TANZANIA’S tax system plays a significant role in financing public services and infrastructure development across the nation.

However, despite its importance, the country faces significant administrative challenges that impede effective tax collection. Compliance issues, enforcement difficulties and a narrow tax base are among the foremost problems undermining the system.

Furthermore, the presence of multiple tax-collecting agencies—each responsible for different taxes—creates a fragmented environment that exacerbates inefficiencies and confuses taxpayers.

This article delves deeply into these challenges, incorporating real data, case studies from other regions and continents and user-generated suggestions for reform.

It explores how a comprehensive strategy involving digitalisation, transparency and a centralised approach could lead to enhanced tax compliance and a more robust revenue system.

Tax Administration Overview Badra Omar, a seasoned accountant and tax expert from Bagamoyo District, Coast Region, sheds light on the structural inefficiencies of Tanzania’s tax system.

He explained that while the Tanzania Revenue Authority (TRA), established in 1995, serves as the primary institution for tax collection—overseeing corporate income tax, valueadded tax (VAT), customs duties and excise taxes—it does not operate in isolation.

Instead, the TRA functions within a highly fragmented tax administration framework, where more than 60 different institutions, including local government authorities (LGAs) and regulatory bodies such as the Tanzania Ports Authority (TPA), Tanzania Bureau of Standards (TBS) and Tanzania Communications Regulatory Authority (TCRA), also impose and collect various taxes, levies and fees.

Mr Omar elaborated that this multiplicity of tax-collecting agencies has created significant inefficiencies, leading to overlapping tax obligations, redundant compliance procedures and increased administrative costs for businesses.

The complexity of navigating different tax demands from multiple institutions often results in confusion, particularly for small and medium-sized enterprises (SMEs), discouraging voluntary compliance.

He pointed out that these inefficiencies are reflected in Tanzania’s tax-to-GDP ratio, which stood at 11.9 per cent in 2023— well below the regional average of 16 per cent in sub-Saharan Africa.

This shortfall underscores the consequences of an overly complex tax system, which not only discourages businesses from formalising but also limits the government’s ability to expand the tax base.

To address these challenges, Mr Omar called for the need to have a more centralised and coordinated tax administration system.

Streamlining tax collection efforts under fewer, wellintegrated institutions would reduce redundancies, enhance efficiency and create a businessfriendly environment.

Such reforms, he argued, would ultimately boost public revenue while minimising the bureaucratic burden on enterprises, fostering a system that is both equitable and effective.

Tax System Compliance Challenges Kelvin Kihwelu, an accountant from Kiwelu Associates in Moshi, said that low taxpayer compliance remains one of the most critical challenges facing Tanzania’s tax administration.

He pointed out that the informal sector, which contributes nearly 50 per cent of the nation’s GDP, remains largely outside the formal tax system, posing a significant obstacle to revenue collection.

Many businesses operating within this sector either fail to register with the TRA or neglect to file tax returns. According to Mr Kiwelu, this widespread noncompliance is driven by several key factors, including complicated registration and filing procedures, a lack of adequate guidance from tax authorities, and the fear of high tax rates—a situation he has observed firsthand in Moshi but believes to be a nationwide issue.

Mr Kihwelu further explained that this challenge is exacerbated by the fragmented nature of tax collection, where different agencies impose their own regulations, deadlines and tax structures.

This lack of a unified system confuses taxpayers and creates an environment where non-compliance becomes a rational choice for many businesses.

Instead of navigating a bureaucratic maze filled with overlapping and sometimes contradictory tax obligations, many small and medium-sized enterprises (SMEs) opt to remain outside the formal system altogether. This trend is not unique to Tanzania.

Mr Kihwelu pointed to global case studies showing that countries with simplified and centralised tax systems tend to achieve higher compliance rates.

For instance, Rwanda’s tax reforms, which focused on streamlining procedures and digitalising tax filing, have led to a significant increase in compliance, with the country’s tax-to-GDP ratio rising to approximately 16 per cent in recent years, surpassing Tanzania’s 11.9 per cent recorded in 2023.

Similarly, countries like Estonia, which have adopted fully digital tax systems with minimal bureaucratic hurdles, report over 95 per cent compliance rates.

Drawing from these examples, Mr Kihwelu said that Tanzania must simplify its tax administration, consolidate overlapping agencies, and introduce a more accessible and transparent system.

He suggested that digital platforms, clear taxpayer education programmes and a reduction in bureaucratic red tape would encourage more businesses, particularly in the informal sector, to comply with tax obligations— ultimately broadening the tax base and increasing government revenue.

Tax Enforcement Issues An economist based in Mombasa, Kenya, Warda Hussein said that enforcement remains a significant challenge within Tanzania’s tax system and across the East African region.

