One of the challenges facing most Developing Countries including Tanzania is the presence of highly growing informal sector; the presence of this sector is a challenge for taxation, regulation, financing, reforms, provision for social services and efforts to alleviate poverty.

One of the challenges facing most Developing Countries including Tanzania is the presence of highly growing informal sector; the presence of this sector is a challenge for taxation, regulation, financing, reforms, provision for social services and efforts to alleviate poverty.

The informal sector in Tanzania consists of mainly the unregistered and hard-to tax groups such as small scale traders, famers, small manufacturers, craftsmen, individual professionals and many small scale businesses. The number of informal operators in Tanzania is growing very fast and their share to the GDP is large (currently estimated at 40% of the GDP); indicating that when they are not taxed substantial amount of revenue is lost. On the issue of income tax collection from the sector; few success lessons can be drawn from countries such as Ghana and Cameroon.

Studies in Tanzania have indicated that Formal Business Owners and Workers are complaining for paying more income tax while some informal operators earn substantial income, yet they don’t pay income tax and enjoy the same services provided by the government. The complexity of taxing the sector arises from its characteristics that include: Absence of business premises, mobile nature of the operators, high tax collection cost, aggressive nature of the actors, cash operation and absence of data and information; these characteristics make it hard to tax the sector, hence posing bigger challenges for income tax revenue collection.

The Objectives of the topic are:

I. To indicate the importance of the Informal Sector in our Economy

II. Researchers in some countries have indicated that the revenue lost when the sector is not taxed amounts to 35-55 per cent of the total tax revenue. Hence, the sector presents an opportunity to broaden the tax base.

Based on the above explanation and objectives; I would like TAKNET members to discuss this topic while trying to find answers for the following questions:

1. What should the government do to make the informal sector operators pay relevant income tax?

2. With the challenging characteristics mentioned above; what suggestions would you offer to the government?

Yes Mr.Maro I read a similar thing concernig TRA’s information.However, the users of the Electronic Fiscal Devices have been complaining.This can be because most of the users are not familiar with the electronic system or don’t have computers of their own.At one point one user wanted somebody from TRA to come to his office and train them on the system.Therefore there is a great need for TRA to educate the public on this electronic system.

I again give the example of the Swedish Tax System.Any citizen can log in the website of the Tax Department and ditected with detail information in the website how to make tax declaration.Therefore TRA should have a website whereby all infromation about taxation has been carefully explained in a simple way.There should be also question and answers of dirrerent situations in the website.TRA has to visit each customer and explain in details about its electronic system.

The government is in need of the tax money and TRA has no short cuts!

Dr.Khamis

Sweden

Indeed Mr. Apronius we can blame the Ministry of Land for not beig able to survey several plots.But the blame goes also to us who own houses built on government soil since we don’t pay the land’s rent.However it does not cost so much to survey plots around big towns and Dar es Salaam since there will be no field allowances required to do the job.The modern survey equipment are very efficient and can be employed to survey several plots within few hours.Some of them are computerised and make the calculation jobs for cordinates easier.They can also  use the GPS-system for cordinates.This system uses Satellites  and can give the position.

Dr.Khamis

Sweden

The national budget for the 2010/11 financial year is set to rise to 11.1trn/- from the current 9.51trn/- with foreign aid funding nearly half of it.

Several members of the committee who contributed to the budget preview questioned foreign dependency in the budget.

Mr.Hamad Rashid Mohammed was equally worried as to how the government is going to survive with a revenue shortfall of 900bn/- when the donors have withdrawn budget support.

There are indications of increasing the domestic revenue by reducing the tax exemptions in the mining sector. Actually the government could take away this sort of tax exemption for all sorts of mining in the country.

Since the Local Government Authorities consume about 70% of the total budget there is a great need of looking at their performance. They should reduce their expenditure by 10%.

Dr.Khamis

Sweden

“He however said that the current inflation was also contributed by the increased transfer of money outside the country as the election nears.

“There is a tendency by some Tanzanians to transfer their money outside the country when election approaches …this may have contributed in one way or another to the prevailing inflation,” he said.”

Tanzania has an inflation of 9.4 percent whereas Uganda had 2.04%,Kenya 3.7%,Burundi 5.6% and Uganda had 5.9% inflation.

But the interesting thing here is how come these Tanzanians can be able to transfer their money outside the country when the general election approaches. In what currency is this sort of money transfer conducted. The question also arises: Who are these Tanzanians? Are they not the tax evaders?

An ordinary Tanzanian can’t do such a thing. These must be politicians, businessmen .Are they being tax before they make money transfer to their foreign accounts abroad?

In Sweden your bank accounts are part of tax declaration and the money in the accounts are being taxed. The banks automatically send the information of your accounts to the tax authority and a copy is sent to you. Tax declaration can be conducted through Internet by logging yourself into a Tax authority website with your provided personal code.

Such a system could help tax collection in Tanzania

Dr.Khamis

Sweden

I am glad to note that we Tanzanians in this discussion group have come to the same conclusions as the Swiss ambassador residing in Dar es Salaam.That foreign aid is not good for our country and we just have to use our natural resources,implelement good governance,accountability and figh corruption.We can collect reasonable tax from the public and with the combination of our natural resouces create a  donor free budget

“Adrian Schlaepfer, Switzerland’s Ambassador to Tanzania, said in wide-ranging talks with IPP Executive Chairman Reginald Mengi that the donor community would thus be doing African countries a great service by supporting their anti-poverty initiatives.

“The age-old reference to African countries as poor nations is a sad distortion of facts that has made them feel that they are incapable of moving along without foreign aid,” he noted.

