BLock Management System for Enhancement of Revenue Collection

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A JOINT PUBLICATION BETWEEN ATAF

AND GIZ

SEPTEMBER 2014


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TAXATION OF SMES IN AFRICA

GOOD PRACTICES AND LESSONS

LEARNED

BLOCK MANAGEMENT SYSTEM (BMS) IN TANZANIA


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PREFACE

The African Tax Administration Forum (ATAF) in its commitment to improving the capacity and skill base of tax

administrations in Africa aims to help develop, share and influence the implementation of good practices among

its member countries. ATAF is therefore pleased to present the good practices and lessons learned from a series

of reforms in the taxation of small and medium enterprises (S!s) undertaken in a fe" countries in Africa,

specifically in #urundi, $hana, %"anda, Senegal, Tan&ania and 'ambia. This research proect seeks to empo"er

and educate tax administrations, policymakers and the society at large, and as a result change the culture of

non compliance, tax avoidance and tax evasion on the continent.

The undertaking of this research proect has been "ellinformed by the need to tackle maor issues and

challenges regarding the informal sector and the importance to design effective tax systems that respond to the

demands and special conditions of the S!s in the continent. This need has been identified as one of the

fundamental challenges faced by tax administrations, as stated in the ATAF Regional Studies on ReformPriorities of African Tax Administrations published in *+*. -onseuently, ATAF initiated this research proect by

focusing on S!s as they are a significant part of the informal sector.

The present study intends to provide tax administrations "ith a solid understanding of the Tan&anian #lock

anagement System (#S). The Tan&ania %evenue authority (T%A) strives to continually improve its functions

to broaden the tax base, reduce tax gaps, improve fairness in the tax systems and enhance the overall rate

of voluntary compliance through various "ays, one of "hich is the taxation of S!s. Through this research,

ATAF attempts to provide a valuable and practical input and also provides recommendations to other African tax

administrations derived from this reform proect.

The potential role of S!s to increase tax revenue and thus improve the economy is the central conviction of

this study. This research provides information about good practices, "hich should not be seen as /an absolute0 or

/a onesi&efitsall0 tax system design but rather as options that can assist countries in guiding their reform

strategies and can be adapted to countryspecific circumstances. The study also makes a very significant

contribution to the overall tax literature "ith a methodology that allo"s for direct input from tax officials of the

Tan&ania %evenue Authority (T%A) and other related key stakeholders. ATAF is confident that the value added

from this study "ill be beneficial to tax administrations in Africa, relevant stakeholders and other users of the

information.

1ur appreciation goes to r 2isdom 3hekairo for conducting the research. r 3hekairo 4uring his field visit in

Tan&ania in late September *+5 met and intervie"ed several key stakeholders "hose kno"ledge and

experience contributed to the uality of this research.

2e are immensely grateful to the !x-ommissioner $eneral of the Tan&ania %evenue Authority, r 6arry 7itiliya,

for honouring the ATAF0s "ide call for interest to member countries to sho"case at least one reform implemented

in the taxation of their small and medium enterprises. ATAF is also grateful to r. 8atrick 7assera, -ommissioner

4omestic %evenue of T%A9 to r. :eremiah baghi, "ho "as the resource person as "ell as to all senior

management and T%A staff intervie"ed.

Furthermore, ATAF is grateful for the support from the Deutsche Gesellschaft fr Internationale Zusammenarbeit

($;') for making this proect a success and "ould like to give special thanks to 4r -hristiane Schuppert and s


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iii#lock anagement System (#S) in Tan&ania


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Finally, "e recogni&e the contribution of the research team of the ATAF Secretariat (4r 3ara onkam and Frankie

buyamba) and appreciate their overall coordination and comments to"ards the success of this proect.

;t is our sincere hope that this study, alongside other sho"case reports on the Taxation of S!s in Africa,contributes to the development of capacity in African tax administrations.

Lo!" Wo#$

E%&'$*& S&'#&$!#+

A,#'!" T!% A-."/$#!$o" Fo#. (ATAF)


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iv#lock anagement System (#S) in Tan&ania


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TABLE OF CONTENTS

E%&'$*& S..!#+ 1

I I"$#o-'$o" !"- B!'#o"- 2

. ;ntroduction......................................................................................................................................................*

.* #ackground.....................................................................................................................................................*

IISME Co"$&%$ 4

*. 4efinition of S!s...........................................................................................................................................=

III Co"$#+C!#!'$/$'/ 3

5. !conomic !nvironment...................................................................................................................................>

5.* Tax !nvironment..............................................................................................................................................?

I D&/'#5$o" o,$& #&,o#. .&!/#&6 $& B7o' M!"!&.&"$ S+/$&. (BMS)12

=. 1vervie" of #lock anagement System (#S)............................................................................................*

=.* 8urpose of #S..............................................................................................................................................5

=.5 Setting up of #locks........................................................................................................................................5

=.=Administration of a block.................................................................................................................................=

=.@ Staffing a #lock...............................................................................................................................................

=.> #lock management activities.......................................................................................................................... B

O$'o.&/ !"- 8&"&,$/ o, $& 5#o9&'$ 22

I L&//o"/L&!#"&- ,o# Goo- P#!'$'&/ 2:

IIR// !"-C!77&"&/ 24

Co"'7/o" 2;

B87o#!5+ 23


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v#lock anagement System (#S) in Tan&ania


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LIST OF TABLES

Table C -ategories of S!s in Tan&ania..............................................................................................................@

Table *C $ross 4omestic 8roduct ($48), Tan&ania.............................................................................................>

Table 5C %evenue, !xpenditure and Total Taxes for the :ear ending 5+th Dune of each yearC (ES #illion).......?

Table =C ;ncome from Taxes for the :ear ending 5+th Dune, (ES #illion)...........................................................?

Table @C 8resumptive Taxation G Tax %ates...........................................................................................................+

Table >C Tax Service -entre ;lala Tax %egion......................................................................................................>

Table ?C Tax Service -entre Arusha Tax %egion.................................................................................................?

