☰

Author: rodelin

Posted on

Malawi: VAT Collections Jump 20% EFDs rollout

 

Malawi: VAT Collections Jump 20% EFDs rollout

 

7 March 2014

The Malawi Revenue Authority (MRA) hopes the tax base will widen and value added tax (VAT) collections jump by 20 percent following the introduction of Electronic Fiscal Devices (EFDs)—an advanced version of an electronic cash register.
 
MRA commissioner general John Biziwick told journalists in Blantyre on Wednesday the rollout of EFDs effective on March 6 will play a critical role in improving efficiency and effectiveness in the administration of VAT—a form of consumption tax levied on the purchase price—and also level the playing field. 

“As a revenue collecting body, we shall always endeavour to find ways to enhance tax compliance, increase revenues and reduce cost of compliance by the taxpayers,” he said.

 

Biziwick said one of the objectives of EFDs, apart from helping businesses improve their records management systems, is to track down businesses that have not been remitting the correct amount of VAT collected. According to Biziwick , there are about 8 800 businesses, that “faithfully and honestly” pay their VAT. EFDs are being introduced following the enactment of the law in July 2011 to introduce and enforce the use of these devices. MRA has certified local distributors, Business Machines Limited, Canotech Limited, Gestetner and Xerographics, to sell these devices ranging from $787 to $930 to eligible VAT operators and also install, train, maintain, integrate them to existing systems and securing of after sales support. 

The rollout of the device will start with phase one from March 6 to June 31 2014, targeting all VAT operators currently issuing manual receipts and those using ordinary cash registers while the second phase, at a large stage, will target VAT operators currently using Point of Sale (PoS) systems and business to business invoicing system. In essence, the devices are free of charge because all VAT operators that will procure, install and use the EFDs within the stipulated timeframe will benefit from a cost recovery scheme by claiming 100 percent cost of the device from MRA through subsequent VAT returns.
 
MRA commissioner of domestic taxes Nellie Jimu said the tax collector has been facing tax compliance challenges that include the suppression of sales, non-issuance of tax receipts/ invoices, non- remittance of VAT collected, undervaluation of tax receipts/ invoices, using multiple sets of business records and non -disclosure of branches and associated businesses. She said EFDs record all sales transactions at the point of sale, have fiscalised memory, which means data cannot be erased, produce fiscalised receipts and uses GPRS/mobile network connectivity to transmit the data to MRA central server.
 
 
Source: mwnation

Posted on

Canada – new tax on digital imports?

 

Canada – new tax on digital imports?

 

5 March 2014

The Canadian government is considering introducing a sales tax on e-commerce supplies made by foreign businesses to residents of Canada. At the moment, people that import digital services (also known as intangible personal property) are supposed to self-assess GST unless the services are used at least 90% for business purposes. In reality, this often does not take place leading to loss of tax revenue for the Canadian Revenue Agency and putting domestic suppliers at a disadvantage. 

The Canadian government has looked at other countries that have implemented such rules, including the EU and South Africa, and are asking for comments to be made by the relevant stakeholders.
 

Source:  accordance vat

Posted on

Rwanda: New RRA Boss Seeks to Increase Tax Base

 

Rwanda: New RRA Boss Seeks to Increase Tax Base

 

8 March 2014

The new Commissioner General of Rwanda Revenue Authority, Richard Tusabe, said his mandate is to attract more businesses into the tax base in order to propel government’s goal of self-reliance.
 
Tusabe, who until recently served as the deputy Commissioner General of RRA, took over from Ben Kagarama, who has headed the institution since 2011. During the handover ceremony yesterday, Tusabe said RRA’s main challenge is to attract all the 120,000 businesses operating in Rwanda into the tax base.

“I will focus on encouraging more taxpayers into compliance. This is the area that remains weak within the institution and my focus will be to improve it,” Tusabe said. “Only 20 per cent of the businesses in Rwanda are registered for tax. Even then, their active ratio is low, at 48 per cent. A lot of work, therefore, needs to be done to encourage businesses to register formerly, as well as follow up to ensure that they are compliant,” he added.

