domestic resource mobilization in tanzania n. osoro, l. rutasitara, j. aikaeli and g. kibira...
TRANSCRIPT
Domestic Resource Mobilization in Tanzania
N. Osoro, L. Rutasitara, J. Aikaeli and G. Kibira
[email protected], [email protected], [email protected], Department of Economics, University of Dar es Salaam
MKUKUTA REVIEW STUDIES, MINISTRY OF FINANCE AND ECONOMIC AFFAIRS 25-02-2010
1
Outline
• 1. Introduction• II. Revenue Sources from Domestic Taxes• III. Financing by Non-traditional (Non-tax)
Domestic Resources• IV. Tax Revenue from the Informal Sector• V. Overall Assessment• VI. Concluding Remarks and
Recommendations
2
I. Introduction
• Why Focus on Domestic Resources Mobilisation?
• Objectives• Methodology
3
II. Revenue Sources from Domestic Taxes
• Impacts of Internal and External Shocks on Govt Revenue
• Sectoral Contribution to GDP and Revenue Collection
• Contribution of Tax Revenue by sector• Estimates of Revenue Losses due to Tax Relief• Possible internal and external shocks• Strategies for Improving revenue collection
4
Impact of Internal and External Shocks on Govt. Revenue
• An event that produces a significant change within the economy
• Cause unpredictable changes on aggregate demand and shirt run aggregate supply
5
Impact of Internal and External Shocks on Govt. Revenue (cntd)Internal (Changes in weather,
power, changes in tastes of consumers)
External (changes in food and oil prices, export prices, global economic and financial crisis)
6
Sectoral Contribution to GDPEconomic Activity 2001 2002 2003 2004 2005 2006 2007 Agriculture, Hunting and Forestry 29 28 27 27 26 25 25 Crops 21.4 21.1 20.4 20.1 19.6 19.1 18.6 Livestock 5.0 4.8 4.6 4.5 4.4 4.2 4.0 Forestry and hunting 2.5 2.4 2.4 2.2 2.2 2.1 2.0
Fishing 1.7 1.7 1.7 1.7 1.6 1.6 1.6 Industry and construction 18.0 18.4 19.1 19.6 20.2 20.5 20.9 Mining and quarrying 1.8 1.9 2.1 2.3 2.4 2.6 2.7 Manufacturing 8.4 8.4 8.6 8.7 8.9 9.0 9.2 Electricity, gas 2.2 2.1 2.1 2.1 2.2 2.0 2.1 Water supply 0.5 0.5 0.5 0.4 0.4 0.4 0.4 Construction 5.2 5.5 5.8 6.1 6.2 6.4 6.5 Services 45.5 45.7 46.1 46.1 46.4 46.9 47.3 Trade and repairs 13.0 13.1 13.5 13.2 13.1 13.5 13.8
Hotels and restaurants (Tourism inclusive) 2.8 2.7 2.6 2.5 2.5 2.4 2.4 Transport 5.4 5.3 5.2 5.2 5.2 5.1 5.1 Communications (ICT, etc.) 1.2 1.3 1.4 1.5 1.7 1.9 2.1 Financial intermediation 1.5 1.6 1.6 1.6 1.7 1.8 1.8 Real estate and business services 10.3 10.3 10.3 10.2 10.2 10.2 10.2 Public administration 7.0 7.2 7.4 7.8 8.0 8.0 8.0 Education 2.1 2.1 2.0 1.9 1.9 1.8 1.8 Health 1.3 1.3 1.3 1.3 1.4 1.4 1.4 Other social and personal services 0.9 0.9 0.8 0.8 0.7 0.7 0.7