Table C #locks and Subblocks ;lala Tax %egion...............................................................................................?

Table BC #locks and Subblocks Arusha Tax %egion..........................................................................................

Table + C #locks, Taxpayers to Staff %atio 7inondoni Tax %egion....................................................................B

Table C #locks, Taxpayers to Staff %atio Arusha Tax %egion..........................................................................B

Table *C 7ey 8erformance ;ndicators..................................................................................................................**


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LIST OF FIGURES

Figure C 8ercentage Share of $48 at -urrent 8rices, *+*..............................................................................>

Figure * C 8ercentage of T%A -ollections by 4epartment...................................................................................

Figure 5 C T%A Staff !stablishment.......................................................................................................................

Figure = C T%A Taxpayer %egister.........................................................................................................................B

Figure @C 4efining a #lock.....................................................................................................................................B

Figure > C Administration of a #lock......................................................................................................................B

Figure ? C %egional 1rgani&ation Structure G 7inondoni Tax %egion..................................................................@

Figure C A%4ebt 1rgani&ation Structure G 7inondoni Tax %egion................................................................>


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ABBREIATIONS AND ACRONYMS

ATAF African Tax Administration Forum

#S #lock anagement System

4%4 4omestic %evenue 4epartment

!F4 !lectronic Fiscal 4evice

$48 $ross 4omestic 8roduct

$;' $erman ;nternational -ooperation

;TA ;nstitute of Tax Administration

;TAS ;ntegrated Tax Administration System

HT1 Harge Taxpayer 1ffice

S! icro, Small and edium !nterprise

T1 edium Taxpayer 1ffice

S! Small and edium !nterprise

ST1 Small Tax 1ffice

T%A Tan&ania %evenue Authority

TS- Tax Service -entre


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EXECUTIE SUMMARY

any countries have recorded significant benefits through setting up of specialised units to control the

compliance of large taxpayers. ;t is from the same gains, achieved through segmentation that the Tan&ania

%evenue Authority (T%A) decided to start paying special attention to the S! sector. The T%A recognised that

the methods used in the past had been inadeuate to deal "ith an ever increasing informal sector "hich had

uniue characteristics and had potential to contribute to the revenue base of the country.

6o"ever for this potential to be turned into tangible results, the T%A needed to come up "ith strategies that

recognised the uniue characteristics of the S! sector and the environment in "hich they operate. Against

this background, the T%A introduced the #lock anagement System (#S) in *++@ 1 to increase tax compliance

"ithin the S!s "ith the ultimate aim of enhancing government revenue and deter tax evasion. The #S "as

an improvement of an already existing system, kno"n as the I8hysical SurveyJ (8S). The 8S had become

ineffective as it "as not sustainable and "as not cost effective. The maor disadvantage of the 8S system "asthat it "as a periodical program, i.e. undertaken periodically as and "hen funds and time allo"ed. ;t therefore

lacked consistency and sustainability in enhancing tax compliance. The #S is a continuous and permanent

program that is an integral part of the T%A operations.

The overall obective of the #S is to have in place sustainable methods and strategies of monitoring business

activities of the S! taxpayers to make them pay taxes in a cost effective manner. The #S focuses on the

physical identification and mapping of areas in "hich the S! taxpayers are located and operate. These areas

are then demarcated and designated as a block or subblock. !ach block is mandated to operate all the key tax

administration functions of registering, assessing, collecting and accounting for revenue collected. Staff assigned

to specific blocks therefore find it easier and feasible to permanently touch base "ith taxpayers operating in

these blocks. Similarly, taxpayers find this arrangement more userfriendly and cost effective.

The implementation of the #S has overall had a positive impact on the tax compliance management of the

S! taxpayers. This is demonstrated by the increase in the revenue yield and increase in the number of

registered taxpayers.

#et"een the financial year *++K*+ and *+*K*+5, the population of S! taxpayers gre" from 5?*,>++

to =B5,?= and the revenue collected during these t"o periods increased from ES @++ million to ES B++

million (Tan&ania %evenue Authority, *+*). There have been, ho"ever, some challenges faced in the process

of implementation "hich have led to the formulation of further improvements to the system, through constant

monitoring and evaluation.

(Feldstad L 6eggstad, *+)


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I INTRODUCTION AND BACKGROUND

11 I"$#o-'$o"

The obective of the good practice study on the ITaxation of Small and edium !nterprises in Africa, good

practices and lessons learnedJ, "hich "as undertaken at the Tan&ania %evenue Authority (T%A), "as to collect

information necessary to describe the design and implementation of the #lock anagement System (#S). This

is one of the reforms that the T%A has undertaken in the recent past in order to enhance the effectiveness and

efficiency of taxing the S! sector in Tan&ania.

The Tan&ania %evenue Authority (T%A) "as established by Act 3o. of BB@ and became operational on Duly

, BB>. The T%A is a semiautonomous agency of the $overnment, responsible for the administration of the

-entral $overnment taxes, as "ell as several nontax revenues. The functions of T%A are to assess, collect and

account for all central government revenue and to administer efficiently and effectively all the revenue la"s of

central government. T%A also performs an advisory role to government on tax matters relating to fiscal policy. For

taxpayers, the T%A is reuired to promote voluntary compliance and has an obligation to improve the uality of

service provided to taxpayers. At the same time, the T%A must counteract fraud and other forms of tax and fiscal

evasion and produce trade statistics and publications for use by government and the general public.

The result of this good practice study is intended to provide other countries "ith an indication as to the

effectiveness of the system and to understand the factors and circumstances contributing to its successful

implementation. The study continues as follo"s. -hapter one continues, giving the background to the study.

-hapter t"o provides a brief overvie" of S! taxation in Tan&ania. -hapter three presents the country

characteristics and economic and general tax environments in Tan&ania. -hapter four gives a description of the

#lock anagement System. -hapter five analyses the outcomes of the proect, identifying success factors and

risks of the proect. -hapter six identifies good practices and lessons learned. -hapter seven is conclusion and

proffers suggestions to other ATAF member countries interested in the implementation of such scheme.

