block management system for enhancement of revenue collection
TRANSCRIPT
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A JOINT PUBLICATION BETWEEN ATAF
AND GIZ
SEPTEMBER 2014
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TAXATION OF SMES IN AFRICA
GOOD PRACTICES AND LESSONS
LEARNED
BLOCK MANAGEMENT SYSTEM (BMS) IN TANZANIA
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PREFACE
The African Tax Administration Forum (ATAF) in its commitment to improving the capacity and skill base of tax
administrations in Africa aims to help develop, share and influence the implementation of good practices among
its member countries. ATAF is therefore pleased to present the good practices and lessons learned from a series
of reforms in the taxation of small and medium enterprises (S!s) undertaken in a fe" countries in Africa,
specifically in #urundi, $hana, %"anda, Senegal, Tan&ania and 'ambia. This research proect seeks to empo"er
and educate tax administrations, policymakers and the society at large, and as a result change the culture of
non compliance, tax avoidance and tax evasion on the continent.
The undertaking of this research proect has been "ellinformed by the need to tackle maor issues and
challenges regarding the informal sector and the importance to design effective tax systems that respond to the
demands and special conditions of the S!s in the continent. This need has been identified as one of the
fundamental challenges faced by tax administrations, as stated in the ATAF Regional Studies on ReformPriorities of African Tax Administrations published in *+*. -onseuently, ATAF initiated this research proect by
focusing on S!s as they are a significant part of the informal sector.
The present study intends to provide tax administrations "ith a solid understanding of the Tan&anian #lock
anagement System (#S). The Tan&ania %evenue authority (T%A) strives to continually improve its functions
to broaden the tax base, reduce tax gaps, improve fairness in the tax systems and enhance the overall rate
of voluntary compliance through various "ays, one of "hich is the taxation of S!s. Through this research,
ATAF attempts to provide a valuable and practical input and also provides recommendations to other African tax
administrations derived from this reform proect.
The potential role of S!s to increase tax revenue and thus improve the economy is the central conviction of
this study. This research provides information about good practices, "hich should not be seen as /an absolute0 or
/a onesi&efitsall0 tax system design but rather as options that can assist countries in guiding their reform
strategies and can be adapted to countryspecific circumstances. The study also makes a very significant
contribution to the overall tax literature "ith a methodology that allo"s for direct input from tax officials of the
Tan&ania %evenue Authority (T%A) and other related key stakeholders. ATAF is confident that the value added
from this study "ill be beneficial to tax administrations in Africa, relevant stakeholders and other users of the
information.
1ur appreciation goes to r 2isdom 3hekairo for conducting the research. r 3hekairo 4uring his field visit in
Tan&ania in late September *+5 met and intervie"ed several key stakeholders "hose kno"ledge and
experience contributed to the uality of this research.
2e are immensely grateful to the !x-ommissioner $eneral of the Tan&ania %evenue Authority, r 6arry 7itiliya,
for honouring the ATAF0s "ide call for interest to member countries to sho"case at least one reform implemented
in the taxation of their small and medium enterprises. ATAF is also grateful to r. 8atrick 7assera, -ommissioner
4omestic %evenue of T%A9 to r. :eremiah baghi, "ho "as the resource person as "ell as to all senior
management and T%A staff intervie"ed.
Furthermore, ATAF is grateful for the support from the Deutsche Gesellschaft fr Internationale Zusammenarbeit
($;') for making this proect a success and "ould like to give special thanks to 4r -hristiane Schuppert and s
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Finally, "e recogni&e the contribution of the research team of the ATAF Secretariat (4r 3ara onkam and Frankie
buyamba) and appreciate their overall coordination and comments to"ards the success of this proect.
;t is our sincere hope that this study, alongside other sho"case reports on the Taxation of S!s in Africa,contributes to the development of capacity in African tax administrations.
Lo!" Wo#$
E%&'$*& S&'#&$!#+
A,#'!" T!% A-."/$#!$o" Fo#. (ATAF)
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TABLE OF CONTENTS
E%&'$*& S..!#+ 1
I I"$#o-'$o" !"- B!'#o"- 2
. ;ntroduction......................................................................................................................................................*
.* #ackground.....................................................................................................................................................*
IISME Co"$&%$ 4
*. 4efinition of S!s...........................................................................................................................................=
III Co"$#+C!#!'$/$'/ 3
5. !conomic !nvironment...................................................................................................................................>
5.* Tax !nvironment..............................................................................................................................................?
