Mr Harry M. Kitillya is Commissioner General, Tanzania Revenue Authority. He oversees the operations of the highly energized agency that helps government to pull in revenue from domestic sources to complement whatever comes in from development partners. He speaks on the reforms in tax administration and the effect on government revenues. Excerpts:
How has the TRA strengthened internally generated revenue base to help augment other sources of government revenue?
The Tanzania Revenue Authority (TRA) has been able to increase revenue collections; improve voluntary compliance, minimize collection costs, widen the tax base, and control evasion and fraud. In absolute terms, tax revenue collected by the TRA increased from an equivalent of US$1,575 million in 2004/05 to the current levels of US$3,185 million in 2010/11 while revenue to GDP ratio increased from 10.8% to 15.3 % respectively.
Prior to the establishment of TRA, administration of tax revenue was highly compartmentalized. Actors in the revenue administration for customs and excise, income tax and sales tax were uncoordinated, each working independently and disjointedly. It is no wonder thus, given the absence of cooperation, synergies of integration could not be exploited and hence, low levels of revenue mobilization. The first duty of the TRA was to institute a corporate culture, and establish co-ordination between revenue departments. Hence the TRA moved from a tax-type administration to an integrated, function-based organization with a focus on taxpayer segmentation.
The TRA’s first Corporate Plan (1998/99 – 2002/03) propelled reforms for institutional and capacity building, while the second Corporate Plan (2003/04 – 2007/08) focused on reforms of making the Authority an investor and taxpayer-friendly by strengthening operational efficiency, so as to boost revenue collection to capacity levels. The Third Corporate Plan (2008/09 – 2012/13) builds on the achievements gained in the Second Corporate Plan and strives to tackle the future challenges associated with the advancement of technology.
How investment-friendly are Tanzanian tax laws?
Tanzania recognizes the importance of how investment can stimulate economic growth and create potential for sustainable future revenue generation. Consequently, the Investment Policy was put in place in 1990 when the Government enacted the National Investment Promotion and Protection Act (NIPPA), 1990, which was later repealed and replaced by the Tanzania Investment Act, 1997. All tax incentives are currently embedded in our tax laws, that is, the East African Community Management Act, 2004, Value Added Act, 1997 and Income Tax Act, 2004 which are fairly investment-friendly.
In these tax laws there are competitive tax incentives like 100 percent capital allowance on Plant and Machinery used in agriculture and exemptions from import duty on capital goods and raw materials. All exports are zero-rated and there is reasonable individual income tax rates which vary from 14 percent to 30 percent and the Corporation tax rate of 30 percent.
As regards to International treaties, Tanzania has signed Double Taxation Agreements with countries like Denmark, India, Italy, Sweden, Zambia, South Africa and Finland. Tanzania is also a member of the World Trade Organization (WTO), World Customs Organization, Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID).
What are some of the other TRA achievements?
The TRA started to implement the third Corporate Plan 2008/09 – 2012/13 with effect from 1st July 2008. During this period a number of reforms which had direct impact on revenue collection, trade facilitation and the provision of quality services to stakeholders were implemented. These impacts include: ICT Systems for Tax Collection Operations. The TRA uses automated systems for tax operations. The system used for Domestic Taxes include Integrated Tax Administration System (ITAX) for Domestic Taxes and ASYCUDA++ for Customs operations. Other automated systems include the Central Motor Vehicle Registration System and Drivers’ Licence System used for registration of Motor Vehicles and Drivers’ Licences respectively. Most of the systems are interfaced to enable sharing of information throughout the organization.
The ITAX system has functionalities for registration, assessment, audit, and refund, objections and appeal and debt management. The system also allows online registration for Taxpayer Identification Number as well as electronic filing. In addition, a system of payment of taxes through Commercial Banks was introduced in 2004. This arrangement of tax collection through banks has enabled the TRA to reduce operational costs by doing away with importation of security-printed receipts and at the same time improve efficiency in the payment system by eliminating the settlement time-lag for high value and time-sensitive payments and thereby be able to have daily reconciliation. The system has minimized settlement risks and eliminated floats between Commercial Banks and the Central Bank. Since the introduction of the system of payment through banks, 97 percent of total revenue collection is settled under interbank arrangements.
Additionally, the Tanzania Interbank Settlement System (TISS) is an online system that facilitates real time and gross settlement of payment instructions between banks in Tanzania whereby tax payments made are transferred electronically from taxpayers’ accounts to the TRA’s account at the Bank of Tanzania.
Risk-based compliance. The Tanzania Revenue Authority has opted to implement Enterprise-wide Risk Management System (ERMS) as the best practice standard for effective results on risk management. The TRA has put in place a number of operations geared towards the implementation of risk-based tax administration. Risk-based Sector-specific studies have been undertaken covering manufacturing, construction, trade and repairs, hotels and restaurants, transport, telecommunications and financial intermediation. The recommendations from the studies have been used to enhance compliance. Information-based risk management support systems housed in TRA include, Computerized Risk Management Systems (CRMS) for management of all containerized cargo, TRA Data Warehouse, Electronic Cargo Tracking System (ECTS), Electronic Fiscal Devices (EFD), Forensic Labs and Import/Export Commodity Database (IECDB). The TRA uses the systems for risk-based and intelligence operations as part of compliance measures that will ensure focus on risky areas which have a greater revenue potential.
What are the challenges facing tax administration in Tanzania?
The challenges facing tax administration in Tanzania can be manifested into three facets namely: Tax policy reform; Tax Administration reforms, challenges and external forces. The TRA is doing its best to broaden the tax base, however, opportunities available in the national economy need coordinated efforts in economic management and political support. This can be achieved through exploitation of national initiatives in place such as the National Strategy for Growth and Poverty Reduction (NSGRP) both in Tanzania Mainland and Zanzibar and others. The aim is to reduce the expansion of the informal sector and make them formal and bring them into a tax net. The current revenue to GDP ratio stands at 15.3 percent. The TRA aims at raising the ratio to 21 percent.
Tax exemptions continue to pose a challenge for tax administration and the Government as a whole to realize its tax potential, hence achieving maximum efficiency in tax administration remains a major challenge. In 2009/10, tax exemptions in Tanzania amounted to two percent of GDP, whereas exemptions in Kenya and Uganda do not exceed one percent of GDP.
Tanzania relies too much on International Trade Taxes. International trade in Tanzania still accounts for more than 40 percent of total tax revenue with Kenya (38%); Rwanda (35%); Uganda (49%) and Malawi (40%). The main challenge is the transformation of domestic economy, coupled with strengthened tax administration such that domestic taxes could contribute to at least 70 percent of total tax revenue collection in Tanzania.
What is your outlook for tax administration in Tanzania?
Our vision is to have “A Modern Tax Administration” with a Mission of being “…an effective and efficient tax administration which promotes voluntary tax compliance by providing high quality customer service with fairness and integrity through competent and motivated staff.