Tanzania has been relying on various policies and strategies to increase national revenue. Among these strategies are providing tax exemptions or tax relief and efforts to enhance domestic resource mobilization (DRM).
Effective tax collection is crucial in ensuring rapid economic growth and sustainable development. That is why the government has consistently implemented tax policies and laws and established exemptions or tax relief to attract both domestic and foreign investors.
These incentives include tax reductions, tax exemptions, and simplified tax procedures that encourage investors to invest in various sectors such as agriculture, tourism, manufacturing, and energy.
According to the Tax Law 2024, several tax incentives (exemptions and deductions) exist. For example, the government has provided tax exemptions on agricultural equipment and inputs to help farmers reduce production costs in the agriculture sector.
This move has contributed to increased food production and cash crops and stimulated national economic growth through revenue generated from the agricultural sector.
The law indicates that an investor in companies that incur losses for three consecutive years, except those engaged in agriculture, health, and education, pays 0.5% of annual sales for domestic companies, while foreign companies pay zero per cent.
This law allows foreign companies to avoid contributing even a small portion of the national revenue for three consecutive years if they do not meet their targets, burdening domestic investors.
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Moreover, these policies have benefited the manufacturing sector, and investors have been encouraged to invest in domestic production industries.
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This has enabled a reduction in the importation of goods from abroad, helping to strengthen positive trade flows, thus increasing national revenue.
Additionally, this law provides significant relief for new foreign companies established to manufacture machinery and equipment for assembling vehicles, tractors, fishing boats, and outboard engines.
These companies have operational agreements with the government for the first five years of production and pay no taxes, whereas domestic companies pay 10%.
The government has been losing substantial revenue from foreign investors through this law.
Furthermore, new pharmaceutical manufacturing companies and companies producing leather goods that have contracts with the government will receive income tax reductions for the first five years of production, while foreign companies will pay 0% and domestic companies will pay 5%. How much revenue is the government losing, and why can’t it be even 2% for foreign investors?
Domestic resource mobilization efforts, such as taxes and fees, significantly increase national revenue. Tax revenue collection helps the government finance essential services such as education, health, infrastructure, and other development projects.
Among other things, Tanzania has made strides in improving tax collection systems through the Tanzania Revenue Authority (TRA) by increasing efficiency and reducing loopholes for tax evasion.
For example, modern tax collection technology, such as electronic fiscal devices (EFDs), has increased transparency and reduced tax evasion. This has enabled the government to increase its domestic revenue, which is directly used for national development projects.
TRA Collections
In the third quarter of the 2023/2024 financial year, TRA successfully collected TZS 6.63 trillion, equivalent to an efficiency of 95.17% of the target to collect TZS 6.97 trillion.
The authority stated that these collections represent an 11.68% increase compared to collections of TZS 5.94 trillion for the same period in the 2022/2023 financial year.
The report indicates that by March 2024, TRA had collected TZS 2.49 trillion, equivalent to an efficiency of 97.05% in the target of collecting TZS 2.56 trillion.
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These collections reflect a 6.91% increase compared to the TZS 2.32 trillion collected in the same month in the 2022/2023 financial year.
However, TRA has emphasized citizens’ responsibility to pay taxes and built awareness about the importance of taxes in national development. Through campaigns to promote tax payments, many citizens understand their obligation to contribute to government revenues.
A significant relationship exists between tax exemptions, tax relief, and domestic resource mobilization. Tax exemptions and relief stimulate investment and production, increasing employment and the production of goods and services, thereby contributing to economic growth.
Conversely, the collection of domestic resources ensures the government obtains sufficient revenue to finance development projects and social services.
Despite these efforts, the government has recently acknowledged a decline in tax collections. A report published by the International DW Magazine on April 27, 2024, indicated that tax collections have decreased.
The report states that tax revenue collections in the country are below 12% of the national revenue, fueled by low tax payment awareness among Tanzanians. In contrast, other African countries have higher collection rates.
Vice President Dr. Philip Mpango stated that low collection contributes to a poor economic situation and urged relevant authorities to make efforts to collect at least 15% of the national revenue.
This level is below the average of 15.6% of national revenue for African countries. He emphasized the need for improvements in laws, policies, and tax rates, continued strengthening of inclusive investment service centres, and reduced customs tax rates.
For his part, the Minister of Finance, Dr. Mwigulu Nchemba, states that the major challenge in this sector is voluntary tax payment and receipt issuance. At the same time, traders often guide consumers to evade taxes.
In 2023, the Sikika organization in Tanzania released its report on why businesses do not pay taxes. The report highlighted several issues, including excessive taxation, a long payment process, and tax collectors using force during collection.
The Minister of State in the Office of the President, Planning, and Investment, Professor Kitila Mkumbo, states that the government continues to create a favourable investment environment.
The government and various stakeholders, like the Policy Forum, have also made efforts to educate journalists and the community about the importance of paying taxes and the proper use of taxes in national development.
The growth of national revenue contributed by these strategies also allows the government to expand the scope of tax relief and improve policies to attract more investors, leading to a sustainable economic cycle.
Speaking recently in Dodoma at a training session for journalists organized by the Policy Forum, Professor Abel Kinyondo, an Economics and Geography lecturer at the Dar es Salaam University College of Education (DUCE), stated that sustainable economic growth and an increase in national revenue from taxes in the country are achievable.
Professor Kinyondo emphasized that this growth is possible if these efforts are strengthened and managed, and accountability and integrity are maintained in all sectors while reviewing existing laws for domestic and foreign investors, particularly regarding exemptions and tax relief.
