TANZANIA : THE government will adopt a three-year fiscal policy framework to enhance predictability, the Minister for Finance, Dr Mwigulu Nchemba has said.
He said during the launch of World Bank's 19th Tanzania Economic Update in Dar es Salaam on Tuesday that the government had taken on-board recommendations from the private sector to enhance predictability of its fiscal policy to improve stability and certainty in tax policies.
"On predictability of fiscal policies, we will start with three years. We have approved a three-year fiscal regime," said the minister after the launch of the report responding to concerns raised by the Chief Executive Officer of the Tanzania Private Sector Foundation, John Ulanga about unpredictability of fiscal policies which brings uncertainties to the business community.
Mr Ulanga said in a panel discussion that the private sector was calling on the government to come up with a three or five-year fiscal policy framework that will enhance tax predictability to help in improving forecasts on expected cost and benefit of business activities.
The finance minister said the government had approved the three-year fiscal policy framework to make it simpler, more credible, flexible and predictable.
He said the government was committed to empower the private sector to be able to play a vital role in enhancing and diversifying the economy and achieving the ambitious growth objectives outlined in the National Development Vision 2025 and Third Five-Year National Development Plan (FYDP-III) 2021/22 - 2025/26.
The FYDP-III has a theme of realising competitiveness and industrialisation for human development that aims to increase efficiency and productivity in manufacturing using the resources available in abundance within the country.
"We equally share the position of the World Bank in empowering the private sector. You can't milk the cow without feeding it. We empower the private sector first before thinking about taxes," said the minister.
Mr Ulanga said the adoption of a three-year fiscal framework was a good move in the right direction towards making fiscal policy more predictable.
"I think it is a good beginning. This will be very good news to the business community," Mr Ulanga later told the 'Daily News.'
Broadening of the tax regime in Tanzania by taxing the Small and Micro Entrepreneurs (SMEs) was one of the issues at the panel discussion at the launch of the World Bank report.
The 19th Tanzania Economic Update titled, Enhancing the Efficiency and Effectiveness of Fiscal Policy in Tanzania, shows that Tanzania made some progress in expanding tax collection, with the tax-to-GDP ratio increasing from 10 per cent in 2004/05 to 11.8 per cent in 2022/23.
The update shows public spending has increased from 12.6 per cent of GDP to 18.2 per cent of GDP, but it is still lower than the average for Sub-Saharan Africa, low-income countries, and lower-middle-income countries.
Closing compliance gaps can help Tanzania increase revenue collection and establish a fairer, more efficient tax system while increasing public expenditures including priority social spending.
World Bank Country Director, Nathan Belete said overall, Tanzania fiscal policies reduce inequality more than in most comparable countries. However, more efforts should be devoted to expanding social protection programmes, especially cash transfers to the poor and vulnerable groups, to reduce poverty and income inequality.
He said however, Tanzania had low tax productivity particularly in the Value Added Tax and Corporate Income Tax mainly due to inefficiencies on the part of tax administration.
"Despite solid fiscal achievements, taxes have not been progressive enough while the low productivity of VAT, inefficient corporate income tax, and low property and capital income tax collections have led Tanzania's tax-to-GDP ratio that mirrors low-income countries."
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Tanzania's tax-to-GDP ratio is low in comparison with peers and with respect to its level of development.
According to International Monetary Fund (IMF) figures, over the 2011-13 period, Tanzania had a tax-to-GDP ratio of 11.9 per cent of GDP, well below the average of East African Community (EAC) countries and low-income countries (LICs), respectively at 13.1 per cent of GDP and 14.7 per cent of GDP.
It has also one of the lowest VAT productivity, which appears to be linked to administrative inefficiency, compliance issues and policy gaps other than the rate (e.g., exemptions). The CIT productivity is close to the EAC average, but as pointed earlier, temporary factors may have played a role.
The government projects tax revenue collection to reach 12 per cent of GDP in 2023/2024 financial year, up from projections of 11.5 per cent in 2022/2023.
