How Fair Is Tanzania’s Tax System?

Critics accuse Tanzania Revenue Authority (TRA) of milking cows the government doesn’t feed.
Katundu Kassim16 January 20216 min

On January 1, 2021, Tanzania Revenue Authority (TRA) Commissioner-General Dr Edwin Mhede said in a statement that the taxman had collected a total of Sh2.088trillion as revenue for December 2020 only, describing the development as “unprecedented in the history of TRA.” TRA had expected to collect only Sh2.072trillion for the said period, something that made its revenue collection measures successful by 101 per cent. In his statement, Dr Mhede associated the achievement with “patriotism” shown by taxpayers. However, there is no doubt that the rollout of Electronic Tax Stamp technology (ETS) contributed to the success.

This development led Dr Mhede to confidently announce that revenue collection prospects for the remainder of the fiscal year 2020/2021 look as bright as sunshine. The average monthly tax collection has reportedly jumped 11 per cent over the first six months of the current fiscal year, with collection reaching Sh1.664trillion, compared to Sh1.5trillion from a similar period of the previous fiscal year.

On the face of it, the success observed in revenue collection is noteworthy. Nevertheless, we must ponder deeper for this development has multiple implications. TRA has been facing many criticisms lately over its claims of record-breaking revenue collection. On the one hand, people have accused it of lying and cooking up figures to impress President John Magufuli. On the other hand, sceptics have pointed out and expressed concern over TRA’s growing habit of collecting revenue in questionable manners. These include the seizures of bank accounts of some business entities and organisations accused of tax evasion (see here, here and here) as well as squeezing the hell out of young entrepreneurs while leaving big, global corporations go free.

Calls for a user-friendly, smart tax system

There have been calls for TRA to come up with a user-friendly and smart tax system accompanied by a vigorous taxpayer education program. Tanzania needs a taxation scheme that will not shortchange the government, but at the same time will not harass taxpayers who duly deserve to get a break. It is not enough to say TRA has a court mandate. The law should serve the people and not the other way round. When the law goes against the common good, it needs to be changed. There is something fundamentally wrong with closing a not-for-profit school because of insensitive and outdated legalistic requirements. I do not wish to lay blame on TRA alone here; in some cases, they are just doing what is prescribed by the laws, rules, and regulations. But TRA needs to advise the government and lawmakers correctly. The question is, will TRA do so if changing the law means missing their collection targets? There ought to be a way to discount and offset these arrears in their targets. We can set more realistic targets and relieve TRA of the pressure to draw blood out of stones.

There is no sense in achieving these collection records only to find out they were possible at the price of killing the very businesses TRA collects taxes from. There are a lot of complaints on how draconian and arbitrary TRA tax collection is. Entrepreneurs complain that TRA’s habit of demanding taxes even before businesses are established discourages many from starting a business. TRA also imposes Kafkaesque retroactive tax bills even for people who have already closed businesses due to a stifling taxation regime. These people might be simply uninformed regarding notifying TRA of their decision to close their businesses. But in most cases, they face what can only be described as a Shylock-like spirit in taxation. All these are happening in a country whose founding president Julius Nyerere translated William Shakespeare’s The Merchant of Venice into Kiswahili no less.

And what about taxation for online content creators? Here young people who are just starting to find employment opportunities online to invest in building an independent life. Many of these youths heeded the call by politicians asking them to employ themselves. In the digital space, opportunities are meagre, but pitfalls are plenty. Establishing oneself online is arduous and takes time, money, wits, and perseverance. Yet, the tax authorities and governmental licensing ombudsmen target them aggressively in a way that disadvantages them and infringes on their constitutional right of expression. If the constitution says you have freedom of expression, and the government says you must register and pay a steep fee for your microphone, that in a way is an infringement on your right. It is like saying you have to register and pay a hefty fee for voting!

Many content creators in Africa do not make much money, especially at the beginning of their careers, and Tanzania is no exception. Google takes a big chunk of the generated revenue. Some content creators are primarily engaged in advocacy. At the very beginning of their online career, a hefty fee is effectively a death penalty to that career. They should be exempt from disproportionate taxation, only to be taxed when their sustainability is viable.

Tax  Big Tech

If the government is interested with revenues, why not work with, for example, Google, to register offices in Tanzania or use their regional offices in Nairobi, and tax Google for their operations in Tanzania? For a long time in the United States, many states were not getting taxes from Amazon because Amazon had a new online-based business model that defied geographical borders. The US states either did not know how to tax Amazon, or the right legal framework to tax it did not exist. However, almost all of these States have upgraded now and have started taxing the SeattleWashington-based multinational technology company. There is no reason why Tanzania shouldn’t do the same. This, however, will have to go hand in hand with fixing Tanzania’s legal framework to make it conducive for investors in the current and future knowledge economy.

Thinking of taxing Big Tech whose services are used by millions in Tanzania is a way to go if the government is really interested in revenue. But perhaps this is not the goal at all but rather a Machiavellian passive-aggressive attempt at government censorship. Why would the government tax content creators who are making peanuts compared to Google or Facebook, for example?

As a nation, Tanzania needs to strategically position itself for the knowledge economy that is so essential for development today. Tanzanians stand to gain more by encouraging young people to explore online opportunities, software development options, establish the right framework for call and even data centres. Taxing them to death the moment they start to explore their ambitions of asserting their emergence online is discouraging. We should not fail to employ them in the existing job market, and add salt to their injury by restricting their ingenious creativity at creating opportunities online.

We can only compete in the knowledge economy if we allow innovation to thrive. If we cannot compete and advance, we stagnate and diminish. We talk much about empowerment, but little is done. Much-needed empowerment is in a smart but fair tax system characterised by the right legal framework and transparency.

Above all, feeds the cow before milking it.

Katundu Kassim is a political and technology analyst based in Dar es Salaam, Tanzania. He can be reached at katundukassim1@gmail.com. These are the writers’ own opinion, and they do not necessarily reflect the viewpoint of The Chanzo Initiative. Want to publish in this space? Share your idea with our editor at editor@thechanzo.com

 

Katundu Kassim

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