He said there were many areas where Africa could excel using its own resources, examples including drives aimed at enhancing good governance and accountability in the public service as well as the war on corruption

We have also challenged the government to come up with priorities. But now it has identified its priorities as agriculture, energy, infrastructure, industry and finance.

However foreign reserves increased to USD 3,551.3 million that was enough for the government to import goods for just six months!This is a critical situation and requires the need of reducing the government expenditure.

Dr.Khamis

Sweden

Thanks Mr.Apronius what you are indirectly saying is that we should not vote for them since they don’t function properly in government.We can’t make them be responssible for their mistakes made in wrond decision.

Well yesterday the Swedish government removed the General Director for SIDA simply because of lack of responssibility in dealing with the money the Swedish government has sent to Zambia.It is believed that there were a lot of corruption involved in that help that was sent from Sweden to Zambia. This means the Swedish Tax money was wrongly used in Zambia and therefore the Swedish General Director of SIDA has to be chased.

This is a sort of  action that Tanzania government should do to all those corrupt leaders in Tanzania who use public money for their own benefits.That is why we have to depend on donors since we cant pay excess tax.

Dr.Khamis

Sweden

” The Tatoa spokesperson told the Parliamentary Committee for Infrastructure Development in Dar es Salaam yesterday that the government’s decision to waive tax on paraffin was denying the government 33bn/- per month in taxes as transit fuel was not taxed.”

I have just noted that corruption is the source of our bad economy and donor dependent budget.how can transit fuel via Dar es Salaam Port be offloaded(as tax free parafin) into the 85 Tanzanian trucks without the knowledge of Tanzanians working at the Port.

Please don’t just tax the public in excess due to the mistakes made by the government itself.

Have responsible person at the point to have accountability,responsibility and good governance in place so that the country do’t loose such a huge amount of money monthly.Get those culprits in jail.

Dr.Khamis

Sweden

Thanks Dr.Mutalemwa for the excellent explanation of the whole problem of budget and taxation.In short the ”common sense” is no longer common in our government.Actually the public would like to see the product of their taxation.If people just pay tax and see that the roads are very bad,the education is worse, the health care or hospitals are in problems(eg.Bombo hospital in Tanga) while “vigogos” drive  BMW there will be a tendecy that they(the public) will refuse paying tax.Mr.Apronius:

In Sweden we pay tax (between 30% to 45% of salary) but our children go to school and some of them are driven by buses to school and we don’t pay school fees.We go to hospitals and be treated free of charge.When we retire at the age of 65 we get our monthly pension from the government without problems since we have already paid tax.The pension money is also being taxed (30%).Every one who owns a vehicle has to pay a road license depending on the type of car one owns.This is a contribution to road construction.The government owns some mines(LKAB-iron mines) and some forests and industries.

Responsibility:Tanzania government has difficulties with responsibility.It is not a crime for a government to own gold mines since the mineral is so important in bringing foerign currency to the country.Here in my example,the Swedish government owns iron mines since iron is very important for the country.

Priority:The government has failed inprioritising its projects and this is a dilema in good governance.

Accountability:This generation is a lost generation since its leaders have failed to accept what they have done wrong and if possible resign fot the wrong doings.Lack of decision.

Any household knows that he/she can’t exceed the monthly budget so what are the priorites for him/her? Yes,food,clothes,hospital and transport so that he/she can reach the job place.He/she make shure that children go to school and pay school fees if required.

If ther is something left in that monthly budget,then there will be space for cinema or parties etc.

Is it so difficult for our government.We have all the natural resources including 40million Tanzanians.What is the problem?

Dr.Khamis

Sweden

Dear All,

I wish to comment on a lateral  issue invoke with respect to taxation, i.e. about raising the development budget to 70% of total budget allocations.  

Whenever we talk about the public or government budget , we should always  hypothetically reverse  it back to the level of individual citizens who in their totality make up the public. The way the individual’s budget works is to give first priority to daily self-maintenance  (food, shelter, treatment, washing, etc ), the developmental aspects  like building a good house, buying a bicycle, buying a bed, visiting a friend, etc) come second. In that order, the percentage of expenditures of time and money decline accordingly. The second hypothetical principle is to use “grand-mother’s logic”: she goes to the garden with a basket to pick food items and fills it with the produce she finds in the garden in item  proportions  that depend on two things: (i)  the fruits, vegetables, tubers, etc, that are available or have ripened for plucking and (ii) the precise household needs of the day.  Why when it comes to the  national  budget, we brash aside these two principles of  common sense  is sheer ufisadi.  Any corrective initiative nationally must start from these principles, i.e. (i) spending  what is available and (ii) spending on our prioritized requirements  , which includes  the need to give priority to recurrent costs to ensure that we maintain our acquired assets (e.g. roads, railways, hospital, schools, etc) in effective working status.

Going back to the taxation issue:  when the social and  public utility services are working properly, the general public can then be educated to appreciate  the merits of taxation and the need for EVERYBODY to chip in  in order to gain legitimacy to question the government  for shortfalls on the quality of the services it is providing. The principle of participatory democracy has three  dimensions, all carrying the  twin aspects of rights and responsibilities : (a) to participate in  elaboration and installation of democracy , then (b) to shore up its financing and then, ( c) to carry out its monitoring to enforce accountability.

Deo Mutalemwa

First of all I have to correct the typing mistake.The swahili phrase is “PONDA MALI KUFA KWAJA”  and not “kwajaja”.