I D&/'#5$o" o,$& #&,o#. .&!/#&6 $& B7o' M!"!&.&"$ S+/$&. (BMS)12
=. 1vervie" of #lock anagement System (#S)............................................................................................*
=.* 8urpose of #S..............................................................................................................................................5
=.5 Setting up of #locks........................................................................................................................................5
=.=Administration of a block.................................................................................................................................=
=.@ Staffing a #lock...............................................................................................................................................
=.> #lock management activities.......................................................................................................................... B
O$'o.&/ !"- 8&"&,$/ o, $& 5#o9&'$ 22
I L&//o"/L&!#"&- ,o# Goo- P#!'$'&/ 2:
IIR// !"-C!77&"&/ 24
Co"'7/o" 2;
B87o#!5+ 23
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LIST OF TABLES
Table C -ategories of S!s in Tan&ania..............................................................................................................@
Table *C $ross 4omestic 8roduct ($48), Tan&ania.............................................................................................>
Table 5C %evenue, !xpenditure and Total Taxes for the :ear ending 5+th Dune of each yearC (ES #illion).......?
Table =C ;ncome from Taxes for the :ear ending 5+th Dune, (ES #illion)...........................................................?
Table @C 8resumptive Taxation G Tax %ates...........................................................................................................+
Table >C Tax Service -entre ;lala Tax %egion......................................................................................................>
Table ?C Tax Service -entre Arusha Tax %egion.................................................................................................?
Table C #locks and Subblocks ;lala Tax %egion...............................................................................................?
Table BC #locks and Subblocks Arusha Tax %egion..........................................................................................
Table + C #locks, Taxpayers to Staff %atio 7inondoni Tax %egion....................................................................B
Table C #locks, Taxpayers to Staff %atio Arusha Tax %egion..........................................................................B
Table *C 7ey 8erformance ;ndicators..................................................................................................................**
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LIST OF FIGURES
Figure C 8ercentage Share of $48 at -urrent 8rices, *+*..............................................................................>
Figure * C 8ercentage of T%A -ollections by 4epartment...................................................................................
Figure 5 C T%A Staff !stablishment.......................................................................................................................
Figure = C T%A Taxpayer %egister.........................................................................................................................B
Figure @C 4efining a #lock.....................................................................................................................................B
Figure > C Administration of a #lock......................................................................................................................B
Figure ? C %egional 1rgani&ation Structure G 7inondoni Tax %egion..................................................................@
Figure C A%4ebt 1rgani&ation Structure G 7inondoni Tax %egion................................................................>
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ABBREIATIONS AND ACRONYMS
ATAF African Tax Administration Forum
#S #lock anagement System
4%4 4omestic %evenue 4epartment
!F4 !lectronic Fiscal 4evice
$48 $ross 4omestic 8roduct
$;' $erman ;nternational -ooperation
;TA ;nstitute of Tax Administration
;TAS ;ntegrated Tax Administration System
HT1 Harge Taxpayer 1ffice
S! icro, Small and edium !nterprise
T1 edium Taxpayer 1ffice
S! Small and edium !nterprise
ST1 Small Tax 1ffice
T%A Tan&ania %evenue Authority
TS- Tax Service -entre
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EXECUTIE SUMMARY
any countries have recorded significant benefits through setting up of specialised units to control the
compliance of large taxpayers. ;t is from the same gains, achieved through segmentation that the Tan&ania
%evenue Authority (T%A) decided to start paying special attention to the S! sector. The T%A recognised that
the methods used in the past had been inadeuate to deal "ith an ever increasing informal sector "hich had
uniue characteristics and had potential to contribute to the revenue base of the country.
6o"ever for this potential to be turned into tangible results, the T%A needed to come up "ith strategies that
recognised the uniue characteristics of the S! sector and the environment in "hich they operate. Against
this background, the T%A introduced the #lock anagement System (#S) in *++@ 1 to increase tax compliance
"ithin the S!s "ith the ultimate aim of enhancing government revenue and deter tax evasion. The #S "as
an improvement of an already existing system, kno"n as the I8hysical SurveyJ (8S). The 8S had become
ineffective as it "as not sustainable and "as not cost effective. The maor disadvantage of the 8S system "asthat it "as a periodical program, i.e. undertaken periodically as and "hen funds and time allo"ed. ;t therefore
lacked consistency and sustainability in enhancing tax compliance. The #S is a continuous and permanent
program that is an integral part of the T%A operations.
