CHAPTER ONE

1.0 INTRODUCTION AND BACKGROUND

1.1 Overview of the study

Tax is a compulsory contribution imposed by the state on her citizens or non-citizens and is
usually payable in monetary terms to finance both her recurrent and development expenditure

Since revenue collection is considered to be an organic part of any country’s development,

countries need to put efforts in revenue collection so as to do away with budget deficit. Any
country requires funds for her advancement that is why the efficiency of tax revenue collection
on a budget is assumed to be an organic part of any country’s development.

Taxation forms an important part of the fiscal policy of any government. This is due to the fact
that it is through taxation that the government can raise its revenue required for recurrent and
development expenditure. Citizens of any country have a civic obligation of paying tax to the
government so it can meet the cost of providing social and economic services. Consequently, it is
the duty of any Authority to make sure that they maximize the revenue collection. This study
will focus on evaluation of tax revenue collection on the case of T.R.A.

Revenue collection comes from the tax revue source and non-tax revenue source. Tax revenue
source are those collected by T.R.A and they are of great contribution to National budget as
compared to non-tax revenue sources. Tax revenue source are those direct and indirect taxes
such as V.A.T, Income tax, Customs duty, Import duty etc whereas non-tax revenue sources are
such as fees, fines and penalties imposed by other institution such as ministries, courts etc.
1.2 Historical Background of Tanzania Revenue Authority

Prior to June 1996, the tax administration in Tanzania was under three independent revenue
departments, which were operated under civil services framework. The ministry of finance was
responsible for direction and control of independent departments. The government was
determined to improve revenue collection since it was observed that there was a major problem
of poor revenue collection and one way of doing this was through improving tax administration
system. It is against this background that major tax reforms were done and the idea of
establishing a semi-autonomous tax administration was conceived by the government which in
turn, Tanzania Revenue Authority (TRA) was established. TRA was established on 1 day of July
1996 charged with the following responsibilities:-

i) Asses, collect and account for all Central Government Revenue

ii) Administer efficiently and effectively all the revenue laws of the Central
Government

iii) Advice the Government on matters relating to fiscal policy.

iv) Promote voluntary tax compliance.

v) Improve the quality of service provided to taxpayer.

vi) Counteract fraud and other forms of tax and fiscal evasion.

vii) Produce trade statistics and publications.

The authority is under general supervision of the board of Directors. TRA was established by the
Act No II of Parliament of 1995. The authority is semi-autonomous agency of the government.
Currently after its established there has been an increase of revenue annually as the figure shown
in the statement of the problem indicates.
1.3 Statement of the problem

The tax revenue collection is one of the major factor ensure sustainable economic growth in the
country. For this being the case, the poor tax revenue collection can affect the economic growth
in the country especial on the budget wise. Upon looking at the problem under study, the tax
revenue collection on budget will be revealed by looking upon the trends of collection as
provided by TRA annually. These shows that before establishment of TRA the collection of
sufficient revenue to cater for budget was not good, resulted into budget deficit. But after
introduction of TRA there is increase of revenue collection. Therefore government through TRA
is struggling to improve revenue collection.

Consider Annual Reports for TRA in years 2004/2005, and 2014/2015(TRA annual report
2014/2015). TRA collected shillings 9,918,820,000 million against a target of Tsh 1,126,174,000
in Tanzania mainland, thus achieving a performance level of 88.08%. The revenue collection in
Zanzibar amounted to shillings 1,440,000,000 million against a target of shillings
(1,661,000,000) million, reflecting an achievement of 86.71%. (TRA annual report 2014/2015)

Thus, tor this being the case there is need to conduct research in order to find out if the total tax
revenue collection is adequate to the government of Tanzania in its budget. The work therefore
sets out to examine the performance of TRA in the revenue collection if it satisfies the
government of Tanzania in its budget purposes.

1.4 Research objective

1.4.1 General research objective

The main objective of the study was to examine the contribution of tax revenue collection on the
National budget and analyze if it meets the national budget or not.

1.4.2 Specific research objective

The specific objective of the study are:-

i. To identify contribution of tax revenue collection on national budget.

 ii. To identify the contribution of non-tax revenue collection on national budget
iii. To examine the National budget by comparing revenue and expenditures.
iv. To examine the contribution of tax revenue by sector.
v. To suggest ways on improving revenue collection.

1.5 Research Questions

This research attempt to find answers to the following questions:-

I. What is the contribution of non-tax revenue sources in the National budget?

II. What is the contribution of tax revenue collection on National budget?
III. What are the trends of tax revenue as a share of GDP?
IV. What is the comparison between Revenue and Expenditure in Government
finance?

1.6 Significance of the Research

Based on the problem under study, the execution of this research will help the government I
solving and planning on how to increase tax revenue collection. This will easily done through the
help of the findings that should be regarded as guideline in dealing with its problems. However
the government may use the finding of this research to deal with those driving force that hinder
the achievement of revenue estimation and try it level best to address the problem.