Secondly Mr.Gertrude has pointed to a course in the transformation of states into accountability system that has been delivered this year in Morogoro.One wonders how many leaders have participated in such a course. Well we should employ all methods of helping the government to reduce its expenditure.

If such a course could be modified and simplified and given to O-Level students and University students can be useful in the future.These a the would be future government servants.

Dr.Khamis

Sweden

Thanks Mr.Shighula,simply speaking, our leaders are the ones who are destroying Tanzania.I have mentioned about reducing of driving government vehicles during Saturdays and Sundays because this action will reduce the use of petrol very much and save the money of the tax payers.If you look at every year’s budget you will find the money allocated for the purchase of petrol/dissel is too much.Please go through each ministry as see for youself how much a ministry spends in petrol/dissel per year.

I have worked in Sweden for almost 30 years but can’t afford driving VX  V8,BMW.In Europe we drive cars that consume 1 litre petrol per between 10 km to 15km .

Yes Mr.Ruchwa there should a “shift of mindset from being CONSUMPTIVE to INVESTIVE” for country to develop.However,shuch a switch is not in the mind of our leaders.They have a swahili saying in their minds and that says “PONDA MALI KUFA KWAJA”.That is the reason why they have not considered in investing in our gold mining in the country and just wait to receive 5% royalty.

We(as a country) can’t just live on handouts from donors.It is a big shame.Shall our coming generations also depend on donors?

Indeed Mr. Apronius we have serveral promlems on being tax collection.But if we can systematically solve this problem we can apply similar methods to other problematic institutions.

Dr.Mutalemwa the over spending nature is in our blood veins,we can see in our weddings!We can break this vicious circle by educating the young ones at schools and universities.We have to plant sort of “economic mind” or “economic way of thinking” to pupils and students with a hope that they will change the future nature of our budget.

Dr.Khamis

Sweden

Thanks. I think Dr. Mutalemwa hit the nail on the head. Here at the Centre for Social Accountability, a centre affiliated with Rhodes University, we offer a Certificate course in on the transformation of states into a social accountability system. The course brochure is attached. We are in the process of developing this course into a degree programme up to Masters and PhD levels. Last year we also developed a simplified and localised version of the Certificate course for civic actors and oversight bodies to monitor public resource management in a more informed and systematic way using the public resource management processes in Tanzania. The course was delivered for the first time in Morogoro in February this year and is coordinated in-country by Policy Forum.

This course tries to address the concerns raised by Dr. Mutalemwa below. Anyone wanting to know more about this can either visit our website www.icount.org.za or www.psam.org.za or you can contact Policy Forum in Dar es Salaam info@policyforum.or.tz for more information about the Tanzania-specific version. When we piloted the course last November, we had observers present from both central and local government and I believe they found it useful. Here in South Africa we currently offer the course twice a year.

Apologies for my shameless advertising but I really do believe that this addresses, at least at some level, Dr. Mutalemwa’s questions.

 Gertrude

Dear All,

WE have said a lot about government overspending  vis-à-vis available resources and skewed priorities in the allocation of public resources. But then how do we get out of the current predicament,  since the habit  is being deeply ingrained in the national culture? From the very top (parliament, etc,) we condemn the situation in general terms but we do not want to be personally touched by measures aimed at reducing public expenditures. In my recent (private) review of the source of irresponsible public expenditure psychology, I found that this type of  ufisadi is  rooted in our societal values that are increasingly  giving high premium  to festivities, travelling, and psudo-official remunerations  that are often disproportionate to or unjustified by output or outcomes.

Taxation of the informal sector would in principle make a lot of sense: it would expand the tax base. But it will not succeed until we plug up the bottom of the public budget. The JuaKali people know that the budget pot is being  leaked (or licked) by those in privileged positions.  They will not “be holier than the Pope”, so to speak: they will hide and use all means to avoid taxation.

Thus the question remains: how do we start to break the vicious circle?

Deo Mutalemwa

Frankly speaking, this has come on a right time. It is a god lesson that we have to learn. We can not continue spending much than we can raise. Government expenditure is very high. This can verified as expenditure allocation is higher than development allocation. Our govt has to learn to spend less and this is possible. Just imagine the so called safari za viongozi takes a big position of the cake let alone manunuzi ya mashangingi which in reality are not needed, they are just a want by our leaders.

This country can not move ahead unless the budget allocation for development reaches 70% of the total budget allocation each year which currently is the vice versa.

It pains very much seeing a grand ma eating one meal a day while our leaders are driving on VX V8, BMW, the range rovers and ..... which use 1lit  per 4 km X 30 km per day  X 1500 shs per lit which is almost 180,000 shs a day is spent by one vehicle.

No one will make changes to this situation, it is me and you. The chances are coming dont make mistake.

Shighula

I do understand Mr.Apronius that “ our budgets will continue being in crisis and the donor syndrome will continue”.However, I join those several economists who have now advised the government to refain from increasing the tax.Too much tax will create more black jobs ,tax evaders and impose a big burden to ordinary Tanzanian.

The only way out is for the government to decrease its expenditure.The government can reduce the use and importation of petroleum.When we had oil crisis in 1974 all government vehicles were in parks from Friday at 4pm to Monday at 7 a.m.Government servants and parastatal employees were not allowed to travel without a permission from their department heads.The govermnet can reduce field allowances and even MPs allowances.It can also reduce the number of ministries for example it can merge the Ministry of Energy with the Ministry of Water. In 1970’s Madini was under the Ministry of Water.In this way the government can reduce its employees!

