The coronavirus pandemic (COVID-19) continues to hit Tanzania and other countries. According to the recent (April 22, 2020) reports, Tanzania has already recorded 284 coronavirus cases. Not yet as bad, if these numbers are compared to other countries that have been severely hit by the pandemic. The pandemic has now reached a community transmission stage. Like other countries, the authorities in Tanzania have taken various measures to stop or slow down the spread. Emphasis on general hygiene, wearing of appropriate masks, social distance, and avoidance of unnecessary gatherings, just to name a few. So far, Dar es Salaam appears to have been badly hit by the disease compared to other parts of Tanzania. I think it is for this reason, stricter measures are being taken in Dar es Salaam. For example, it is now mandatory to wear a mask in Dar es Salaam. But what does it mean, in terms of tax revenue, if the pandemic situation in Dar es Salaam gets worse?
Dar es Salaam is the commercial hub. It accounts for almost 90 per cent of tax collections in Tanzania (if tax from imports and tax collected by the Large Taxpayers Department are factored in). So, Dar es Salaam is, unfortunately, the main source of tax revenue for Tanzania. Going forward may be some efforts need to be made to start addressing this regional imbalance. This same message was echoed in the Economic Update report by the World Bank Group back in 2015 (Tanzania Economic Update, July 2015, 7th Edition - “Why Should Tanzanians Pay Taxes?”).
Around 60 per cent of Tanzania's budget for 2019/20 (33.1 trillion shillings) is expected to come from tax revenue. That is 19.1 trillion shillings. In the first half of the fiscal year (when Tanzania had not recorded any COVID-19 case), tax collections reached 9.2 trillion shillings. In the third quarter (January to March 2020), tax collections reached 13.5 trillion shillings. This makes an average collection per quarter of about 4.5 trillion shillings. To meet the 19.1 trillion shillings target, in the fourth quarter 5.6 trillion shillings needs to be collected. This is way above the quarterly average so far.
A month ago, I wrote about how the corona pandemic (COVID-19) may impact on tax collection in Tanzania. The pandemic impacts businesses differently. As social gatherings are banned, businesses and sectors stand to be badly hit. And this will translate into tax revenues. Also, some sectors like tourism, are unlikely to return to normal quickly when this pandemic subsides. Given that Dar es Salaam is the main source of tax revenue and the extent the pandemic is likely to affect businesses, the tax revenue target is very unlikely to be met. Already, there are several calls for some fiscal reforms or some sort of stimulus package to help businesses. These may be difficult to implement unless the government gets some funding from sources other taxes or some major projects postponed.
By Shabu Maurus, Tax Partner, Auditax International.