The tax reform process is multifaceted, potentially involving changing the rates, structure or administration of taxes, and with various objectives including promoting economic growth, ensuring equity, improving tax administration and increasing government revenue collections. A key component of this process is the involvement of stakeholders (individuals, business associations, non-governmental organisations, tax professionals, government agencies and other parties affected by the reform).
Stakeholder involvement is essential to the success of any reform process. By involving stakeholders, the Government fosters transparency, ensuring that reforms are developed with public input and scrutiny. This approach helps build trust between the government and the public, which is critical for effective governance. When stakeholders are involved, they are more likely to understand the purpose behind the reforms, ensure the reforms are properly informed by practical commercial considerations and needs, leading to increased support and preparedness for the changes. Stakeholder involvement can help to identify potential challenges (including unintended consequences of proposals, or implementation practicalities) and potential solutions. Stakeholder involvement ultimately results in effective, inclusive and sustainable outcomes.
In Tanzania we have certainly seen a number of significant steps taken to ensure stakeholder involvement in tax reforms. These include engagements with business associations, professionals and industry groups, public dialogues (including the recently introduced Annual National Tax Dialogue) and involvement in the annual budget process. However, there are some concerns with the current budget process which may have to be addressed to create a more transparent, informed, and collaborative environment for shaping tax reforms.
The tax reform budget process starts with the Ministry of Finance (through the Task Force on Tax Reforms) extending an invitation to stakeholders for their input on tax reforms, in preparation for the budget. This platform provides an opportunity for stakeholders to put forth proposals, suggesting changes to tax legislation aimed at addressing challenges they encounter.
After the submission phase, the Task Force reviews the submissions including engagements with relevant stakeholders to gain an understanding of the proposals and their potential impact on Government revenues. Subsequently, a Think Tank meeting is held in private to assess and deliberate on the Task Force’s recommendations; although this discussion incorporates feedback as to the reasons for the proposed acceptance or rejection of proposals, such feedback is not made public and so stakeholders do not necessarily have visibility as to the reasoning for conclusions.
Thereafter, in mid-June the Minister for Finance unveils the Budget Speech - while ideally, the Finance Bill should be available at this point, in most cases this is only available a day or two after the speech leaving stakeholders with a handful of days to provide input given that the Finance Act must be passed before its commencement date of 1 July.
This timeframe raises the following concerns: no sight of Government proposals (until mid-June) and therefore insufficient time to give effective stakeholder input; sometimes last-minute proposals and/or legislative drafting challenges; and completely new changes in the Finance Act (i.e., no sight in proposals or the Bill). These concerns give rise to a number of issues including unforeseen challenges during implementation; unfavourable business environment due to lack of certainty, unplanned costs such as costs for system upgrades or reconfiguration; low stakeholder buy-in (which may hinder voluntary compliance); and ambiguous, inadequate or unclear legislation coming into force.
A good example is the introduction in 2021 of the mobile money transactions levy (commonly known as “tozo”), which not only sparked significant public outcry but also resulted in declining mobile money business revenues, leading to lower tax collections as well as a step backwards in the journey towards digital inclusion. Ultimately the Government amended the relevant law several times, but these complications could have been avoided with more comprehensive stakeholder engagement before enacting the law.
A similar concern arose in 2015 with the removal of the VAT zero rating treatment of ancillary transport services (being services provided in relation to goods in transit) with a resulting adverse impact on transit cargo business. Fortunately the situation was rectified in 2017 by the reintroduction of zero-rating of such services but again with better dialogue perhaps this situation could have been avoided.
A recent example of confusion is an amendment by the Finance Act 2020 to introduce a new taxing right on a “representative assessee”, which applies in respect of income of a non-resident person or beneficial owner for whom the “representative assessee” acts as agent. Activities that can create the categorisation of “agent of a non-resident person or of a beneficial owner” include: employment; any “business connection”; receipt of income for the other party; acting as trustee. The potential broad scope of these provisions result in lack of clarity as to intended scope, and the purpose of the provision has also become even more unclear following other amendments dealing with the taxation of non-residents (including 2021 amendments to the definition of “permanent establishment”) and the 2022 introduction of the digital services tax. Confusion remains as to the purpose of the representative assessee provisions despite requests for clarification and guidance.
One mechanism to address these concerns and align with best practices could be the introduction of a structured timeframe for the publication of draft legislation and regulations. Perhaps Tanzania should borrow leaf from neighbouring countries who seem to provide a longer period for stakeholder input. Kenya's Finance Bill is published two months before implementation, offering stakeholders a more extended period for review and input. Uganda takes it a step further with a three-month window, publishing the Finance Bill by April 1, assenting by May 31, and implementing changes by July 1.This could involve ensuring that drafts are available no less than two months before assent, providing stakeholders with ample time for thorough review and input.
Additionally, establishing a tax professionals forum could further enhance the process. This forum would not only offer technical support for new legislation and regulations but also provide insights for amendments to existing ones. Such collaboration between tax professionals and the government would foster a more comprehensive and informed decision-making process.