 

Tusabe commended the work of outgoing Commissioner General, Ben Kagarama, and said he will focus on continuity and innovation, to ensure efficiency in tax collection.

“There has been growth in the tax base over the years although many businesses choose to remain in the informal sector. We know that this is because of the cost of tax compliance which most of them prefer to avoid. That is why we introduced innovations like electronic tax payment, which enables someone to pay tax on their phone,” Tusabe said. “Before such innovations, people used to travel from as far as Gahini to Rwamagana, which is almost an hour’s drive, to pay taxes. Such inconveniences have been eliminated and we need to encourage even those who do not know about these innovations to come forward.”

 

At the handover ceremony, the Minister for Finance, Claver Gatete, said the tax base is lower than what is required to ensure Rwanda’s self-reliance. He pledged to support RRA’s new boss in his quest for improvement.

“Even if we had all the 120,000 businesses paying tax, we still believe they are not enough to drive Rwanda’s development ambitions. However, RRA has done a great job by combining education, innovation and enforcement to ensure that the tax base grows,” Gatete said.

 

Rwanda ranks number 22 on the paying tax indicator in World Bank’s Doing Business Report 2014, having improved by three positions in the previous report.
 
 
Source: The New Times, Rwanda

Posted on

Gov’t To Collect Just Over Half Initial Vat Goal

 

Gov’t To Collect Just Over Half Initial Vat Goal

 

10 March 2014

The Government will realise just over half of its projected Value-Added Tax (VAT) net revenue increase in the first year, the International Monetary Fund (IMF) has warned, with forecast increases in Customs and real property taxes also over-optimistic.
 
The IMF, in its long-awaited Article IV report on the Bahamas, said the likely delays in implementing VAT, and this lack of nation’s inexperience in managing it, given the absence of an already-existing consumption tax, meant first year revenues from the new tax were likely to amount to just 1.3 per cent of GDP. That percentage is almost a full percentage point lower than the 2.2 per cent net revenue gain the Government is forecasting. In dollar terms, assuming an $8 billion Bahamian GDP, the IMF’s 1.3 per cent is equivalent to a $104 million revenue increase – more than $70 million below the Government’s $176 million.
 
The Article IV report also suggested that the Government had over-estimated the revenue boost it would receive from ongoing Customs and real property tax reforms. While the Ministry of Finance has pegged the improvement as equivalent to 0.5 per cent of GDP for Customs, and 1 per cent for real property tax, the IMF’s are 0.3 per cent and 0.6 per cent, respectively. Collectively, the IMF’s projections are for revenue improvements that, in dollar terms, are $48 million below the Government’s for Customs and real property tax reforms.
 
The Fund, meanwhile, placed delays in implementing fiscal consolidation as among the risks likely to have the greatest negative impact on the Bahamian economy, alongside crime, a major hurricane, another US fiscal shock and “disappointing results” from Baha Mar’s operational start.
 
Apart from crime and a natural disaster, the IMF rated a delay in fiscal consolidation as the most likely of these scenarios to happen – something that could “pose risks to long-term debt sustainability and the country’s investment grade credit rating”. This again shows the pressure the Government is under to make meaningful revenue and fiscal reforms, while at the same time doing nothing that would impair economic growth. It also highlights the dilemma facing the Christie administration and private sector, which have agreed that reform must happen but are divided on the ‘what’ and ‘how’. In trying to ensure the Bahamas makes the right decision, neither can delay indefinitely.
 
Touting VAT as providing “a more efficient means to broaden the tax base, increase revenues and improve the effectiveness of tax administration more generally”, the IMF report said the proposed 15 per cent rate, based on experience, was likely to generate gross revenues equivalent to 7 per cent of GDP. This translates into $560 million, in line with the Government’s projections, with the Christie administration’s VAT net revenue gain pegged at 2.2 per cent of GDP.
 
The IMF, though, cast doubt on whether the Government would hit that target in the 2014-2015 fiscal year, if indeed it is introduced in time, due to “capacity limitations in revenue management”.