Limited resources, outdated tracking methods and inefficient coordination among various tax-collecting bodies hinder effective monitoring and tax collection, allowing widespread tax evasion.

Drawing from her observations in Mombasa, a major coastal city in southeastern Kenya, Ms Hussein highlighted how rural areas and informal markets suffer from weak enforcement mechanisms, making it easy for businesses to avoid tax obligations.

She explained that similar issues plague Tanzania, where fragmented enforcement efforts and corruption further exacerbate tax collection inefficiencies.

According to the 2023 Corruption Perceptions Index, Tanzania continues to grapple with corrupt practices within its tax administration, which erodes both accountability and public trust in the system.

Bribery, favouritism and a lack of transparency in tax enforcement allow non-compliant businesses to bypass obligations, undermining revenue collection efforts.

One of the most pressing concerns is the lack of a unified enforcement strategy, which leads to inconsistent application of penalties for tax non-compliance.

Some businesses face harsh consequences, while others evade taxes with little to no repercussions, weakening the deterrent effect of legal sanctions.

Ms Hussein noted that this pattern is not unique to Tanzania, as many emerging economies experience similar enforcement challenges due to weak institutional capacity and administrative inefficiencies.

However, successful models from other regions demonstrate that enforcement challenges can be overcome through technology-driven reforms.

For example, South Korea has effectively harnessed digital technologies to improve tax monitoring and enforcement, resulting in significantly higher compliance rates and reduced revenue leakages.

The country has implemented AI-driven risk assessments, real-time transaction monitoring and digital reporting systems, which minimise human interference and corruption, while increasing efficiency.

Ms Hussein suggested that Tanzania could strengthen its tax enforcement framework by adopting similar digital solutions. This includes integrated tax databases, automated compliance tracking and AI-powered fraud detection systems.

By enhancing technological infrastructure and ensuring greater transparency in tax enforcement, Tanzania could increase compliance rates, curb corruption and maximise revenue collection—paving the way for a more efficient and equitable tax system.

Revenue Collection Disparities A financial consultant based in Sumbawanga in Rukwa Region, Joshua Kabigi said that Tanzania’s tax revenue is heavily concentrated among a small number of large corporations, particularly in telecommunications, banking and extractive industries.

This over-reliance on a handful of major taxpayers exposes the country to economic vulnerabilities, as fluctuations in these sectors can significantly impact overall revenue collection.

Data from the TRA reveals that over 70 per cent of tax revenue is generated by less than 10 per cent of the registered taxpayer base.

This imbalance leaves a vast portion of the economy— particularly small and mediumsized enterprises (SMEs) and the informal sector—contributing minimally to tax revenue, despite their significant role in employment and economic activity.

The problem is further exacerbated by the fragmented tax collection system, which imposes multiple layers of taxation, complex registration processes and inconsistent enforcement across different agencies.

These inefficiencies discourage informal and emerging businesses from formalising, thereby restricting tax base expansion.

Mr Kabigi pointed out that countries with more centralised and simplified tax systems have successfully broadened their tax bases and enhanced fiscal resilience.

For example, Rwanda’s tax reforms, which focused on digitalisation, streamlined registration and improved taxpayer education, have resulted in a higher tax-to-GDP ratio of approximately 16 per cent, compared to Tanzania’s 11.9 per cent in 2023.

Similarly, Mauritius has built a stable and diversified tax base by simplifying tax procedures and integrating technology into tax administration, ensuring that more businesses comply without excessive bureaucratic hurdles.

To reduce reliance on a narrow pool of large corporations and stabilise revenue streams, Mr Kabigi emphasised that Tanzania must implement targeted reforms to encourage tax compliance among SMEs and the informal sector.

This includes simplifying tax registration, consolidating tax-collecting agencies and leveraging digital platforms to streamline payment processes.

By broadening the tax base, Tanzania can mitigate risks associated with economic fluctuations in key industries and create a more sustainable, equitable tax system.

Legislative and Policy A prominent lawmaker, who wished to remain anonymous, revealed that frequent changes in tax laws and the complexity of existing regulations are significant barriers for taxpayers in Tanzania.

These legislative challenges, combined with the inconsistent application of tax laws and the absence of a unified tax administration framework, often result in unintentional non-compliance.

Many businesses, particularly in rural areas and smaller regions, struggle to keep up with the rapid pace of regulatory changes, leading to filing errors and, consequently, penalties.

In one constituency represented by the parliamentarian, local businesses have reported facing significant difficulties in adhering to constantly shifting regulations, which creates an environment where taxpayers are inadvertently penalised due to a lack of clarity.

Moreover, the multiplicity of tax authorities only complicates matters further. Taxpayers receive conflicting notifications and deadlines from various agencies, creating confusion and adding to the already heavy administrative burden.