12 B!'#o"-

The contribution of the informal sector (of "hich small and medium enterprises (S!s) make a substantial

component) to economic gro"th in African countries is large, making taxation of S!s an important issue

for tax administrations. The vast number of S!s and economic nature of S!s (narro" taxable base,

undocumented, cashbased business transactions, high mobility and activity in rural areas) are both reasons

"hy tax administrations face difficulties in properly administering the group of S! taxpayers. This is even more

pronounced in African countries "here tax administrations encounter various capacity constraints in terms of

skills and financial resources.

Apart from the revenue generating potential of S!s, broadening of the tax base through inclusion of all

businesses into the tax net is also seen as critical for increasing the perceived fairness of the tax system among

citi&ens. The fact that the maority of the labour force in Africa, especially in rural areas, is employed in the

informal (S!)

sector makes S!s an important aspect for building a strong and stable economy.


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This study on taxation of small and medium enterprises in Tan&ania focuses on good practices and lessons

learned on the block management system reform measure. The block management system "as adopted and

introduced to change and simplify the tax processes in the taxation of S!s. The field trip "as conducted in 4ar

esSalaam during the last "eek of September *+5. The good practice and lessons learned study on taxation ofS!s in Tan&ania makes use of extensive key stakeholder intervie"s "ith, among others, -ommissioners and

senior staff of the T%A and business associations.

The aim of this visit "as to euip the expert "ith the follo"ingC the collection of information on S!s and the tax

system in Tan&ania9 the identification of cases of reform processes "ithin the Tan&ania %evenue Authority9 and

finally the description and analysis of the reform measures that have been implemented by Tan&ania to allo" a

similar implementation in another country. The scope of this study covers the period *++ to *+5 but in certain

cases much earlier information, especially on reform measures, "as collected to better our understanding on

S! taxation reform in Tan&ania.


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IISME CONTEXT

;t is no" increasingly recogni&ed that the Small and edium !nterprises (S!s) play a crucial role in

employment creation and income generation in Tan&ania. S!s all over the "orld and in Tan&ania in particular,

can be easily established since their reuirements in terms of capital9 technology and management are not as

demanding as it is the case for large enterprises. These enterprises can also be established in rural settings and

thus add value to the agroproducts and at the same time facilitate the dispersal of enterprises. ;ndeed S!s

development is closely associated "ith more euitable distribution of income and thus important as regards

poverty alleviation. The rural settings are predominantly agricultural and specifically peasant based, under "hich

outdated and un mechani&ed farming methods and tools are utili&ed. ;n the urban settings, unemployment

forces the maority to create self employment opportunities through establishment of small business

undertakings. #oth the urban and rural undertakings usually operate in an economic environment that is informal,

predominantly untaxed and ever expanding.

;t is estimated that about a third of the $48 originates from the S! sector (inistry of ;ndustry and Trade,

*++*). According to the ;nformal Sector Survey of BB ( 3ational #ureau of Statistics, *++*), micro enterprises

operating in the informal sector alone consisted of more than .? million businesses that engage about 5 million

persons representing about *+M of the Tan&anian labour force (inistry of ;ndustry and Trade, *++*). This

demonstrates the importance of S! in stimulating economic gro"th and employment creation. :et the tax

revenue contribution by this sector remains far belo" the desired levels.

The S!s, important as they are to the economy, have ho"ever been facing a number of problems. This is due

to a number of factors, one of "hich is a persistent culture that has not recognised the value of entrepreneurial

initiative in improving the lives of the people. 1ther factors include complex, bureaucratic and costly legal,

regulatory and administrative environment "here S!s are at a greater disadvantage than their counterparts

that are larger in si&e. The high cost of compliance to regulations may discourage potential entrepreneurs from

formally setting up their businesses, "hile driving some existing enterprises out of business and those "orking

for them into unemployment.

-lear and precise compliance strategies are therefore pertinent that create an enabling environment for S!s

to thrive and ultimately graduate from the informal sector to formal sector. This "ill enable the tax administration

to extract the revenue potential inherent "ithin the S!s, for the purpose of increasing the revenue contribution.

21 D&,"$o" o, SME/

The definition of an S! varies from country to country dependent on the level of economic and social

development prevailing in each country. The definition also varies "ithin countries as defined by different

institutions. The various definitions are usually aimed at meeting the different obectives of each stakeholder.

Tan&ania, like many other African countries does not have a single official definition of S!s. ;n Tan&ania, one

important and broad definition is contained in the Tan&ania S! 8olicy "hich "as published by the inistry for

;ndustry and Trade in *++* (inistry of ;ndustry and Trade, *++*).

#lock anagement System (#S) in Tan&ania


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T!87& 1 6 C!$&o#&/ o, SME/ " T!"

;n the event of an enterprise falling under more than one category, then the level of investment "ill be the

deciding factor.


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III COUNTRY C=ARACTERISTICS

:1 E'o"o.' E"*#o".&"$

Tan&ania, officially the Enited %epublic of Tan&ania (S"ahiliC (amhuri "a !uungano )a Tan*ania), is a country

in !ast Africa in the African $reat Hakes region. The country is divided into 5+ administrative regionsC five on the

semiautonomous islands of 'an&ibar and *@ on the mainland. The economy is heavily based on agriculture,

"hich accounts for more than *@ percent of gross domestic product, provides @ percent of exports, and

employs + percent of the "orkforce (AATF and -1ST!-6, *++). Tan&ania has vast amounts of minerals

including gold, diamonds, coal, iron, uranium, nickel, chromium, tin, platinum, -olten, niobium, natural gas, and

others. The country is also kno"n for Tan&anite, a type of precious gemstone that is found only in Tan&ania.

Tables 5 to @ belo" highlight selected macro economic indicators for Tan&ania ainland.