No one should be allowed to travel abroad without the permission from the President’s office.In this way we can reduce the treavel costs for ministers and government employees since the tickes are paid in foreign currency.The government should revise most of its projects and put some on hold.

Dr.Khamis

Sweden/Denmark

Dear all

This post continues to be interesting with some interesting proposals on the table.

Before I post, I would like to correct a mistake I made earler. Below are the correct listings for aid as a proportion of budget revenue. I apologise for having misled you earlier.

I had said we were the third most aid-dependent in the world in terms of aid as a proportion of budget revenue. I went back and checked my formulae and realised that their was a calculation error in my spreadsheet. In fact, of all the countries reported to receive aid  who have budget revenue data that is accessible, Tanzania is actually number 42 in the rankings out of 176 countries.

Thank you Godwin martin, you have hit the nail, what comes first is the policy, then policy should be integrated with implemetation. Now so long we dont know where we are heading every point is our last destination. lets us have a clear guide from the policy , we lay down a strategy to collect and make measurement of our success or failure and learn out some lessons. infact we have a base to learn. should we decide to change and put things on  a ruler we can say yes we can.

we do not need saints in Tanzania we need Plans and laws to enforce the policies , if the governance is at that level then implementation is just simple.

the rule of law.

Thanks

Mabamba

I am afraid wild blanket allegations like Dr. Khamis is making e.g. "Those who can advise TRA on taxation are some of the big shorts and they are the tax evaders! They are there in the Ministry to sabotage any measures concerning the different ways of tax collection." and " the"big shorts" do not pay tax and they actually own most of the informal sector" are unfortunate and negate objective analysis. Do you have the evidence au ni gumzo tu la kufurahisha wanamtandao?? There are only 350,000 civil servants in Tanzania and of those hardly1% are in policy-making positions, let alone at the TREASURY!!!! Haya ni matusi kwa wananchi wazalendo wanaotumikia Taifa hili kwa uaminifu. By the way the right word is big 'shots' not 'shorts'.

NPS

Well my comrades i could say ”MY WORDS HAVE COME TRUTH” since in my previous contribution I noted that one day our donors will refuse supporting our budget.Now this has happened.   

“This is a critical situation if the donors are not going to contribute US$ 220 million most of our projects will be on hold;

Had we have all the taxation measures in place this donor threat would have not been a budget headache for the government.If we(the government)had 50% shares in all gold mining companies in Tanzania with a recent price of about $1240 per ounce we could have financed all our projects in the country.

Dr.Khamis

Sweden

Bahati mbaya sijafuatilia mada hii toka ilipoanza kwa hiyo naweza kuwa narudia yaliyosemwa. 

Kwa maoni yangu, ili kuimarisha taxation ya informal sector yafuatayo ni muhimu.

1. kuifahamisha jamii maana na tafsiri ya informal sector Tanzania. Najua kuna studies za kutosha kuhusu mada hii, lakini nyingi hazijawekwa katika lugha ya kutumiwa na wadau. Wasomi husika wasaidie kuzichambua na kuweka katika lugha na mfumo unafikia wengi hususani viongozi wa ngazi za msingi (wilaya, kata, vijiji/mitaa) ambako ndipo biashara hizi zinafanyika.

2. Kuweka mfumo mzuri unaosaidia kuwatambua wadau wailioko katika biashara hii ngazi ya vijiji na mitaa, ambako ndiko biashara hii inafanyika. Orodha hii iwe inapitiwa kila mwaka (mwezi desemba) ili kuwa na makisio ya kiasi kinachoweza kukusanywa katika sector hii na kuchangia katika bajeti ya taifa inayofuata. orodha hii itasaidia wilaya kufahamu zina fursa na nguvu kiasi gani cha kukusanya mapato ya kodi, ama kwa taifa au kiwilaya

Changamoto ni kama alivyosema mchangiaji (dr. Khamis)-Wamiliki wengi wa biashara na huduma ya  sector hii ni baadhi ya viongozi na wasimamzi wa kodi.  Wnegi wamezivalsha biashara zao ngozi ya kondoo....kwa majina ya wtu wengine, lakini ukitaka kuwatambua kuiwa na fisi halisi, wewe gusa biashara hizo kwa njia ya kutaka zifuate haki na sheria-watavua majoho ya kondoo tu! Wengi wa hawa vijana wameibuka na utajiri au umiliki wa mali zisizoweza kuelezeka.... ukilinganisha kipato chao, muda waliokaa kazinina hata aina ya biashar wanbzofanya. Hii ina maana kuwa wanapata "super profit" isiyolipiwa kodi.

  Inaendelea hapo chini

3. Kuwekwe utaratibu wa vivutio (tax incentives) vinavyosukuma wafanya biashara katika informal sector kulipa kodi bila kusukumwa. Kwa mfano, moja  ya kigezo cha kumwezesha mfanya biashara katika sekta isiyo rasmi kupata mikopo ya benki au kutoka katika mifuko maalumu ya serikali ni rekodi yake ya kulipa kodi katika miaka miwili iliyopita (hapa izingatiwe tabia ya kulipa na siyo kiwango). Dhamana za mali na vitu vingine ziweze kutumika kama security, lakini tabia ya kupenda kulipa kodi iongezwe. Nina uhakika kun watu wnaotka kukua na bila shaka wanavutiwa kulipakodi buila kuskumwa.

4. Kuwe na mfumo wa kuwatambua na kuwaheshimu (kutoa zawadi) wafanyabiasha wa sekta hii walioonyesha ushirikiano kiwilaya na kitaifa kila mwaka.  Tatizo tulilo nalo Tanzania ni utungaji wa sheria nyingi zenye maudhui ya kuadhibu tu na siyo kuvutia. Pale ambapo sheria za vivutio zimewekwa hazimgusi mtu wa kawaida….