“Other limiting factors in the initial year of the reform include delays in rolling out the public campaign and securing passage of relevant legislation in Parliament, which could complicate the timely acquisition and testing of IT systems needed in both the public and private sectors,” the Fund added. “The absence of a consumption tax, and the lack of local experience in its management, would contain the initial revenue gains from the VAT as well. Because of these constraints, staff projects the net revenue gain from the VAT at 1.3 per cent of GDP for the initial fiscal year 2014-2015.”

 

The IMF warned, though, that failing to implement VAT would see the Government’s fiscal consolidation plans “veer considerably off track”, with the central government’s debt-to-GDP ratio “already above” 60 per cent by the time the next fiscal year starts.

“Staff underscored setting the VAT base as broadly as possible, and encouraged the authorities to ensure that adequate efforts and resources are deployed to secure the timely implementation of the reform,” the Fund added.

 

It also disclosed that, combined, the Customs and real property tax departments were generating revenues “below 50 per cent of the potential”.
 
“The Bahamian Customs and real property tax departments rely heavily on manual procedures and outdated information systems. As a result, revenue collection is currently estimated at below 50 per cent of the potential,” the Article IV report said.

“Envisaged reforms aim to bring management of the two revenue agencies up to international standards, involving extensive computerisation of revenue assessment and collection functions, and introduction of risk-based monitoring of operations. Staff concurred with the authorities that reform of the two revenue departments could yield significant revenue gains. However, given pervasive capacity limitations and the record of low tax compliance, staff urged caution in factoring the anticipated revenue improvements into the medium-term fiscal framework.”

 

Elsewhere, the IMF report showed that collective public corporation debt (guaranteed by the Bahamian taxpayer for the likes of Bahamasair, Water & Sewerage etc) had increased from 10.5 per cent of GDP in December 2008 to 16 per cent at end-June 20134.

“The Bahamian public corporations continue to face significant financial challenges, notably stemming from inefficiencies in operations (excessive staffing, aged facilities), but also reflecting these entities’ tacit social duty to provide affordable services to all residents including in remote Family Islands,” the Fund added.

 

The Government’s fiscal plan calls for tax revenue to increase by an average 0.8 percentage points of GDP over the next five years, with the debt-to-GDP ratio falling from a 59.5 per cent peak to 55 per cent by the 2017-2018 fiscal year.
 
The bulk of the revenue increase will come from VAT, with “only moderate savings achieved on government expenditures in view of limited spending flexibility”.

With Baha Mar and other projects set to boost private sector employment prospects, the IMF said “pressure on central government hiring should be manageable beyond 2014, permitting limitation of wage outlays to the last three years’ average of 7.4 per cent of GDP”.

 

But, despite government projections that the existing 1.9 per cent primary budget deficit will be balanced by the next fiscal year, the IMF warned that there were “downside risks” due to over-optimistic fiscal and growth forecasts in the past.

“The forecast track record shows a tendency toward optimism in staff forecasts of real GDP growth and the primary balance, pointing to downside risks to the baseline scenario. This underscores the need for rigorous adherence to the ongoing fiscal consolidation programme,” the IMF said.
 

 

Source: Tribune242

Posted on

Nigeria: Stepping up tax systems in Africa

 

Nigeria: Stepping up tax systems in Africa

 

11 March 2014

Payment of tax is a constitutional responsibility of working class citizens and a source of revenue for the government. Through taxes the government raise revenue to provide social amenities for its citizens and develop infrastructure and also improve the economy of the nation with its attendant impart on standard living of the citizenry. However, it is one of those responsibilities the citizens reluctantly perform especially as many do not understand why they pay the taxes. This is even as there are sometimes issues relating to double taxation.
 
Corruption and vague tax systems have also been identified as factors preventing Nigerians and other Africans from paying taxes. Integrity of tax authorities and officials also thwarts citizens in Africa from paying their taxes.
 
A survey conducted by Afrobarometer, an international network in collaboration with CLEEN Foundation Nigeria has however revealed that from the 29 countries in sub-Saharan Africa comprising Southern, East and West Africa, there was widespread citizen commitment to the principle of taxation. Findings showed that 66% Africans believe that taxes must be paid for their countries to develop, 52% favours paying higher taxes in exchange for better services, compared to just one in three (35%) who would give up services in favour of keeping taxes low.
 
