Tanzania Tax System

Introduction

Taxation is for a majority of countries including Tanzania a major source of government revenue which provides governments with the funds required to invest in development, address poverty and offer public services. It suffice to say that taxation is key in strengthening the effective functioning of any state/nation and to deliver the social contract between governments and citizens. In these series of articles we shall discuss the Tanzania tax system and its impact to businesses and government revenue collections.

Tax System

Tax system is a broad term covering tax policy, tax structure and tax administration. A good tax system enables a country to strengthen domestic resource mobilization which in turn leads to raising adequate revenues. Further, a properly designed tax system will promote inclusiveness, encourage investments (both foreign and domestic), encourage good governance, address income and wealth inequalities as well as promote social justice. One of the notable tax system challenge for most developing countries is lack of simpler, equitable and transparent tax systems characterized by a narrow tax base.

Tax Policy

Normally tax policy is developed by a country’s Ministry for Finance and Economic affairs.  As per the Tanzania Ministry of Finance and Economic affairs the Government tax policy is “to increase domestic revenue collections at a faster rate than GDP growth in order to finance increased expenditure and reduce dependence on donor funding in the budget. The Government is also committed to a taxation policy that does not hinder growth in business and investment. Also taxation policy which is equitable and fair, that has low compliance and administrative costs, and that is as simple as possible”.

Tax Structure

A tax structure of a country refers to its tax base and tax rates enforced through tax laws. The tax structure of a particular country depends largely on its economic development, political establishment in place, macroeconomic polies, socio-economic policies as well as fiscal and tax policies. Some of the challenges facing Tanzania tax system in terms of tax structure include a narrow tax base and over dependent on international trade taxes. The Tanzania mainland tax system is composed of four major categories of taxes. These are income taxes, VAT, import duties and excise duties.

Tax Administration

Tax administration on the other hand is geared towards overseeing the enforcement of the established tax laws. In principle the design of the tax system is normally impelled by the ability of tax administration to administer it.  In Tanzania tax administration is done by Tanzania Revenue Authority which is a semi-autonomous executive agency under the Ministry of Finance that was established in July 1996. The authority is mandated to collect major taxes including Income Tax, Value Added Tax, Import Duty and Excise Duty. Non-tax revenues which are comprised of fees, levies and dividends etc. and are collected by the Ministry of Finance and other Central Government Ministries.

Countries with well-functioning tax administration excel in mobilizing domestic resources. The tax authority ensures that revenue collection targets are consistently met. Also ensures high quality of customer service to tax payers with a focus on voluntary tax compliance and ensures tax laws are applied fairly. Thus, a weak tax administration is made up of poorly trained and low paid officials who are unfair and unable to consistently and objectively apply the tax laws. It also has structures which do not encourage an integrated approach to different taxes, and are marked by poor service delivery below customer expectation service etc.

The next article will look into the Tanzania tax system in terms of policy, laws and administration including strengths and weaknesses.

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