TAX PARADOX: ELEVATION TO LOW MIDDLE INCOME STATUS

A sombre mood engulfed the citizenry of United Republic of Tanzania (“The Country”), East Africa Community (EAC) members, Africa continent and the World at large as the retired third president of the Country, Benjamin William Mkapa was laid to rest in his native Lupaso village during the late weeks of July 2020.

The late president will be greatly remembered and missed within and outside the boundaries of the Country. He spearheaded the mediating efforts in several internal conflicts in Africa and laid strong foundation for the economic development of the Country. He championed the formulation of Tanzania Development Vision 2025 which among other objectives, envisioned to elevate the status of the Country from Least Developed Country (LDC) to Low Middle-Income Country (LMIC) by 2025.

The late president’s efforts ultimately paid dividends when the World Bank (WB) officially elevated the Country from the Least Developed status to Low Middle Income status as of 1st July 2020. This elevation is majorly attributed to the increase in Gross National Income (GNI) per capital from $ 1,020 in 2018 to $ 1,080 in 2019, though the Country’s vision is to attain GNI per capital of $ 3,000 by year 2025.

As a tax enthusiast, the said elevation to low middle-income status has posed two interesting contested issues in my mind,

1.      Tax Reliefs, whether the said status elevation will be the catalyst for more tax reliefs to the taxpayers in the Country. The wisdom behind this contested issue is the understanding that attainment of this status means rising of the credit worthiness of the Country thus improving accessibility to non-tax sources of financing within and outside the Country. Therefore, the reliance on tax related sources of financing the Government budget is likely to shrink hence availing tax reliefs to the taxpayers in the Country.

2.       Tax Burden, whether the said status elevation mean more tax burden on the taxpayers in the Country. The wisdom behind this contested issue is the understanding that attainment of this status means less concessional loans, grants and gifts previously availed to the Country. Therefore, this may possibly lead to more dependence on tax related sources as means of financing the Government budget, thus more tax burden on the taxpayers in the Country.

For instance, the Government projects to collect revenue amounting to TZS 34.88 Trillion for the fiscal year 2020/21 wherein collection from tax related sources is projected to amount TZS 20.33 Trillion (which accounts for 58% of the collection), collection from non-concessional loans is projected to amount TZS 7.9 Trillion (which accounts for 23% of the collection), collection from external grants and non-concessional loans is projected to amount TZS 2.88 Trillion (which accounts for 8% of the collection) and other sources are projected to amount TZS 3.74 Trillion (which accounts for 11% of the collection).

On the basis of the projected revenue collection for the fiscal year 2020/21, it is apparent that the Country relies hugely on tax related sources for financing the Government Budget. Whether the attainment of Low Middle Income Country (LMIC) status will reduce the reliance on tax sources thus leading to tax reliefs or increase the reliance on tax related sources thus leading to rising tax burden is a tax paradox which can only be solved by time.

Benedict Kombaha is a tax professional and enthusiast. He has written this article in his personal capacity and the views shared are his own personal views.