AFRICANEWS

Tanzania

New Tax not welcome

The government of Tanzania is set to start charging Value Added Tax (VAT) as a way of enhancing revenue collection for the improvement of the economic and social status of its citizens. The system, set to go into effect in July will replace the Sales Tax which has been ineffective with revenue money misused and constant tax evasion.

Come July one, Tanzania will be the 19 th African country to adopt the Value Added Tax system. The tax will come into effect following the passing of Tanzania's VAT act 1997 by Parliament. The government hopes that this will double its tax collection like its predecessors in Ghana, Uganda and Zambia. The Tanzanian Revenue Authority says the government has set a starting rate at a single positive rate of 20 per cent. In comparison to other VAT rates in the region: Uganda 17 per cent, Zambia 17.5 per cent Kenya with a multiple rate structure the highest being 16 per cent and South Africa 14 per cent, the projected Tanzanian rate is quite high.

However some services which will be exempted, include unprocessed foodstuffs, health services, education, water, funeral services and renting of residential houses. The government, taking into consideration the dominance of the agricultural sector on the economy, has also exempted food and livestock supplies, pesticides, fertilizers and veterinary supplies.

The government expects that following its careful study of the new act and how it will affect the population, the tax system is expected to generate tax revenue. This will help the government not to increase its budget revenue by taxation at all costs. In this way the law has been tailored to do justice to social requirements so as to garner public acceptance.

Problems
There are some issues which the government fears may jeopardise the implementation and execution of the tax law. Nine months since the bill was passed, the government is still struggling to educate its officers on the relevance of the tax and the process of collection . The efforts are still a far cry from the competent and efficient bureaucracy needed by the still fresh Tanzania Revenue Authority which has been charged with virtually all the responsibility of the nation's revenue collection.

The TRA has been having a hard time training the officers on tax collection. A seminar held in the business town of Mwanza attracted a paltry 75 participants from the four regions, limiting the number to 25 trainees a week, a tiny number compared to the vastness of the region not to mention the number of trained people required to make President Benjamin Mkapa's government's idea for revenue collection a workable one.

Even if the tax achieved a good collection rate, most people would remain in the dark about how the government intends to use the tax revenue. The VAT law is set to be even more lenient now that the decadent sales tax under which traders were charged 35 per cent as compared to the VAT rate which will be 20 per cent. This low rate is in order to prevent undesired price increases and raise compliance. However, most people are unaware of these facts. A likely occurrence will be the continued evasion of taxes which plagued the sales tax, thus contributing to poor municipal functions. In order to deal with such evasion, the regional authorities had resorted to using informal security forces referred to as `Sungu Sungu' to track evadees at night . This was a show of desperation on the part of President Mkapa's government which sorely needs the revenue to sustain the economy.

Moreover the promised low VAT rate has not stopped the rise in the price of foodstuffs following a severe drought at the end of last year and crumbling road network following the El nino rain early this year. The prices of cereals have shot up from around US$40 to US$ 60, with rampant shortages in other commodities depressing the business sector. This means the VAT though exempting unprocessed foodstuffs will still weigh down the already weakened food business, with restaurants, hotels and supermarkets being forced to raise prices to cut down on losses. Processed foodstuffs; already expensive will cost even more with the mildest inclusion of VAT and as time passes, the industry will be crippled by the government's bid to doctor economic sustainability. Local farmers will be the most hurt. While previously they made high profits from direct sale of food processing plants, the buying prices will decrease as processors and the hotel industry try to make the best of a bad situation. Moreover with the continuing bad weather, farmers have little interest in taking their produce to the market for fear of starvation.

Corruption
Rated as one of the countries with the highest but rarely reported corruption rates, Tanzania might be opening an avenue for corruption as the VAT is introduced. Many businessmen might not see the need or feel the relevance of the VAT or its implications in the national economic policy and would prefer to grease the hands of administrative officers in the revenue authority.

TRA agents are a likely target for corrupt businessmen and powerful politicians who deal in imported goods in the East African region. As some of the members of Tanzania's first Multiparty government are involved in business, the validity and eventual success of the VAT collection process is in doubt. The same Cabinet and Parliament are under scrutiny by the IMF and World Bank, however the same people make up a sizable section of the business sector and it could prove difficult to handle an event in which they failed to pay their taxes. The Tanzanian government hopes that by instituting a tax with a greater compliance and collection rate, it will manage to reduce its national budget deficit. This is a tough objective to achieve. It is unlikely that President Mkapa can manage to jump-start the economy by the year 2000 or reclaim his "Mr. Clean" title unless he gets a second term in office. However even if he got the term the population will not stop to blame him for the economic hardships they are facing, neither is he likely to totally wipe out corruption. Hopefully he can raise enough money through the tax at least to strengthen the economy, however, to see if this will be achieved, one can only sit and wait.

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