However, perceived corruption among tax officials appears to undermine commitment to the integrity of the tax system and large majorities report that tax systems remain opaque. 62% say it is difficult t find out what taxes they owe while 76% say it is difficult to find out how the government uses tax revenue.
 
Speaking at the presentation of the survey data in Lagos, Rose Aiko, Director of Research on Governance and Delivery at REPOA Policy Research for Development, Tanzania, said that seven in ten people found it difficult to know how the government spends the taxes and that distrust in tax officials increases tolerance for tax avoidance in principle and reported non-compliance with tax obligations in practice.

“A majority of 52% across Africa supports taxation provided it will guarantee more services for the citizens except from Malawi and Lesotho which have minority. Africa region is facing taxation challenge. From the survey, majority of Africans are willing to pay taxes but are frustrated that the way governments spend its money is not accessible. Integrity of tax authorities and officials is very important. To enhance tax payment, integrity is vital. Tax payment will help Africa to have more revenue to develop the continent. Mobilisation of resources through taxation is a top priority on Africa’s development agenda. Many countries have had to rely on foreign donors to fill the gap. As governments face demand for better services and improved living conditions from growing populations, reform of tax and public finance systems to improve domestic revenue collection are likely to remain top development priorities,” she said.

 

The survey highlights that support for taxation is a majority position in all regions, but is substantially higher in West Africa (73%) than East (59%) or Southern Africa (60%). West Africans express the highest levels of support for taxation in principle, but the lowest levels of confidence that everyone complies with tax obligations. East Africans face the greatest information barriers. Southern Africans have better access to information, and perceive far less corruption, but they also report that it is somewhat easier to avoid paying taxes than in other regions.
 
On the legitimacy of taxation, Africans widespread recognition of its value is matched by their support for the role of revenue authorities in collecting taxes from people, and to people’s obligation to pay what they owe. Across the 29 countries fully 70% say tax agencies have a right to collect taxes. Tax departments enjoy the highest levels of legitimacy in Ghana (90%) and Niger (84%). However, many Africans reject deception about paying tax obligations, though not all are willing to fully condemn it. A large majority (84%) find tax evasion wrong; just under half (49%) deem it not only wrong but also punishable, while 35% find it wrong but understandable.
 
While most governments have not succeeded in making information on taxes owed accessible, they nonetheless appear to have established a credible threat of enforcement, 69% of respondents believe that it is difficult or very difficult to avoid paying income or property taxes that is being owed the government. East Africans report the highest levels of frustration with the opaqueness of the tax system, with nearly eight in ten (75%) saying it is difficult to know what taxes to pay and nearly nine in ten (86&) reporting difficulty finding out how the government spends revenue.
 
The findings therefore suggest governments need to improve the transparency and accountability of revenue authorities if they want to strengthen the foundations of a sound revenue system.
 
Consequently, reform of domestic taxation systems has been accorded high priority across the continent over the past two decades. The survey data recommend that Africans are largely on board: people affirm that national development should be built on a foundation of domestic taxation, rather than relying solely on other sources of revenue. But transparency of tax authorities and accountability of public finance systems remain public concerns.
 
The findings stressed that “improving transparency and accountability among revenue authorities must therefore remain a cornerstone of efforts to strengthen domestic revenue generation. Improving popular access to information about taxes people owe and about public spending, while reducing corruption and misuse of public monies will help encourage voluntary compliance and enhance government revenue generation.”
 
On his part, Nengak Daniel Gondyi, Programme Officer, CLEEN said for citizens to participate in taxation, they need to know issues and government also has obligation to return to the citizens.

“Citizens would be the one to contribute to the policy system. Majority of Nigerians are willing to pay taxes. They believe it is wrong when you avoid paying taxes.” While declaring that the survey data revealed a worrying report that 18% citizens made payment to non-state agents he said, “This should be stopped because it will be damaging the image of tax officials. The essence of the presentation is that policy makers can work with and respond to some of these findings.”

