Streamlining collection authorities for reform

Africa-Press – Tanzania. TANZANIA’S tax system plays a significant role in financing public services and infrastructure development across the nation. However, despite its importance, the country faces administrative challenges that impede effective tax collection. Compliance issues, enforcement difficulties and a narrow tax base remain among the foremost problems undermining the system.

Furthermore, the presence of multiple tax-collecting agencies—each responsible for different taxes—creates a fragmented environment that exacerbates inefficiencies and confuses taxpayers. This article examines these challenges, drawing on available data, case studies from other regions and user-generated suggestions for reform. It explores how a comprehensive strategy involving digitalisation, transparency and a centralised approach could enhance tax compliance and strengthen revenue performance.

Badra Omar, a seasoned accountant and tax expert from Bagamoyo District in the Coast Region, sheds light on the structural inefficiencies of Tanzania’s tax system. He explains that while the Tanzania Revenue Authority (TRA), established in 1995, serves as the primary institution for tax collection—overseeing corporate income tax, value-added tax (VAT), customs duties and excise taxes—it does not operate in isolation.

Instead, TRA functions within a highly fragmented tax administration framework, where more than 60 institutions, including local government authorities (LGAs) and regulatory bodies such as the Tanzania Ports Authority (TPA), Tanzania Bureau of Standards (TBS) and Tanzania Communications Regulatory Authority (TCRA), also impose and collect various taxes, levies and fees.

Mr Omar elaborates that this multiplicity of tax-collecting agencies has created significant inefficiencies, leading to overlapping tax obligations, redundant compliance procedures and increased administrative costs for businesses. Navigating different tax demands from multiple institutions often results in confusion, particularly for small and medium-sized enterprises (SMEs), discouraging voluntary compliance.

He notes that these inefficiencies are reflected in Tanzania’s tax-to-GDP ratio, which stood at 11.9 per cent in 2023— well below the regional average of 16 per cent in sub-Saharan Africa. This shortfall underscores the consequences of an overly complex tax system, which not only discourages businesses from formalising but also limits the government’s ability to expand the tax base.

To address these challenges, Mr Omar calls for a more centralised and coordinated tax administration system. Streamlining tax collection under fewer, well-integrated institutions would reduce redundancies, enhance efficiency and create a business-friendly environment. Such reforms, he argues, would ultimately boost public revenue while minimising the bureaucratic burden on enterprises, fostering a system that is both equitable and effective.

Tax system compliance challenges

Kelvin Kihwelu, an accountant from Kihwelu Associates in Moshi, says low taxpayer compliance remains one of the most critical challenges facing Tanzania’s tax administration. He points out that the informal sector, which contributes nearly 50 per cent of the nation’s GDP, remains largely outside the formal tax system, posing a significant obstacle to revenue collection.

Many businesses operating within this sector either fail to register with the TRA or neglect to file tax returns. According to Mr Kihwelu, this widespread non-compliance is driven by several factors, including complicated registration and filing procedures, lack of adequate guidance from tax authorities and fear of high tax rates—a situation he has observed in Moshi but believes to be nationwide.

He further explains that this challenge is exacerbated by the fragmented nature of tax collection, where different agencies impose their own regulations, deadlines and tax structures. This lack of a unified system confuses taxpayers and creates an environment where noncompliance becomes a rational choice for many businesses.

Instead of navigating a bureaucratic maze filled with overlapping and sometimes contradictory tax obligations, many SMEs opt to remain outside the formal system altogether.

Streamlining collection authorities for reform Streamlining collection authorities for reform This trend is not unique to Tanzania. Mr Kihwelu points to global case studies showing that countries with simplified and centralised tax systems tend to achieve higher compliance rates. Rwanda’s reforms, which focused on streamlining procedures and digitalising tax filing, have led to a significant increase in compliance, with the country’s taxto-GDP ratio rising to approximately 16 per cent in recent years—surpassing Tanzania’s 11.9 per cent recorded in 2023.

Similarly, countries such as Estonia, which have adopted fully digital tax systems with minimal bureaucratic hurdles, report compliance rates exceeding 95 per cent.

Drawing from these examples, Mr Kihwelu says Tanzania must simplify its tax administration, consolidate overlapping agencies and introduce a more accessible and transparent system. Digital platforms, clear taxpayer education programmes and a reduction in bureaucratic red tape would encourage more businesses, particularly in the informal sector, to comply with tax obligations— ultimately broadening the tax base and increasing government revenue.

Tax enforcement issues

Warda Hussein, an economist based in Mombasa, Kenya, says enforcement remains a significant challenge within Tanzania’s tax system and across the East African region. Limited resources, outdated tracking methods and weak coordination among various tax-collecting bodies hinder effective monitoring and enforcement, allowing widespread tax evasion.

Drawing from her observations in Mombasa, she highlights how rural areas and informal markets often suffer from weak enforcement mechanisms, making it easier for businesses to avoid tax obligations. She notes that similar issues affect Tanzania, where fragmented enforcement efforts and corruption further exacerbate inefficiencies.

According to the 2023 Corruption Perceptions Index, Tanzania continues to grapple with corrupt practices within its tax administration, eroding accountability and public trust. Bribery, favouritism and lack of transparency in enforcement allow non-compliant businesses to bypass obligations, undermining revenue collection.

One of the most pressing concerns is the absence of a unified enforcement strategy, leading to inconsistent application of penalties. While some businesses face harsh consequences, others evade taxes with little or no repercussions, weakening the deterrent effect of legal sanctions.

Ms Hussein observes that such patterns are common in many emerging economies due to weak institutional capacity and administrative inefficiencies. However, successful models elsewhere demonstrate that enforcement challenges can be addressed through technologydriven reforms.