1.7 Limitations and delimitations of the study

The researcher encountered the following limitation in the course of his research work:-

i. Short time of conducting research because at the same moment researcher had to deal with
other subjects

ii. Shortage of fund necessary for completion of the report

iii. Inefficient internet for searching information

Delimitation

To overcome the above, the researcher had to rely on the available time, fund and information
(especially secondary data) to accomplish the research report.
 CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

This chapter examine literature review, elaborate terms and concept

Used in the study and how these concepts has been defined from various author’s views. It also
focuses on tax revenue collections.

Contribution of various taxes to GDP and trends of tax revenue as share of GDP. It also examine
contribution of non-tax revenue to national budget of Tanzania and general comparison between
revenue and Government expenditure. The chapter also provide a theoretical and empirical
literature review related to the study.

2.2 Definitions

2.2.1 Tax

N.A Saleemi (2008) define tax as the compulsory contribution imposed on the individuals to
meet the expenses which are incurred for a common cause.

Thirsk Wayne (1997) defines tax as imposing financial charge or other levy upon a taxpayer (an
individual or legal entity) by a state or the functional equivalent of state such that failure to pay is
punishable by law.

Sherly Dennis & Karen Fortin (2006) define tax as forced payment made to a government unit
that is unrelated to the value of goods or service is provided.
2.2.2 Taxation system

Oxford dictionary (1998) defines taxation system as a system of raising money by taxes. Also
N.A Saleemi (2008) point out that a good tax system should also help to achieve the following
objective:-

i) To maintain economic stability

ii) To equalize the distribution of income

iii) To increase the rate of economic growth.

Normally, tax system is made up of tax policy (i.e. that provide the base and guide which tax,
what amount and to whom tax should be imposed), tax laws (that give mandate to the
government to impose and collect tax from tax payers) and tax administration for
implementation of directives and controlling tax collections.

2.3 Tax structure in Tanzania

The Tanzania tax structure is composed of direct and indirect taxes, all administered by the
Tanzania Revenue Authority (TRA). However, for the case of Zanzibar, the administration of
Union taxes, which include customs duty, excise duty on imports and the income tax, is under
TRA, while the Zanzibar Revenue Board administers the rest of local taxes. The local taxes in
Zanzibar are listed to include VAT, which is the main local tax, collected by the ZRB. The other
local taxes, which are under the administration of ZBR, are the Stamp Duty, which is paid by
businesses that are not registered for VAT, Hotel Levy and the Entertainment Tax. Others are the
Excise Duty on locally manufactured goods and fees from various business licenses. Among the
tax collected by TRA are:-

2.3.1 Income Tax

Income tax is a tax on gains and profits from business, employment and investment of
individuals, corporation and other entities. Corporation pay 30% of their profit, while individual
pay different rate on different part of their income, the higher the income the higher the rate.
Included in income tax are individual income tax, capital gain tax, Pay-As-You-Earn system for
employees, provisional and final withholding tax, corporate tax and presumptive income tax for
small individual businesses.

2.3.2 Value Added tax

Standard VAT system

VAT is a consumption tax. The tax is paid by the consumer at rate of 18% of value of product
bought. However, retailer are collection agents for the tax. Therefore the retailer sell the goods
send the tax to TRA on consumer’s behalf. VAT works on an input – output system. This means
that instead of all the tax being levied at the final retail point, VAT is levied as the value is added
to the goods or service in the chain of production. Each producer in the chain of production sends
VAT on their own value added to the TRA. The value added is output value minus the cost of
purchased inputs. The VAT turnover threshold is 100 million. This means that those with total
sales of less than 100 million are not required to register for VAT and cannot claim input tax,
and do not charge output tax. Business below the threshold may voluntarily opt to register for
VAT if they make sales to other registered businesses.

2.3.2.1 Zero rating

Zero goods and services are listed in the first schedule of the VAT Act, and include exports, if a
supply is zero rated, this means that the supplier of the product reclaims all inputs tax and does
not levy output tax. Zero rating remove all VAT from the chain of production of that product.

2.3.2.2 Exemption

Exempted goods are listed in the Seco0nd schedule of VAT Act, and include unprocessed
agricultural product, educational and health service. If a supply is exempt, this means that the
supplier of the product does not reclaim the input tax and does not levy the output tax.
Exempting removes the final stage VAT from the product , but does not remove all the VAT,
there is still VAT on the inputs used to produce the exempt product, supplier who supply on
exempt product are not required to register for VAT.
2.3.2.3 Special relief

Special relieved persons or purchaser are listed in the third schedule of the VAT Act, and include
non-profit, non-government organization. If a person is special relieved (for particular purchase
or all purchases), this means that the person who sells the product to that person reclaims all
input tax and does not reclaim output tax. In effect it is the same as zero rating; however is
different in aspect that it applies to a specific purchaser rather than uniformly to a particular
goods or service.