T!87& 26 G#o// Do.&/$' P#o-'$ (GDP)> T!".+ ?.= >.+ ?.+ >.= >.B

$48 per -apita (ES4) at

market 8rices

5> @*@ @*@ @=? @@ >@*

Source: +ational ,ureau of Statistics# $%-$&'

Tables sho"s a steady increase in $48 over the last five years, indicating gro"th of the economy. The gro"th

of the $48 has averaged >.>M over this period. The per capita income has increased from ES5> in *++ toES>@* in *+* "hich is in line "ith the increase recorded in the $48. This figures indicate an economy that is

gro"ing through increased economic activity.

Figure belo" sho"s that *>.M of the $48 is generated by the agriculture, hunting and forestry sector, the

sector in "hich most of the S!0s operate.

F#& 16 P'&"$!& S!#& o, GDP !$ C##&"$ P#'&/> 2012




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Table * sho"s an increase in national revenue ("hich is inclusive of domestic revenue, borro"ings, external

support and fiscal deficits) and expenditure from ES *.+ billion in *++@ to ES >.? billion in *+*. Total taxes

during the same period increased from ES . billion to ES=.= billion. This sho"s that the tax revenue alone

(ES .bn in *++@ and ES =.=bn in *+*) is not sufficient to meet the expenditure (ES *.+bn in *++@ andES >.?bn in *+*). There is therefore need to continuously extract the revenue potential lying "ith the S!

sector for the benefit of the economic gro"th of the country.

T!87& :6 R&*&"&> E%5&"-$#& !"- To$!7 T!%&/ ,o# $& Y&!# &"-" :0$ J"& o, &!' +&!#6(US B77o")

200; 2003 200 200@ 200 2010 2011 2012

Total %evenue *.+ *.@ *. 5.5 =.5 @. @.B >.?

Total !xpenditure *.+ *.@ *. 5.5 =.5 @. @.B >.?

Total Taxes . ,5 .? *.5 *.? *.B 5.@ =.=


:2 T!% E"*#o".&"$

The T%A collects a number of tax types as illustrated in table 5 belo".

T!87& 46 I"'o.& ,#o. T!%&/ ,o# $& Y&!# &"-" :0$ J"&> (US B77o")

200 2010 2011 2012

;ncome Tax +. +.B . .=

-ustoms L !xcise 4uty +.? +. +.B .+

Sales taxK


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F#& 2 6 P'&"$!& o, TRA Co77&'$o"/ 8+ D&5!#$.&"$

Source: Tan*ania Re.enue Authorit"# $%-/&'

Figure 5 sho"s the total T%A staff establishment of 5,>*? of "hich as at *++*, *,+* are staff in the 4%4, "ho are

responsible for the collection of taxes from S!s.

F#& : 6 TRA S$!,, E/$!87/.&"$

Source: Tan*ania Re.enue Authorit"# $%-$&'



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Figure = sho"s the total tax register for the T%A "hich consists of B+,* taxpayers of "hich 5?,@> are S!s

on the presumptive tax regime.

F#& 4 6 TRA T!%5!+ R&/$



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!) Co#5o#!$& $!% !"- I"-*-!7 $!%

;n Tan&ania, income of individuals is taxed under the individual income tax regime, and the income of bodies

corporate is taxed under the corporation tax regime. -orporation tax is a tax charged on taxable income (profits)

of entities such as limited companies, institutions or organi&ations including clubs, societies, associations, co

operatives, charities and other unincorporated bodies. ;ndividuals are categori&ed in t"o groups, small individual

traders "ho are not reuired to maintain audited accounts and medium individual traders "ho are reuired to

maintain audited accounts. Small traders are taxed under a presumptive tax system, "hereas medium taxpayers

are taxed based on the annual profit determined from the audited accounts.

P#&/.5$*& $!% /+/$&.

This is a tax system "here individuals are taxed based on their annual turnover. The taxpayers under this system

are not obligated to prepare and submit audited accounts to the T%A. 6o"ever, they may opt not to apply the

system and prepare audited accounts and pay tax based on profits.

T!87& ;6 P#&/.5$*& T!%!$o" T!% R!$&/

A""!7 T#"o* T!% 5!+!87& &" #&'o#-/!#& "'o.57&$&

T!% 5!+!87& &" #&'o#-/!#& 'o.57&$&

2here turnover does not exceed

ES*,@++

3il 3il

2here turnover exceeds

ES*,@++ but does not exceed

ES=,?++

ES>5 *M of the turnover in excess of

ES*,@++


ES=,?++ but does not exceed

ES?,*++

ES55 ES == N *.@M of the turnover in

excess of ES=,?++


ES?,*++ but does not exceed

ES+,+++

ES** ES +> N 5.+M of the turnover in

excess of ES?,*++

2here turnover exceeds ES

+,+++ but does not exceed ES

*,@++

ES5>+ ES B N 5.@M of the turnover in

excess of ES+,+++

Source: Tan*ania# $%%0&'

I"-*-!7/ o 5#&5!#& !-$&- !''o"$/

This is a group of taxpayers "hose annual turnover is above ES *,@++ and are reuired to prepare audited

accountsKfinancial statements in respect of their business. Taxpayers under this group are taxed based on their

profits.

8) W$o7-" T!%

2ithholding tax is the amount of tax retained by an individual or legal person "hen making payments to another

individual or legal person in respect of goods supplied or services rendered by the payee. An individual or legal

person receiving or entitled to receive a payment from "hich income tax is reuired to be "ithheld is a"ithholdee "hile an individual or legal person reuired to "ithhold income tax from a payment made to a

"ithholdee is referred to as the 2ithholding Agent.



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') AT

The


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33/6012

I DESCRIPTION OF T=E REFORM MEASURE6 T=E BLOCK MAN?

AGEMENT SYSTEM (BMS)

The taxation of Small, icro and edium !nterprises (S!s) poses a number of challenges to the tax

administration, "hich have to be mitigated in order to ensure that S!s become tax compliant and contribute

effectively to government revenue. These challenges include the follo"ingC

O Hack of appropriate compliance management coupled "ith S!s0 noncompliance tradition that is aggra

vated by volatility in trading activities and patterns.

