1. FORUM FOR VAT ADMINISTRATORS IN AFRICA
ENHANCING VAT COMPLIANCE MANAGEMENT
THE TANZANIA EXPERIENCE
Presented by
Jolly R. Karongo
Kampala Serena Hotel, Uganda
15th June, 2016

2. 1.0 INTRODUCTION
The Tanzanian tax system is built around four main categories of taxes.
These account for approximately 98 percent of total gross tax revenues collected by the Central Government.
Value Added Tax (VAT) contributes to almost 27 per cent of total gross tax revenues or 24 percent when adjusted for VAT refunds.
Income tax contributes to more than 40 per cent while Import duties and Excise taxes contributes to 31 per cent of total tax revenues in Tanzania.

3. 2.0 History of VAT in Tanzania
VAT in Tanzania was introduced in July 1998 to replace the previous sales tax and parts of Stamp duty and Entertainment taxes.
VAT was considered better than the sales tax system from the point of view of government, business and consumer.
Advantages of VAT
Broad tax base - revenue yield is generally higher and stable and is less susceptible to fluctuations.
Self-checking mechanism to minimize evasion
Administrative advantages:  The registration threshold eliminates small business and minimizes administration costs. 

4. 3.0 VAT Type implemented in Tanzania
Tanzania implements “Consumption type” of VAT similar to Kenya, Uganda, Tanzania, Singapore and South Africa.
Under the “consumption type” of VAT, Capital goods purchased are treated like any other purchases of goods or services i.e. Full credit of input tax is allowed.
To calculate the VAT, Tanzania uses the “credit/invoice method” where by the net VAT payable/repayable is computed by deducting the tax on purchases (input tax) from tax on sales (output tax) for each monthly period.

5. 4.0 VAT Legal Framework in Tanzania
Before
Currently
Value Added Tax Act of 1997.
Value Added Tax General Regulations, 2000
Other Regulations made under the VAT Act, 1997
The Value Added Tax Act, No. 10 of 2014
The VAT General Regulations, 2015
The Tax Administration Act, 2015

6. 5.0 Supplies under the Tanzania VAT Act, 2014 and Governance Structure
Standard Rated Supplies at a flat rate of 18%
Special Relief Supplies (limited to investors under EPZ, SEZ and Prospectors of Minerals, Oil and Gas).
Zero rated Supplies (VAT flat rate of 0%)
Exempt Supplies
Domestic Revenue Department administers local VAT
Customs & Excise Department for international cross VAT & Excise duty transactions

7. 6.0 Salient features of the Tanzania VAT Act, 2014
Expansion of Tax Base
Registration threshold (40m to 100m per annum)
Turnovers relating to Economic activity
Registration to professionals regardless of turnover
Registration of Non-resident persons
Govt. institutions dealing with taxable economic activities
Elimination of numerous exemptions (charitable orgs, religious institutions etc.
Filing requirements
Payment requirements-handled under Tax Administration Act, 2015
Other compliance obligations (Section 86 of the Act)
Disputes handling – falls under Tax Administration Act, 2015.

8. 7.0 VAT Performance in Tanzania
VAT revenue collection in Tanzania has been increasing from year to year.
The Figures as reported in the World Bank report (The Tanzania economic update) of July, 2015 indicates that there has been a growth of the Tanzania Mainland VAT revenue collection for the past five years.

9. 7.0 VAT Performance in Tanzania Cont’d
VAT collection statistics (2009/10 – 2013/14)
Tshs Million
2009/10
2010/11
2011/12
2012/13
2013/14
Domestic VAT
727,797
825,835
979,796
1,155,299
1,316,821

10. 8.0 VAT Compliance Mgt in Tanzania
Tanzania Revenue Authority (TRA) has Compliance Risk Management Policy and Framework to address taxpayers compliance risk in areas of :
Registration
Filing
Payment
Declarations
Other Compliance matters
The compliance policy and framework became effective in October 2015.
TRA is now implementing the Compliance Risk Management Policy and Strategy for the FY 2015/16 following its approval in January, 2016.

11. 8.0 VAT Compliance Mgt in Tanzania Cont’d
Reasons for Non –compliance :
Lack of ability to keep proper books and records,
Lack of knowledge regarding the tax reporting requirements,
Opportunity, and perceived low possibility of being detected,
Financial difficulties,
Flagrant abuse of the tax laws, and
Aggressive tax planning.

12. 8.0 VAT Compliance Mgt in Tanzania Cont’d
While analyzing the risk issues, TRA identified a number of internal restraints that limit their ability to effectively address the risks they include:
Incomplete and inaccurate registration database,
Lack of available TRA and external information for non-compliance identification,
Lack of and/or level of penalties and prosecutions not a sufficient deterrent,
Ineffective debt management procedures,
Processing delays and errors,
Limited analysis available using current TRA data systems,
Inadequate number of skilled employees to address major compliance issues,
Limited resources available for enforcement activities, e.g. transport for staff,
Insufficient access to offshore documents, and
Inadequate enforcement of EFD usage.

