Q1 tax collections commendable

The current fiscal year 2020/21 started on 1st July 2020.  In Tanzania this fiscal year, expects to collect and expend Sh34.9 trillion. About 60 per cent (Sh20.3 trillion) of the budget will be funded by taxpayers. Last year, taxpayers contributed Sh17.5 trillion in total. This means that on average, in the last fiscal year, taxpayers contributed about Sh1.46 trillion monthly. In this fiscal year, taxpayers are expected to fund the budget at an average of Sh1.7 trillion per month: a 16 per cent increase from last year.

The first quarter of the current fiscal year ended September 30. The Bank of Tanzania’s Monthly Economic Review (MER) between July and October 2020 indicates that in tax collections in the first quarter (Q-1) reached Sh4.3 trillion. Overall, about 90 per cent of the expected mark (Sh4.8 trillion). Factoring in the unexpected impacts of COVID-19, this is arguably a good performance so far. Hopefully, it will last.

Looking at the budget, the biggest chunk of tax revenue is expected from income tax (34 percent). However, income tax collection so far is not as impressive. From the BOT MERs, income tax collection performance appears to be only 79 percent in this first quarter. It lags both taxes on imports (96 percent) as well as taxes on local goods and services (95 percent). Also out of the 4.3 trillion shillings collected so far, 39 percent of this comes from taxes on imports, 32 percent from income tax, 24 percent from taxes on local goods and services (for example VAT and excise duty) and only 5 per cent from other taxes.

The tax collection trend so far, in my opinion, is generally good. The monthly collections within the first quarter of 2020/21 show a generally increasing trend. About 1.26 trillion was collected in July, followed by 1.36 trillion in August and 1.67 trillion in September 2020. This means that the government, potentially, can meet its revenue targets. The implications are obvious. Meeting the budgeted revenue means that the government will be able to fully deliver its promises, including social services.

The budgeted recurrent expenditure (Sh22.1 trillion) is already more than the expected tax revenue by close to Sh2 trillion. Arguably, therefore, the collection target must be met by 100 per cent or more.  But to meet the excepted annual tax revenue (Sh20.3 trillion) by June 2021 taxpayers will have to contribute an average of 1.78 trillion shillings monthly. Quite a tall order, right? Both for taxpayers and for TRA.

The implication is that taxpayers should expect more and more pressure from the tax collector (TRA) in the remaining quarters. And it becomes imperative that taxpayers put in place strategies that will ensure full tax compliance as audit probability increases. But it is also important to understand that tax is a product of economic activities. Ideally, taxes should be collected in a way that minimizes distortional costs to the economy generally and specifically to the economic activities of the taxpayers.

By Shabu Maurus, Tax Partner, Auditax International.

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