How to influence Tanzanians to pay Taxes? (By Stewart MBEGU & Robina R)

How to influence Tanzanians to pay Taxes?  (By Stewart MBEGU & Robina R)

1. How to influence Tanzanians to pay more Taxes?

Abstract

Paying taxes lies at the heart of the fiscal contract between the State and its citizens. It is an individual decision for each taxpayer who will balance her or his incentives and costs to comply with the law. It is also a collective decision that will ultimately determine the Government’s capacity to deliver public goods, including infrastructure and social services. There is no blue print on how to balance these decisions as tax collection efforts and policy vary significantly around the world, even between countries with similar income levels.Tanzania currently collects approximately USD 6 billion in tax revenues per year, a figure equivalent to around 12 percent of its GDP. This covers approximately three quarters of the Government’s expenses. This is insufficient, particularly when other sources of funding, such as foreign inflows, are declining, or limited, such as borrowing and private sector finance.Tanzania’s need for funds is projected to increase dramatically in the coming years, partly due to its rapidly growing population.

    

1.    Introduction 

Few Tanzanians like to pay taxes. Yet, every day they travel on roads funded by the government; depends on hospitals, on the justice system and on many other services receiving public funds. Of course, they have the right to complain about issues of quality regarding public services. Any Government should be able to guarantee that tax payer money is used efficiently and transparently. While efforts continue to improve quality and efficiency of public services, all of them, have to do their share and pay their taxes effectively, (Levin 2004).

All countries need to secure a source of funding to finance their economic development. While governments may access a range of different sources of funding, depending on the role of State and the availability of alternative sources of funding in each economy, raising tax revenues is unavoidable for all except, perhaps, a small handful of extremely resource rich states. Many Tanzanians are reluctant to pay taxes because they see them as burdensome, unfair and lacking in transparency, (World Bank, 2015)

2.    How to influence Tanzanians to pay more Taxes?

To meet challenges tax payment, Tanzania will need to implement bold and innovative actions that go beyond the traditional administrative measures. This adaptation should go in three 

2.1    The system must be affordable; 

The actual cost of paying taxes is higher than on paper as demonstrated by Tanzania’s poor ranking in the “ease of paying taxes” indicator in the World Bank’s Doing Business survey. Here, the solution is to simplify the system. Tanzania should streamline the numerous small taxes, which impose a high burden on businesses without corresponding gains to government revenues. The Government must also reduce the use of tax exemptions. The explosion in the use of mobile devices represents a great opportunity for tax authorities to use accessible, cost-effective systems for taxpayers to make payments directions:

2.2    The system must be perceived as fair; In particular, it is necessary to broaden the tax base. In Tanzania, close to 90 percent of tax revenues are generated by Dar-es-Salaam, yet the city contributes to less than 20 percent of the national GDP. Almost half of Tanzanian VAT revenues on domestic transactions are collected from three sectors (telecommunications, beverages, and cigarettes). There is a huge imbalance between the taxation on labor and capital income. Tax collection should be diversified to under-taxed sectors and regions. Property taxes should be appropriately used not just to boost government revenues but also to improve land management. Smart innovations can also modify taxpayers’ behavior.

2.3    The system must be transparent; The Government needs to publish comprehensive, accessible reports on its tax collection efforts. In this area, theprivate sector can play a role. Some major telecom companies in Tanzania have announced that they will voluntarily publish full details of their tax payments. Such a level of transparency should be mandatory for all public enterprises and agencies. The successful Extractive Industries Transparency Initiative could be replicated in other sectors, especially in those dominated by a few operators, such as the tourism, finance and communications sectors, (World Bank, 2015).

3.    Conclusion

To ensure the implementation of an effective tax system, Tanzania needs to develop a strong fiscal contract between the state and the citizens. The Government should provide basic services to the country’s citizens, while citizens should be able to demand accountability from the Government regarding its expenditures. If this contract does not exist, citizens do not feel a moral obligation to pay tax. Instead they will resent paying taxes, feeling that they are not getting anything in return and that the revenues generated from taxation risk being misallocatedthrough corruption. The fiscal contract must find its foundation in three components: (i) an affordable tax burden and low transactioncosts; (ii) equity and fairness; and (iii) transparency and good governance.These factors appear more important in terms of increasing levels of revenue collection than the use of sanctions and strict controls.

4.    REFERENCES

Aiko R. J, (2013),Tanzania:Citizens’ Perceptions and Attitudes Towards Taxation, Tax    Enforcement and Tax Officials, Afro barometer Briefing Paper No. 122

Charle P, & Dhliwayo R, (2015) “Tanzania 2015” Available at             http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2015/CN_data/CN_Long_EN/Tan zania_GB_2015.pdf

Levin J, (2004),Taxation in Tanzania; Revenue performance and incidence,Sida, Country            Economic Report 2005:4;ISBN 91-586-8576-6

OECD (2011), “General government investment”, in Government at a Glance, OECD Publishing,            Paris. DOI: https://doi.org/10.1787/govglance-2011-15-en

World Bank (2015), Why Should Tanzanian’s Pay Taxes? The Unavoidable Need to Finance        Economic Development 7^thEd, Tanzania Economic Updates          http://www.worldbank.org/tanzania/economicupdate

World Bank Data, http://data.worldbank.org/country/tanzaniaretrieved on 1^stApril 2022 at          11:42 PM