O !xistence of a large number of nonregistered business activities.

O 4ifficulty of identification, "hich is a prereuisite for reliable and credible taxpayer0s registration.

O 4isincentives to comply "ith tax la"s, due to the complexity, "ide kno"ledge gap and inadeuate assis

tance of the tax la"s, regulations and procedures.

O %apid development of the underground economy and innovation in some S!s "hich deliberately take

the form of tax evasion.

O 3onexistence of records or poor recordkeeping.

O The emphasis of tax administration reforms on assuring appropriate administration and collection of

taxes from Harge Taxpayers "hich put little chance in designing and implementing a compliance strategy

for S!s.

The situation outlined above regarding S!s poses a severe challenge to the Tan&ania tax administration and

system. This is "ith respect to the level of the tax burden, tax administration processes and other factors "hichare considered as reasons for S!s0 informal operations. The T%A has had to introduce changes and

simplification of the tax processes as specific strategies for the taxation of S!s.

After unsuccessfully attempting a number of methods to manage the compliance of S!s, the T%A eventually

formulated a more viable and sustainable system kno"n as the #lock anagement System (#S) in BB@. A

team of senior managers, led by r. 8atrick 7assera, "ho is currently the -ommissioner for 4omestic %evenue

(-4%), pioneered the proect. They "ere responsible for the design and implementation of the proect. A policy

document "as produced "hich defines a block and provides guidance on the operations of blocks, to ensure

uniformity across the various tax regions.

41 O**& o, B7o' M!"!&.&"$ S+/$&. (BMS)

The #lock anagement System "as designed in order to manage tax affairs of individuals, small and medium

enterprises by demarcating the areas in "hich they conduct business into si&eable and manageable blocks. The

#S evolved from and replaced a previous strategy kno"n as Iphysical surveysJ (8S) "hich "as a periodical

program that proved not to be cost effective. ;t further lacked effectiveness in terms of enhancing tax compliance.

The physical survey "as undertaken periodically as and "hen funds and time allo"ed. ;t could sometimes take

t"o or three years before another physical survey "as undertaken. This meant starting all over again as data

from the previous physical survey "ould not be current and complete. ;t therefore lacked consistency and

sustainability in enhancing tax compliance. 1n the other hand, the #S is a continuous and permanent program

that is an integral part of the T%A operations.



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The design and implementation of the #S "as therefore not vie"ed as a completely ne" proect, but a

transformation of an existing system by building on its "eaknesses. 6ence, complete proect management

procedures, "ith "ell documented proect plans and timelines "ere not available as "ould be the case in a

completely ne" proect.

The #S concept "as designed and implemented by the T%A management "ithout any external involvement in

terms of technical assistance or funding. The #S "as rolled out in stages, first as a pilot in the 4aresSalaam

tax region and then subseuently to other regions.

The #S covers taxes falling under the 4omestic %evenue 4epartment (4%4), "hich areC

O -orporate Tax

O 8ersonal ;ncome Tax

O 2ithholding Taxes

O


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DistrictRegionTown/CityKataStreet

RegionTax Service CentreBlockSub-Block

The T%A also collaborates "ith the -hambers of -ommerce and other trade associations, as another "ay of

obtaining information and data regarding those taxpayers "ho are members of the associations.

The T%A and local authorities "ork together, particularly "ith regard to information and resource sharing, sincethe tax base and block boundaries are usually the same. The collaboration is "ith regard to creation of blocks as

"ell as to tax collection and enforcement. There is no need for T%A to try and invent the "heel "here taxpayers

have already been grouped and defined by the local authorities.

#usiness or areas of trading concentrations are mapped up into small segments "hich may be defined on the

basis of geographicalK administrative setups or according to a combination of a fe" streets to form a block.

#locks can further be subdivided into subblocks. The T%A has mostly used "ards (7ata) as the basis for

defining the blocks. !ach 7ata or a combination of t"o or more could form a block. A 7ata is a political

subdivision.

F#& ;6 D&,"" ! B7o'

A block can also be identified asC

O 8articular type of businessC fish mongers, bakeries, etc.

O 8articular economic or social sectorial activityC cross border traders, fishermen, farmers, etc.

O apped geographical areaC kata, a street, farming block, housing and commercial estate.

;n summary, given that the defining criteria is the taxpayer population one uestion that arises is "hether it is

manageable given the resources available (See Appendix ;;; G Sketch map of blocks in the Arusha Tax %egion).

44 A-."/$#!$o" o, ! 87o'

!ach block is mandated to operate all the key tax administration functions of registering, assessing, collecting

and accounting for revenue collected. ;n effect, the block is a permanent setup "hich is allocated staff to carry

out these functions, subect to rotations after a period of, normally, three years.

Support functions like debt management9 audit and taxpayer services are usually centrali&ed in a Tax Service-entre (TS-).

F#& 3 6 A-."/$#!$o" o, ! B7o'

Figure > sho"s that in a tax region there is a Tax Service -entre (TS-) "hich "ill provide support functions to a

block and subblock. A region can have one or more TS-s. A TS- can service one or more blocks and sub

blocks.


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Regional Manager

Taxpayer Services Ofcer Human Resources an !minis"ra"ion

Supp#ies Ofcer

Tec$nica# %orrec"ions an !ppea#s!R& !ui"' !R& (e)"'

*n %$ar+e , &eium Tax (e)"*

Service %en"re

(a"a -rocessin+*n %$ar+e . Sma## Taxpayer /ni"

inance *%T

*Service %en"re

***Service %en"re

**Service %en"re

&o"or e$ic#e Re+ (icence

!) T!% R&o" A-."/$#!$o"

;n Tan&ania, there are a total of 5 tax regions spread around the country. A regional tax office is headed by a

%egional anager. The administration of a tax region "ith regard to block administration "ill provide centralised

support services that include human resource and administration, finance and ;-T. The %egional anager is

also in charge of the centralised support functions, audit and debt management, that are provided by a TS-. The

functions of audit and debt management are each headed by an Assistant %egional anager.