2.3.2.4 Deferment

Tanzania also has a policy of VAT deferment on capital goods. This works like special relief,
and is for purchases by VAT registered and non VAT registered businesses of capital goods.
(Source: ministry of finance and planning)

2.3.3 Import Duty

From the 1st January, 2005 he East African Community Customs Union came into force for
Tanzania, Kenya and Uganda (the Partner States). The implication of this are:

a. A common external tariff in respect of all goods imported into Tanzania, Kenya and
Uganda from foreign countries has been established.

b. The partner states agreed to a three band common External Tariff (CET) as follows,
Table 1: Three bands Common External Tariff in EAC Customs Union

Goods Rates (%)

Raw material, capital goods, agricultural inputs, certain medicines and certain 0
medical equipment

Intermediate goods and other essential industrial input 10

Finished goods 25

(Source: Ministry of finance and planning)

Under the customs union certain goods have been deemed strategic for the purpose of
safeguarding particular revenues and to allow for the protection of specific industries. This
categories of good include: rice, maize, milk, wheat and Maslin flour, sugar, kitenge, cotton and
matches.

2.4 The tax laws administered by the Tanzania Revenue Authority

The TRA administer the following main tax laws:-

i. The Income Tax ACT, 2004

ii. Value Added Tax Act, 2015
iii. The Tax Revenue Appeals Act
iv. The Gaming Act, 2000
v. The East African Community Customs Management Act, 2004
 vi. The Tanzania Revenue Authority Act
vii. The Hotels Act
viii. The port Services Charges Act, 1973
ix. The Motor Vehicle Act, 1972
x. The Stump duty Act, 1972
xi. The Road and fuel Toll Act, 1985
xii. The Airport Service Charges Act, 1992
xiii. The Foreign commercial vehicle licensing Act, 1970

2.5 Local Government Taxes

Local Governments have the mandate to raise certain revenues from taxes, levies and fees. The
Local Governments set their own revenue policy within the limits set by Central Government.
They retain all their revenue and use it as part of their own budgets these revenues do not form
part of Central Government revenue.

The local government Act, 1982 and Urban Act of 1983 empower any local Authority to pass
by-laws that allows the Authority to charge local taxes and collect levies and fees within its
jurisdiction

2.5.1 Types of taxes, fees and levies

The taxes, levies, fees and revenue sources which Local Governments are mandated to raise
under the Local Government Finances Act are as follows:

 Property rates
 Forest produce cress
 Guest house levy
 Other business licenses fees
 Commercial fishing license fees
 Intoxicating liquor license fee
 Forest produce license fees
  Service levy

(Source: Ministry of finance, Tanzania)

2.6. Policies and institutional reforms in strengthening revenue collection

The government continued to implement a range of policy and institutional reforms in order to
strengthen revenue collections. Effort to improve revenue collection mainly covered the
following areas:-

i. Broadening the tax base

ii. Improvement of business and investment climate
iii. Implementation of Tanzania Revenue Authority (TRA) third five-year corporate plan
2008/2009 – 2012/2013, which aims at strengthening accountability among taxpayers and
collection
iv. Improving the procedure for collection of non-tax revenue
v. Improving the tax structure, fees, levies and other revenue sources

(Source: Third – five year corporate plan manual 2008/09 – 2012/13)

2.6.1 Implementation of the second Corporate Plan 2003/04 – 207/08

The second Corporate Plan was an ambitious Plan that aimed at reforming TRA into a Modern
Tax Administration that has a strong enforcement capacity delivered by highly qualified,
motivated and
Committed staff; has an integrated approach to the administration of taxes; is computerized; uses
modern practices and processes and ensures compliance by facilitating taxpayers’ obligations
I. Increasing revenue in a cost effective way Revenue collections have increased significantly
during the second Corporate Plan period from a monthly average of Shs 117 bn in 2003/04 to an
average of Shs 209 bn in 2006/07 and the expectations on the basis of the approved budget is Shs
278 bn for the year 2007/08. The favorable revenue performance trend influenced the revision of
the initial revenue forecasts to match with the real situation. Approved net revenue projection for
the year 2007/08, is set to be Shs. 3,333.1billion against the Plan’s initial projections of Shs
2,405.6 billion. These figures denote a landmark performance at a rate of more than 138%
making the second Corporate Plan a success story.

II. Provision of high quality and responsive customer service In order to ensure that taxpayers
become partners in business, TRA has established among others a Stakeholders’ Forum;
Taxpayers ‘Day; Taxpayer Service Centre and a Taxpayers’ Charter. These are all aimed at
ensuring that TRA provides services to meet stakeholders’ expectations through the Quality
Management

System as per the ISO 9001:2000 Standard. Taxpayer Surveys are conducted on regular basis to
measure the perception of stakeholders on a broad range of services provided by TRA. The
customer feedback is used to continuously improve service.

