CHALLENGES IN THE ADMINISTRATION OF VALUE ADDED TAX IN RESPECT OF TAXATION OF DIGITAL ECONOMY IN TANZANIA
Keywords:
TAXATION, DIGITAL ECONOMY, TANZANIAAbstract
Generally, the value added tax law Tanzania mainly focuses on the traditional way of doing business and with less focus on taxation of digital economy. The challenges in respect of taxation of digital economy are centered on determination of value of supply of goods and services, permanent establishment and place of supply of goods and services and also payment services in digital economy. Failure of the value added tax law to address these challenges contributes to loss of Government revenue. Further, collection of value added tax from digital economy faces challenges which includes problem in defining digital economy, lack of unilateral approaches for taxation of digital economy, challenges in respect of place where the value is created and payment of taxes, lack of physical presence of some activities and also the nature of assets involved are intangible assets, which are difficult to value and measure. There is also problem of taxing rights which affects among other things profits allocation especially for countries where Tanzania does not have tax agreements with the respective countries. All these challenges which have not well been articulated by the value added tax law in Tanzania makes the Government to lose revenue from taxation of digital economy. Therefore, the value added tax Act should be amended to have specific provisions governing taxation of digital economy. The provisions among other things should provide for the meaning of digital economy, how to determine the value of supply of goods and services taking place in digital form. It should also provide unilateral approaches for taxation of digital economy. It should cover also where the value is created and payment of taxes. It should recognize taxationof digital activities without necessarily having physical presence or place of the business in Tanzania. The law also should articulate well the issue of taxation of intangible assets, payment services and generally the mode of operation and taxation of digital economy. These amendments help in taxation of digital transaction and increase Government revenue collection especially in respect of value added tax.
Downloads
References
i Odd-Helge F., Value Added Tax in Tanzania, Working Paper Chr. Michelsen Institute Development Studies
and Human Rights, Bergen Norway, 1995:5, p.1.
ii Odd-Helge F., Taxation and Tax Reforms in Tanzania: A Survey, Working Paper Chr. Michelsen Institute
Development Studies and Human Rights Bergen Norway, 1995:4, p.12.
iii Sales Tax was introduced in Tanzania in 1968.Make Refer to Osoro, N.E. Revenue productivity of the tax
system in Tanzania, 1979- 1989, Journal of African Economies, VoL. 1, No. 3, 1992a, pp. 395-415.
iv
URT, Commission of Enquiry into Public Revenues, Taxation and Expenditure Report, 1991a, paragraph 12.
v Osoro, N.E., Revenue productivity of the tax system in Tanzania, 1979-1989, Journal of African Economies,
1992, VoL. 1, No. 1, pp. 395-415.
vi Fjeldstad, O., Value-added taxation (V AT) in Tanzania, Bergen: Chr. Michelsen Institute, Working Paper
1995b, p.5.
vii Basu, P, and Oliver M.,The fiscal impact of adjustment in Tanzania in the 1980s, Nottingham,
CREDIT/University of Nottingham, 1993, p.19.
viii This Act may be cited as the Value Added Tax Act, 1997, and it came into operation on the 1st day of July,
1998, save that, for the provisions of part IV came into operation on the 1st day of January, 1998 and of Parts
VII, VIII, IX, X and XI came into operation on the 1st day of March, 1998, except for the provisions of Section
71 which appears in Part XII of the Act.
ix The Value Added Tax Act, No. 4 of 1998.
x Gilis, M.,The V AT and financial services, in Ma1colm G, et al (eds.) Value added taxation in developing
countries, Washington D.C, The World Bank, 1990,pp. 83-94.
xi Osoro, N.E., Revenue productivity of the tax system in Tanzania, 1979-1989, Journal of African Economies,
1992, VoL. 1, No. 1, pp. 395-415.
xii Rule 37 of Value Added Tax (General) Regulations revokes all the regulations which were made under the
Value Added Tax Act, 1997.
