DAR ES SALAAM: STAKEHOLDERS have underscored the importance of creating a friendly business climate and harmonising systems among tax-collecting institutions to encourage more informal traders to formalise their businesses.
They stated that creating a friendly environment in tax collection would yield numerous benefits for both government and businesses, as it promotes enhanced cooperation, transparency and mutual respect between tax authorities and taxpayers.
They further noted that when tax authorities adopt a supportive approach, it often leads to higher compliance rates.
A conducive environment encourages voluntary compliance, with businesses feeling more comfortable fulfilling their tax obligations.
This, they said, can be achieved through clear communication, accessible resources and responsive support systems that help businesses understand their tax responsibilities.
These were among the key concerns raised by stakeholders in Zanzibar during consultations conducted by the Presidential Commission on Tax Reforms.
The commission, chaired by former Chief Secretary Ambassador Ombeni Sefue, was tasked with evaluating the current tax system and providing actionable recommendations to the government.
The exercise aimed to address ongoing tax challenges and enhance the country’s tax system to create a more conducive business environment.
The commission was also mandated to promote voluntary tax compliance, expand the tax base and address public grievances related to taxation.
During the views collection exercise, both experts and ordinary wananchi emphasised the urgent need for effective systems and an enabling environment that would encourage informal entrepreneurs to transition into the formal economy.
Once integrated into the formal system, these businesses could contribute to the national tax base, thereby boosting government revenue.
Formalisation key to revenue growth Stakeholders argued that clear and efficient processes, combined with incentives, would motivate informal businesses to formalise their operations.
Formalisation would not only ensure compliance with tax regulations but also enable businesses to access better services such as financing and training, ultimately supporting sustainable growth.
These recommendations come at a time when fewer than two million taxpayers are registered in Tanzania, despite a population exceeding 60 million—highlighting a significant gap in the tax system.
At the same time, more than 50 per cent of the workforce is engaged in the informal sector, including agriculture, retail trade and transport.
Stakeholders pointed out that numerous institutional procedures discourage informal entrepreneurs from formalising their businesses.
Zanzibar Social Security Fund (ZSSF) Acting Accounting Manager, Mr Ahmed Talibu Ali, said the formalisation process is often complex and discouraging.
He noted that it involves multiple institutions, numerous hurdles and lengthy procedures, leading many entrepreneurs to abandon the process altogether.
“Many taxpayers are outside the tax bracket and there are individuals engaged in economic activities that could contribute to national revenue, but they are not doing so. Instead, only a small number are contributing,” he said.
He added that some individuals earn substantial incomes but remain outside the tax system due to structural limitations.
Need for system alignment His views were echoed by the Commissioner for the Zanzibar Planning Commission, Mr Ameir Haji Sheha, who stressed the importance of aligning tax systems with business registration systems.
“There are people who operate large businesses, yet to this day they are still classified as small traders and do not pay taxes,” he said.
Call to reduce institutional barriers Zanzibar Revenue Authority (ZRA) Manager for Stamp Duty, Mr Shaaban Yahya Mzee, called for reducing institutional barriers that hinder business formalisation.
He noted that compliance costs are high and multiple institutions impose overlapping requirements, discouraging businesses from registering.
“This is because each institution targets expanding its own tax base, leading to multiple requirements. For instance, a business may own a warehouse, but several institutions require separate registration,” he explained.
Mr Mzee suggested that institutions should harmonise their processes to reduce duplication and simplify procedures.
“By reducing bureaucratic hurdles, the process would become more accessible and less costly for traders,” he said. He added that many business owners deliberately remain informal due to system inefficiencies.
“It is high time to design a system that encourages traders to willingly formalise their businesses rather than forcing them,” he noted.
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Call for unified VAT system Mr Mzee also proposed harmonising Value Added Tax (VAT) rates between Mainland Tanzania and Zanzibar. Currently, VAT stands at 18 per cent on the mainland and 15 per cent in Zanzibar, creating challenges for businesses transporting goods between the two.
He explained that traders are required to pay an additional 3 per cent VAT when transferring goods to the mainland, leading to unnecessary costs and delays.
Under existing law, the difference in VAT is treated as unpaid tax and must be collected upon transfer of goods. Mr Mzee argued that a unified VAT rate would eliminate these burdens and improve efficiency.
Tax education and awareness Stakeholders also emphasised the need to strengthen tax education.
Mr Mzee called for greater use of media platforms to raise awareness, noting that tax education remains limited.
“If you turn on the radio, you find continuous betting advertisements. There should be regular programmes dedicated to tax education,” he said.
He urged collaboration between ZRA and TRA to improve public awareness.
Meanwhile, the Principal Legal Counsel for the Tanzania Revenue Authority (TRA) in Zanzibar, Ms Fatma Hassan, stressed the need to review tax exemptions, particularly for foreign investors.
She argued that while some exemptions may be necessary, not all taxes should be waived.
“We can exempt some taxes, but not all. For instance, withholding taxes on services should still be collected from foreign investors employing local workers,” she said.
Ms Hassan suggested that exemptions should be targeted rather than broadly applied to ensure the government maximises revenue collection.
Stakeholders emphasised that tax evasion remains an offence and must be addressed through legal and disciplinary measures.
However, they maintained that the solution lies not only in enforcement but in building a system that encourages voluntary compliance.
Overall, the consultations pointed to a clear direction: harmonised systems, simplified procedures and a supportive business environment are essential to bringing more businesses into the formal economy and strengthening Tanzania’s revenue base.
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