4. Uwekwe utaratibu wa kuratibu wa kuwekeza katika kuboresha huduma na miundombinu za maeneo kunakofanywa biashara hizi. Kwa hakika siyo rahisi kumvutia mfanya biashara katika maeneo ya masoko yetu mengi nchini- iwe kariakooo, temeke, kibororoni, makuyuni nk kutoa kodi! Nina uhakika mtu akiona faida ya kodi yake inamrudia haraka, haihitajiki nguvu kubwa ya mgambo (Majembe Auction Mart) wala semina za kumshawishi kulipa. Itachukua muda muda watu kubadilika lakini lazima tuchukue njia hiii…inalipa.

Tatizo la Tanzania ni ile tabia ya viongozi wetu kukiuka taratibu za kisera na kisheria za jinsi ya kuweka vipaumbele.

 Inaendelea hapo chini

Kwa mfano, mtu anayefanya biashara ya daladala katika jiji la Dar es Salaam anavutiwa na nini cha kufanya alipe kodi bia kusukumwa? Angalia miundombinu za barabara ya makumbusho, tandika, mwenge, Ilala, kigogo, nk. Kwa mtazamo wangu, barabara hizi zinatoa mchango mkubwa katika uzalishaji, biashara na huduma kwa jiji na zina watumiaji wengi sana  kwa siku (ukifanya sensa itathibitisha. Lakini kipaumbele cha kutengeneza barabara (tena za kiwango cha lami) kimewekwa masaki, osyterbay na mikocheni! Watumiaji wengi wa barabara hizi wana magari mapya tena “four wheel.”  Wengi wa wakazi wa maeneo haya ni watumishi katika serikali na mashirika na kwa mantiki niliyosema hapo juu, baadhi wanamiliki biashara mbalimbali katika sekta isiyo rasmi na hawalipi kodi.

Maswali ninayojiuliza…ni kigezo gani kilitumika katika O & OD ya wilaya ya Kinondoni kuweka vipaumbele vya matengenezo ya miundombinu na barabara? Fedha ya kutengeneza barabara hzi imetoka wapi kama siyo kodi ya wakazi wa kinodnoni wote? Hata kama ni ya ufadhili toka nje, bado imeingia Kinondoni na ilitakiwa itumike kwa uwiano!. Sasa mimi mpika chips ambaye nachukua bidhaa kariakoo nitavutiwa na nini wakati kuleta gunia hata kwa “guta” inanigharimu maradufu? Mimi mkazi wa Msasani ninayesumbuliwa na adha ya mafuriko kila kukicha kutokana na miundombinu mibovu ninavutiwa na nini kulipa kodi?

Kwa kifupi, ili kodi iweze kupatikana, tunahitaji mapinduzi ya kifikra na kusaidia watanzania kuweka uzalendo mbele badala ya ubinafsi. Wanaoendekeza ubinafis huu hawajatambua kwamba  ni sawa na mtu anayevuna maembe kwa kuvuta na kukata matawi. Kama alivyosema chura kwa watoto….. “mchezo wenu wa kutupa mawe ndani ya dimbwi la maji ndiyo mauti yetu”

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Japhet Maingu Makongo
Ubunifu Associates Ltd
P.O. Box 32971
Dar es Salaam,

TANZANIA

Tel:       +255 22 2762027
Mobile    +255 754 571 256

Dear Comrades!

I am new in this forum, and I think its better if I introduce myself first. I am Edward Ng'wandu, I work with Pride Tanzania ltd in Dar es salaam.

Informal sector taxation in Tanzania is really not in good shape and that is largely contributed by lack of creativeness in TRA especially in tracing the newly ermerging business opportunities which are curently operating within Tanzania, and those which had already emerged after instituting the TRA. However some of these businesses are not known by TRA hence not included in taxation and the systems of taxation in Tanzania do not acknowledge those businesses. The government loose a lot of money because of this.

Right now in Tanzania there is this "bodaboda" business which is curently emerging but one does not know where to registrer the business and pay income tax. it is currently operating as an informal business while it shouldn't be!

Thanks Mr.Gertrude ,I hope you are doing well at the Rhodes University! You have given us another scale of Tanzania’s recipience as 16^th and poised a question if we are really a third aid largest recipient in the world.Yes indeed there is no doubt Tanzania is the third largest aid-dependent country in the world.Just imagine since our independence the country Tanganyika that turned to be Tanzania in 1964 has received enormous aid ,just to name a few, from Scandinavian countries (Sweden,Denmark and Norway) up this date.Sweden helped Tanzania with water exploration, drilling several wells and privided it with pumps to several villages.But still at this moment there are many villages without suitable drinking water.Sweden helped Tanzania with a Scadia-factory in Dar es Salaam and ask yourself what happed to that factory that was badly managed.Sweden through its state mining company namely LKAB helped Tanzania in one gold mine in Tanzania and through its private International Mining company, namely Boliden Mineral AB (Contec) helped Tanzania in renovating the whole TAZARA railway system.Have we now good railway system in Tanzania?Not at all and that is the reason why we have several dangerous road accidents coslting many lives in Tanzania.Passenger trains have failed to function properly.

One day our donars will say ENOUGH IS ENOUGH you as a country with so much natural resources have to depend on yourselves economically.Is our President,Prime Minister,Ministers and MP’s not ashamed of this third aid recipient world position?

