Africa-Press – Tanzania. THE government has been advised to come up with friendly mechanism of collecting revenue being lost by not taxing the informal sector.
Speaking to the Daily News recently, a Researcher and Tax Advisor from Action aid Tanzania Balozi Morwa said that there is confusion where informal sector is linked to poverty while the study he coauthored found that the government has been losing more than 6.5trn/- of uncollected taxes from informal sector annually.
The study was commissioned by ActionAid Tanzania.
“Tanzania’s informal sector comprises many economic activities and employs a large number of people who are the country’s major workforce. Lack of a mechanism of taxing this sector has caused the government to lose such huge amount of money … These revenues would have been channeled to address various challenges facing the education sector,” said Dr Morwa.
The tax expert said that there is a need for tax collectors to come up with friendly models of taxing the informal sector, a move which he said, needs creativity and a lot of repetitive foot work for making follow-ups and motivating compliance.
He urged the government to expand the tax base in fair and progressive ways by ensuring that taxation of the informal sector distinguishes clearly between those who are earning too little to meet Value Added Tax (VAT) or income tax thresholds and those ‘hiding’ in the informal economy to evade taxes.
He added that, the latter should be brought into the formal economy and then pay income taxes and VAT from the informal sector ensuring that taxes are fair and progressive.
“This can be well achieved by ensuring women and the poorest are not disproportionately affected and having estimated thresholds below which informal workers and businesses are not taxed. Also there is a need of applying deliberate steps to reduce multiple forms of taxation,” he said.
“Being in informal business does not necessarily mean that businesses are making loss, some of the business in this docket are making lucrative deal, what is needed is to come up with best ways of collecting the taxes to finance various social services instad of losing the money,” he said.
A recent study conducted by ActionAid Tanzania suggests that the government needs to take urgent steps to increase its domestic revenue in a progressive manner if it has to meet its development target.
The study also suggests simultaneously tackling the weaknesses and corruption that cause huge amounts of potential revenue to be lost, and it insists on the need to invest in measures aimed at tackling internal tax collection inefficiencies.
“Without such measures, the achievement of overall development goals as set out in Tanzania’s Development Vision 2025, not to mention education targets including those outlined in SDG4 are likely to remain out of reach,” the study details further.