III. Promotion of tax compliance through a fair, equitable and transparent application of tax laws
This goal was achieved through simplification and review of tax. Laws and regulations in order
to improve tax enforcement. The introduction of the Income Tax Act 2004; Tax Administration
Act(Common Tax Procedures Code) that consolidates and harmonizes all administrative
procedures from the substantive Income Tax and VAT Acts and Adoption of the East African
Cooperation (EAC)
Customs Management Act 2005 are some of the achievements. Additionally, the risk
management based operations have been introduced to ensure that TRA focuses on risky areas
for efficiency and effectiveness as well as proper allocation of resources.

IV. Improving staff competence, motivation and accountability this strategic goal focused on
ensuring that TRA retains qualified, skilled and motivated staff with high integrity to be able to
conduct business in a modern environment.

2.7 Non Tax Revenue – Sources and Administration

Non tax revenue are collected by various central government ministries and the local government
authority. The non-tax revenue are collected by Ministry of finance and other ministries. For
example, the ministry of tourism and natural resources collects fees, fines and forfeiture related
to exploitation of natural resources, Ministry of Energy and Minerals collects royalties from
mineral and gas, sales of minerals, fees for geological, mineral sorting and exploration activities,
Ministry of Communication and Transport collect charges and fees related to air transport and
communication, meteorology and civil aviation service. (Source: Ministry of finance and
planning)

2.8 Theoretical basis for the Research

Similar study on the contribution of tax revenue collection on the budget in Tanzania had been
carried out by former student of Texas A&S University. Vacaflres (2006) However, under his
study he argued that the performance of government tax revenue is determined by number of
structural factor, in order to adequately model the behavior of government tax revenue, the
structure characteristics of the relevant country in question should be emphasized and
microeconomic policies and internal factor that affect economic activity in general and revenue
performance in particular incorporation.
 CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 Overview
This chapter gives an overall view of the plan of how the researcher is going to approach the
research questions to provide the required answers. It analyses types and source of data to be
used so as to draw conclusion after being analyzed.

3.2 Types of Data

The study use secondary data. The data collected were mainly those relating to revenue
collections such as tax revenue data, non-tax revenue data, contribution to total national revenue
for each types of tax, share of taxes on GDP.

3.3 Source of Data

The data were collected from the internet, ministry of finance and planning, TRA website,
National Bureau of Statistics and some other sources. For example annual tax revenue on a
budget estimate will be collected from annual budget proposal for TRA. Various document
related to study were exploded. These include TRA annual tax collection reports, Journals,
Circulars, BOT and Ministry of Finance and planning reports. Data obtained from such
document were used in drawing conclusion and recommendation.

3.4 Data analysis Techniques

This research used quantitative method, the researcher used quantitative method to analyze data
mathematically, whereby calculation of numbers, percentages, tables and charts ere used to
summarize the amount of data obtained. Measure of central tendency and dispersion such as
mean, mode and range were also used. The researcher largely use Microsoft excels in analyzing
the data.
 CHAPTER FOUR
4.0 PRESENTAION OF RESEARCH FINDINGS
4.1 Introduction
This chapter presents findings, analysis and discussion of the result. Findings based on the
research questions and objectives as shown in chapter one of this report. They based on the
reliable second data source which maintain database of tax and national revenue issues in
Tanzania.
The main source where data were gathered toward formulating research findings are such as
Tanzania revenue Authority, Ministry of Finance, Bank of Tanzania, etc.

4.2 Presentation of result, analysis and discussion.

Table 2. Government budget v/s Actual Tax Revenue collected (2008/09 – 2012/13)

YEAR Revenue collection Government budget Performance for the

Tsh.00000 (projection)Tsh year (percentage)
00000
2008/2009 4052.0 4497.1 90.1
2009/2010 4437.9 4855.9 91.4
2010/2011 5315.1 5652.6 94.0
2011/2012 6502.6 6228.8 104.4
2012/2013 7739.3 7871.4 98.3

Source: (TRA fourth corporate plan 2008/09 – 2012/13)

The above table depict that only in year 2011/12, the actual revenue collection has reached and
exceed the requirement in the Government budget. Even though there has an increase in revenue
annual where in year 2008/09 was Tsh 4,052,000,000 and in year 2012/13 was 7,739,300,000 but
still government budget was huge since in year 2008/09 was 4,497,100,000 and in year 2012/13
was 7,871,400,000. The mean average of revenue collection to National budget is 95.64% where
the range is 14.3%
The maximum revenue contribution to the national budget was in year 2011/12 when it reached
104.4% of the total budget. This implies that Tanzania Revenue Authority still has extra hard
work to do in tax revenue collection from various sources so as to go in line with the national
budget.

