In this recent exclusive interview with The Guardian Tanzania Revenue Authority (TRA), Commissioner General ALPHAYO KIDATA, spells out his vision and priorities as well as the agency’s strategies to help deliver tax collection targets as directed by the government, whose fiscal focus includes enhancing domestic tax mobilisation. Read on...
Q: Official data shows that one manufacturing company, TBL, pays more taxes than all mining companies in Tanzania combined in a year. What is TRA doing to address this tax inequality?
A: A measure of inequality in a tax system is not caused by one taxpayer paying more taxes than a certain group of taxpayers. Equality in tax system entails embracing fairness and equity; it requires taxpayers to contribute to the Government coffers in line with the ability of the taxpayer.
It is not about paying equal, more or less amounts in taxes, it is about paying your fair share. The tax structure in Tanzania therefore is designed to cater for fairness. Having said that, I hereby acknowledge that yes indeed, TBL is the single topmost largest taxpayer in TRA and we appreciate their contributions.
TRA wants to ensure that each taxpayer, mining companies included, pay their fair share in taxes. The initiatives that we have highlighted in your question on big companies are enough to confirm this resolve. We have strengthened capacity in auditing sectors which require specialized skills, including mining, oil and gas. We have improved our audit capacity in many areas.
In addition we intend to establish specialized taxation regime for the extractive sector, specifically mining, oil and gas sector. It is true that for quite some time we did not manage to collect as much as it would have been expected from mining companies.
This was partly because of the tax regimes we had accorded the industry and partly due to limited capacity to enforce collection of taxes from the sector.
However, we had signed an agreement with the Norwegian Tax Administration and we are proud to say that we have significantly enhanced our capacity in auditing the extractive sector particularly mining companies.
As TRA collects taxes as per the governing laws and tax policies, that was the essence of the Bomani Report of the Presidential Mining Review Committee to Advise the Government on Oversight of the Mining Sector; Kipokola’s Report on the Mining Policy Review Committee and Masha’s Report on the Review of the Mining Development Agreements and Fiscal Regime for the Mineral Sector.
The recommendations contained in those reports have helped the development of new mining policy and mining act. Those in turn have helped TRA to revisit the taxation of the sector. You will appreciate that with those developments, the Government’s take from the mining sector is expected to improve.
Q: There is still a large informal sector in Tanzania's economy that is not taxed. What plans does TRA have to make sure people in the informal sector pay taxes?
A: It is true that Tanzania has a large informal sector, and the greater part of it is untaxed. Existing literatures estimates that informal sector in Sub-Saharan Africa averages 38 per cent of GDP. Tanzania’s informal sector is estimated to harbour 56 per cent of the country’s GDP, making it the second largest informal economy in Africa, next only to Zimbabwe which is estimated to have economic informality of 61 per cent. Informal sector is generally agreed to be a hard to tax sector.
TRA, like any other tax authority in the world, faces some bottlenecks in identifying informal sector activities, especially those with high mobility levels (such as hawkers) and supply of small scale basic services transacted mainly on cash basis. Usually, only a fraction of small businesses register with the tax authorities.
Tanzania has put in place a simplified approach to tax incomes of Small and Medium Entrepreneurs (SMEs), which minimizes compliance and administrative costs. The approach, called presumptive income tax, has the potential of pulling informal sector into the tax net.
In Tanzania, the presumptive income tax was first introduced on July 1, 2000 as a means to pull the informal sector in the tax net. It was designed to serve two functions.
Firstly, to reach out to those not reachable through the formal Personal Income Tax (PIT) and ensure equitable tax system; and secondly, to institute in-built attributes to motivate operators under the Presumptive Scheme to graduate into the preferred tax system.
The Government has been reviewing the scheme from time to time with a view to building equity, increasing overall efficiency, boosting taxpayer compliance and enhancing a sustainable economic growth of small businesses sector in line with the Small and Medium Enterprises Development Policy.
In order to enhance voluntary compliance TRA is implementing systematic education and outreach programmes, including bringing services closer to the community and simplifying tax payment mechanisms by embracing the electronic payment methods, such as the use of mobile phones.
Sharing of information with the Local Government Authorities where the businesses operate through the TRA Block Management System will enable registration and eventual tax payments from this sector.
Q: There are reports that some NGOs, including religious organisations, are involved in tax evasion by abusing tax waivers. How serious is this problem and how is TRA addressing it?
A: We have observed some abuse of tax exemptions by NGOs and religious organization hence we cannot say that the abuse is serious from this group as there are a number of other beneficiaries of tax exemptions. TRA is determined to ensure eligible beneficiaries of Tax exemptions are the ones to enjoy the facility.
A lot of initiatives to address the problem are done through post clearance audits, verification and monitoring of tax exemptions to ensure there is proper utilisation of the exemptions. If TRA finds any abuse of tax exemptions, efforts to recover the exempted taxes are made.
To handle tax evasion and avoidance as a whole, TRA has strengthened its enforcement capacity by utilizing the expertise in tax audit, tax investigations as well as business intelligence. Additionally, TRA is operating a Computer Forensics Laboratory for Evidence Recovery to enhance capacity and capability in tax audit and investigations.