xiii Becker, A.S., Electronic Commerce: Concepts, Methodologies, Tools, and Applications, Information Science
Reference, New York, 2008, p.2101
xiv IMF, Measuring the Digital Economy Report, IMF, Washington, 2018, p.7.
xv Ibid
xvi Ibid
xvii Ibid
xviii Ibid
xix
OECD (2014), Addressing the Tax Challenges of the Digital Economy, OECD/G20 Base Erosion and Profit
Shifting Project, OECD Publishing, 2014, p.84
xx Ibid
xxi Ibid
xxii Ibid
xxiii OECD (2014), Addressing the Tax Challenges of the Digital Economy, OECD/G20 Base Erosion and Profit
Shifting Project, OECD Publishing, 2014, p.75
xxiv Ibid
xxv United Nations, Digital Economy Report, United Nations Publications, New York, 2019, p.49.
xxvi Ibid
xxvii Ibid
xxviii ibid
xxix Ibid
xxx United Nations, Digital Economy Report, United Nations Publications, New York, 2019, p.51.
xxxi Ibid
xxxii In the absence of an internationally agreed definition of the digital economy, and of standardized
methodologies to measure it, assessments of value within that economy must be based on partial national and
sectoral statistical data. The sparsity of statistical data is problematic for various reasons. Importantly, given the
broad reach and scope of the digital economy, which affects all sectors of countries’ economies, any assessment
would require a systematic analysis of multiple and connected variables. The paucity of data also hampers
international comparisons. Several initiatives to remedy this situation are under way at the international and
regional levels. However, they remain insufficient, and are unable to cope with the rapid evolution and global
implications of the digital economy; more needs to be done to enable better measurement of that economy. This
should include dedicated support to low-income countries to improve their statistical capacities to produce
relevant information. Reference is made to United Nations, Digital Economy Report, United Nations
Publications, New York, 2019, p.69-70.
xxxiii Cloud computing is the provision of standardized, configurable, on-demand, online computer services,
which can include computing, storage, software, and data management, using shared physical and virtual
resources (including networks, servers, and applications). Because the service is provided online using the
provider’s hardware, users can typically access the service using various types of devices wherever they are
located, provided they have a suitable Internet connection. The resources to which cloud computing customers
are granted access are not stored on a single computer. Instead, they are on many networked computers that are
available to everyone who has access to that “cloud” of computing resources (which, depending on the cloud,
could be a single organization, a community of organizations, the general public, or some combination thereof).
The system copies each user’s data and software to other servers, which allows it to allocate requests for
hardware resources to whatever physical location, is best able to satisfy the demand efficiently. Each user has
access to a large amount of computer resources when needed, and only when needed. This redundancy ensures
that the failure of one machine will not lead to loss of data or software. Cloud computing often provides
customers with a cost effective alternative to purchasing and maintaining their own IT infrastructure, since the
cost of the consumer resources is generally shared among a wide user base. The advantages of cloud computing
are largely driven by economies of scale in setting up the infrastructure and maximizing server usage by sharing
space among clients whose needs for space and processing power may vary on a flexible basis. Make reference
to OECD (2014), “The digital economy, new business models and key features”, in Addressing the Tax
Challenges of the Digital Economy, OECD Publishing, Paris, 2014, p.80.
xxxiv United Nations, Digital Economy Report, United Nations Publications, New York, 2019, p.51.
xxxv Ibid
xxxvi United Nations, Digital Economy Report, United Nations Publications, New York, 2019,p.142
xxxvii United Nations, Digital Economy Report, United Nations Publications, New York, 2019, p.142-143.
xxxviii Ibid
xxxix Ibid
xl Eli,H., Tax Challenges in the Digital Economy, European Parliament Policy Department, 2016,p.30.
xli Ibid
xlii Eli,H., Tax Challenges in the Digital Economy, European Parliament Policy Department, 2016,p.23.
xliii Ibid
xliv Eli,H., Tax Challenges in the Digital Economy, European Parliament Policy Department, 2016,p.17.
xlv The OECD is currently leading global efforts to reach an international consensus. In 2015, in the context of
the OECD/G20 BEPS Project, it proposed 15 actions to respond to the problems of base erosion and profit
shifting (BEPS) of which action 1 was Addressing the tax challenges of the digital economy (OECD, 2015).
