Sluggish business dents revenue collection efforts

02Jan 2018
The Guardian
Sluggish business dents revenue collection efforts
  • According to Treasury’s Budget Execution Report for the First Quarter of 2017/18, factors that contributed to missing of revenue collection targets included decline of sales of goods, importation slump and slowdown of oil and gas exploration activities

Going by official data, private sector sentiments and reports by authoritative international organizations such as the World Bank, 2017 was not a very good year for businesses in the country leading to several fiscal shortcomings, including shortfalls in revenue collection.

According to Treasury’s Budget Execution Report for the First Quarter of 2017/18 (July – September, 2017), sluggish business activities played a big role in missing domestic revenue targets for the period.


Factors that contributed greatly to the fiscal underperformance included decline of sales of goods for local markets faced by some big taxpayers. Treasury says retrenchment of workers in some companies was another decisive factor as well as decline in the importation of goods.


The budget execution report has it that the retrenchments caused by slowdown of activities led to the underperformance of pay-as-you-earn tax (PAYE), which is a withholding tax on income payments to employees. Similarly, it adds, the underperformance of withholding tax was caused by slowdown of exploration activities from oil and gas companies.


“Corporate tax performed at 83 per cent due to decline in business activities in various sectors such as manufacturing and finance which has caused some taxpayers to amend downwards their corporation tax payable for 2017/18. Individual income tax performed at 75 per cent while withholding tax performed at 97 per cent,” reads the report.


Domestic Revenue

Although total domestic revenue collection increased by one per cent to about 4.06trn/- during the first quarter of 2017/18 compared to around 4.03trn/- collected in the corresponding period in 2016/17, it was 15 per cent below the period’s estimate of about 4.79trn/-.


Out of the total collection during the review period, tax revenue collections amounted to about 3.56trn/- or 86 per cent of the estimated 4.16trn/-. Non-tax revenue for the first quarter was 378.7bn/- against the estimate of 445.9bn/-, equivalent to 84.9 per cent while local government authorities (LGAs) own sourced was 124.7bn/- against the target of 185.7bn/-  equivalent to 67.2 per cent.


“In general, under performance was due to decline of sales of goods for local markets faced by companies producing cigarettes, bottled water and alcohol having caused poor performance in the excise duty. In additional, the retrenchment of workers in some of the companies caused the underperformance of PAYE and SDL (skills development levy),” Treasury notes in the report.


“There is also, noticeable general decline of imported goods both dry cargo and wet cargo in volumes and values as well,” it adds.


To address the anomaly and meet revenue targets, which the Finance and Planning Minster Dr Philip Mpango says is possible, Treasury has it that the government will continue to undertake various policy and administrative measures in order to strengthen and simplify revenue collection. The measures among others will include strengthening revenue collection systems by applying electronic systems so as to curb revenue leakages and to officially identify informal small businesses and those operating in informal places.


The government will also continue to designate areas for small vendors to operate thereby be registered as a way of formalizing their activities. LGAs are also being encouraged to register petty business traders in their locality so as to capture them in the tax net.


Briefing journalists last Friday in Dar es Salaam on the state of the economy and execution of the budget, Dr Mpango (pictured) explained why be believes the government’s revenue targets are realistic and realizable.


According to him, evidence of there being room to collect more domestic revenue include increase of collections from an average of 850bn/- a month during the previous administration to 1.2trn/- under the government of President John Magufuli. Another proof was persistence of revenue leakage loopholes despite efforts to curb them and other big sources that have not been adequately levied, he added.


Taxes on Imports

“During the first quarter of 2017/18, collections on imports taxes and duties were 1,037bn/- reflecting a performance of 83 per cent of estimated 1,246.8bn/-. The gross collection for the period was two per cent lower than collection in the similar period in 2016/17,” reads the budget execution report.


“All import taxes and duties performed below the estimate of the period under review, whereby actual collection was 1,037bn/- which was 29 per cent of tax revenue and 25 per cent of domestic revenue. Import duty collection was 272.4bn/- being 86 per cent of collecting 317bn/-; and excise on petroleum imports was 234.5bn/- against the target of 293.8bn/- equivalent to 80 per cent,” it adds.


According to it, VAT on non-petroleum imports were 495.1bn/- equivalent to 88 per cent of the estimates of 561.9bn/-. Under performance was due to increase in tax exemptions attributed by importation of machineries and industrial goods, which increased by 6.4 per cent from about 196bn/- in 2016 to almost 208.7bn/- in 2017.


Taxes on Domestic Sales

Actual tax collection from domestic sales increased by seven per cent during the first quarter of 2017/18 to 845bn/- from 789.4bn/- collected in the corresponding period in 2016/17. This collection was equivalent to 88 per cent of the target of collecting 961.8bn/-.


Out of the total domestic sales tax in the first quarter, excise duty was 238.3bn/-, equivalent to 88 per cent of the target of collecting 271.8bn/- while VAT on domestic sales amounted to 606.7bn/-which was 88 per cent of the target of collecting 689.9bn/-.


Apart from decline of sales of goods for local markets faced by companies producing cigarettes, bottled water and alcohol, the underperformance in this category was caused by change in technology by telecom companies (shifting from airtime voucher scratch to bundled services) which significantly affected the performance of excise duty on telecom services.


Income Tax & Other Taxes

“The overall income tax collection during the first quarter of 2017/18 was 1,182.7bn/-, which is 86 per cent of the target of collecting 1,381.6bn/-. This is an increase of 2.6 per cent compared to collection registered in the same period in 2016/17,” Treasury further notes in the report published late last month.


“With the exception of rental tax, all other tax items under income tax category underperformed during the period under review whereby, PAYE performed at 84 per cent. The underperformance was due to the retrenchment of workers in some of the companies due to slowdown of activities which caused the underperformance of PAYE.”


Actual collections in the other taxes category amounted to 499.3bn/-, which was 79 per cent of the period estimate. Out of that, Railway Development Fund recorded 52.4bn/-, equivalent to 90 per cent of the estimate; and National Water Development Fund was 36.2bn/-, equivalent to 89 per cent of the estimate. Similarly, Stamp Duty performed at 94 per cent whereas airports and ports departure charges performed at 91 per cent; Fuel Levy performed at 82 per cent; and motor vehicle taxes performed at 36 per cent.