Let all of us pay tax. I hereby suggest that TRA should increase the indirect tax from the present one to 30%.That means all Tanzanians have to pay 30% indirect tax to anything they buy.If you buy sugar you have to pay 30% on top of the ordinary price and that 30% goes to the government.If you buy a car you have to pay 30% on top of the ordinary price.If you buy a bus ticket you have to pay an extra 30% on top of the ordinary charge.In this way the government will have sufficient money for development.

Let us freeze all MPs salaries to the present level for at least 5 years and all government servants.

Dr.Khamis

Sweden

I think when the government was brain washed with the notion that "Government don’t do business, leave it to private sector" has totally eroded the creativity within the public system. I think this working paradigm is the main source of development problems we are experiencing in our country. I don’t believe a country can develop if we don’t have business minded leaders in public service. I don’t mean ever leader should have business but in their decision they have to think "public profit" and "public loss".

This discussion has inspired me to think differently on how public issues are done particularly taxation. Mr. Rah and all others who have contributed in this forum have shown is just the will and determination of the responsible officers is needed. This is where I thought we lack business-minded leaders. How can TRA allow a royalty of 5% to gold and tax exemption yet you have a country budget depend 40% from donor? And the sole responsibility of TRA is to collect money for the budget. There is genuine cause for looking on the fiscal policy and explore how can TRA be more involved with other ministries and agencies.

I was imagine if the informal sector is about 90% of all the economic activities making TRA unable to tax and there are many government and non government agencies trying to make these activities formalized, I think TRA need to work close with these institution. They shouldn’t wait to milk. They have to work closely with the entrepreneurs on a win-win situation to make them feel not ripped-off. In this way TRA should have a comprehensive tax payer’s data base which should have many different tiers according to their capacity make taxable income.

TRA should have been working hard to make sure the environment of doing business is efficient to the extent for us to feel guilty of not paying tax. They must work closely with other government agencies and not in isolation. This should be instituted gradually depending on where they want to raise more tax. For example if they want to raise tax from informal sector they should first make sure the stage is ready by improving the working environment. This can only be done by collaborating with other responsible ministries. They can start one area and shift to another at the end the entire informal sector will be covered.

First of all we are informed that the”big shorts” do not pay tax and they actually own most of the informal sector.Secondly we are afraid of making the right decisions concerning taxation.This means that we can’t solve this problem and instead we have to depend on donors to finance our yearly budget since it is cheap in this way!

Those who can advise TRA on taxation are some of the big shorts and they are the tax evaders!They are there in the Ministry to sabotage any measures concerning the different ways of tax collection.That is the reason why the Ministry rejected the DPs suggestions since it is not difficult to collect more revenue.The donor country was ready to give assistance so where is the problem.

We should be able to give the right decisions no matter how painful it can be sometimes.If we want this country to be really economic independence, have a good development politically and socially,eradicate poverty there are no short cuts.Development does not come on a silver plate.It requires hard work!

Dr.Khamis

Sweden

Dear all

 I am fairly new to this forum and this is my first post, so I thought I should introduce myself first. My name is Gertrude Mugizi and I work at the Centre for Social Accountability at Rhodes University. I am, of course, Tanzanian, assuming that should go without saying.

 I find this thread very interesting and agree with most of what has been said so far.

 I totally agree that record-keeping is a problem in our government, not just in TRA but generally right through the public sector. This was also acknowledged in the Performance audit of several sectors issued by the National Audit Office last month www.nao.go.tz in all the sectors that were audited. It is also raised by the CAG almost every year with little improvement noted over time. In the discourse this is normally. This systemic problem affects not only revenue collection but service delivery and the effectiveness of the public sector in addressing the human needs we elected them to address. In the past, we have tended to refer to the problem as a capacity issue, hence huge allocations to training and workshopping in the budget. This suggests a commitment to the process of capacity building without a commitment to actually building the capacity itself. Surprisingly, we keep pouring more and more money into what has become a distorted incentive within the public sector, despite the Prime Minister’s decree, and then say we have no money to increase salaries.

When is the government going to do a performance audit on what this training has actually delivered? I propose that the next performance audit be conducted on the allowances (in all its different names and forms) budget. But it should be with the express purpose to identify a better way of managing the huge improvement that is essential for the effectiveness of the public sector in doing the job of delivering high quality services. Studies have shown that generally voluntary tax compliance increases as people’s faith in what the government is doing with their taxes increases. Voluntary tax compliance is necessary to persuade the informal sector potential taxpayers to even allow themselves to be identified. It is also important in persuading the public to assist the government to identify non-taxpayers. Apronius referred to occasions when he was aware of non-compliance in the past but saw it as the job of TRA to come and hold the perpetrators to account. If people do not see their taxes as being used to serve them, they disassociate themselves from the responsibility of collecting, and leave this to the government, making the job of the government of broadening the tax base even more difficult.  I therefore think that the only real way to reduce aid dependency sustainably in a country like ours must begin with the public sector becoming more effective at obtaining better and more sustained value form the resources that we have to restore public faith in the government and its institutions. This means a better managed public sector that is properly incentivised to deliver better quality services, rather than sustaining the perverse incentive to demonstrate a lack of capacity so that people can qualify for more workshops which are becoming increasingly lucrative.

Dear Compatriots,

 If we argue in the manner below and defend our shortfalls, we shall not be able to improve and sustain ourselves as an independent state.

Our people should be motivated to meet their obligation to State and in return the State should give us back

In terms of social services very honestly and sincerely.