These were designed to close some of the loopholes that enable transfer pricing, in particular; but many of those
loopholes still exist, and relatively little attention was given to a number of other problems involving the digital
economy. While it has been recognized that the BEPS project represents significant progress, concerns have
been raised that it has not really addressed the roots of the problem, as companies continue to be able to shift
profits to low-tax jurisdictions using transfer pricing (ICRICT, 2019; BEPS Monitoring Group, 2017). Further
efforts to address this issue have been in the works since then, but with little consensus to date. Make reference
to the First draft of the UNCTAD Manual for the Production of Statistics on the Digital Economy 2020 Revised
Edition.
xlvi Eli,H., Tax Challenges in the Digital Economy, European Parliament Policy Department, 2016,p.142.
xlvii Ibid.
xlviii OECD (2014), “The digital economy, new business models and key features”, in Addressing the Tax
Challenges of the Digital Economy, OECD Publishing, Paris.p.77.
xlix Ibid
l
Ibid
li Ibid
lii Ibid
liii Ibid
liv OECD (2014), “The digital economy, new business models and key features”, in Addressing the Tax
Challenges of the Digital Economy, OECD Publishing, Paris.p.78.
lv Ibid
lvi Controller and Auditor General, The Annual General Report Of The Controller And Auditor General On The
Audit Of Financial Statements of The Central Government For The Financial Year 2018/2019, National Audit
Office, Dar Es Salaam, 2019, p.77.
lvii Ibid
lviii Controller and Auditor General, The Annual General Report Of The Controller And Auditor General On The
Audit Of Financial Statements of The Central Government For The Financial Year 2018/2019, National Audit
Office, Dar Es Salaam, 2019, p.79.
lix Ibid
lx IMF, IMF Country Report No. 16/254: The United Republic of Tanzania Selected Issues, IMF, Washington,
2016, p.17.
lxi World Bank Group, The World Bank Group Macroeconomics and Fiscal Management Global Practice Africa
Region Report: Tanzania Economic Updates, Issue Number 7, 2015, p.41.
Downloads
Published
Issue
Section
License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
License Terms
Ownership and Licensing:
Authors of research papers submitted to any journal published by The Law Brigade Publishers retain the copyright of their work while granting the journal specific rights. Authors maintain ownership of the copyright and grant the journal the right of first publication. Simultaneously, authors agree to license their research papers under the Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0) License.
License Permissions:
Under the CC BY-SA 4.0 License, others are permitted to share and adapt the work, even for commercial purposes, provided that appropriate attribution is given to the authors, and acknowledgment is made of the initial publication by The Law Brigade Publishers. This license encourages the broad dissemination and reuse of research papers while ensuring that the original work is properly credited.
Additional Distribution Arrangements:
Authors are free to enter into separate, non-exclusive contractual arrangements for distributing the published version of the work (e.g., posting it to institutional repositories or publishing it in books), provided that the original publication by The Law Brigade Publishers is acknowledged.
Online Posting:
Authors are encouraged to share their work online (e.g., in institutional repositories or on personal websites) both prior to submission and after publication. This practice can facilitate productive exchanges and increase the visibility and citation of the work.
Responsibility and Liability:
Authors are responsible for ensuring that their submitted research papers do not infringe on the copyright, privacy, or other rights of third parties. The Law Brigade Publishers disclaims any liability for any copyright infringement or violation of third-party rights within the submitted research papers.