The overall obective of the #S is to have in place sustainable methods and strategies of monitoring business
activities of the S! taxpayers to make them pay taxes in a cost effective manner. The #S focuses on the
physical identification and mapping of areas in "hich the S! taxpayers are located and operate. These areas
are then demarcated and designated as a block or subblock. !ach block is mandated to operate all the key tax
administration functions of registering, assessing, collecting and accounting for revenue collected. Staff assigned
to specific blocks therefore find it easier and feasible to permanently touch base "ith taxpayers operating in
these blocks. Similarly, taxpayers find this arrangement more userfriendly and cost effective.
The implementation of the #S has overall had a positive impact on the tax compliance management of the
S! taxpayers. This is demonstrated by the increase in the revenue yield and increase in the number of
registered taxpayers.
#et"een the financial year *++K*+ and *+*K*+5, the population of S! taxpayers gre" from 5?*,>++
to =B5,?= and the revenue collected during these t"o periods increased from ES @++ million to ES B++
million (Tan&ania %evenue Authority, *+*). There have been, ho"ever, some challenges faced in the process
of implementation "hich have led to the formulation of further improvements to the system, through constant
monitoring and evaluation.
(Feldstad L 6eggstad, *+)
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I INTRODUCTION AND BACKGROUND
11 I"$#o-'$o"
The obective of the good practice study on the ITaxation of Small and edium !nterprises in Africa, good
practices and lessons learnedJ, "hich "as undertaken at the Tan&ania %evenue Authority (T%A), "as to collect
information necessary to describe the design and implementation of the #lock anagement System (#S). This
is one of the reforms that the T%A has undertaken in the recent past in order to enhance the effectiveness and
efficiency of taxing the S! sector in Tan&ania.
The Tan&ania %evenue Authority (T%A) "as established by Act 3o. of BB@ and became operational on Duly
, BB>. The T%A is a semiautonomous agency of the $overnment, responsible for the administration of the
-entral $overnment taxes, as "ell as several nontax revenues. The functions of T%A are to assess, collect and
account for all central government revenue and to administer efficiently and effectively all the revenue la"s of
central government. T%A also performs an advisory role to government on tax matters relating to fiscal policy. For
taxpayers, the T%A is reuired to promote voluntary compliance and has an obligation to improve the uality of
service provided to taxpayers. At the same time, the T%A must counteract fraud and other forms of tax and fiscal
evasion and produce trade statistics and publications for use by government and the general public.
The result of this good practice study is intended to provide other countries "ith an indication as to the
effectiveness of the system and to understand the factors and circumstances contributing to its successful
implementation. The study continues as follo"s. -hapter one continues, giving the background to the study.
-hapter t"o provides a brief overvie" of S! taxation in Tan&ania. -hapter three presents the country
characteristics and economic and general tax environments in Tan&ania. -hapter four gives a description of the
#lock anagement System. -hapter five analyses the outcomes of the proect, identifying success factors and
risks of the proect. -hapter six identifies good practices and lessons learned. -hapter seven is conclusion and
proffers suggestions to other ATAF member countries interested in the implementation of such scheme.
12 B!'#o"-
The contribution of the informal sector (of "hich small and medium enterprises (S!s) make a substantial
component) to economic gro"th in African countries is large, making taxation of S!s an important issue
for tax administrations. The vast number of S!s and economic nature of S!s (narro" taxable base,
undocumented, cashbased business transactions, high mobility and activity in rural areas) are both reasons
"hy tax administrations face difficulties in properly administering the group of S! taxpayers. This is even more
pronounced in African countries "here tax administrations encounter various capacity constraints in terms of
skills and financial resources.
Apart from the revenue generating potential of S!s, broadening of the tax base through inclusion of all
businesses into the tax net is also seen as critical for increasing the perceived fairness of the tax system among
citi&ens. The fact that the maority of the labour force in Africa, especially in rural areas, is employed in the
informal (S!)
sector makes S!s an important aspect for building a strong and stable economy.
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2#lock anagement System (#S) in Tan&ania
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This study on taxation of small and medium enterprises in Tan&ania focuses on good practices and lessons
learned on the block management system reform measure. The block management system "as adopted and
introduced to change and simplify the tax processes in the taxation of S!s. The field trip "as conducted in 4ar
esSalaam during the last "eek of September *+5. The good practice and lessons learned study on taxation ofS!s in Tan&ania makes use of extensive key stakeholder intervie"s "ith, among others, -ommissioners and
senior staff of the T%A and business associations.
