ANALYSIS OF THE VALUE ADDED TAX ADMINISTRATION IN TANZANIA WITH THE MAJOR FOCUS ON THE SET THRESHOLD FOR REGISTRATION

Abstract

Despite the introduction of the value added tax in Tanzania there are legal challenges affecting the effective administration of value added tax and hence contribute to loss of Government revenue. The legal challenges in respect value added tax administration are centered on the threshold issue, power of the Commissioner General in respect VAT registration, taxation of digital economy, VAT offences and penalties imposed, refund of VAT claims. This article focuses only on the issue of threshold. 

Generally, different tax jurisdictions have set registration threshold for a person to be legible to be registered for the purposes of value added tax. The set threshold varies from one tax jurisdiction to another. In Tanzania specifically the set threshold for value added tax registration is causing the loss of Government revenue from value added tax since it excludes a large number of taxpayers as a result the government is losing a lot of revenue. This affect the realization of the objectives of the introduction of value added tax in Tanzania. Further, the threshold set likely to encourage tax evasion and tax Avoidance. The threshold and value added tax rate set may encourage voluntary tax compliance or may encourage tax evasion since people will feel that the tax system is not fair as a result, they resort in designing mechanism for tax evasion and avoidance. Not only that but also, there is a challenge regarding setting the threshold in an informal economy. In general, the large part of the economy in Tanzania is in the informal sector as indicated in the TRA report statistics. The threshold has been set which mainly focuses on the formalized business as a result large number of taxpayers are not taken on board as a consequence the Government is losing a lot of revenue out of the informal sector. 

Therefore, the Value Added Tax Act should be amended by providing provisions on the registration threshold which takes into account different categories or classes of business depending on the type and turnover of the business. Besides, the provisions governing powers of the Commissioner General in respect of registration of persons where he has good reason to do so including protection of Government revenue should be amended. Also, the Authority should concentrate on how to bring more taxpayers on board instead of focusing only on the few registered taxpayers. It should also come up with new ideas on how to widen the tax base and realize the objectives for introduction of value added tax. TRA should take charge and facilitate through relevant authorities the registration of businesses which are operating in an informal sector.