 
 
Source: daily independent, Nigeria

Posted on

Croatia’s Hrvatski Telekom deploys Ingenico payment terminal

 

Croatia’s Hrvatski Telekom deploys Ingenico payment terminal

 

12 March 2014

Ingenico, a leading provider of payment solutions, announced the deployment of an innovative fiscal solution, along with its local partner Etranet Group.  This solution has been implemented for Hrvatski Telekom, the leading provider of telecommunication services in Croatia.

Further to the implementation of a fiscal law in Croatia, Ingenico in partnership with Etranet group (Croatian specialist in electronic payment transaction systems) and Hrvatski Telekom developed an innovative all-in-one cash register solution combining Ingenico latest generation of payment terminals with fiscal application developed by Etranet Group to equip Hrvatski Telekom customers.

The solution is based on Ingenico’s range of wireless and countertop terminals (IWL220 GSM & GPRS and ICT220 GPRS). Thanks to Ingenico’s secure software application, tax information is easily transmitted to Croatian tax administration.

“We are delighted to collaborate with Etranet Group to implement this all-in-one cash register solution in Croatia” says Jacques Behr, EVP EMEA Ingenico. “As a global leader in the payment industry, Ingenico is at the forefront of industry’s evolutions such as fiscal law enforcement. We believe that our innovative solutions are fully adapted to answer the needs of governments who are looking to avoid tax evasion in an secure and efficient manner”

 

Damir Lesničar, General Manager, Etranet Group commented : “We are very proud of this achievement; this Mini Fiscal Cash Register shows that POS devices can be used with great success for purposes other than card payments. Hrvatski Telekom’s involvment in the devolopement of this fiscal solution has been one of the keys to the success of this project.”

“We are extremely oriented towards innovation development and latest service design. It is with great pleasure that I can say that our customers have embraced this service, making the Mini Fiscal Cash Register one of our most popular ICT services. This recognition makes us so proud of the great efforts made in cooperation with Etranet Group in the creation of this solution based on the powerful Ingenico payment range of terminals”, said Mirela Šešerko, Operating Director of the Information and Communication Technologies Business Solutions Sector at Hrvatski Telekom
 

 

Source: finextra

Posted on

United Kingdom e-Government success: 5 principles

 

United Kingdom e-Government success: 5 principles

 

13 March 2014

Since 2010 , UK has taken bold steps in modernising its public service and its successes are well known – it is now on track to becoming the “most digital government” in the G8 by 2015. UK’s Minister for the Cabinet Office, Francis Maude, believes that governments around the world are facing similar changes – tight budgets, rising expectations and low growth.

“So we need a new paradigm for government services – one that delivers better services, focused on user needs, at much lower cost, in a way that supports economic growth.”

 

Digital technology is an absolutely crucial part of the future of government services, although there are many other ingredients too, notes Maude. He shared five principles that have characterised UK’s government modernisation journey and which he believes should characterise productive, effective and successful governments, now and in future.

 

1. Open government

Transparency can be extremely uncomfortable – open data exposes waste and taxpayers are able to see exactly how their money is spent.

“But this sharpens accountability and informs choice over public services. And combined with ever increasing technological capability, it will ultimately create more accountable, efficient and effective governments,” Maude said.
  

2. Tight centralised control

Tight control from the centre over common activities – like IT, procurement, management information, property and oversight of major projects – reduces costs and encourages collaborative working, continued Maude. He believes that governments have been lacking a strong corporate centre for far too long.

The UK Government created the Efficiency and Reform Group that “works across artificial departmental boundaries to implement cross government solutions to cross government problems”.

Governments should run more like the best-run businesses, with every penny of taxpayers’ money used to maximum effect.
 

3. Loose control

Tight control over the centre must be matched by looser control over operations, noted Maude. He suggests that spin-offs and commissioning of services outside the public sector should become the norm.

“Public service mutuals, joint ventures and charitable enterprises are attractive alternatives to the old binary choice between delivering services in-house or full red-blooded privatisation.”

This frees public sector workers to do their job as they know best, and combined with entrepreneurialism, this can be an incredible force.

“It’s part of a mindset which elevates the service that the public receives above the structure that delivers it,” he said.

4. Digital

Maude’s fourth principle is: if a service can be delivered online, then it should be delivered only online. This is the approach that the UK Government has taken to transform its 25 largest transactional government services to make them simpler, clearer, faster and designed around the users’ needs.