The aim of this visit "as to euip the expert "ith the follo"ingC the collection of information on S!s and the tax
system in Tan&ania9 the identification of cases of reform processes "ithin the Tan&ania %evenue Authority9 and
finally the description and analysis of the reform measures that have been implemented by Tan&ania to allo" a
similar implementation in another country. The scope of this study covers the period *++ to *+5 but in certain
cases much earlier information, especially on reform measures, "as collected to better our understanding on
S! taxation reform in Tan&ania.
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IISME CONTEXT
;t is no" increasingly recogni&ed that the Small and edium !nterprises (S!s) play a crucial role in
employment creation and income generation in Tan&ania. S!s all over the "orld and in Tan&ania in particular,
can be easily established since their reuirements in terms of capital9 technology and management are not as
demanding as it is the case for large enterprises. These enterprises can also be established in rural settings and
thus add value to the agroproducts and at the same time facilitate the dispersal of enterprises. ;ndeed S!s
development is closely associated "ith more euitable distribution of income and thus important as regards
poverty alleviation. The rural settings are predominantly agricultural and specifically peasant based, under "hich
outdated and un mechani&ed farming methods and tools are utili&ed. ;n the urban settings, unemployment
forces the maority to create self employment opportunities through establishment of small business
undertakings. #oth the urban and rural undertakings usually operate in an economic environment that is informal,
predominantly untaxed and ever expanding.
;t is estimated that about a third of the $48 originates from the S! sector (inistry of ;ndustry and Trade,
*++*). According to the ;nformal Sector Survey of BB ( 3ational #ureau of Statistics, *++*), micro enterprises
operating in the informal sector alone consisted of more than .? million businesses that engage about 5 million
persons representing about *+M of the Tan&anian labour force (inistry of ;ndustry and Trade, *++*). This
demonstrates the importance of S! in stimulating economic gro"th and employment creation. :et the tax
revenue contribution by this sector remains far belo" the desired levels.
The S!s, important as they are to the economy, have ho"ever been facing a number of problems. This is due
to a number of factors, one of "hich is a persistent culture that has not recognised the value of entrepreneurial
initiative in improving the lives of the people. 1ther factors include complex, bureaucratic and costly legal,
regulatory and administrative environment "here S!s are at a greater disadvantage than their counterparts
that are larger in si&e. The high cost of compliance to regulations may discourage potential entrepreneurs from
formally setting up their businesses, "hile driving some existing enterprises out of business and those "orking
for them into unemployment.
-lear and precise compliance strategies are therefore pertinent that create an enabling environment for S!s
to thrive and ultimately graduate from the informal sector to formal sector. This "ill enable the tax administration
to extract the revenue potential inherent "ithin the S!s, for the purpose of increasing the revenue contribution.
21 D&,"$o" o, SME/
The definition of an S! varies from country to country dependent on the level of economic and social
development prevailing in each country. The definition also varies "ithin countries as defined by different
institutions. The various definitions are usually aimed at meeting the different obectives of each stakeholder.
Tan&ania, like many other African countries does not have a single official definition of S!s. ;n Tan&ania, one
important and broad definition is contained in the Tan&ania S! 8olicy "hich "as published by the inistry for
;ndustry and Trade in *++* (inistry of ;ndustry and Trade, *++*).
#lock anagement System (#S) in Tan&ania
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T!87& 1 6 C!$&o#&/ o, SME/ " T!"
;n the event of an enterprise falling under more than one category, then the level of investment "ill be the
deciding factor.
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III COUNTRY C=ARACTERISTICS
:1 E'o"o.' E"*#o".&"$
Tan&ania, officially the Enited %epublic of Tan&ania (S"ahiliC (amhuri "a !uungano )a Tan*ania), is a country
in !ast Africa in the African $reat Hakes region. The country is divided into 5+ administrative regionsC five on the
semiautonomous islands of 'an&ibar and *@ on the mainland. The economy is heavily based on agriculture,
"hich accounts for more than *@ percent of gross domestic product, provides @ percent of exports, and
employs + percent of the "orkforce (AATF and -1ST!-6, *++). Tan&ania has vast amounts of minerals
including gold, diamonds, coal, iron, uranium, nickel, chromium, tin, platinum, -olten, niobium, natural gas, and
others. The country is also kno"n for Tan&anite, a type of precious gemstone that is found only in Tan&ania.