4.2.1 Trends of Grants in Tanzania

Table 3: Trends of grants in Tanzania from 2005/06 – 2007/08
Years Grants (000,000)

2005/06 1,043,421.6

2006/07 952,225.5

2007/08 1,573,195.4

(Source: Bank of Tanzania, 2010)

The data implies that there is no reliability in grants due to its fluctuation since in
2005/06 it was 1,043,421.6 million while in 2006/07 decline up to 952,225.5
million which is approximately 8% decline. This affects the National budget hence
many efforts should be emphasized in collecting domestic revenue rather than
relying on those grants
4.2.2 Trends of non-tax revenue in Tanzania

Table 4: Composition of non-tax revenue by source

2005/06 2006/07 2007/08 2008/09

Parastatal dividends 13.3 10.6 58.2 25.9

Treasury 17.5 18.4 20.3 4.7

Ministries and regions 124.6 131.1 166.5 155.3

TRA Non tax 20.6 35 23.9 10.2

Total 176.1 209.6 269 196.1

(Source: Ministry of Finance and Economic Affairs, 2010)

The data above reveals that Ministries and Regions are the main contributors of
non-tax revenue as compared to other non-tax revenue sources. In 2008/09, for
instance, they contributed 155.3 billion which is 79.19% of the total non tax
revenues collected. However the data also reveals that there is need to improve
even non tax revenue since contribution to the national budget is low as
compared to the total requirement in the recurrent and development
expenditure. The potential sector which require improvement are all as shown in
the table since our country is endowed with many natural resources but still they
contribute little to the national revenues.
4.2.3 Revenue shares in Tanzania

According to the Ministry of Finance and Planning, majority of revenue (94%)

contributed to the national budget comes from tax revenue source.

Chart 1: Revenue share in Tanzania

PERCENTAGE

NON TAX REVENUE

OTHER
6%
TAXES
10% VAT
30%

IMPORT TAX AND

EXCISE DUTY
26%

INCOME TAX
28%

(Source: Ministry of Finance and Planning)

The char depict that VAT is the leading contributor of national revenue forming a
total of 30% followed by income tax 28%. Non tax revenue contribute only 6%
which is very low as compare to the endowed natural resources in Tanzania. For
the purpose of reducing dependency of the national budget, all revenue sources
should be emphasized through expansion of tax base and proper management of
non-tax revenue sources such as from mining sector, tourism sector and natural
resources sectors, transport and communication sector.
4.2.4 Revenue collection by source in Tanzania mainland ()

Table 5: Itemized sources of Tax revenue in Tanzania mainland

TRA Mainland Millions

Tax Item 2011/12 2012/13 2013/14 2014/15 2015/16

P.A.Y.E. 1,129,468.7 1,395,608.0 1,626,265.7 1,750,804.8 2,246,776.6

Corporation Tax 779,855.4 1,039,725.0 1,483,898.3 1,182,730.0 1,379,736.2

Individuals 65,768.3 69,909.0 87,401.0 101,881.9 141,801.2

Other Income Taxes 496,416.4 644,175.3 770,053.8 905,383.4 1,096,801.7

Domestic Excises duty 449,958.5 560,479.3 747,196.3 825,775.2 868,620.1

Domestic VAT 979,796.2 1,155,299.0 1,316,820.7 1,511,889.2 1,840,677.5

Other Domestic Taxes & Charges 151,841.6 194,128.0 220,151.6 248,197.6 294,909.0

Import duty 509,701.0 580,944.4 734,685.8 910,936.8 1,344,286.6

Excises duty on Import 583,606.0 697,393.4 761,766.9 916,946.0 1,275,775.1

VAT on Import 1,082,917.7 1,213,436.8 1,329,477.4 1,542,962.6 1,727,172.5

Other Import charges 439,312.0 480,024.9 801,013.9 767,621.9 1,003,847.6

TOTAL (GROSS) 6,668,641.7 8,031,123.0 9,878,731.4 10,665,129.4 13,220,404.1

Less Tax Refunds 202,628.7 376,610.9 520,326.8 776,684.1 720,738.3

TOTAL (NET) 6,466,013.0 7,654,512.1 9,358,404.5 9,888,445.3 12,499,665.8

Add Treasury Voucher & Non-
Targeted Revenue 36,586.7 84,786.4 24,642.1 20,530.1 25,711.7

GRAND TOTAL (Mainland) 6,502,599.7 7,739,298.4 9,383,046.7 9,908,975.4 12,525,377.6

Source: Tanzania Revenue Authority
Table 6: Tanzania Revenue Collection
Millions
TRA Zanzibar TShs.
Tax Item 2011/12 2012/13 2013/14 2014/15 2015/16

P.A.Y.E. 17,591.8 20,134.7 27,394.7 29,929.3 33,754.8

Corporation Tax 6,613.2 8,896.3 9,149.5 10,737.1 14,783.9

Individuals 2,896.5 3,659.8 3,918.6 5,439.8 6,592.8

Others taxes 5,467.4 7,353.0 8,597.0 9,856.5 12,538.9

Import duties 22,858.6 24,928.6 33,771.8 33,449.6 34,829.2

Excise duty on Imports 8,002.6 8,356.0 10,894.0 10,333.9 12,156.7

VAT on Imports 24,814.1 26,848.6 38,268.1 38,831.7 41,521.9

Others 3,422.2 3,689.3 4,697.2 5,358.5 14,789.2

Total TRA (Zanzibar) 91,666.4 103,866.3 136,690.8 143,936.4 170,967.6

In table no 5 (Itemized tax revenue collection in mainland Tanzania) generally

reveals that net total tax revenue in Tanzania mainland increased annually. For
instance, in 2011/12 it was 6,466,013.0 million while in 2015/16 it was 12,499,665 million.
Moreover VAT on import is the leading tax revenue contributor in all the year from 2011/12 to
2015/16. For instance in 2011/12 it was 1,082,917.7 while in 2015/16 rose up to 1,727,172

