SMALL & MEDIUM ENTERPRISES OPERATING ENVIRONMENT IN TANZANI

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• INTERNATIONAL TAX DIALOGUE
• CONFERENCE ON SME TAXATION
• 17 19 OCTOBER 2007
• BUENOS AIRES, ARGENTINA
• H.KIMUNGU E.L KILEVA
• 
  
  TANZANIA, EAST
  AFRICA

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• CHALLENGES OF ADMINISTERING
• SMALL AND MEDIUM TAXPAYERS
• TANZANIA EXPERIENCE

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COVERAGE

• INTRODUCTION
• SEGMENTATION
• SMALL MEDIUM ENTERPRISES OPERATING
  ENVIRONMENT IN
  TANZANIA
  
• TAXATION OF SMEs IN TANZANIA (PRESUMPTIVE
  APPROACH)
  
• CONCLUSION

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1. INTRODUCTION

• SME refers to Small and Medium Enterprises which
  also form small and medium taxpayers.
  
• The small and medium taxpayers mainly cover
  manufacturing, mining, commerce and services.
  
• In Tanzanian context micro enterprises refer to
  those engaging up to four people.
  
• -In most cases family members employing a
  capital of up to Tshs.5m (3846.15 USD)

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Cont.

• Tanzanian economy is characterised by small
  firms and very large micro enterprises.
  
• SMEs employ up to 99 people with investment
  ranging from over Tshs.5m to 200m i.e about USD
  
• 3846.15 to 153,846.15

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2. SEGMENTATION

• Most of the micro taxpayers fall under informal
  sector.
  
• Small and medium taxpayers are categorized on the
  basis of turnover i.e.
  
• -The medium taxpayers are those with turnover
  range between Tshs.40 9999 million (about
  30,769.23 -7691538.46USD)
  

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Cont.

• Small taxpayers are those with the turnover range
  between Tshs. 0 39 million.
  
• (about 30,000 USD

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2.1 SEGMENTATION
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Cont

• TAXPAYERS/ REVENUE DISTRIBUTION

No of taxpayers
Revenue collection
Large
Large
medium
medium
Small
Small
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2.2 ADVANTAGES OF GROUPING TAXPAYERS

• Easy to administer.
• Easy to identify.
• Easy to educate or advice on taxation issues.
• Risk minimization.
• Higher compliance.

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3.0 OPERATING ENVIRONMENT FOR TANZANIA SMEs.

• The challenges facing Tanzania with respect to
  taxation of SMEs are in particular to those in
  the informal sector i.e
  
• identification,
• registration
• Non compliance
• Poor or non record keeping and
• Non return filling

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Cont.

• The challenges may be due to
• Traders not having permanent business premises.
• Displaying their businesses on the streets where
  they keep on shifting
  
• The record keeping problem is mainly due to
  illiteracy on the part of the taxpayers
  

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3.1 NON-TAX BARRIERS

• High cost of hiring book keeping services.
• Maintenance of scanty purchase/sales records.
• Lack of Internal controls
• In summary dealing with small and medium
  taxpayers is indeed dealing with-

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Cont

• Taxpayers who have understated taxable income and
  therefore need different treatment to make them
  pay taxes.
  
• Taxpayers who do not file tax returns or have
  failed to submit tax returns.
  

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4.0 TAXATION OF SMEs IN TANZANIA

• In order to tax SMEs the Tanzania Revenue
  Authority has engaged in various programmes with
  the objective to
  
• To promote and enhance voluntary compliance
• Detect and bring to net taxpayers who are not
  paying taxes or correct amount of tax.
  

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Cont

• The programs include-
• Taxpayer education and sensitisation
• Block management system-door to door survey
• Presumptive approach of taxation
• Assessment procedures
• Collection formalities and procedures.

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4.1 TAXPAYER SENSITIZATION PROGRAMMES

• Tanzania Revenue Authority decided to conduct
  these programmes to educate SMEs aiming at
  
• Promoting voluntary compliance
• Enhancing knowledge on taxation laws and
  procedures

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Cont.

• The following are some of the approaches used
• Seminars
• Radio and television programmes
• Outreach to business places/ trading centres
• Operating help desks and customer service
• Conducting secondary schools colleges tax
  educational programmes.
  
• Installation of educational sensitization
  Billboards
  
• Use of drama group to sensitize taxpayers.
• etc.

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4.2 BLOCK MANAGEMENT SYSTEM

• Aims at
• Putting in place sustainable methods and
  strategies of monitoring business
  
• Monitoring activities of small and medium
  taxpayers (SMTs) with the view of making them
  pay tax in a cost effective way
  
• Each block is allocated to a specific group of
  staff
  
• Performance are measured against set targets

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Cont.

• Set up
• On the basis of geographical set up or streets
• Each Block does all the tax function of
  registering assessing, collection and accounting
  for revenue.
  
• The allocated staff update taxpayers information
  (both personal and business).
  

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4.3 PRESUMPTIVE TAXATION (APPROACH)

• Presumptive Taxation involves the use of indirect
  means to ascertain tax liability, which differ
  from the usual rules based on a taxpayers earned
  income.
• Presumptive approach is based on turnover

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Cont.

• Taxpayers with turnover, less than Tshs.20-
  million per annum may file return without
  accounts.
  
• Those who maintain complete accounts are
  encouraged to do so by paying tax at lower rate
  (as a motivation).
  

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Cont.

• Requires some scanty records.
• If turnover is unavailable other alternatives
  such as assets may be used as determinants to
  income
  
• The graduation of taxpayers categories/groups is
  through a band system as shown in the next
  slides
  

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Cont

• Therefore the main idea against Presumptive
  Taxation is
  
• To reduce informality
• To reduce tax evasion
• To simplify the system so as to reduce
  administration and compliance costs
  
• To collect realistic revenue

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Cont.
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5. 0 PAYMENT OF TAXES

• Mode of payments is
• through banks and
• The taxpayer has the right to pay tax by
  instalments

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6. CONCLUSION

• As said earlier,
• Tax Administration for SMEs is very challenging
  due to challenges and characteristics discussed
  above.
  
• Revenue potential from SMEs and in particular
  small taxpayers is limited however, there is
  clear future revenue growth.
  

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Cont.

• Building a system of compliance and fairness
  through various programmes is vital to make
  this group compliant.
  
• Presumptive taxation if made simple and well
  administered can be the best option for revenue
  maximization
  

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THANK YOU FOR YOUR ATTENTION!