From 1992, Tanzania faced serious fiscal problems arising from the gap between stagnant revenues and public expenditures swollen by large government expenditures. Despite the establishment of the Tax Revenue Authority (TRA) in 1996, tax collection revenue remained dismally low: in 1997/98, Tanzania’s tax revenue of 12.4 percent of GDP was among the lowest in the region. Tax evasion was endemic as a result of institutional weaknesses in the TRA, poor infrastructure, and antiquated business processes.
The IDA-financed Tax Administration Project was designed to raise tax revenues without increasing tax rates by improving the tax collection capacity of the Tanzanian government. It focused on efficiency improvements in the tax administration, improving the legal framework, and broadening the tax base. IDA technical assistance formed the framework and strategic direction for tax administration reforms, which would be the basis for harmonizing donor support in the sector.
Annual revenue collected by the Tanzania Revenue Authority increased to US$1.7 billion in 2005/06 from 1.1 billion in 2002/03. US$600 million per year--two and a half times the total annual IDA disbursement in Tanzania--is now available on a sustainable basis for poverty reduction efforts. This enabled Tanzania to increase its recurrent budget financing to about 60 percent, leaving less than half to foreign aid.
Highlights:
- The number of registered income tax payers increased from 190,000 in 2003 to 290,000 in 2006, and for designated large taxpayers (corporations) from 100 in 2003 to 286 in 2006.
- The amount of the previous year’s income tax arrears collected, as a percentage of total income tax arrears at the beginning of the year, increased from 6 pecent in 2003 to 72 percent in 2005.
- The average number of days to identify stop-filers decreased from 28 days in 2003 to 4 days in 2005.
- The percentage of customs clearances made within 24 hours increased from 30 percent in 2003 to 95 percent in 2006.
- The percentage of VAT refunds made within one month increased from 36 percent in 2003 to 62 percent in 2006.
- A new Income Tax Act was passed in 2004 and the East African Customs Act was drafted.
- Modern management practices and efficiencies were introduced in the tax administration.
- Tax authorities in Ghana and Nigeria have sought on their own to replicate the strategic reforms that resulted in impressive increases in revenue collection in Tanzania.
- US$40 million from 1999 to 2006.
- IDA initiated and supported reforms in the sector, involving a wide-range of organizational changes and the formulation of a Corporate Plan.
- The Corporate Plan was the basis for a harmonized multi-donor partner support and for scaling up investments in the sector.
Denmark, the UK, Finland, Sweden, Germany, US, EU and UN Development Programme.
IDA continues to support strengthening of the Tax Revenue Authority through a recent Tax Modernization Project (TMP). Under the TMP, IDA’s support along with donor partners is provided through a common framework using harmonized procedures consistent with the country’s systems.
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