Shabbir A Zavery

From: taknet@esrf.or.tz [mailto:taknet@esrf.or.tz]
Sent: Friday, May 14, 2010 11:13 AM
To: tbp@brush.co.tz
Subject: TAKNET::Informal Sector Taxation in Tanzania

Rah Kachwa Has sent in the following Contribution::

Some of the features of informal sector in Tanzania are:

. There are a great number of individuals and thus difficult for public officials to control.

. They are at a low-income level, yielding little revenue.

. They make up a conflictive segment, generating high political costs.

. Their business organization is both poor and inefficient. they are not sophisticated and most of them dont keep records of their transactions.

. They operate in the underground or informal economy.

Thank you Godwin martin, you have hit the nail, what comes first is the policy, then policy should be integrated with implemetation. Now so long we dont know where we are heading every point is our last destination. lets us have a clear guide from the policy , we lay down a strategy to collect and make measurement of our success or failure and learn out some lessons. infact we have a base to learn. should we decide to change and put things on  a ruler we can say yes we can.

we do not need saints in Tanzania we need Plans and laws to enforce the policies , if the governance is at that level then implementation is just simple.

the rule of law.

Thanks

Mabamba

I have followed the discussion and what I have conceived is that we need to have leaders who are strategists, tactical, synergistic who set goals and act as per laws and regulations can administer. For any development or growth to take place, we shall not forget or leave behind, political will, partriotism,commitment , determinations to reach to these aspirations. the problem is not what we collect, is how we collect and spend. 

To be able succeed, we neeed to integrate both practice, and theoretical documents, but at large we need to change our attitudes towards somethings. when we refer every thing happening with developed countries,to me that means experiential learning, but we should not always adopt systems, but whatever brought should be adapted to our own environment.

The solution I would suggest, first lets us be professional,let us consider the primary things , the basis for Production, if you invest less in production, you will always reap the little. let Economist, forecast the future destination, and that should be the guide for the leaders.

let the Implementers, including the private sector, informal sector, and beneficiaries follow the principles of projects management, lets have close checks and rechecks (M&E), lets make informed decisions based on researches and development centers, and these should be financed well. then lets embrace good governance as a nation, hardworking , focused and design, develop and improve our strategies towards improving our GDP.

In simple term I would suggest to be able improve the taxbase the following specifically should be considered:

Manufacturing sector should be improved and supported, this requires heavy injection of funds into R&D,

we should have decissive and enthusiastic leaders at fore front, we should determine to improve our infrustructure not by support from outside but involve communities so as to develop a sense of ownership, in short a system approach 

we talk about efficiency and effectiveness but without improving our attitudes towards public goods and assets nothing will be achieved.

where there is order and peace there is organization, but in hell  every day is scramble and grabing of whatever comes. People restrain to pay tax because the burden has been left to few people so they are unwilling to pay tax. 

In reducing business informality, efforts like MKURABITA should be increased.
In business registration, TRA should work very close with local leaders ie LGAs(villages/streets/wards etc) in recognising, identifying and registering businesses. This is because all businessess are conducted in local environment. then TRA should develep a database of taxpayers and update it regularly because one of the crucial factors for a proper administration

and supervision of any tax system is the existence of a

reliable and updated census or database of taxpayers

with their respective tax obligations.

Other strategies could inlude voluntary registration, builing a good relationship btn taxpayers and tax collectors etc.

Similarly the government must make efforts to provide the expected social services to these taxpayers.

By Rah Kachwa (dar, tanzania)

The tax simplification can inlude:
a)individuals engaged in retail business eg small food and

drink vendors and craftspeople can register on condition

that they comply with some requirements as to

turnover, business capital, unit price, and types of goods.

However since they contribute to a greater part of our businesses, then it is imperative that they pay taxes. Some of the strategies that TRA can employ include:

.Work toward the simplification of tax systems.

• Attain equity based on the taxpayer’s ability to pay.

• Increase long-term legal certainty.

• Apply certain taxes on a selectivity basis.

• Design a progressive income tax system with few

brackets.

• Establish a broad tax base.

• Strengthen tax administrations.

• Improve systems of tax control.

• Reduce informality in economic activities.
• Enhance taxpayer education

Some of the features of informal sector in Tanzania are:

• There are a great number of individuals and thus difficult for public officials to control.

• They are at a low-income level, yielding little revenue.

• They make up a conflictive segment, generating high political costs.

• Their business organization is both poor and inefficient. they are not sophisticated and most of them dont keep records of their transactions.

• They operate in the underground or informal economy.

In my mind, the problem lies at the policy level, ie Minister for Finance. We do not have competent people to direct  TRA. So, let us start with our fiscal policy. How good is it? How robust is it? What measures are in place to ensure it's effectiveness?

If we do not have the right answers, then TRA will just go on collecting the easiest taxes, on vehicles, Paye, and fuel. The rest, no body cares. 

So let's start at MOF. 

Thanks Mr.Maro in joining me in the campaign of increasing the TRA staff to down to a village level in order to curb the tax evaders. Yes indeed we have “ very good administrative set up” that is not beign or has not been employed by TRA.This shows the lack of implementation on the part of TRA and that is why we the problem of collecting tax.

During former President Mkapa’s time our budget was at 40% donor dependent and foreign mining companies were given 3 years tax free (tax exemption).This will be changed now I suppose although the 5% royalty on gold is low and will not reduce the donor dependence,I am afraid.However a mine investor is not producing mineral concentrates in the first 3 years so its is right to give the company 3 years tax free since drilling,analysing samples,removing soil for opening the mine pit costs a lot.