With the expertise, experience and commitment we have amassed over time, we are now better placed to handle those vices than we have ever been before.
Q: How big a problem is tax non-compliance through smuggling and how is TRA dealing with it? What are the main smuggling points in Tanzania and which goods are the most smuggled items?
A: Tax non-compliance through smuggling is indeed a big problem in Tanzania and it is mainly exacerbated by the geographical location of Tanzania. The Tanzania border is very porous – it should be noted that to the east, the country is bordered in a long stretch by the Indian Ocean, while other borders are with the countries of Kenya, Uganda, Burundi, Rwanda, DRC, Zambia, Malawi and Mozambique.
This makes the regions that are prone to smuggling activities to be those bordering Tanzania, through land borders, around the lakes and the Indian Ocean. Therefore the following regions in Tanzania are the main points for smuggling: Mara, Arusha, Kilimanjaro, Tanga, Kigoma, Katavi, Rukwa, Mbeya, Njombe, Ruvuma, Mtwara, Kagera, Mwanza, Kigoma, Tanga, Coast, Dar es Salaam, Lindi and Mtwara.
However, substantial smuggling activities take place through Zanzibar routes along the East Coast of the Indian Ocean from Mtwara to Tanga.
Smuggling in Tanzania is a big problem but the Authority is fighting it tirelessly day and night in all regions that have been identified with serious smuggling activities. Combating smuggling in Tanzania is a continuous struggle and TRA has established a special team called Flexible Anti-Smuggling Team (FAST).
This team is operational in ten regions with activities that may induce smuggling. This team is equipped with working tools such as vehicles and patrol boats and sometimes TRA engages other enforcement agencies such as the Police and the Tanzania Peoples Defence Forces for joint operations.
The FAST in Dar es Salaam operates in five zones that are susceptible to smuggling activities i.e. Mbweni, Bagamoyo, Kigamboni, Nyamisati and the Kibaha route.
TRA is planning to get a modern boat for Dar es Salaam in order to minimise smuggling along the East coast of the Indian Ocean.
Apart from this team, all border stations have the role of controlling smuggling of goods in their respective areas. Other measures taken to control smuggling include imposition of strict penalties such as forfeiture of goods, conducting joint patrols with Police and TPDF, education the public though the media on the effects of smuggling.
Additionally TRA together with other stakeholders have signed a memorandum of understanding (MoU) on the framework for cooperation and collaboration with the UN on container control program. This will enable to optimize preventive actions carried to reduce illicit activities and establish joint port control units in the Port of Dar es Salaam and Inland Container Ports.
As pointed out earlier, smuggling points are numerous and the main smuggling points are many and they change depending on the frequency of interventions and interceptions made. However these can be categorised according to notoriety of the smugglers. Along the East Coast of Indian Ocean, the notorious places are Mbweni, Kunduchi, Kigamboni, Kisiju, Nyamisati, Mbegani, Mlingotini, Saadani, Kwale, Kigombe and Kipubwi.
It should be noted that there are many smuggling points between Mtwara and Tanga however TRA has identified more than 78 major smuggling points in Dar es Salaam (9), Coast (26), Tanga (17), Lindi (17) and Mtwara (10).
In the East Coast Zone between Mtwara and Tanga, the most smuggled goods include rice, sugar, cooking oil, tiger Head Batteries and Kitenge/Khanga. For the Lake zone, smuggled goods include cigarettes, spirits, kerosene, cooking oil, soap, beer, corrugated iron sheets and hollow sections.
While for the Northern Zone, smuggled goods include soap, cement, kerosene, iron sheets, steel wool, motor vehicles and cooking oil and for the Southern Highlands zone, most smuggled goods include Cosmetics, sugar, spirits and motor vehicles.
Q: There are complaints that TRA's tax calculation formula on imported motor vehicles is unfair, hence encouraging some people to evade tax. In some cases, the tax is more than 100 per cent of the value of the imported vehicle. For example, a standard 2004 model Range Rover has a CIF price of around US$9,000 but the total tax on this vehicle is 22m/-, which is more than 100 per cent the value of the car. How do you explain this?
A: Let me first put your argument in the right perspective. The calculation formula is an electronic method of arriving at a tax liability. It simply interprets policy intention aimed at achieving a specific social or economic objective.
Having said that, a car manufactured in 2004 is older than ten years from the year of manufacture and Tanzania has decided to implement tax policy interventions to limit importation of aged motor vehicles. Currently, for cars aged between 8-10 years there is an excise duty of 15 per cent while for those more than 10 years the rate is 30 per cent.
This is an environmental economic policy and is anchored on the fact that aged motor vehicles cause more pollution than the newer motor vehicles; they are more costly to run, they consume more fuel and require frequent servicing and repairs. To meet the requirements for frequent maintenance aged motor vehicles drain foreign exchange to import spare parts.
With newer vehicles the savings on foreign exchange could be used to finance more productive economic activities. Encouraging use of new motor vehicles is thus not only beneficial to the environment but also to the users and the economy at large.
That is why some countries in the neighbouring countries and SADC, specifically Kenya and South Africa have banned importation of aged motor vehicles. Let us love and be proud of our country and import only what is necessary to avoid making our beloved Tanzania a dumping place for used and old motor vehicles.