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The experience of SMEsin working with theTanzania Revenue Authority

Background Briefing to the Strategic ConversationDar es Salaam, Tanzania

May 8, 2009

Prepared by Aidan Eyakuze - Serengeti Advisers Limited Dar es Salaam

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1. Introductions Objectives of the Strategic Conversations

Rules of Engagement Chatham House Rules

2. Brief Presentation: SMEs and the TRA3. Discussion

4. Next Steps

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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

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1. How are SMEs being treated by theTRA?

2. Can the quality of TRAs services toSMEs be improved?

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Indicator 2005 2006 2007 2008

Domestic taxrevenue collection(TZS)

TIN registeredtaxpayers

Large taxpayers

Active importers

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Enterprise

classification

Ministry of Trade &

Industry

TRA

Number of Employees

Capital invested(TZS)

Annual TaxableRevenues (TZS)

Micro 1-4 Less than TZS5.0m

Below 40m

Small 5-49 5.0m - 200m

Medium 50-99 200m 800m Over 40m(tax payments less

than 400m)Large 100+ 800m+ Tax payments more

than 400m

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Description EstimateTotal enterprises in Tanzania (WB/IFCestimate of 2003)

2,700,000

(Less: 98% micro enterprises of less than5 employees)

(2,646,000)

Large, medium and small enterprises 54,000

(Less: Large taxpayers in June 2006) (286)

SMEs registered and unregistered (est.) 53,700

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Vehicle License Fees PAYE(paid by employee)

VAT

Car Benefit Tax Stamp Duty(paid by customer)

Customs Duties

Income, Corporate,Presumptive Taxes

Withholding Taxes(paid by customer)

Skills & DevelopmentLevy

Annual payments x 2 taxes = 212 Monthly payments x 3 taxes = 36

4 quarterly payments x 1 tax = 4

Minimum payments each year = 42

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Less than TZS 3.0m 35,000 33,000

TZS 3.0m - 7.0m 95,000 85,000

TZS 7.0m 14.0m 291,000 260,000

TZS 14.0m 20.0m 520,000 458,000

Why does this tax need to be paid beforethe business has started? Mwanza fishseller

Might this tax discourage informal smalland micro enterprises from registering andobtaining a TIN number?

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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 LargeTaxpayers Department

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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 roomswho had paid for their stay. What was I supposed to do with

these guests? Hotel owner in Temeke

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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! Ilalabusiness owner

Taxpayer education is boring, stiff and bureaucratic. It needs to bemore exciting. Kinondoni businessman

Do I have to pay tax? But I dont even have a frame! Temekemicro-entrepreneur

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Surveyed 2,360 SMEs, 250 TRA staff, 61 stakeholders(government and donors)

88% of SMEs found tax administration to be at leastfairly good.

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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 wouldprovide 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 bepresumed honest

13% felt that SMEs were aware of their right to a fair taxassessment

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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?)

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The experience of SMEsin working with theTanzania Revenue Authority

Background Briefing to the Strategic ConversationDar es Salaam, Tanzania

May 8, 2009

Prepared by Aidan Eyakuze - Serengeti Advisers Limited

Dar es Salaam