- Published on Tuesday, 24 July 2012 01:21
- Written by SEBASTIAN MRINDOKO
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THE government has embarked on drafting the new Value Added Tax (VAT) law to minimise exemptions and preferential treatments, the International Monetary Fund (IMF) has said.
In the Fourth Review under the Policy Support Instrument (PSI) report, IMF said the new VAT law to be effective in 2013/14 is expected to benefit from technical assistance from IMF. "The law would seek to follow international standards by reducing to a minimum exemptions and preferential treatments, which have steadily accumulated over time," stated the report.
It said a broadened tax base and simplified tax administration would help boost collections, potentially contributing substantially to the fiscal measures equivalent of 1.6 per cent of Gross Domestic Product (GDP) that remain to be identified to bring the overall fiscal deficit to 4.5 per cent in 2013/14.
The IMF report stated further that modernisation of the VAT regime was a priority and the new law would be maintained only on a temporary basis, pending the broader reforms. It urged the authorities should step up efforts to review the country's generous tax exemptions, where only limited progress is planned for 2012/13.
Further steps should be taken to streamline recurrent spending commitments. Improvements in budget planning and execution and in transparency and accountability are also priorities. In its comments on the 2012/13 budget,
PricewaterhouseCoopers (PWC) expressed optimism on the government commitment to review VAT legislation with a view to changing it to conform to international best practice.
In the meantime, tax revenues were buoyant in the first nine months of 2011/12, supported by strong economic growth and administrative measures taken by the Tanzania Revenue Authority (TRA). The latter included the establishment of tax service centres to support tax compliance, introduction of intensified risk-based and quality tax audits, and roll-out and enforced usage of electronic fiscal devices (EFDs) to track tax collections at point-of-sale.
In addition, the resolution of tax disputes with a mining company contributed to favourable corporate income tax collection. With continuing strong economic growth, tax revenues are projected to rise by 0.3 percentage points of GDP in 2011/12.
Despite this, overall revenue collections are projected to fall 0.4 per cent of GDP below programmed levels on account of a shortfall in non-tax revenues, which were adversely affected by delays in introducing business licence fees by local governments (LGAs).