Tax Collections, Exemptions, and
Reform
Thomas Baunsgaard
Presentation to the DPG Main
January 15, 2013
20%
Part I. Tax revenue improvement:
Providing fiscal space
Tax Revenue Collections
(in percent of GDP)
18%
15.8%
16%
14%
16.7 %
1.8%
14.6%
1.7%
1.8%
1.7%
1.7%
12%
5.6%
4.4%
4.8%
5.5%
2.9%
2.8%
3.0%
2.5%
4.6%
4.6%
4.4%
4.8%
5.1%
1.4%
1.2%
1.3%
1.2%
1.3%
2008/09
2009/10
2010/11
2011/12
2012/13 p
4.6%
10%
8%
2.9%
6%
4%
2%
0%
Other Taxes
Income Tax
Excise Duty
Source: Tanzania Revenue Authority and IMF estimates
VAT
Import Duty
Part II. Increase in exemptions outpaced
revenue …signs of a turnaround?
Indirect Tax Exemption, by administrative department
(In percent of GDP)
5%
3.9%
% of GDP
4%
1.5%
3%
2.3%
0.7%
2%
1%
3.2%
1.1%
0.9%
0.6%
2.2%
1.7%
2.0%
2.4%
2.1%
0%
2008/09
2009/10
2010/11
Domestic Revenue Department
2011/12
Customs Department
* Indicative projection for 2012/13 based on trend from July-November 2012
Source: Tanzania Revenue Authority and IMF estimates
2012/13*
Exemption creep in domestic VAT
Indirect Tax Exemptions, by recipient
(In percent of GDP)
5
as % of GDP
4
1.5
3
1.1
0.6
2
0.8
0.6
0.7
1
1.4
0.7
0.7
0.7
0.9
0.8
0.5
0
0.2
2008/09
0.1
2009/10
2010/11
2011/12
2012/13*
Domestic exemptions under VAT
Others (imports)
Mining and petroleum (imports)
TIC (imports)
Private companies & individuals (imports)
Donor funded projects (imports)
* Indicative projection for 2012/13 based on trend from July-November 2012
Source: Tanzania Revenue Authority and IMF estimates
Two-thirds of exemptions from VAT on
imports and domestic transactions
Source: Tanzania Revenue Authority
Other tax exemption ratios
2008/09
Indirect Tax Exemptions as % of Tax
Revenue
Indirect tax Exemptions as % of Total
Expenditure
Indirect tax Exemptions as % of Total
GBS (loans and grants)
Indirect Tax Exemptions as % of other
ODA
2009/10
2010/11
2011/12
2012/13*
19%
16%
19%
25%
19%
11%
8%
11%
15%
11%
58%
41%
69%
110%
124%
73%
59%
83%
111%
85%
Source: Tanzania Revenue Authority and IMF estimates
Part III. VAT Reform
• The Government target of a gradual reduction in
tax exemptions to 1 percent of GDP (GBS PAF)…
• …can only be achieved by reducing VAT
exemptions
• Minister Mgimwa announced a review of the VAT
“to conform to international best practice”
(Budget speech, June 2012)
• IMF missions on VAT policy in 2011 and 2012;
legal expert is working with the government on a
draft VAT bill
Goal for VAT redrafting
To reform the VAT into a more equal and equitable
tax that is:
¶ more revenue productive
¶ easier to comply with and to administer, and
¶ provides a more business and investment friendly
climate
A modern broad-based VAT: Single rate; broad tax
base; destination based
 General tax on consumption by taxing value
added with credits/refunds of input tax
8
Aim: Rationalization of exemptions
Goal: Replace extensive zero-rating and exemption
schedules with simpler regime. Limit zero-rating
to exports
Why exempt?
• On equity grounds
– Basic needs (some food items)
– Health & education
– Land, residential property (except sales of new
residential property)
– Non-commercial supplies by approved non-profits
– Non-commercial activities of government entities
• On technical, practical grounds
– Financial services, except if provided for an explicit fee
9
Aim: Rationalization of exemptions
(cont’d)
• Import exemptions
– Goods for which the supply would be exempt
– Goods in transshipment, containers
– Donations, disaster relief goods
– Imports under international agreements (treaties,
financing agreements); refunds for VAT incurred
domestically
• To counter exemption creep, need improved
VAT refund mechanism
• Exemptions only through legislation – reduce
discretion
10