This fragmented system makes it nearly impossible for businesses to stay compliant, particularly small and medium-sized enterprises (SMEs), who lack the resources to navigate a complex web of tax requirements.

In contrast, countries with streamlined legislative frameworks, such as Singapore and New Zealand, have demonstrated that simplifying and clarifying tax laws leads to better compliance and significantly reduces the costs associated with administration.

These nations have adopted more transparent and consistent tax policies, fostering an environment where businesses can easily understand their obligations and comply without excessive red tape.

The lawmaker emphasised that Tanzania could benefit greatly from harmonising its tax policies with international best practices, such as those recommended by the Organisation for Economic Co-operation and Development (OECD).

Such reforms would not only improve compliance rates but also help to curb tax evasion, reduce opportunities for corruption and prevent capital flight.

A clearer, more consistent regulatory environment would provide businesses with the stability needed to invest, grow and contribute to the formal tax base, ultimately strengthening Tanzania’s economy.

Proposed Reforms In light of the many challenges facing Tanzania’s tax system, readers from across the country and the diaspora have submitted valuable recommendations that they wish the Tax Commission to consider as part of its ongoing review.

These suggestions, coming from diverse regions of Tanzania and the international community, reflect a shared desire for significant reforms to improve taxpayer compliance, administrative efficiency and transparency within the system.

One of the most prominent recommendations, shared by several readers, is the consolidation of tax collection under a unified framework.

According to multiple comments, this would help to eliminate redundancies and improve coordination among the various agencies involved in tax collection.

The current fragmented approach often leads to taxpayer confusion, as businesses are required to navigate multiple agencies with conflicting regulations and deadlines.

Centralising these efforts, readers suggest, would streamline compliance and enforcement processes, making it easier for businesses to adhere to tax obligations.

A key component of this proposed reform is the implementation of an official notification system for tax deadlines.

Many readers, particularly those from rural areas and small businesses, have stressed the need for the TRA to send notifications through SMS, email, or official letters at least 30 days before deadlines for objections, appeals, or tax submissions.

This approach, they believe, would give taxpayers enough time to prepare and avoid unintentional non-compliance. Additionally, a digital portal where taxpayers can track deadlines and monitor the progress of their cases was suggested to enhance transparency and improve public accountability in tax administration.

Another critical idea, voiced by several anonymous contributors, is the introduction of an automatic favourability clause for taxpayers in cases where the TRA fails to respond within the legally required time frame.

Readers believe that this reform would ensure that delays by the TRA do not unfairly disadvantage taxpayers, preventing the TRA from using bureaucratic delays as a strategy to force automatic rulings in its favour.

Such a measure, according to one anonymous reader from the diaspora, would help level the playing field and ensure more equitable treatment for taxpayers.

In tandem with this, readers have called for the establishment of a neutral and independent tax dispute resolution mechanism.

Several contributors from various regions highlighted the need for a dedicated tax tribunal to handle disputes impartially, minimising the potential for unilateral decisions by the TRA.

They also suggested that taxpayers should have access to free legal advice when contesting TRA decisions, much like the systems in place in Canada and the United Kingdom, where independent tribunals have improved taxpayer confidence in the system.

On the issue of appeals, many readers have pointed out that the six-month deadline for appeals is often too rigid and should be made more flexible.

They recommend that an extension mechanism be introduced for valid reasons, such as illness, procedural delays or lack of proper notification.

The burden of proving that a taxpayer was adequately informed should lie with the TRA, ensuring that appeals are not rejected on technical grounds in cases where the taxpayer was not properly notified.

Finally, readers emphasised the critical importance of digitalising the tax system.

They proposed that all tax dispute resolutions be logged into an online system that would be accessible to the public, allowing taxpayers to track the progress of their cases and increasing overall transparency.

Public access to records of major tax disputes would also hold the TRA and other tax-collecting agencies accountable, potentially reducing corruption and improving the overall integrity of the tax system.

These ideas, gathered from the valuable insights and recommendations of Tanzanians across various regions and the diaspora, outline a comprehensive reform blueprint that has the potential to transform the country’s tax system into one that is more efficient, equitable and accountable for all stakeholders.

In our next issue, we will delve into strategies for fostering community involvement in tax policy development, bringing this series to a powerful and impactful conclusion. It’s been an enlightening journey—let’s finish it strong, together.

● We want to hear from you! Share your thoughts and experiences on how Tanzania’s tax system should be reformed by reaching out to us at 0655963224 or emailing kelvinmsangi@ protonmail.com Your input is invaluable in shaping policies that are fair, efficient and supporting the work done by the Tax Reform Commission. Let’s work together to create a tax environment that empowers small businesses and drives economic progress for all Tanzanians. Join the conversation today!