7
Contribution to Tax Revenue by Sector
ECONOMIC SECTOR VAT CORP. TAX
EXCISE DUTY PAYE SDL W/H TAX RENTAL
STAMP DUTY
INDIVIDUAL TAX OTHERS
DEP. CHARGE
TOTAL TSH
% of total taxes
Agriculture, Livestock & Forestry
1,131.3
688.1
16.2
1,361.6
225.9
226.9
262.8
93.5
19.9
403.7
103.2
4,533.2 0.19
Fishing
507.8
308.9
7.3
611.2
101.4
101.9
118.0
42.0
8.9
181.2
46.3
2,035.0 0.08
Mining &Quarrying
8,572.2
9,193.9
95.9
54,445.1
9,324.9
7,149.3
251.9
97.5
13.7
301.6
83.3
89,529.3 3.71
Manufacturing
210,102.1
101,835.4
207,450.0
48,236.8
13,059.9
17,672.4
4,007.5
1,281.2
257.2
5,369.9
1,313.9
610,591.0 25.31
Electricity, Gas& Water
34,853.8
378.0
74.2
15,903.4
4,019.2
8,365.9
17.8
6.3
1.3
32.8
6.9
63,659.6 2.64
Construction
22,838.7
13,574.0
46.7
10,318.7
2,446.3
3,137.9
850.7
228.5
46.6
991.8
241.6
54,721.4 2.27
Wholesale & Retail Trade
96,079.2
67,953.1
1,044.2
104,251.6
18,297.8
16,613.4
17,696.3
6,065.0
1,280.3
26,063.9
6,632.6
361,956.4 15.00
Hotels &Restaurants
20,216.2
6,874.0
148.5
22,424.6
2,838.9
2,780.2
2,154.8
745.5
158.3
3,232.0
819.9
62,392.9 2.59
Transport, Storage & Commns.
203,099.7
62,019.4
75,041.1
69,085.1
14,110.6
18,525.8
8,339.8
1,982.7
404.5
8,819.1
2,295.5
463,723.3 19.22
Financial Intermediation
11,990.4
107,457.3
26.5
60,177.2
10,579.8
23,249.4
2,940.5
556.7
10.4
408.4
53.9
217,450.5 9.01 Real Estate, Renting & Business Activities
42,932.7
19,792.0
284.1
36,170.7
8,457.4
5,026.5
5,276.5
1,579.6
428.1
6,830.9
1,731.0
128,509.5 5.33
Public Administration & Defence
559.9
226.6
5.1
179,508.5
638.5
183.1
103.4
146.3
6.3
138.4
32.5
182,286.1 7.56
Education
530.9
398.3
7.2
11,033.1
128.0
100.6
141.6
43.9
8.8
186.5
45.7
12,624.6 0.52
Health & social Work
784.9
477.4
11.3
944.7
156.8
157.4
182.3
64.9
13.8
280.1
71.6
3,145.1 0.13 Other Community, Social & Personal Service Activities
37,890.5
22,814.1
1,185.0
46,217.2
7,381.5
7,448.3
8,222.5
2,861.9
607.4
12,381.2
3,146.6
150,156.2 6.22
Private H/hold with Employed Persons
1,210.4
736.2
17.4
1,456.8
241.7
242.8
281.2
100.0
21.3
432.0
110.4
4,850.1 0.20
Extraterritorial Organizations & Bodies
150.5
91.5
2.2
181.1
30.1
30.2
35.0
12.4
2.6
53.7
13.7
603.0 0.02
TOTAL
693,451.2
414,818.3
285,462.8
662,327.3
92,038.9
111,011.6
50,882.4
15,907.8
3,289.6
66,107.2
16,748.7
2,412,767.