Probably TRA has to analyse the population figures out of this 40 million how many are students and how many are unemployed.In this way we answer the question of 12 million who should pay tax.

As pointed out by Mr.Apronius,Tanzania is th third in the world in terms of foreign aid receipt! The question is are we very proud of this third rank receipt position while we have enourmous gold resources,gas resources and other natural resourses.How many gold mines has Kenya so that they can have donor free budget?Is it not absurd?

There is a great need of changing the leadership in TRA and make it function effectively.

Dr.Khamis

Sweden

If one looks at these statistics (presented in this discussion) will surely understands our tax watchdog lack creativity to design a system that will capture nearly all sources of tax. It’s embarrassing to see a country with population of about 40million, only 590,909 pay direct taxes considering we have 40 years of independence. I agree we have about 73% of the population are working in tax free agriculture sector but this is equivalent to a population of about 28million where is the 12 million minus 590,909 who pay direct tax? Does TRA failed completely to catch this 11.4 million?

There is something wrong with the TRA and they do not advice properly the Minister of Finance in tightening up all the tax holes in the nation. Kenya has managed to have nation budget free of donors money by ensuring taxes are collected efficiently and nothing else magical. If one think critically will realize our country can have a similar budget. Currently with our narrow tax base we can raise about 60% of the national budget. If I assume the tax source doesn't exceed 3million units. This is about 3.3 times less than the potential source of tax (11milion) in the country. In other words we have potential of raising approximately198% of the national budget holding other factors constant (i.e. indirect tax payers etc). Isn't this enough inspiration to TRA to take a loan from development bank to employ more staff up to the hamlet level? If at all the problem of collecting more revenue is lack of staff.

Thanks Mr.Apronius let us assume that figure of 10mill potential tax payers is correct.We have almost 1 mill who pay tax and 4 million informal operators who don’t pay tax at all.But still we have unrecorded 5 million who should pay tax but they also don’t pay. This means the TRA has to increase its staff and probably every village has to have a TRA officer who works together with village leader in order to collect tax.Every company has to have a TRA officer.This can be tested for a period of two years since these TRA officers would have finished collecting iformation of those tax payers and put them in database.

Any country can’t depend on foreign aid in order to run its business or government.This is completely wrong.

Dr.Khamis

Sweden

Mr.Apronius is it true that Tanzania has about 10 million potential tax payers and only 600,000 pay direct taxes annually? This is given as a reason why the government has to depend on foreign aid (35-40%) in its yearly budget. Can you please check these figures concerning the potential tax payers.We are currently about 39 million people in Tanzania.How many workers work in government and companies in Tanzania?

Dr.Khamis

Sweden

Thanks Mr.Apronius to shed more light on the subject ”informal business operator” that includes some proffessionals.Private lawyers,accountants,doctors,economists,engineers all these people have offices and  employees.These people are easily detected by tax collectors and they have bank accounts.If a lawyer is sent to court for not paying tax he/she will have difficulties to explain himself/herself in the court.The same applies to accountants,economists and engineers.If their companies are not registered it their private work will be illegal.

Dr.Khamis

Thanks Mr.Apronius.We can see here that we have different figures from the research conducted in 1990,1985,2000/01 and 1985,and 2006 regarding the contribution of the Infromal sector to GDP.Therefore I would suggest that we make a research of the size of informal sector in Dar es Salaam,Dodoma and Arusha.I have chosen Dar es Salaam since its an expanding city and we shall have various kinds of informal business man.In tha case of Arusha, we have also various informal business including those private tourist operators.Dodoma has expanded from a village in 1974 and here we kand find established informal business operators.These three towns will act as indicators.

Before our independence 1961 and even after independence(I think if Iam wrong) every man had to pay what was called “KODI YA KICHWA”.Students and women were excempted from this type of tax.So the government can introduce “KODI YA KICHWA”  for those who are not working in the government and companies.But this time women (in the informal sector)have to be included as well as students who have infromal jobs.

When you id it means that all Tanzanians will be in a database.This database with that from the immigration department can be merged and directed to the tax department.Banks also have database or their customers savings and could be directed to the tax department.Those informal business operaters have bank accounts!You can tax them directrly through their banks!

Dr.Khamis

Sweden

It is very common the world over that the Formal Business Owners and Workers will always complain about tax issues.In some countries (in EU) companies have removed their company from one country and place it in another EU country in order to avoid high taxation as a result workers lost their jobs.Have we conducted enough research that indicates that the informal sector can contribute the estimated 40% of the GDP?

Well it is true that the nature of the informal sector make it very difficult for the tax collectors.However, if you observe carefully these informal business people are indirectly paying tax.If such an informal business man owns a car that means he/she has indirectly paid tax while buying that car.When filling petrol in his/her car he/she also pays an indirect tax since part of the petrol price is a tax paid to the government.As an example the petrol in Sweden/Denmark is at 2$ per litre(95 octan) and actually 50% goes to the government as tax.The same in Tanzania, a farmer goes to sell his/her product to the market but he/she pays tax while selling the product.

1.First of all the government(tax department) should make a law that any business has to be registered even if it is morbile,has no business premises(probably operating at home,road junction) or cash operation.This means even our sisters working in the streets or outside bars have to register their work.

I give example here from Amsterdam (Holland) that all those (sisters) working in the Red Street have registered their work and pay tax.

2.Such informal operators have to give receits to their customers while selling their products.

3.If we had an identity card for all Tanzanians this would not be a problem.We could get all the information from a database located at the tax department.This means the tax department has to computerise its work and register all informal business operators in the country.

Dr.Khamis

Sweden