Figure ? belo" sho"s the organisation structure of the 7inondoni tax region.

F#& 6 R&o"!7 O#!"

a tax region.

Figure sho"s the organisation structure for the Assistant %egional anagerG4ebt for 7inondoni tax region.


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%o##ec"ion norcemen" &anese %en"re

Tana#e #oc:

&)ura$a"i #oc:

;imara %en"re

;imara #oc:norcemen"

-roper"y Ra"es &a)i)o#oc:

16

F#& @ 6 ARM?D&8$ O#!"

;n 4aressalaam city there are 5 (three) tax regions, namely ;lala, 7inondoni and Temeke. ;n these tax regions

there are a total of eight TS-s. !ach TS- is servicing an average of *5 blocks. ;n Arusha city, "hich is the

second largest city in Tan&ania, there is only one tax region kno"n as Arusha tax region. ;n Arusha Tax region,

there are t"o TS-s.

T!87& 36 T!% S*'& C&"$#& ? I7!7! T!% R&o"

T!% C&"$#& B7o' S8 B7o'

7ariakoo Humumba Humumba

Hivingstone

Sikukuu

S"ahili S"ahili

3yam"e&i

-ongo

simba&i simba&i

Shaurimoyo

Fire



I.II.

III.

ARM/DEBT*

Motor vehicle

& D/Licence

Motor Vehicle

Transfer &

Reregistration

D/Licence

Mwenge

entre

Msasani

Bloc!

"inon#oniBloc!

Mwenge

Bloc!

Real Estate

Tegeta

entre

Tangi Bov$

Bloc!

Tegeta Bloc!

B$n%$ Bloc!


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T!87& 6 T!% S*'& C&"$#& ? A#/! T!% R&o"

T!% C&"$#& B7o' S8 B7o'

Arusha7ati7aloleni

7ienge

bauda bauda

Source: Tan*ania Re.enue Authorit" # $%-/&'

Tables > and ? sho" information about the number of blocks and subblocks being serviced by a Tax Service

-entre.

') B7o' M!"!&.&"$

!ach block has a leader "ho is ans"erable to an assistant manager. The block leader is assisted by subordinates

"ho each have specific duties "hich are measurable.

!ach block0s performance is measured through the allocation of performance targets "hich are measured against

set benchmarks and time frames.

Tables and B sho" information about the number of blocks in a particular tax region, the number of taxpayers

each block has, the number of staff servicing these taxpayers and the revenue targets assigned to each block.

Tables > to B are depicting the structure and set up of various tax regions in terms of block and subblocks.

T!87& @6 B7o'/ !"- S8?87o'/ ? I7!7! T!% R&o"

B7o' S8 B7o' No o, T!%5!+/ No o, S$!,, R&*&"& T!#&$/

Humumba Humumba >+ *

Hivingstone ,*@> 5

Sikukuu ,@@+ *

S8?To$!7 :>333 1 S5*/o# ES .* illion

S"ahili S"ahili ,>?? *

3yam"e&i =,+* *

-ongo =,+>5 5

S8?To$!7 >;2 1 S5*/o# ES *=.? illion

simba&i simba&i *,@> 5

Shaurimoyo ,+> 5

Fire ,5?B 5

S8?To$!7 ;>23 1 S5*/o# ES *+. illion

To$!7 1@>14 2: : S5*/o#/ ES >@. illion



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T!87& 6 B7o'/ !"- S8?87o'/ ? A#/! T!% R&o"

B7o' S8 B7o' No o,T!%5!+/

No o, S$!,, R&*&"& T!#&$/

7ati >,*>*

7aloleni >,5@= B

7ienge =,>>

bauda =,B@* B

ES 5? illion

Source: Tan*ania Re.enue Authorit" # $%-/&'

4; S$!,," ! B7o'

The maority of staff assigned to "ork in a block are experienced tax officers. !xperienced tax payer servicesofficers are also assigned to "ork in a block. Staff assigned to "ork in a block, are reuired to attend an

orientation program, "ith regard to the #S. This is conducted by the T%A0s ;nstitute of Tax Administration (;TA).

The ;TA is an integral part of the T%A. ;t is uniuely positioned to offer and support a range of programs leading

to competencies in policy, la" and administration in the areas of customs, taxation and related fields.

The ;TA0s programs offer a uniue blend of theoretical classroom training and real life customs and taxation

experiences. They are designed to address the competence needs of customs and tax practitioners at different

stages of their careers (Tan&ania %evenueAuthority, *+*K5). The institute is playing a critical role in helping to

disseminate information about the #S and to change the mindset of some longserving tax officers "ho might

be resistant to change. Students from the ;nstitute are also periodically attached to a block to gain experience.

The #S is no" part of the syllabus in some of the 4omestic Tax courses being offered by the ;nstitute. ;n the

;nstitute library there "ere t"o (+*) research papers, on the #S, produced by students as part of their thesis.

The levels of staff have been raised as a challenge related to the #S. The benefits of the system, i.e. increased

taxpayer registrations, is not being matched "ith a corresponding increase in staff numbers. This can be seen in

tables + and belo" "hich depict varying taxpayer to staff ratios across blocks and tax regions.

The issue regarding the integrity of staff "as also raised. Some staff can be tempted to connive "ith the

taxpayers. 6ence, the policy that the staff ideally should be transferred every three years to avoid familiarity

setting in has been formulated. 6o"ever, in practice this is not al"ays possible due to various reasons, for

example, constraints on the operational budget to fund all the reuired transfers.