For example, South Korea has effectively harnessed digital technologies to improve tax monitoring and enforcement, resulting in higher compliance rates and reduced revenue leakages. The country uses AI-driven risk assessments, real-time transaction monitoring and digital reporting systems, minimising human interference and corruption while improving efficiency.

Ms Hussein suggests that Tanzania could strengthen its enforcement framework by adopting similar digital solutions, including integrated tax databases, automated compliance tracking and AI-powered fraud detection systems. By enhancing technological infrastructure and ensuring greater transparency, Tanzania could improve compliance, curb corruption and maximise revenue collection.

Revenue collection disparities

Joshua Kabigi, a financial consultant based in Sumbawanga in Rukwa Region, says Tanzania’s tax revenue is heavily concentrated among a small number of large corporations, particularly in telecommunications, banking and extractive industries.

This over-reliance exposes the country to economic vulnerabilities, as fluctuations in these sectors can significantly affect overall revenue collection. Data from the TRA indicates that more than 70 per cent of tax revenue is generated by less than 10 per cent of registered taxpayers.

This imbalance leaves a large portion of the economy—especially SMEs and the informal sector—contributing minimally, despite their significant role in employment and economic activity.

The problem is compounded by a fragmented tax system that imposes multiple layers of taxation, complex registration processes and inconsistent enforcement across agencies. These inefficiencies discourage informal and emerging businesses from formalising, limiting tax base expansion.

Mr Kabigi notes that countries with centralised and simplified tax systems have successfully broadened their tax bases and improved fiscal resilience. Rwanda’s reforms have lifted its taxto-GDP ratio to about 16 per cent, compared to Tanzania’s 11.9 per cent in 2023. Mauritius has similarly built a diversified tax base by simplifying procedures and integrating technology into tax administration.

To reduce reliance on a narrow pool of taxpayers, Mr Kabigi emphasises the need for targeted reforms to encourage compliance among SMEs and the informal sector. Simplifying registration, consolidating tax-collecting agencies and leveraging digital platforms would help streamline processes and broaden the tax base.

Legislative and policy challenges

A prominent lawmaker, who requested anonymity, says frequent changes in tax laws and the complexity of existing regulations pose significant barriers for taxpayers. These legislative challenges, combined with inconsistent application and the absence of a unified administrative framework, often result in unintentional non-compliance.

Many businesses, particularly in rural areas, struggle to keep pace with regulatory changes, leading to filing errors and penalties. In one constituency, businesses have reported difficulties in adhering to constantly shifting requirements, creating an environment where taxpayers are penalised due to lack of clarity.

The multiplicity of tax authorities further complicates compliance. Conflicting notifications and deadlines from different agencies increase the administrative burden, especially for SMEs with limited capacity to navigate complex requirements.

Countries such as Singapore and New Zealand demonstrate that streamlined and transparent legislative frameworks improve compliance and reduce administrative costs. The lawmaker suggests Tanzania could benefit from aligning its tax policies with international best practices, including those recommended by the Organisation for Economic Cooperation and Development (OECD).

Such reforms would improve compliance, reduce opportunities for corruption and support a more stable and predictable business environment.

Proposed reforms

In response to these challenges, readers from across Tanzania and the diaspora have submitted a range of recommendations for consideration by the Tax Commission. These proposals reflect a shared demand for reforms aimed at improving compliance, efficiency and transparency.

A key recommendation is the consolidation of tax collection under a unified framework to eliminate duplication and improve coordination among agencies. Centralisation, readers argue, would simplify compliance and enforcement, reducing confusion caused by overlapping mandates.

Many contributors also emphasise the need for an official notification system for tax deadlines. They propose that the TRA issue reminders via SMS, email or official letters at least 30 days before deadlines for objections, appeals or submissions, allowing taxpayers adequate time to prepare.

A digital portal enabling taxpayers to track deadlines and monitor case progress was also widely suggested as a means to enhance transparency and accountability.

Another proposal is the introduction of an automatic favourability clause for taxpayers where the TRA fails to respond within legally prescribed timeframes. Contributors argue this would prevent bureaucratic delays from disadvantaging taxpayers and promote fairness.

Readers further recommend establishing an independent tax dispute resolution mechanism, such as a dedicated tribunal, to ensure impartial handling of cases. Access to free legal advice— similar to systems in Canada and the United Kingdom—was also proposed to improve taxpayer confidence.

On appeals, contributors suggest introducing flexibility to the current sixmonth deadline, allowing extensions for valid reasons such as illness, procedural delays or lack of proper notification. They also propose that the burden of proof regarding notification should rest with the TRA.

Finally, respondents highlight the importance of digitalising the tax system. They propose that tax dispute resolutions be logged in an accessible online system, with public access to records of major disputes to enhance accountability and reduce corruption.

These recommendations, drawn from diverse voices across Tanzania and the diaspora, outline a comprehensive reform agenda with the potential to transform the country’s tax system into one that is more efficient, equitable and transparent.

Tanzania’s tax system has evolved since the establishment of the Tanzania Revenue Authority (TRA) in 1995, which was intended to streamline tax collection. However, the presence of over 60 tax-collecting agencies has led to inefficiencies and confusion among taxpayers. The country’s tax-to-GDP ratio remains low compared to regional averages, highlighting the need for significant reforms to improve compliance and revenue generation.

Historically, Tanzania has struggled with a narrow tax base, largely due to the informal sector’s significant contribution to the economy without adequate tax registration. This has resulted in a reliance on a small number of large corporations for tax revenue, a

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