In table no 6 (Itemized tax revenue sources in Zanzibar), generally reveals that total taxes
collected annually increased.
4.2.5Taxes as a share of GDP

Table 7: Taxes as a share of GDP from 2005/06 to 2008/09

2005/06 2006/07 2007/08 2008/09

TRA MAINLAND
Actual Actual Actual Actual

1.142 1.147 1.173 1.178

GDP mp 16,953,281 19,444,835 2,2799,258 26,868,213

Revenue/GDP ratio 11.6% 13.2% 14.8% 15.1%

128.3% 130.8% 131.1% 120.0%

TOTAL TRA(Net of Refund with 1,968,592.7 2,575,648.6 3,376,568.3 4,051,963.9

TVs)

Add Treasury voucher 38,501.9 64,488.6 33,705.1 32,511.0

Net collection 1,930,090.7 2,511,160.0 3,342,863.2 4,019,452.9

Less tax refunds 87,851.0 106,713.4 12,0747.0 142,178.0

GRAND TOTAL 2,017,941.7 2,617,873.4 3,463,610.2 4161630.9

127.6% 129.7% 132.3% 120.2%

Source: TRA, 2010

The data above depict that there is overall increase of percentage of revenue shares to GDP. In
2005/06 it was 11.6% whereas in 2006/07 increased up to 13.2% and in 2007/08 rose up to
14.8%. Despite that improvement the rate increased is very low since the annual increase rate is
less than 2% therefore efficiency and effectiveness must be improved in tax revenue collection
together with searching other source of taxes.
Table 8: VAT as a share of GDP

2005/06 2006/07 2007/08 2008/09

VAT on import 502,437.3 463,753.2 550,066.0 64,378.0

Domestic VAT 331,441.5 419,637.3 547,855.4 69,561.1

Gross VAT( Mainland) 833,878.8 883,390.5 1097921.4 133,939.0

Total VAT refunds (Mainland) 62,781.2 62,885.5 87,520.2 102,084.8

Net VAT (Mainland) 771,097.6 82,0505.0 1010401.2 1,231,854.3

GDP mp (Mainland) 16,953,280.5 19,444,835.5 22799258.3 26,868,213.4

Net VAT as a % of GDP 4.5% 4.2% 4.4% 4.6%

Gross VAT as a % of GDP 4.5% 4.5% 4.8% 5.1%

Source: TRA, 2010

The above data contribution of VAT as a share of GDP generally shows a desertification
situation due to its tendency of fluctuation. For instance, in 2005/206 it was 4.5% but in 2006/07
declined up to 4.2% and in 2007/08 again rose at a very minimum percentage up to 4.4% this
might be caused by low level of compliance on the part of traders through under reporting of
sales, tax avoidance and evasion.
4.2.6 Trends in total revenue, expenditure and foreign aids

Table 9: Government finance

Items Actual (million TZS)

2005/06 2006/07 2007/08

Tax revenue 1,946,432.6 2,529,439.4 3,359,249.8

Non-tax revenue 178,441.1 209,583.0 275,330.8

Grants 1,043,421.6 952,225.5 1,573,195.4

Total revenue 3,168,265.4 3,691,247.9 5,207,776.0

Recurrent expenditure 2,124,843.7 2,739,002.4 3,634,580.6

Development expenditure 1,343,365.2 1,337,211.4 1,810,972.0

Total expenditure 4,005,227.7 4,474,680.9 5,208,995.9

Source: Bank of Tanzania, 2010

During the period 2005/06 to 2007/08 revenue collection has shown a persistent increase from
TZS 3168 billion to TZS 5208 billion respectively. This has largely attribute to a drastic increase
in revenue from 2125 billion to 3635 billion, which is an increase of 72.6%. Non-tax revenue
increased from TZS 187 billion to 275 billion during the same period which is an increase of
54.3%, total expenditure increased from TZS 4000 billion to TZS 5029 billion during the same
year.