Tables 5 to @ belo" highlight selected macro economic indicators for Tan&ania ainland.
T!87& 26 G#o// Do.&/$' P#o-'$ (GDP)> T!".+ ?.= >.+ ?.+ >.= >.B
$48 per -apita (ES4) at
market 8rices
5> @*@ @*@ @=? @@ >@*
Source: +ational ,ureau of Statistics# $%-$&'
Tables sho"s a steady increase in $48 over the last five years, indicating gro"th of the economy. The gro"th
of the $48 has averaged >.>M over this period. The per capita income has increased from ES5> in *++ toES>@* in *+* "hich is in line "ith the increase recorded in the $48. This figures indicate an economy that is
gro"ing through increased economic activity.
Figure belo" sho"s that *>.M of the $48 is generated by the agriculture, hunting and forestry sector, the
sector in "hich most of the S!0s operate.
F#& 16 P'&"$!& S!#& o, GDP !$ C##&"$ P#'&/> 2012
Source: +ational ,ureau of Statistics# $%-$&'
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Table * sho"s an increase in national revenue ("hich is inclusive of domestic revenue, borro"ings, external
support and fiscal deficits) and expenditure from ES *.+ billion in *++@ to ES >.? billion in *+*. Total taxes
during the same period increased from ES . billion to ES=.= billion. This sho"s that the tax revenue alone
(ES .bn in *++@ and ES =.=bn in *+*) is not sufficient to meet the expenditure (ES *.+bn in *++@ andES >.?bn in *+*). There is therefore need to continuously extract the revenue potential lying "ith the S!
sector for the benefit of the economic gro"th of the country.
T!87& :6 R&*&"&> E%5&"-$#& !"- To$!7 T!%&/ ,o# $& Y&!# &"-" :0$ J"& o, &!' +&!#6(US B77o")
200; 2003 200 200@ 200 2010 2011 2012
Total %evenue *.+ *.@ *. 5.5 =.5 @. @.B >.?
Total !xpenditure *.+ *.@ *. 5.5 =.5 @. @.B >.?
Total Taxes . ,5 .? *.5 *.? *.B 5.@ =.=
Source: +ational ,ureau of Statistics# $%-$&'
:2 T!% E"*#o".&"$
The T%A collects a number of tax types as illustrated in table 5 belo".
T!87& 46 I"'o.& ,#o. T!%&/ ,o# $& Y&!# &"-" :0$ J"&> (US B77o")
200 2010 2011 2012
;ncome Tax +. +.B . .=
-ustoms L !xcise 4uty +.? +. +.B .+
Sales taxK
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F#& 2 6 P'&"$!& o, TRA Co77&'$o"/ 8+ D&5!#$.&"$
Source: Tan*ania Re.enue Authorit"# $%-/&'
Figure 5 sho"s the total T%A staff establishment of 5,>*? of "hich as at *++*, *,+* are staff in the 4%4, "ho are
responsible for the collection of taxes from S!s.
F#& : 6 TRA S$!,, E/$!87/.&"$
Source: Tan*ania Re.enue Authorit"# $%-$&'
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Figure = sho"s the total tax register for the T%A "hich consists of B+,* taxpayers of "hich 5?,@> are S!s
on the presumptive tax regime.
F#& 4 6 TRA T!%5!+ R&/$
Source: Tan*ania Re.enue Authorit"# $%-$&'
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!) Co#5o#!$& $!% !"- I"-*-!7 $!%
;n Tan&ania, income of individuals is taxed under the individual income tax regime, and the income of bodies
corporate is taxed under the corporation tax regime. -orporation tax is a tax charged on taxable income (profits)
of entities such as limited companies, institutions or organi&ations including clubs, societies, associations, co
operatives, charities and other unincorporated bodies. ;ndividuals are categori&ed in t"o groups, small individual
traders "ho are not reuired to maintain audited accounts and medium individual traders "ho are reuired to
maintain audited accounts. Small traders are taxed under a presumptive tax system, "hereas medium taxpayers
are taxed based on the annual profit determined from the audited accounts.
P#&/.5$*& $!% /+/$&.
This is a tax system "here individuals are taxed based on their annual turnover. The taxpayers under this system
are not obligated to prepare and submit audited accounts to the T%A. 6o"ever, they may opt not to apply the
system and prepare audited accounts and pay tax based on profits.
