Why new oomphs on rental income tax, informal sector, is overdue

TANZANIA Revenue Authority (TRA) has started 2016/17 financial year with oomph, gearing up to maintain and go beyond current tax collection records.

Last week, it announced that this time around it is going to tighten noose on rental income tax and absorb more players in the informal sector into tax system.

For the rental tax, the authority vowed to enforce the landlords comply with the Income Tax of 2014, whereas for traders in the informal sector the new strategy is in the offing to include many more in the register of Taxpayer Identification Number (TIN) system.

The taxman has now gained new momentum to ensure that the landlords adhere to the Income Tax Act 2004 which requires them to pay 10 per cent of their gross rental income they have collected. The TRA Director for Taxpayer Services and Education, Mr Richard Kayombo, said for over the past 10 years, many landlords have been paying the rental tax due to lack of compliance.

“We are now going to conduct house-to-house operation to collect rental tax from the actual income the landlord earns basing on the contracts entered, landlords or tenants who will cheat us will risk facing legal measures,” said Mr Kayombo.

Looking at the period of at least 10 years in which many landlords took nothing to the government coffers from their income, it is clear that the TRA has been losing billions of money in uncollected tax. Considering that rental houses are everywhere, particularly in urban areas where population is growing so fast, the TRA could yield significant revenue from the industry.

But, better late than never, since the taxman is now determined to move to embarking on effective collection of the rental tax which could definitely boost the country’s revenues for financing development projects.

The monies collected to the government coffers could help the government to equip and run national health care facilities, zip up potholes on highways and smaller carriage ways, educate Tanzanian children through the current free education up to secondary level, spread electricity connection, pay its workers, subsidize food and food production, expand the amount of real estate under tarmac, maintain government offices, and so on.

This also applies to when after the TRA manages to take onboard as many traders as possible from the informal sector as it now looks forward to launch a nationwide campaign to update details of taxpayers in order to establish current information contained in the TIN, including contacts and location.

TRA Taxpayer Service and Education Officer, Mr George Haule, said the exercise, which is expected to start soon, is also aimed at increasing the tax base by increasing the number of the taxpayers, mainly targeting potential taxpayers in informal sector.

This would be a positive step for the Taxman if the tax base is increased after attracting more taxpayers from the informal sector.

The number of informal operators in Tanzania is growing fast and their share to the GDP is large (currently estimated at over 40 per cent); indicating that when they are not taxed substantially, the government loses revenue. In 2006, 40 per cent of all households in Tanzania Mainland were in the informal sector activities as compared to 35 per cent in 2001.

In 2006, the urban informal sector employed 66 per cent of the people for whom informal sector work is the main activity and only 16 per cent of those for whom it is the secondary activity. The presence of this sector is a challenge for taxation, regulation, financing, reforms, and provision for social services with efforts to alleviate poverty.

The informal sector in Tanzania consists of mainly the unregistered and hard-to-tax groups such as small-scale traders, famers, small manufacturers, craftsmen, individual professionals and many small-scale businesses. Few success lessons can be drawn from countries such as Ghana and Cameroon.

The complexity of collecting income tax from the sector arises from its characteristics that include: absence of business premises and mobile nature of the operators, among others