UK’s digital-by-default agenda advocates “creating digital services that are so straightforward that all those who can use them will choose to do so, and those who can’t are given the support they need”, Maude explained.

He emphasised that building digital services is an iterative process – building and testing in small chunks and working quickly to make improvements along the way, with continuous feedback and refinements. By committing to open standards and open source software, governments can also create a more open market for IT suppliers, increasing competition, lowering licensing costs and advancing innovation.
 

5. Innovation

New models of delivery, new digital services and a new attitude – all these require the right skills and culture within public service.

“Public servants must be given the flexibility to try sensible and innovative ideas,” Maude said.

Risk, when managed properly, can be pioneering and transformative. And the real mistake is to never try anything new in the first place or to continue doing something that is not working.

“So we need a culture that is more open and less bureaucratic, focused on the delivery of outcomes rather than the process or the structures.”

 Civil servants should feel able to challenge the status quo and they should be equipped with the commercial, digital and leadership skills they need to do their jobs and to be accountable for what they believe. The race for a more effective and efficient government has no finishing line, Maude points out.

“The work of making government more efficient never ends. I stress that we did not start with these principles – but with the practice of making changes to test what worked and what didn’t. These principles are distilled from that practice and experience. I think they can be of widespread application for all governments of all origins. We all face the same challenges and we can all learn from each other’s experiences.”
  

 

Source: futuregov

Posted on

Ghana:Finance Minister tasks GRA to think outside the box to meet revenue targets

 

Ghana:Finance Minister tasks GRA to think outside the box to meet revenue targets

 

14 March 2014

Mr Seth Terkper, Minister of Finance and Economic Planning, on Thursday tasked the Ghana Revenue Authority (GRA) to delve deep into its wealth of experience as revenue administrator to come out with innovative initiatives and measures to mobilize the needed revenue for the nation. He said now that Ghana is classified as a lower middle income country, donor support had dwindled considerably; therefore there is the need for GRA to garner domestic resources of income to fast-track the development efforts of the country. He, therefore, entreated the management and staff of GRA to think outside the box to come out with new ideas that would enable the GRA to achieve set revenue targets, in order to accelerate national development.
 
Mr.Terkper made these remarks in a speech read for him by Dr. Larbi Siaw, a Tax Policy Advisor to the Finance Minister, at the opening ceremony of a three-day Annual Management Retreat of the GRA in Takoradi, to review last year’s performance and strategise to improve on service delivery this year. The event was held on the theme, Exceeding a Challenging Revenue Target in 2014: Strategies for Enhanced Efficiency and Effectiveness in Revenue Mobilization.
 
Mr.Terkper noted that 2013 was a challenging year for the country in view of international happenings that had adverse effects on the national economy, hence the need to re-strategise to meet revenue target this year.
 
In the light of the very competing and legitimate demands from all sectors of the economy, GRA must dig deep into its arsenal of compliance measures and procedures in your collection efforts to achieve the set targets, he stressed. He reiterated President John Mahama’s call for domestic production and consumption of locally made goods, therefore domestic revenue generation must not be lost on them. He urged them to rope in the informal sector operators, the semi-formal and formal sectors that are evading tax, adding that GRA must ensure that the many compliance measures and procedures are strictly adhered to and applied fairly and firmly. To this end, Mr. Terkper pledged government’s determination to provide all the necessary resources and logistics to the Authority for effective execution of its mandate.
 
The Commissioner-General of the GRA, Mr. George Blankson, said the GRA had targeted 41.9 percent revenue collection this year, which is above last years a revenue collection of over 30 percent. Last year, he said, was a challenging one for revenue mobilization in the country, which was a reflection of the general challenges faced by the national economy. He expressed optimism that some innovations and tax reforms instituted by government, as well as the integration of office functions of the GRA, would come to fruition and contribute meaningfully towards meeting the revenue target this year.
 
He urged management and staff of GRA to remain focused, dedicated and committed in their bid to increase revenue collection for the country.
 
