This policy brief examines the political economy in which informal power, political structures, and incentives influence public financial management and accountability (PFMA) reforms, the budget process, and public expenditure in Tanzania. A number of challenges face the current traditional revenue collection process in Tanzania and to underscore opportunities that can enhance revenue collection. Among the major challenges are: tax avoidance as an act of using legal loopholes to minimize one’s tax liability; transfer pricing which refers to price manipulation in trading between related or associated parties, with no reflection of the market conditions regardless of whether the parties to a transaction are related; inadequate taxation of the common categories of passive incomes (rent, royalties, dividends and interest including capital gains on the underlying assets); and lack of a comprehensive data base of tangible properties rent income, and failure of tenants to withhold income tax on rental payment.
Despite the challenges surrounding traditional revenue collection process in Tanzania, there are several opportunities that can be harnessed to raise revenue collection, including inter alia: broadening the tax base by formalization of the country’s large informal sector; harnessing Tanzania’s unique geographical position which is a major advantage, infrastructure (ports, roads, railway and complementary services) investments which can make the country a competitive regional hub; creating a favourable environment for the businesses to operate and grow to expand the tax base; and leveraging the relationship between the public and private sector by reducing uncertainty attributed to the changing government stance on private sector development and the role of the public sector and the private sector.
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