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Support to the Tax Modernisation Programme

The Tax Modernisation Programme (TMP) is implemented by the Tanzania Revenue Authority (TRA) and jointly supported by UK, Denmark and Norway through a basket funding mechanism agreed with the Government of Tanzania. Technical assistance is also provided by the same and other development partners separately, but as an integrated part of the overall programme.

The Tanzania Revenue Authority [SSO1] (TRA) was established by Act of Parliament No. 11 of 1995, and became operational on 1st July 1996. TRA’s main mandate is to enforce legislation and policies that supports revenue mobilisation. Major legislations are the Income Tax Act (2004, revisited 2008), the Value Added Tax Act (2014) and Tax Administration Act (2015). The main tax categories subject to TRA’s collection are: (i) income tax, (ii) value added tax (VAT), (iii) imports duty and excise duty. In accordance to the Finance Act (2016) TRA is also mandated to collect property taxes from the financial year 2016/17.    

The overall vision of TMP is to increase domestic revenue through enhancement of voluntary tax compliance, under the mission “We make it easy to pay tax and make lives better”.

Domestic Revenue Mobilisation (DRM) is at the core of national priorities. Eventually, Vision 2025 (the vision to retain status as middle income country by the year 2025) and ability to finance development, will to a large extent depend on Tanzania’s DRM performance. The political ambition to increase tax revenues have been firmly confirmed by the administration of President Magufuli as a key priority. TRA is by far the most important institution in Tanzania to carry out this agenda.

Norway has committed NOK 48 million to the Tax Modernisation Programme for the period 2015 – 2018, consisting mostly of financial support to the basket fund. Additionally, approx. NOK 8.5M has been provided to finance the institutional twinning between TRA’s Large Tax Payers Department and Norwegian Tax Administration (NTA). 

The motivation behind Norwegian support to the TMP can be categorized in two core priorities:

  1. Supporting Tanzania in achieving status as middle-income country, and its graduation from aid;
  2. Private Sector Development in Tanzania by strengthening the business environment.  

The support is in line with the Addis Tax Initiative [SSO2] – the Financing for Development Agenda, drawn in Sustainable Development Goals (SDG) no. 17.1[SSO3] : “Strengthen domestic resource mobilization, including through international support to developing countries, to improve domestic capacity for tax and other revenue collection”. Both Tanzania and Norway are members of the Addis Tax Initiative.  

Noteworthy sustainable results have been achieved through the mentioned twinning cooperation between TRA and NTA, e.g.: operationalisation of new transfer pricing guidelines, input on transfer pricing cases (contributing to adjustments of $50M), support towards backlog cases for nine large companies (contributing to the establishment of taxes of $50M, and adjustments of declared tax losses $500M), practical training within petroleum and mining (contributing to tax adjustments of $20M), support in defending two Tax Revenue Appeals Board cases successfully ($150M), contributing to improvement of audit processes for international taxation (resulting in increased effectiveness, efficiency and quality of audits), and contributing to the development of an integrated risk based compliance strategy for large tax payers. 

During the implementation of the Fourth Corporate Plan (CP4), initially valid for 2013/14 - 2017/18 (now projected to end June 30th 2017), TRA has been collecting on average more than 90% of the total government revenue against the set targets and its contribution to the Government recurrent budget has been about 75%. Revenue collection has been growing remarkably over the years, whereby in first year of the plan (2013/14) TRA realised Shs 9,383 billion while in the fourth year (2016/17) it is expected to realise Shs. 15,105 billion denoting an increase of 61%. In nominal terms, tax collection grew by 25% in the financial year 2015/16 compared to the previous financial year.

Tanzania’s tax-to-GDP-ratio reached 12.6% at the end of the financial year 2015/16, up from 11.7% in 2014/15. A nominal growth in tax revenues of 21.9% is budgeted for 2016/17, implying a tax-to-GDP-ratio of 13.8%. Non-tax revenues are not included.

Through the implementation Tax Modernisation Programme (TMP), by improving compliance, convenience and enhancing continual improvement, TRA will not only strengthen its tax collection performance in the medium and long term, but also contribute considerably to trade and private sector development.

Corruption in relation to tax administration represents a well-known risk towards both tax compliance and private sector development. Fight against corruption is an integrated and strategically important part of TMP.

Major highlights of achievements under CP4 are summarised below:

  • Operationalisation of new Customs Information System (TANCIS)
  • Establishment of One Stop Boarder Posts (OSBP)
  • Introduction of Single Customs Territory for EAC, DR Congo, Zambia and Malawi
  • Establishment of TRA Call Centre
  • Introduction of Business Continuity Management System
  • Integration of collection and accounting processes to increase accuracy and non-time reporting (Revenue Gateway System – RGS)
  • Enhancement of tax investigation capacity by strengthening Forensics Laboratories in Dar es Salaam and Mwanza
  • Development of Risk-based Compliance Strategy and Plan for Domestic Taxes
  • Development of the Anti-Corruption Strategy and its Action Plan
  • Enhancement of Enterprise-wide Risk Management Capability
  • Implementation of an automated tax stamp system
  • Studies on Taxable Economic potential/opportunities of each region and districts
  • Design of an Integrated Enterprise Application Architecture.   

TRA’s Fifth Corporate Plan (CP5) is being prepared for implementation in the period between 2017/18 and 2021/22.