13. 8.0 VAT Compliance Mgt in Tanzania Cont’d
SECTORAL REVENUE GAP ANALYSIS
In order to determine the revenue gap from each identified industrial sector, TRA considered crucial to estimate the potential revenue from each economic activities. The potential revenue from each sectors was then broken down in terms of major taxes, and then compute an aggregated potential for a specific sector.
The difference between aggregated potential revenue and actual revenue collected from the sector gave us the estimated revenue gap for a given sector for a specific period.
Potential revenue across the sectors in 2015/16 have been taken as growth trend from previous years while actual revenues were taken to be the estimated revenue in the 2015/16 projections.

14. 8.0 VAT Compliance Mgt in Tanzania Cont’d
SECTORAL REVENUE GAP ANALYSIS Cont’d
Total revenue gap as a percentage of GDP (by using rebased numbers) was estimated at 2.3 percent and 2.5 percent for 2014/15 and 2015/16 respectively and the overall compliance was estimated in the range of 76.4 percent and 76.7 percent.
TRA Identified Wide sector Risks :
Failure to register 
Failure to file returns
Late filed returns
Late and non-payment of amounts due
Under reporting of sales and Taxable income
Failure to keep books and records

15. 8.0 VAT Compliance Mgt in Tanzania Cont’d
Identified Sector Risks
INDUSTRY SECTOR
RISKS
Revenue impacted
Construction
Failure to register
Non-filing
Under-reporting
Offshore transactions
False and fictional claims for input tax
PIT, CIT, VAT
Fuel Dealers & Petrol Stations
Intentional non-issuance of sales receipts
Government Institutions
Non-payment of withholding taxes
Late payment of other types of tax
High Net Worth Individuals
Complex and sophisticated tax avoidance schemes
Manufacturing
False declaration of employees for PAYE
Under reporting of sales
Misclassification of capital expenditures

16. 8.0 VAT Compliance Mgt in Tanzania Cont’d
TRA 2015/16 COMPLIANCE PLAN During the financial year 2015/16 it was proposed that the Department’s focus should be on six priority sectors out of 20 risk sectors identified as shown below
Sector Name
VAT Gap in Tshs. Million
FY 2014/15
Manufacturing
105,595
133,339
Information and Communication
54,692
81,935
Financial and Insurance Activities
11,834
9,023
Mining and quarrying
18,709
23,698
Administrative and Support Services
48,282
56,555
Public Administration
551
792
Total
239,663
305,342

17. 9.0 Measures taken by Tanzania in enhancing VAT Compliance
Measures cont’d
Register more taxpayers to increase the vat base
Raising vat registration threshold from 40m to 100m per annum aiming at reducing the compliance costs
Demanding all vat registered traders to use EFDs (Electronic Fiscal Devices) to produce receipts
Educating the General public on the importance of demanding receipts
Introduced e-filing of value added tax returns
Introduced electronic payment system (RGS) to easy payment of taxes.
Continue with issue oriented VAT and routine Audits to selected taxpayers to check their levels of compliance
Conducting priority sector based taxpayers education programmes
Enforcement measures to defaulters

18. 10.0 VAT COMPLIANCE CHALLENGES AND THE WAY FORWARD
Informal Sector
Cash economy
Reluctance for some traders to issue sales receipts
Fictitious input tax claims
Non/late filers & payers
WAY FORWARD
Continual enforcement on the usage of EFD machines by vat registered traders
Continue creating awareness to the General Public on the importance of demanding EFD receipts
Continue enhancing VAT audit including examination/verification of vat information
Continue deploying punitive measures against the defaulters
Continue using taxpayer education as part of a broader compliance program
Avoid excessive exemptions and zero ratings that severely reduce the tax base

19. 11.0 Budget Highlights for 2016/17
Revenue Policy
Government Focus
Ensure effective use of Electronic systems and electronic fiscal devices
Continue widening the tax base including formalisation of informal sector
Continue with measures to control and reduce tax exemptions with emphasis on religious institutions to investors
Continue publishing tax exemption reports on quarterly basis to inform the public on the beneficiaries and areas benefited

20. 12.0 Conclusion
“With sound awareness of tax laws among different taxpayers segments, integrity of our people, rigorous application of electronic systems (e-filing and e-payment), the position of African taxpayers to voluntarily comply with tax laws will be enhanced” Lubua, E (2014)

21. THANK YOU FOR YOUR ATTENTION21