The experience of SMEs in working with the Tanzania Revenue Authority

Background Briefing to the Strategic Conversation Dar es Salaam, Tanzania May 8, 2009
Prepared by Aidan Eyakuze - Serengeti Advisers Limited Dar es Salaam

1. Introductions
Objectives of the Strategic Conversations Rules of Engagement Chatham House Rules

2. Brief Presentation: SMEs and the TRA 3. Discussion 4. Next Steps

1. Introducing the SME and TRA Study 2. TRAs revenue collection achievements 3. SMEs: definition, population, taxation 4. SME experiences with TRA 5. TRA perceptions of SMEs 6. Discussion Starters

1. How are SMEs being treated by the TRA? 2. Can the quality of TRAs services to SMEs be improved?

Indicator
Domestic tax revenue collection (TZS) TIN registered taxpayers Large taxpayers Active importers

2005

2006

2007

2008

The big folks! 80% of large taxpayers revenue came from just 37 taxpayers in 2007

Everyone else! SMEs, PAYE, SDL, individuals, car taxes, departure taxes

Enterprise classification

Ministry of Trade & Industry

Number of Employees Capital invested (TZS) Less than TZS 5.0m 5.0m - 200m 200m 800m

TRA
Annual Taxable Revenues (TZS) Below 40m

Micro Small Medium

1-4 5-49 50-99

Over 40m (tax payments less than 400m) Tax payments more than 400m

Large

100+

800m+

Description Total enterprises in Tanzania (WB/IFC estimate of 2003) (Less: 98% micro enterprises of less than 5 employees) Large, medium and small enterprises (Less: Large taxpayers in June 2006) SMEs registered and unregistered (est.)

Estimate 2,700,000 (2,646,000) 54,000 (286) 53,700

Vehicle License Fees Car Benefit Tax Income, Corporate, Presumptive Taxes Skills & Development Levy

PAYE (paid by employee) Stamp Duty (paid by customer) Withholding Taxes (paid by customer)

VAT Customs Duties

Annual payments x 2 taxes = 2 12 Monthly payments x 3 taxes = 36 4 quarterly payments x 1 tax = 4 Minimum payments each year = 42

Less than TZS 3.0m TZS 3.0m - 7.0m TZS 7.0m 14.0m TZS 14.0m 20.0m

35,000 95,000 291,000 520,000

33,000 85,000 260,000 458,000

Why does this tax need to be paid before the business has started? Mwanza fish seller Might this tax discourage informal small and micro enterprises from registering and obtaining a TIN number?

1.

Complicated paperwork
Forms are in (inaccessible) English; difficult to complete; high cost (penalties, repeat visits) of making mistakes. You are supposed to know which form you are looking for! TRA officer to a client in Mwenge

2.

Customer Service
Starting a business is like starting a court case with the TRA. Your tax consultant is your defense lawyer Many of the most well-informed TRA staff are with the Large Taxpayers Department

3.

TRA block surveys in 2007an experience in intimidation

When I saw them coming down my street, I quickly closed my shop door, locking in two customers inside with me and my cooking until they had passed by. Shop owner in Temeke They descended from their vehicles as if they were in Iraq Shop owner in Kariakoo They came to my hotel one evening and threatened to close it right there on the spot, even though I had guests in the rooms who had paid for their stay. What was I supposed to do with these guests? Hotel owner in Temeke

4.

Tax assessment and collectionguesstimation

Ukweli wa mlipa kodi ni uongo kwa mkusanyaji Kariakoo shop owner Ukadiriaji wa kodi ufutwe! Kariakoo shop owner

5.

Taxpayer education...not very engaging

I learned just the other day [September 2007] that there is such a thing as PAYE, after having started my business in 1998! Ilala business owner Taxpayer education is boring, stiff and bureaucratic. It needs to be more exciting. Kinondoni businessman Do I have to pay tax? But I dont even have a frame! Temeke micro-entrepreneur

 Surveyed 2,360 SMEs, 250 TRA staff, 61 stakeholders (government and donors) 88% of SMEs found tax administration to be at least fairly good.

 TRA staff had a lower opinion of SMEs

58% of staff interviewed thought that less than 40% of SMEs though it was their duty to be honest Half the TRA staff thought that a minority of SMEs would provide information or cooperate with TRA 24% of staff surveyed thought that SMEs were aware of their rights to tax information and to privacy 17% thought that SMEs were aware of their right to be presumed honest 13% felt that SMEs were aware of their right to a fair tax assessment

 Create Taxpayer Relationship Managers (TRMs) to:

Register new taxpayers (expand the tax base) Guide and facilitate new taxpayers relationship with TRA for first 6-12 months (customer retention) Provide customised taxpayer education to their clients (focused on how to comply) Channel taxpayers comments (for more responsive TRA)

Review presumptive tax on turnover to:

Harmonise it with VAT threshold (40 million) Introduce a tax-free threshold (say up to 20 million?)

The experience of SMEs in working with the Tanzania Revenue Authority

Background Briefing to the Strategic Conversation Dar es Salaam, Tanzania May 8, 2009
Prepared by Aidan Eyakuze - Serengeti Advisers Limited Dar es Salaam