2 100.00
8
Growth in Sectoral Contribution to GDP
Economic Activity 2000 2001 2002 2003 2004 2005 2006 2007
Agriculture, Hunting and Forestry
4.9
4.9
3.1
5.9
4.3
3.8
4.0 Crops 5.3 5.6 3.2 6.6 4.4 4.0 4.5
Livestock 4.0 2.8 2.2 4.1 4.4 2.4 2.4
Forestry and hunting 3.6 3.3 3.0 2.7 3.6 4.6 2.9
Fishing 4.8 6.8 6.0 6.7 6.0 5.0 4.5 Industry and construction 6.6 9.4 10.9 10.9 10.4 8.5 9.5 Mining and quarrying 13.9 16.9 17.1 16.0 16.1 15.6 10.7 Manufacturing 5.0 7.5 9.0 9.4 9.6 8.5 8.7 Electricity, gas 5.9 6.2 7.2 7.5 9.4 -1.9 10.9 Water supply 3.5 2.8 4.5 5.2 4.3 6.2 6.5 Construction 7.6 11.9 13.8 13.0 10.1 9.5 9.7 Services 6.4 7.7 7.8 7.8 8.0 7.8 8.1 Trade and repairs 6.4 8.3 9.7 5.8 6.7 9.5 9.8 Hotels and restaurants (Tourism inclusive) 4.8 6.4 3.2 3.6 5.6 4.3 4.4 Transport 4.9 5.9 5.0 8.6 6.7 5.3 6.5 Communications (ICT, etc.) 8.7 10.4 15.6 17.4 18.8 19.2 20.1 Financial intermediation 6.9 10.1 10.7 8.3 10.8 11.4 10.2
Real estate and business services 4.2
7.1
6.5
6.8
7.5
7.3
7.0
Public administration 10.5
9.2
9.6
13.6
11.4
6.5
6.7
Education 11.4
7.0
2.8
4.0
4.0
5.0
5.5
Health 5.6
8.6
8.7
7.8
8.1
8.5
8.8
Other social and personal services 3.1
2.1
2.0
3.0
2.6
3.7
3.2
GDP Growth 6.0 7.2 6.9 7.8 7.4 6.7 7.1 7.4
9
Estimates of Revenue Losses From Relief Schemes
CUSTOMS DEPARTMENT 1996/97 1997/98 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08
Government Institutions 0.4% 0.5% 0.4% 0.4% 0.1% 0.1% 0.1% 0.0% 0.1% 0.1% 0.1%
Parastatals Organizations 0.3% 0.6% 0.1% 0.0% 0.1% 0.1% 0.2% 0.1% 0.0% 0.1% 0.0% Religious & Charitable Institutions 0.1% 0.2% 0.1% 0.2% 0.2% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
NGOs 0.2% 0.4% 0.5% 0.3% 0.6% 0.4% 0.4% 0.2% 0.2% 0.1% 0.1%
Donor Funded Projects 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.4% 0.1% 0.0% Regional Trade Agreements 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% Private Companies & Individuals 0.4% 1.3% 1.0% 0.6% 0.4% 0.2% 0.3% 0.3% 0.5% 0.6% 0.4%
IPC/TIC 0.2% 0.4% 0.4% 0.4% 0.5% 0.5% 0.4% 0.8% 1.2% 0.8% 1.3%
VAT Exemption 0.4% 0.3% 0.4% 0.4% 0.7% 0.6% 1.0% 1.6% 2.2% 2.4% 1.5%
Excise Duty Exemption 0.2% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Sales Tax Rebates 0.0% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.2% 0.0% 0.0%
Exemptions % of GDP 2.2% 4.0% 2.8% 2.3% 2.5% 2.0% 2.4% 3.0% 4.5% 4.2% 3.4% Exemptions % of Tax Revenue 18.2% 36.9% 30.9% 23.6% 26.2% 20.4% 23.5% 27.6% 38.6% 31.8% 23.9% Source: Tanzania Revenue Authority
10
Trend on the Exemption as Share of GDP and Tax Revenue in Tanzania for 1996-2008
0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%5.00%
1996
/97
1997
/98
1999
/00
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
Year
% of G
DP
0.00%5.00%10.00%15.00%20.00%25.00%30.00%35.00%40.00%45.00%
% of T
ax R
even
ue
Exemptions % of GDP Exemptions % of Tax Revenue
11
Remaining Tax Revenue Improvement
• Exploit property tax• Reducing dependence on trade taxes• Enhance revenue collection through tax
information and education• Review tax relief policy• Enforce compliance• Widening the tax base vs raising tax rates
12
III Financing by Non-traditional (Non-tax) Domestic Resources
Overview of Non-tax Revenue CollectionNon-tax Financing Space– Non-traditional Financing Options in Tanzania
– Potential Resources for Mobilization by the New Non-traditional Options
Where the Government Can Use Non-Traditional Financing Options
13
Overview of Non-tax Revenue Collection Developments of Non-tax Revenue Collection
14
Non-tax Financing Space
• Non-traditional Financing Approaches- Initial Public Offerings Underwriting- Public-Private-Partnership Engagement
-A Case of India’s PPP Development Strategy-The World Bank Study on PPP for Urban Water Utilities
-Build-Operate-Transfer (BOT) Assignment-South Africa’s Case Study
15
Where the Government Can Use Non-Traditional Financing Options
• infrastructure as the first priority area - energy and water resources, transport
• Why: – the government cannot do all at one time;– resources scarce;– crossing cutting in terms of growth potential.