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18



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T!87& 10 6 B7o'/> T!%5!+/ $o S$!,, R!$o ? K"o"-o" T!% R&o"

B7o' A*!& T!%5!+ $o S$!,, R!$o

sasani = C 7inondoni @ C

"enge ?* C

burahati B? C

Tandale >@* C

Tangi #ovu =@@ C

Tegeta 5=* C

#unu ** C

7imara *++ C

abibo 5 C

T1 *@ C

Total 420 6 1


T!87& 11 6 B7o'/> T!%5!+/ $o S$!,, R!$o ? A#/! T!% R&o"

B7o' A*!& T!%5!+/ $o S$!,, R!$o

7ati ?5 C

7aloleni ?+> C

7ienge @?? C

bauda @@+ C

Total 3;2 6 1Source: Tan*ania Re.enue Authorit" # $%-/&'

43 B7o' .!"!&.&"$ !'$*$&/

Ender the #S, all compliance and monitoring activities are performed on identified taxpayers located "ithin a

specific block. 1ne maor compliance activity that officers in the field are reuired to carry out is to enforce the

use of !lectronic Fiscal 4evices (!F4). !F4 means a machine designed for use in business for efficient

management controls in areas of sales analysis and stock control system and "hich conforms to the

reuirements specified by the la"s.

;n Duly *++, the $overnment of the Enited %epublic of Tan&ania introduced an !F4 system to be used by all


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E7&'$#o"' F/'!7 P#"$ (EFP)6 The device is used by computeri&ed retail outlets. ;t is connected to a computer

net"ork and stores every sale transactions or details made in its fiscal memory.

E7&'$#o"' S"!$#& D&*'& (ESD)6 the device is designed to authenticate by signing any personal computer(8-) produced financial document such as tax invoice. The device uses a special computer program to generate

a uniue number (Signature) "hich is appended to and printed to every invoice issued by the user0s system.

Esers are obliged to issue receipt or invoice on each sale and notify any changesK malfunctioning

of the machinery to -ommissioner 4%4 "ithin *= hours. The supplier of the machine "ill install, configure and

attend the malfunctioning of the machine "ithin = hours.

The !F4 is preferred compared to other devices like the cash register because of the follo"ing reasonsC

O ;t has inbuilt Fiscal emory "hich cannot be erased by mechanical, chemical or electromagnetic interferences.

O ;t has automatic selfenforcing issuing of daily transaction reports after every *= hours and it transmits

tax information to the T%A system automatically.

O ;t has irreversible date mechanism, issues fiscal receiptsKinvoice "hich is uniuely identifiable and it can

be used as a standalone and configured into a net"ork.

O ;t has at least = hours po"er backup, and it can use external battery in areas "ith no electricity supply.

;t saves configured data and records on permanent fiscal memory automatically and it has tax memory

capacity that stores data for at least @ years or 1'' #a( transactions.

!) F&7- */$/

;n order to ensure optimum utilisation of resources, a risk based approach is undertaken through preparation for

the field visit. 8reparation entails staff establishing the purpose of the visit by gathering information to support

the need of the visit from the files as "ell as the ;TAR system (it is an integrated system developed by the T%A

to support 4omestic %evenue operations). The purpose of the visit can include registration, taxpayer education,

audit or enforcement. 1nce the visit has been established and approved, officers are reuired to sign out in the

1utgoing %egister indicating "here the visit is to be made and the purpose of the visit.

;n the field, the officers then carry out functions that include moving from door to door to check taxpayers0

activities including the usage of !F4s. They "ill identify none and late filers and determine the categori&ation of

taxpayers into large, medium and small based on turnover over a three year period. ;f necessary, they "ill make

adustments to reconcile the records. To ensure checks and balances in the conduct of staff, field visits are to be

undertaken in pairs. Epon return to the office officers sign in.

8) I",o#.!$o" M!"!&.&"$

As a "ay of ensuring that proper record keeping is achieved, each block is reuired to maintain the follo"ing

registersC

M!" B7o' R&/$/C contains the list of all taxpayers in the blocks and all the necessary details like Taxpayer;dentification 3umber,


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S8 ? B7o' R&/$/6 like the main block registers, sub G block registers contain the list of all taxpayers in the

respective subblocks.

Mo-&7 B7o' R&/$/6 contain the list of all model taxpayers in the respective #locks. The model taxpayersare the most compliant and high revenue contributing taxpayers in the blocks.

B7o' S#*&77!"'& R&/$C used to record all the important information before and after the officer has gone

for the field "ork, like name of outgoing officer, time leaving the office, area earmarked for the visit, nature of

information gathered and time of return to the office.

B7o' A//&//.&"$ R&/$ records the stock of assessment issued and tax position of each taxpayer in the

block. ;t therefore contains information like9 name of taxpayer, T;3 L


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OUTCOMES AND BENEFITS OF T=E PROJECT

The implementation of the #S has overall had a positive impact on the tax compliance management of S!

taxpayers. This is demonstrated by the increase in the revenue yield and increase in the number of registered

taxpayers.

T!87& 126 K&+ P,o#.!"'& I"-'!$o#/

2010 2011 2012

Taxpayers Harge 400 400 4;0

%evenue GES #illion 11 1: 2:

Taxpayers S! :2>300 4:2>012 4:>14

%evenue GES #illion 0; 03 0


The system has facilitated easy registration of ne" taxpayers and expansion of the tax base through permanent

doortodoor visits. The visits are undertaken periodically based on the risk assessment and also based on

reuests by taxpayers. The visits also enabled the tax administration to provide taxpayer services, for example,

provision of tax education to taxpayers at their business premises and resolution of ueries on the spot. ;n order

to ensure cost effectiveness, the visits are risk based and there are plans to enhance third party information

gathering collaborations.

Ep to date and reliable data about taxpayer0s activities is no" available through the #lock %egisters. This has

improved the uality of tax assessments as "ell as providing more accurate statistics on business activities"ithin sectors or geographical areas.


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I LESSONS LEARNED FOR GOOD PRACTICES

The #S as implemented in the T%A has overall achieved its intended purpose of having in place a sustainable

method and strategies of monitoring the business activities of the S! sector. The ourney started in BB@ after

previous methods had proved unsustainable. 6o"ever it "as the lessons learned from the previous methods,

especially the Iphysical surveyJ, "hich set the foundation for the #S.