T!87& ;6 P#&/.5$*& T!%!$o" T!% R!$&/
A""!7 T#"o* T!% 5!+!87& &" #&'o#-/!#& "'o.57&$&
T!% 5!+!87& &" #&'o#-/!#& 'o.57&$&
2here turnover does not exceed
ES*,@++
3il 3il
2here turnover exceeds
ES*,@++ but does not exceed
ES=,?++
ES>5 *M of the turnover in excess of
ES*,@++
2here turnover exceeds
ES=,?++ but does not exceed
ES?,*++
ES55 ES == N *.@M of the turnover in
excess of ES=,?++
2here turnover exceeds
ES?,*++ but does not exceed
ES+,+++
ES** ES +> N 5.+M of the turnover in
excess of ES?,*++
2here turnover exceeds ES
+,+++ but does not exceed ES
*,@++
ES5>+ ES B N 5.@M of the turnover in
excess of ES+,+++
Source: Tan*ania# $%%0&'
I"-*-!7/ o 5#&5!#& !-$&- !''o"$/
This is a group of taxpayers "hose annual turnover is above ES *,@++ and are reuired to prepare audited
accountsKfinancial statements in respect of their business. Taxpayers under this group are taxed based on their
profits.
8) W$o7-" T!%
2ithholding tax is the amount of tax retained by an individual or legal person "hen making payments to another
individual or legal person in respect of goods supplied or services rendered by the payee. An individual or legal
person receiving or entitled to receive a payment from "hich income tax is reuired to be "ithheld is a"ithholdee "hile an individual or legal person reuired to "ithhold income tax from a payment made to a
"ithholdee is referred to as the 2ithholding Agent.
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') AT
The
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I DESCRIPTION OF T=E REFORM MEASURE6 T=E BLOCK MAN?
AGEMENT SYSTEM (BMS)
The taxation of Small, icro and edium !nterprises (S!s) poses a number of challenges to the tax
administration, "hich have to be mitigated in order to ensure that S!s become tax compliant and contribute
effectively to government revenue. These challenges include the follo"ingC
O Hack of appropriate compliance management coupled "ith S!s0 noncompliance tradition that is aggra
vated by volatility in trading activities and patterns.
O !xistence of a large number of nonregistered business activities.
O 4ifficulty of identification, "hich is a prereuisite for reliable and credible taxpayer0s registration.
O 4isincentives to comply "ith tax la"s, due to the complexity, "ide kno"ledge gap and inadeuate assis
tance of the tax la"s, regulations and procedures.
O %apid development of the underground economy and innovation in some S!s "hich deliberately take
the form of tax evasion.
O 3onexistence of records or poor recordkeeping.
O The emphasis of tax administration reforms on assuring appropriate administration and collection of
taxes from Harge Taxpayers "hich put little chance in designing and implementing a compliance strategy
for S!s.
The situation outlined above regarding S!s poses a severe challenge to the Tan&ania tax administration and
system. This is "ith respect to the level of the tax burden, tax administration processes and other factors "hichare considered as reasons for S!s0 informal operations. The T%A has had to introduce changes and
simplification of the tax processes as specific strategies for the taxation of S!s.
After unsuccessfully attempting a number of methods to manage the compliance of S!s, the T%A eventually
formulated a more viable and sustainable system kno"n as the #lock anagement System (#S) in BB@. A
team of senior managers, led by r. 8atrick 7assera, "ho is currently the -ommissioner for 4omestic %evenue
(-4%), pioneered the proect. They "ere responsible for the design and implementation of the proect. A policy
document "as produced "hich defines a block and provides guidance on the operations of blocks, to ensure
uniformity across the various tax regions.
41 O**& o, B7o' M!"!&.&"$ S+/$&. (BMS)
The #lock anagement System "as designed in order to manage tax affairs of individuals, small and medium
enterprises by demarcating the areas in "hich they conduct business into si&eable and manageable blocks. The
#S evolved from and replaced a previous strategy kno"n as Iphysical surveysJ (8S) "hich "as a periodical
program that proved not to be cost effective. ;t further lacked effectiveness in terms of enhancing tax compliance.
The physical survey "as undertaken periodically as and "hen funds and time allo"ed. ;t could sometimes take
t"o or three years before another physical survey "as undertaken. This meant starting all over again as data
from the previous physical survey "ould not be current and complete. ;t therefore lacked consistency and
sustainability in enhancing tax compliance. 1n the other hand, the #S is a continuous and permanent program
that is an integral part of the T%A operations.