 
Source: ghana web

Posted on

Tanzania: Yes, Informal Sector Should Start Paying Taxes

 

Tanzania: Yes, Informal Sector Should Start Paying Taxes

 

16 March 2014

Three months from now, the Minister for Finance, Ms Saada Mkuya is expected to table the 2014/2015 Budget in the National Assembly.
 
Recent reports say that next year’s budget is anticipated to be 19.9 tri/-, the figure which is probably cracking heads of some officials working at the Treasury. Revenue collection in this country is under the supervision of the Tanzania Revenue Authority (TRA), which assesses, collects and accounts for all Central Government revenue and also administers effectively and efficiently all the applied revenue laws. TRA is also expected to advise the government on all matters related to fiscal policy, promote voluntary tax compliance, improve the quality of services to the taxpayers, counteract fraud and other forms of tax evasion and also produce trade statistics and publications. 

Looking at these functions of TRA, I can easily see some loopholes where people do profitable businesses but unlikely they are not duly taxed. For example, my friend who conducts charcoal business at Sinza area in Dar es Salaam laughed at me two weeks ago, when I told him how much I earn monthly and the amount I pay under the Pay As You Earn (PAYE) scheme.

“Why are you wasting your time? The amount you get per month is what I collect in four days. If you can gather courage and decide to do this business, I am ready to give you the capital,” he advised me.

 

I saw some logic in what he was saying, because the man normally sells one bag of charcoal for 50,000/- and every month he can sell an average of 200 bags, making him earn a cool 200m/- monthly. If he deducts 25,000/- per bag that he pays charcoal vendors in Rufiji plus 5,000/- paid as transport charges for each bag from Rufiji to Dar es Salaam, this means he manages to collect a net profit amounting to 4m/- every month. This friend of mine is not taxed and TRA officials have not given him any TIN number.
 
I have another friend who sells ‘Kitimoto’ (roast pork) at a famous joint along Shekilango road in Dar es Salaam. He sells one-kilo portion at 10,000/- . At times he can sell up to 70 portions, making him make 700,000/- per day. One kilo of row pork sells at 5,000/-. Do a quick estimation to find out the net profit he makes. This man does not pay any kind of tax. Generally, people involved in the informal sector are not taxed including Machingas, Shoe shiners, Bodabodas, bus and daladala touts.
 
Last year, I remember to have read an article by Viann Komba, a senior tax manager with Ernst & Young who praised TRA for advancing in terms of administration of various taxes. He lamented that such efforts were hindered by TRA’s natural inability to navigate through the informal sector, because activities associated with this terrain of life are informal while TRA is formal.
 
Komba charged that economists and tax experts have always confirmed that there is a big room to widen the tax base in the informal sector and therefore improve government revenue performance. According to him, it is unfortunate that the government endeavours to navigate in the informal sector by using formal tools. Informal sectors are set of economic units which do not comply with legal regulations, yet whose products are considered legal and taken on board in national numbers.
 
Informal sector activities in Tanzania include construction, transport, tuition, medical services, recreational halls, animal husbandry, milling business, entertainment and urban agriculture, among others.
 
Economists say that the informal sector is sometimes linked with bazaar-economy, disorder, black market and at times, the world turned upside down. Some experts have labelled it with underground economy, hidden, parallel, black, clandestine and household. According to Komba, different disciplines like economics, labour, finance and sociology also define the term differently. There is therefore no unique and uniform definition of the term, but instead researchers, based on the various criteria, have attempted to define it in accordance with the problem at hand, he says.
 
Recent reports say that Tanzania is considered to have a large informal sector compared with the other East African countries. The World Bank Doing Business database ranks Tanzania among the three countries in Africa with the largest such sector, together with Nigeria and Zimbabwe.
 
The presence of large informal sector renders it difficult for governments to efficiently work out and programme any development plans. It is also believed that economies with large informal sectors have lower capital return and growth rates because the contribution of public services to productivity decreases with informality. 

Economists say that informal sector consume a large share of the public services that are financed by taxes mostly collected or paid by formal activities in the formal sector. Performance of the government revenue in developing countries as well as other developed countries is therefore directly and seriously affected by the presence of large informal sector in the countries.
 
