dependency.

A national identification project, which anticipated to help Tanzania Revenue Authority (TRA) to expand revenue base and reduce tax leakages, modernisation of the taxation system and capacity building are some of the measures to be instituted to enhance the revenue harvest.

It is expected that, TRA would be able to collect nearly Tsh19 trillion  ($11.875 billion) a year by 2018, equivalent to 19.9 percent of GDP, up from the current Tsh 10.4 trillion  ($6 billion) annually, representing a 17 percent of GDP.

Boosted revenue from $400 million in 1996 now up to $6 billion, for example, has helped to reduce Tanzania’s donor dependency from as high as 54 percent to less than 10 percent in this year’s budget.

Finance Minister, Ms Saada Mkuya says reaching a revenue target is a matter of life and death, as the country earnestly intends to ease its reliance on foreign aids.

For instance, Ms Mkuya says, TRA has rolled-out an electronic fiscal device (EFDs) to simplify domestic taxes collection in its fresh thrust to seal off avenues, for revenue leakages as the system ensures that all business community keep their transactions records.

Indeed, through EFDs and other measures, as of April 2014, tax collection stood at Tsh 7.8trillion, ($4.6 billion) which is about 75 per cent of the annual target of Tsh10.4trillion, ($6.12) with the value added tax, corporate tax and income tax, contributing over 80 per cent of all revenue yield.

 “Besides the EFDs, we are now refining our business environment to draw massive investments that can spawn revenue, rather than depending on donors handout.” Ms Mkuya explains.

Certainly, the country has put into place a number of incentives and tax breaks for foreign investors, who, for instance, are permitted to bring in necessary equipment free of duty. 

Mineral exporters get a reimbursement on all the VAT paid in the country, while companies that operate in an export-processing zone (EPZ) enjoy a ten-year exemption from corporate tax, which currently stands at 30 percent.

As a result, recent data from the United Nations Conference on Trade and Development (UNCTAD) indicates, in 2013 Tanzania had $12.7 billion in foreign direct investment (FDI) stock, eclipsing both Kenya and Uganda, which stood at a low $3.4 billion and  $8.8 billion respectively.

UNCTAD statistics also reveal that in 2013, Tanzania attracted $1.9 billion in FDI inflows far outstripping Kenya, which only received $514 million of inflows in the same period.

Executive Director of Tanzania Investment Centre (TIC) Juliet Kairuki says that the latest figures demonstrate the success of the government’s investment policies and measures to make Tanzania an even more attractive destination.

With global investments flow into Tanzania eyeing newly discovered natural gas, minerals, tourism among others, TRA is also building capacity to deal with more complex forms of tax evasion and ensuring that the move doesn’t act as disincentive to doing business.

TRA commissioner general, Rished Bade is optimistic that the 19.9 percent of GDP in tax collection by 2018 is achievable, through identifying taxpayers in an informal sector and sealing off tax leakages.

The small trade, the super rich and multinational companies shifting profits to tax havens are on the TRA’s hit list for the years ahead.

The amount Tanzania loses annually to trade misinvoicing or over invoicing is astounding. An international taxation researcher Ms Rhiannon McCluskey, estimates that on average $248 million worth of capital has been extracted out of Tanzania per year using this process over the past decade. 

Mr Bade says that the target will be realized by improving efficiency in tax administration and broadening the tax net in order to collect more revenue particularly from lucrative sectors of mining, oil and gas, telecommunication, tourism, construction, real estate, financial industry, high net worth individuals and incomes from the informal sector.



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