Taxation and tax reform in Africa

Tax is central to countries’ development. On 2 April 2019, experts, academics and civil society met in Dar es Salaam to discuss key tax lessons from and for Tanzania. The seminar was organized by the Norwegian Embassy.

Ambassador Elisabeth Jacobsen gave the welcome address and put the issue of domestic revenue mobilization into a wider developmental perspective.

Odd-Helge Fjeldstad, Research Professor at Chr. Michelsen Institute, was the keynote speaker. He was followed by two panelists, Mr. Berlin Msiska (IMF East Africa) on “The future of VAT: Challenges in compliance”, and Mr. Emmanuel Masalu (Institute of Tax Administration) on “Taxing the urban boom: Property tax reforms”.  The event gathered about 50 attendees from Tanzania Revenue Authority (TRA), IMF, development agencies and embassies, researchers, the private sector and civil society organizations, and the media.

Africa has moved from the aid era to the tax era

In his key note speech, Fjeldstad began with trends in revenue collection for Africa.

At the same time, tax to GDP ratios for many African countries are well below what is needed for the countries to reach the SDGs.

For Tanzania specifically, the tax to GDP ratio increased from 7 to 13 percent between the period 2000 to 2018.

The Tanzania Revenue Authority (TRA) has been a pioneer in the African context on taxpayer education and outreach programs, and on non-cash payment of taxes. In addition, much has been achieved in Tanzania with respect to simplification of tax laws, regulations and rate structures, but more remains to be done. 

Fjeldstad highlighted four target areas for Tanzania to raise revenue in sustainable ways:

 1)    Tanzania has under-exploited revenue sources with high revenue potential

• Undertaxed natural resources: Mining, fishery, forestry and tourism.
• Extensive tax exemptions granted to both domestic and foreign investors

2)    Strengthen tax policy

Current weaknesses relate to:

• Unpredictable and inconsistent legislation, e.g. in the extractive sectors.
• Non-transparent granting of tax exemptions.
• Public-private sector consultations on tax policy reforms are generally weak.
• Dysfunctional working relations between national and sub-national governments on tax matters.  

3)    Strengthen tax administration

• Build capacity to audit companies operating in natural resource extraction.
• Strengthen the administration of VAT-collection. Currently, the gap between potential and actual VAT collection is among the highest in Africa.
• Improve the capacity to handle widespread non-compliance with Electronic Fiscal Devices (EFDs). 

4)    Create broader citizen engagement around tax and public expenditures

• Need for better and more visible connection between tax payment and public service provision.
• Engaging civil society, academia and the media in the process of building a “taxpaying culture”.
• These measures are about building trust in and the legitimacy of the tax system. Trust is a compliance enhancing ‘device’.

Concluding remarks

Attention should be paid to identifying entry points and priorities for reform, as well as to possible threats to successful implementation of reforms.

Caution is required in pushing for too many reforms too quickly.

The overall challenge in Tanzania is not only to tax more, but to tax better: more consistent, transparent, predictable, efficient, fair and honest.