Development expenditure grew by only 34.8% while recurrent expenditure grew by 71.1%.
Grants increased from TZS 1043 billion to TZS 1573 billion. The amount of grants received is
equivalent to 78% of total development expenditure
4.3 Tax Exemption on Revenue Collection

The findings shows that tax exemptions contribute towards the failure of achieving TRA target in
some years. Not all residents and non-resident individuals or corporations pay taxes, some are
exempted from payment of tax for one reason or another. Tax exemption under income tax are
provided under section 10 of the Income Tax Act, 2004 and for VAT Tax exemption are
provided under section 11 of the VAT Act of 2015 read with 3RD schedule of the VAT Act, 2015

Table 10: Tax exemption by category 2008/09 and 2009/2010 (in millions)

CUSTOMS 2008/09 2009/10

DERPARTMENT
TIC & ZIPA 380,090.5 272,913.1
Non-government organization 37,237.8 21,503.0
Private companies and 51,233.4 35,639.7
individual
Mining 59,140.7 49,588.7
Religious institution 408.0 2,60.3
Parastatal Organization 7,125.6 7,046.1
Religion Trade arrangement 3.0 -
Government Institution 21,617.3 52,481.6
Donor funded project (DFP) 21,552.7 720,257.8
Sub total 578,409.0 511,690.3
DOMESTIC REVENUE
DERPARTMENT
VAT 220 13,249.6 217.0
Exemption under duty free 3,892.4 2,691.6
shops
Exemption under VAT 15,6847.9 180,192.6
223/224
Sub total 17,3989.9 183,101.2
GRAND TOTAL 752,398.9 694,791.5
Chart 1: Trends of Tax exemption

(Billions of TZS)

900

800

700

600

500 Series 1
Series 2
400
Series 3
300

200

100

0
2004 2005 2006 2007 2008 2009
 CHAPTER SIX

6.0 CONCLUTION AND RECOMMENDATION

5.1 Introduction

This chapter explains the conclusion of the study and suggested recommendations which could
help revenue collection so as to support national budget and reduce dependency on external
financial support from loans and grants to supplement our budget.

5.2 Conclusion

From observation shown in chapter four, its seen that tax revenue collected by TRA is not
enough to finance government budget. It ranges from 51.42% of the total budget requirement in
2005/06 to 68.97%, thus there is still big gape be covered by revenue sources.

There are various reasons attributed to that failure and in adequate revenue collection and among
them are:-

i) Low level of tax compliance on part of tax payer due to involvement in tax plan
issues to minimize their tax liability such as under declaration of sales,
ii) Various tax exemptions granted to companies especially in mining sector which result
to much revenue loss.
iii) Inadequate technical staff in TRA capable of dealing the existing number of tax payer
especial in audit section.
iv) Tax incentives granted to tax payer especially in VAT such as VAT relief and tax
holidays.
v) Low revenue collection from non-revenue sources such as in local administration and
ministry of natural resources.
5.3 Recommendations
The following are some of recommendation which could increase the tax revenue
collection and support our national budget:-
 The policy maker should consider some of the items which are exempted to be taxed
so as to enable government to be able to increase its tax revenue collections. This in
turn will help the government of Tanzania to have proportionality in respect of the tax
revenue collections in financing its budget.
 TRA should increase giving education to local authorities and other non-tax revenue
collection so that they could collect revenue to the maximum amount and supplement
the national budget.
 Tax incentives should be minimized so that revenue from those unnecessary
incentives could be collected and thereby increase the total tax revenue collection and
reduce external support.
 The increase in tax revenue came from natural resource taxes. This include income
from production sharing, royalty and corporate income tax on oil and mining. TRA
must be free from corruption because a fair and transparent tax system is the one
which is free from corruption and which applies the rule of law.
 Mobilizing domestic resources broadening the tax base to secure steady revenue
streams for development financing and to diversify the revenue sources especial in
context of tariff liberalization that impact strongly on tax revenue.
 TRA has to make sure that it implements its third corporate plan of 2008/09 –
2012/13 in order to increase commitment among tax payers and tax officers for the
aim of emphasizing efficiency on the collection of tax’
 Fighting tax evasion, spurred by havens, regulatory weaknesses, and some corporate
practices, improving the investment climate of enterprise development largely shaped
by the tax regime, and promoting good governance, underpinned the effective
taxation that promote the accountability of government to citizens and the investment
community.
 TRA should increase technical employees in order to increase workforce that will
help in insuring effective tax revenue collection and compliance monitoring since
taxation is central to the current economic development agenda.
 BIBLIOGRAPHY
Shirley Dennis & Karen A (2006). Taxation for decision makers. Pearson Education
Limited. New Jersey, USA

Thirsk, Wayne (1997), Tax reform in developing countries (Washington World Bank)

TRA annual report (2009/2010)

TRA third five- year corporate plan annual 2008/2009 – 2012/2013

TRA handbook of Tax Administration and structure in Tanzania. September, 2007

The united republic of Tanzania. Tanzania Revenue Authority (2010) Tax Revenue
collection reports

The United Republic of Tanzania. Ministry of Finance and Planning (2014). Revenue
and taxation policy

The United Republic of Tanzania. Bank of Tanzania (2011). Government budgetary

operation 2008/2009

Sleemi N.A (1987) Simplified economics. N.A Saleemi publisher, Nairobi, Kenya

Sally,M (1998). Principal of Taxation. MC Graw Hill, Verginia, USA

R.M. Bird 1992. Tax policy and economic development. John Hopkins, University
Press, London