The #S may not be applicable /"holesale0 in other countries as it has been applied in Tan&ania. There "ould

be a need for modification depending on the prevailing local situations and conditions. There is need to first

understand the current systems and strategies applicable to the taxation of S! and then blend in the solutions

offered by the #S.

;n general ho"ever, the adopted strategies for effectively dealing "ith the S!s taxation should endeavour to

facilitate tax compliance, to apply the tax la"s uniformly, consistently and transparently, and to address theuniue problems of each taxpayer segment. This is "ith respect to registration, returns filing and agreed bases

and methods of calculating taxable income.

;nformation technology and stakeholder cooperation have been sho"n to play a significant role in building the

information pool and data matching capacity of tax administrations as tools of helping S!s to comply "ith tax

la"s as "ell as to assist S!s in the informal sector to become formal.

The follo"ing are considered as success factors in the implementation processC

H S&$$" 5 o, $& 87o' the process of mapping the area reuires that information about taxpayer pop

ulation, activities and the geographical area be available. ;t also reuires collaboration "ith other stake

holders like, local councils, "ards, business associations, etc.

H A-&!$& /$!,, ".8/ G the tax administration establishment must be able to respond to the

dynamics of the S! population and the environment. Alternatively high levels of automation must be

achieved so that an increase in taxpayers does not reuire a corresponding increase in staff numbers.

H A$o.!$o" o, $& $!% /+/$&. the tax system must be as fully automated as possible to ensure timely

processing of information gathered from field visits and generally increase the efficiency and effective

ness of operations of a block.

H T!%5!+ &-'!$o" !"- '/$o. /*'& T%A has developed a dedicated taxpayer service divisionthat "orks in collaboration "ith the tax officers. T%A has also developed effective call centres to deal "ith

taxpayer ueries. 2hen dealing "ith the S! sector, taxpayer education and customer service are

critical in the process of registration


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II RISKS AND C=ALLENGES

There "ere ho"ever instances "here the T%A faced a challenge in getting cooperation from local authorities for

various reasons, sometimes political. Another challenge is that only areas that the local authorities have

surveyed can be considered for definition as a block. Therefore in a region "here the area is largely not

surveyed, block creation is limited. A surveyed area is an area "here the local authorities have provided the

normal services, i.e. streets, se"erage and "ater, street lighting, etc. and the areas are occupied for residential

or business purposes.

The issue of lack of adeuate staff numbers poses a serious risk to the effectiveness of the #S. This is in terms

of being able to create sufficient blocks that are of a manageable si&e. Staff numbers can also affect the ability

of T%A to effectively implement the staff transfer policy. The transfer policy ensures that staff are rotated "ithin

blocks and regions to avoid familiarity "hich can impact negatively on the integrity of staff.

Another maor risk is the issue of full automation of the tax system. -ertain functions "ere not automated.

;nformation from field visits is captured manually then brought to the office for input into the system. A backlog

in data capture can lead to various challenges "ith regard to the availability of up to date information. 2ithout

up to date information and data planning, the risk assessment become ineffective. !specially "ith regard to

registration and tracking of small taxpayers "ho are highly mobile. Any delay in capturing this information on

the database means losing track of the taxpayers. ;f the database is incomplete, it makes the risk assessment

process inefficient and in accurate.


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CONCLUSION

As developing countries aim to achieve economic independence, the need to generate internal revenues

becomes critical. This reuires "idening the tax base by ensuring that the gap bet"een potential and actual

revenues is reduced. 1ne such potential gap is presented by the existence of a large informal sector "hich is

made up of mostly the S!s. The introduction of the #S aims to capture the informal sector in a cost effective

"ay.

The implementation of the #S has overall had a positive impact on the tax compliance management of S!

taxpayers. This is demonstrated by the increase in the revenue yield and increase in the number of registered

taxpayers.

;t is recommended that other ATAF member countries consider implementing the #S as part of their strategy to

deal "ith the management of S! tax compliance. The critical consideration is that this is a system that providesa sustainable "ay of administering the S! sector. ;t may not be a uick "in solution, but it can be an effective

and sustainable compliance strategy.


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BIBLIOGRAP=Y

3ational #ureau of Statistics, *++*. Informal Sector Sur.e"# s.l.C s.n.

AATF and -1ST!-6, *++. itigating the impact of drought in Tan&aniaC the 2!A intervention. Polic" ,rief,

3ovember.

Feldstad, 1.6. L 6eggstad, 7. 7., *+. The tax s"stems in !o*ambi1ue# Tan*ania and Zambia: 2a3acit" and

constraints# s.l.C -;.

inistry of ;ndustry and Trade, *++*. S!4 De.elo3ment Polic"# s.l.C s.n.

3ational #ureau of Statistics, *+*. Tan*ania in Figures# s.l.C s.n.

Tan&ania %evenue Authority , *+5.Arusha Tax Region' s.l.Cs.n.

Tan&ania %evenue Authority, *+*.Annual Re3ort# s.l.C s.n.

Tan&ania %evenue Authority, *+5. Ilala Tax Region' s.l.Cs.n. Tan&ania

%evenue Authority, *+5. 5inondoni Tax Region' s.l.Cs.n.

Tan&ania %evenue Authority, *+5. Tan&ania %evenue Authority 2ebpage, Tax -ollection Statistics

4epartmental -ollections.. 1nline Available atC httpCKK""".tra.go.t&Accessed *+5.

Tan&ania %evenueAuthority, *+*K5. Institute of Tax Administration# Pros3ectus' s.l.Cs.n.

Tan&ania, %. o., *++. Income Tax Act6 Re.ised 4dition' s.l.Cs.n.
http://www.tra.go.tz/http://www.tra.go.tz/http://www.tra.go.tz/


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27

NOTES



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NOTES

BLock Management System for Enhancement of Revenue Collection

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