Komba’s discussions centres on one of the possible methods to work around the challenges of taxation of the informal sector in Tanzania, a developing country with its own and unique characteristics and whose definition of informality is specific to itself. The truth is that informal sector in Tanzania contributes little to the government revenue (or not at all) and it is not easy to work out a taxation model that is suitable for informal activities and/or the informal sector. All sorts of blames may be wrongly directed towards the Tanzania Revenue Authority (TRA), the institution which is formal in itself and which requires a formal approach to assess tax. TRA requires enough information and reliable records, which is not the case with informal activities in the country.
 
There have been plenty of literature and discussions going around in Tanzania on how to tax the informal sector and therefore improve the government revenue performance. Unfortunately most of the discussions turn around and discuss taxation of informal sector by employing formal tactics. Most of the arguments and solutions to taxation of informal sector turn to be only relevant to formal activities. As mentioned above it may be illogical to point fingers at TRA because TRA is itself formal, with its approach and tools all formal.
 
The institution is not vested with resources or the right manoeuvring tools for informal activities. Though TRA is vested with the obligation to tax and collect tax from any person who has taxable income, the agency requires well structured records and information to be able to register taxpayers and administer/assess their taxable amounts.
 
It is important to note also that it is difficult to draw a fine line between formal activities as opposed to the informal activities. They are sometimes intertwined. However, all of us are pretty sure that there is enough tax revenue from the informal sector. How to go about getting the tax from the informal sector remains to be a headache. Taxation of informal activities has always posed challenges to governments.
 
Taxation is traditionally built on three pillars, namely tax policy, tax law and tax administration. However, it is the administration part of it that turns the wheel into money (government revenue) in the bank. Different tax regimes require different types of administrative arrangements.
 
For any tax system a decision has to be made as to which agency should be responsible for such tax and what is/are the tax-points (time and place). While the tax administration will have the main responsibility for the administration and collection of taxes in general, different methods suitable for different taxes might be chosen.
 
While VAT in Tanzania, for example, is administered and collected through registered traders and the customs offices, corporation tax is administered or assessed directly through the corporate tax offices. It is the nature of different taxes that calls for such different tax points and tax agents or in general, tax administrative arrangements. However, their efforts have been hindered by their natural inability to navigate through the informal sector because activities associated with this terrain of life are informal while TRA is formal.
 
Economists and tax experts have always confirmed that there is a big room to widen the tax base in the informal sector and therefore improve government revenue performance. It is unfortunate that the government endeavours to navigate in the informal sector by using formal tools. Time has come for the informal sector to be taxed, so that the government gets more revenues to support development activities.
 
 
Source: Tanzania Daily News (Dar es Salaam)

Posted on

Kenya govt to automate payments to stop revenue leaks

 

Kenya govt to automate payments to stop revenue leaks

 

17 March 2014

Kenya will adopt a paperless payment system to stop revenue leakages in its system.
 
According to ICT Cabinet Secretary, Fred Matiang’i, the process shall be complete by April 2, 2014 and is aimed at improving accountability, efficiency and transparency in Government transactions and prevent revenue leaks,
 
He said electronic payments have been proven to boost economic growth, while advancing financial inclusion.

“The National Treasury will publish regulations to operationalise the Public Payment Act before the electronic payment system starts operating…the Government have done so much in terms of digitising its payment system. What we want to do now is to ensure that this process is institutionalized,” said the Cabinet Secretary.

 

The move comes as Kenya’s economy comes under threat of a crunch due to too much revenue waste and overspending in public wages. According to Kenya’s Auditor General, Government ministries and departments failed to account for over Sh338 billion of the total Government spending for the 2011-2012 fiscal year. The Auditor General said only six per cent (Sh55.2 billion) of the Sh920 billion that the Government spent during the financial year was fully accounted for.
 
An additional expenditure of Sh561 billion was not supported by adequate documents, thus the move to automate the payment system to seal loopholes for corruption. The auditor said a third of the 252 financial statements of institutions audited were either deliberately misstated or revealed fraudulent expenditure, according to the Auditor General.
 
The new payments system would therefore help track Government transactions electronically hence eliminate fraud.
 
 
Source: Biztech Africa