16
IV. Tax Revenue from the Informal Sector
• Scope of Informal Section of the Economy– low entry costs, and general ease of entry;– unregulated and competitive markets;– reliance on indigenous resources;– family ownership of enterprises; small scale operation;– labour intensive and simple technology;– skills acquired outside formal schooling system.
17
Estimating Unexploited Potential Revenue from the Informal Sector
Year Evaded Tax Revenue Tax Revenue Potential Tax Revenue
Evaded tax as percentage of tax revenue
1975 257.7 3129.0 3386.7 8.2 1976 335.9 3439.7 3775.6 9.8 1977 398.6 5333.7 5732.3 7.5 1978 446.7 5377.3 5824.0 8.3 1979 508.6 6147.9 6656.5 8.3 1980 593.7 7908.4 8502.1 7.5 1981 689.6 8502.0 9191.6 8.1 1982 816.1 12529.1 13345.2 6.5 1983 979.0 13397.9 14376.9 7.3 1984 1220.3 18482.5 19702.8 6.6 1985 1643.3 21781.8 23425.1 7.5 1986 2162.5 27406.6 29569.1 7.9 1987 3062.4 42556.7 45619.1 7.2 1988 4478.0 63083.1 67561.1 7.1 1989 5506.9 81470.7 86977.6 6.8 1990 6615.5 118257.2 124872.7 5.6 1991 9180.7 153355.6 162536.3 6.0 1992 18054.1 146200.0 164254.1 12.4 1993 22775.9 220358.0 243133.9 10.3 1994 30604.7 299898.0 330502.7 10.2 1995 40152.1 383743.5 423895.6 10.5 1996 49959.9 505354.7 555314.6 9.9 1997 58116.2 566122.6 624238.8 10.3 1998 73081.0 616284.1 689365.1 11.9 1999 85131.8 685107.4 770239.2 12.4 2000 95117.8 827788.4 922906.2 11.5 2001 108611.9 936266.8 1044878.7 11.6 2002 123490.5 1116555.5 1240046.0 11.1 2003 141997.9 1340139.0 1482136.9 10.6 2004 161935.0 1615247.0 1777182.0 10.0 2005 187309.5 1946432.6 2133742.1 9.6 2006 2174430.2 2269578.8 2487009.0 9.6
Source: Osoro (2009: Table 3, p.83)
18
Analysis of Tax Payers
19
Strategies to Collect Taxes from the Informal Sector
Addressing Constraints to Effective Assessment and Collection of Tax from the Informal Sector
– Lack of records, lack fixed premises, multiplicity of taxes, corruption, “high” tax rates, inadequate public services (roads, waste collection
– Strengthen tax administration (transparency in public spending, design incentives to attract IF to formal sector
20
–Reduce the Burden on SME Taxpayers to Make Formalising Attractive– Institutional Requirements for Effectiveness
• Tax Policy Measures• Tax Administration Measures
21
Overview/reflective
• Macroeconomic framework• Danger of regressivity of the revenue measures• Domestic resource mobilization in the light of
the ongoing financial crisis• Potential role of private sector and community
contributions• Widening tax bases to the natural resources-
based activities
22
Recommendations
Enhance tax revenue collection• Exploit property tax potential• Enforce tax payment compliance• Review tax relief policy• Enhance revenue collection trough provision of
proper tax information and education • Expand the tax base instead of raising tax rates. • Review tax legislation to address ambiguities in
some tax laws
23
Recommendations (cntd)
Non-traditional financing options• Organize Local Loans Syndications• Engage in Public-Private-Partnership (PPP)• Assign Build-Operate-Transfer (BOT) projects • Use Initial Public Offerings (IPOs):
24
Recommendations (cntd)
Strengthen formalization
• Improve the business environment for the SMEs to attract informal operators
• Improve presumptive tax system with clearly articulated incentives for compliance and fair penalties.
25