Mpongulina R. (2000). The theory and practice of taxation in Tanzania. NBAA,

Daresalaam, Tanzania
Adam, J & Kamuzora, (2008). Research methods for business and social studies,
Mzumbe book project, Morogoro, Tanzania

Bukuku S.E, (1998/1999), TRA annual report review of tax structure, Daresalaam.
Kelvin kanswala Banda, (2003). Does Revenue Authority offer for efficiency and
effectiveness to Government revenue mobilization

Kothari, G.R 92004). Research methodology, methods and techniques, 1ST edition,
New Delhi: Washwa Prakashan
 ABSTRACT

Tax revenue composes the large chunk of budget resources therefore poor tax revenue collection
has significant effects on economic growth of a country. In view of the above Tanzania decided
to reform its tax system in 1990’s with the establishment of TRA. Since its establishment in
1996, TRA has improved revenue collection. TRA annual report shows that during the period of
2005/06 to 2007/08 revenue has shown persistent increase from TZS 3,168 billion to 5,208
billion respectively which implies a drastic increase of revenue from 2,125 billion to 3,635
billion which is an increase of 72.6%.

The main objective of the study was to assess the contribution of tax revenue in Tanzania
national budget and to how if it meets the annual budget requirements. Among the research
question used were: what is the contribution of tax revenue in Tanzania budget? What is the
comparison between revenue and expenditure in Tanzania government finance? What are the
problems of revenue collection and their solution.

The study use secondary data such as revenue annual collection reports, government finance
reports etc from various source such as Tanzania Revenue Authority, Bank of Tanzania, National
Bureau of Statistics etc.

The findings showed that tax collection by TRA is insufficient to meet government expenditure.
As a result there is high dependency on donor assistance through grants, loans etc.

For instance in year 2009/10 revenue collection was TZS 5,096,016 millions while government
expenditure was 9,513,685 million this implies that contribution of tax was only 53.56% to the
total government expenditure while the remaining 4,417,669 million equal to 46.44% being grant
and loans.

The study also examine the share of tax on GDP and found that, for instance contribution of net
VAT as a percentage of GDP in 2007/8 was 4.4% while in 2008/09 was 4.6% which means that
share of GDP is still low.

Therefore researcher recommended various steps to be followed so as to increase tax revenue

contribution on National Budget including provision of taxpayer education to improve tax
payment compliance level, finding other sources of tax revenue to increase tax base, reduce
number of exemptions, reduce number of tax incentives, and implement TRA 3RD corporate plan.
 CERTIFICATION

The undersigned certify that she has read and hereby recommend for acceptance by the institute
of Tax Administration a Research report entitled: Assessment of the contribution of tax revenue
collection on National Budget: A case study of Tanzania Revenue Authority, in partial
fulfillment of the requirement for the Bachelor degree in customs and management of the
Institute of Tax Administration

Supervisor (Cilivia )

Signature………………………………………

Date……………………………………………
 DECLARATION

I, Shukrani S. Dickson, declare that this research Report is my own original work and that it has
not been presented to any other Institute/University for a similar or any other awards.

Signature………………………………

Date……………………………………
 COPYRIGHT

This thesis is copyright material protected under the Berne Conversion, the copyright Act 1999
and other international and national enactments, in that belief on intellectual property. It may not
be reproduced by any means, in full or part, except for short extract in fair dealings for research
or private study, critical scholarly review or disclosure with an acknowledgement, without the
written permission of author or the Institute of Tax Administration on behalf.
 ACKNOWEDGEMENT

First and the foremost, my deep thanks should go to the Lord, the one and the only, for his mercy
of making me alive from the starting point up to the completion of this research report.

Indeed, I feel greatly indebted to various individuals in which their moral and material support
was very crucial towards the accomplishment of this research report.

I would like to express my sincere gratitude to my supervisory, Madam Cilivia, for her support
and guidance in the preparation of this report. In the same vain I wish to extend my gratitude to
the management of Institute of Tax Administration and other staff both academic and
administrative, for their decision of involving this subject in our course as it is very important
and useful in our life.

I would like to express my sincere gratitude to my family members for their support which they
extended to me during the entire period of bachelor degree studies at Institute of Tax
Administration.

Last but not the least, I appreciate all my classmate for their team effectiveness, support and
cooperation they provided to me. Class activities and other obligation were so easy through
them. Thank you all.
 LIST OF TABLES

Table 1: Three Bands customs External Tariff in EAC Custom Union

Table 2: Government budget Vs Actual tax revenue collected

Table 3: Trends of Grants in Tanzania

Table 4: Composition of non tax revenue by source

Table 5: Itemized sources of tax revenue in Tanzania mainland

Table 6: Tax Revenue collection

Table 7: Taxes as a share of GDP

Table 8: VAT as a share of GDP

Table 9: Government finance

Table 10: Tax Exemption by category