Bargaining Processes and Effective Implementation of Tax Reforms in Tanzania

Cases of VAT reform and Electronic Fiscal Devices reform

Like many other developing countries, Tanzania is making an effort to reform its taxes in response to declining donor support of its budget. The country’s tax to GDP ratio of around 14% is below the Sub-Saharan Africa average of 16% and has a way to go before attaining the 25% target for East African Community’s protocol for establishment of the monetary union. Understandably, the reforms being undertaken are focused on both widening the tax base and enhancing tax administration. Making tax reforms is one thing, but more important than just having a reform legislated is having it effectively implemented.

This sub-project examines the influence that bargains in form of consultations have on ‘implementability’ of tax reforms. The purpose is to explain the extent to which policy consultations in tax reforms enhance policy design and dissemination and hence influence effective implementation of the reforms. This is studied through examining the bargaining processes around two recent reforms in Tanzania, i.e. the Value Added Tax (VAT) reform of 2014 and the Electronic Fiscal Devices (EFD) reform of 2012. While the VAT reform removes a number of exemptions previously available in different sectors, the EFD reform extends the obligation to use the ‘fiscalised’ devices to small traders (non-VAT registered). Apparently, different levels of consultations have been made with the VAT draft bill being widely circulated for inputs from different stakeholders. In contrast, the EFD regulations does not seem to have been widely circulated, and most of the negotiations (e.g. on the cost of the machine and who is going to pay) have been made after the legislation, i.e. the implementation stage, in response to protests from traders. Different levels of public reactions and challenges have therefore been noticed during implementation of these to reforms, and this makes them interesting cases to examine.

Policy documents and relevant tax reform and implementation literature are reviewed to inform the analysis. In-depth understanding of the process (and embedded consultations) undertaken when making the two reforms is gathered through interviews with policymakers (TRA and the treasury) as well as umbrella organisations of traders and professional associations. The implementation effectiveness is assessed through understanding the challenges (and sources thereof) encountered during the implementation, using interview data from taxpayers in different sectors and the TRA.

The study will enhance the knowledge about how revenue bargains enhance effectiveness in tax policy implementation as well as inform policymakers on choices in policy formulation process.