Regressive Taxes Disproportionately Affect Tanzania’s Low-Income Earners 

Tanzania’s tax system should be progressive enough to enable high-profit makers in the economy to pay more taxes than low-income earners and start-ups.

There is no other way of describing the recently introduced mobile money transaction levies and property tax payment system through electricity tokens except as the final nail in the coffin of poor people’s welfare in Tanzania. The levies, which continue to face stiff criticism from the majority of the population, just confirm what is already known that the burden of tax payment in this country is on the low-income earners. 

This is not an overstatement. Take the indirect taxes, for example, which are paid as consumption taxes, mainly as Value Added Tax (VAT), and other charges. Indirect taxes have been the main source of government revenues, according to the National Bureau of Statistics (NBS) reports on tax statistics,  accounting for about 60 per cent of tax revenues, which is almost twice the amount of direct taxes. 

The low-income earners, or the poor of this country, who are known to be the majority, are the ones who pay most of these types of taxes since they spend a greater share of their incomes on the consumption of various goods and services in their daily lives. 

Direct tax is of no exception 

Even when it comes to direct taxes which are paid as taxes on payroll and workforce, taxes on profits (corporate tax), withholding taxes, rental tax, basic skills tax and development levy and other income taxes, workers through pay as you earn, or PAYE, are the ones who pay more than other sources such as corporate entities that have a significant share in the country’s economy. 

Tanzanian workers contribute a huge amount of direct taxes revenues which significantly affects their disposable income to cover their households’ necessities and savings. 

 

It is an indisputable fact that the government needs resources to finance public services such as education, healthcare, water, infrastructures to name but a few. This is well understood. What is not, understood, in my humble opinion, is the government’s obsession with indirect taxes unlike it is on other sources of revenue collection. 

While authorities might be induced by the easiness that accompanies the collection of these types of taxes it is important to also consider its associated negative impacts, particularly on income redistribution and the gap between the haves and have-nots.  

In other words, the government may achieve its short-term goal of increasing revenue but in the long run, the revenues will go down for reasons that are well-known.

More taxes kill business ingenuity

The 14th-century Muslim philosopher Ibn Khaldun is famously known for his work The Muqaddimah, where, among other things, he wrote: “It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments.”

According to this philosopher, governments should have a desert attitude that requires kindness, reverence, humility, and respect for people’s property and disinclination to appropriate it except in inevitable circumstances. 

He saw the growth of enterprises and the desire for citizens to engage in economic activities as requiring low and fair taxes since when enterprises grow tax revenue will also increase. But the government doing the opposite on fixing taxes will lead to a fall in revenue due to the decline of enterprises and desire to engage in economic activities

And this is exactly what happened when the government decided to go ahead with its mobile money transaction levy plan amid protests. 

The Tanzania Mobile Network Operators Association (TAMNOA), for example, revealed that millions of customers had stopped using the service because of increased costs and 45 per cent of the mobile transaction dropped. This was before the recent government’s decision to reduce the levy by 30 per cent.

Exclusionary effects 

Taking into account TAMNOA’s assessments, what impacts might this situation have caused to more than 150,000 individuals who are directly involved in the mobile money sector, including mobile money agents? 

Think about mobile wallet which has been the major contributor to financial inclusion in rural and urban areas. Imagine the exclusion and harm caused if these kinds of levies will be maintained and extended to other services!

It is very important that low-income earners and the poor of this country be relieved of the tax burden. Our tax system should be progressive enough to enable high-profit makers in the economy, as the big corporations, to pay more taxes than low-income earners and start-ups depending on their earnings. 

For the sake of mobilizing enough resources to finance social programs, the government should not only participate in the economy through taxation and regulation but also through production activities, especially in the extractive sector as has been attempted recently by owning shares in big mining companies operating in the country. 

This has been done by many successfully rich natural resources countries like Nordic countries. It is not bad if we emulate them.

Joel Ntile is a Pan-Africanist and socio-economic analyst based in Dar es Salaam, Tanzania. He can be reached at ntilejoel@protonmail.com or @Ntilejoel on Twitter. These are the writer’s opinions and do not necessarily reflect the viewpoint of The Chanzo Initiative. Want to publish in this space? Contact our editors at editor@thechanzo.com.

Joel Ntile

One comment

  • Alphonse Lusako

    7 September 2021 at 11:44 PM

    It’s educative article comrade. I real wish to know, if it is okay and realistic to charge VAT on Mobile-Vocha?

    Reply

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