#lock anagement System (#S) in Tan&ania
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The design and implementation of the #S "as therefore not vie"ed as a completely ne" proect, but a
transformation of an existing system by building on its "eaknesses. 6ence, complete proect management
procedures, "ith "ell documented proect plans and timelines "ere not available as "ould be the case in a
completely ne" proect.
The #S concept "as designed and implemented by the T%A management "ithout any external involvement in
terms of technical assistance or funding. The #S "as rolled out in stages, first as a pilot in the 4aresSalaam
tax region and then subseuently to other regions.
The #S covers taxes falling under the 4omestic %evenue 4epartment (4%4), "hich areC
O -orporate Tax
O 8ersonal ;ncome Tax
O 2ithholding Taxes
O
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13#lock anagement System (#S) in Tan&ania
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DistrictRegionTown/CityKataStreet
RegionTax Service CentreBlockSub-Block
The T%A also collaborates "ith the -hambers of -ommerce and other trade associations, as another "ay of
obtaining information and data regarding those taxpayers "ho are members of the associations.
The T%A and local authorities "ork together, particularly "ith regard to information and resource sharing, sincethe tax base and block boundaries are usually the same. The collaboration is "ith regard to creation of blocks as
"ell as to tax collection and enforcement. There is no need for T%A to try and invent the "heel "here taxpayers
have already been grouped and defined by the local authorities.
#usiness or areas of trading concentrations are mapped up into small segments "hich may be defined on the
basis of geographicalK administrative setups or according to a combination of a fe" streets to form a block.
#locks can further be subdivided into subblocks. The T%A has mostly used "ards (7ata) as the basis for
defining the blocks. !ach 7ata or a combination of t"o or more could form a block. A 7ata is a political
subdivision.
F#& ;6 D&,"" ! B7o'
A block can also be identified asC
O 8articular type of businessC fish mongers, bakeries, etc.
O 8articular economic or social sectorial activityC cross border traders, fishermen, farmers, etc.
O apped geographical areaC kata, a street, farming block, housing and commercial estate.
;n summary, given that the defining criteria is the taxpayer population one uestion that arises is "hether it is
manageable given the resources available (See Appendix ;;; G Sketch map of blocks in the Arusha Tax %egion).
44 A-."/$#!$o" o, ! 87o'
!ach block is mandated to operate all the key tax administration functions of registering, assessing, collecting
and accounting for revenue collected. ;n effect, the block is a permanent setup "hich is allocated staff to carry
out these functions, subect to rotations after a period of, normally, three years.
Support functions like debt management9 audit and taxpayer services are usually centrali&ed in a Tax Service-entre (TS-).
F#& 3 6 A-."/$#!$o" o, ! B7o'
Figure > sho"s that in a tax region there is a Tax Service -entre (TS-) "hich "ill provide support functions to a
block and subblock. A region can have one or more TS-s. A TS- can service one or more blocks and sub
blocks.
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14#lock anagement System (#S) in Tan&ania
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Regional Manager
Taxpayer Services Ofcer Human Resources an !minis"ra"ion
Supp#ies Ofcer
Tec$nica# %orrec"ions an !ppea#s!R& !ui"' !R& (e)"'
*n %$ar+e , &eium Tax (e)"*
Service %en"re
(a"a -rocessin+*n %$ar+e . Sma## Taxpayer /ni"
inance *%T
*Service %en"re
***Service %en"re
**Service %en"re
&o"or e$ic#e Re+ (icence
!) T!% R&o" A-."/$#!$o"
;n Tan&ania, there are a total of 5 tax regions spread around the country. A regional tax office is headed by a
%egional anager. The administration of a tax region "ith regard to block administration "ill provide centralised
support services that include human resource and administration, finance and ;-T. The %egional anager is
also in charge of the centralised support functions, audit and debt management, that are provided by a TS-. The
functions of audit and debt management are each headed by an Assistant %egional anager.
Figure ? belo" sho"s the organisation structure of the 7inondoni tax region.
F#& 6 R&o"!7 O#!"
a tax region.
Figure sho"s the organisation structure for the Assistant %egional anagerG4ebt for 7inondoni tax region.
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15#lock anagement System (#S) in Tan&ania
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%o##ec"ion norcemen" &anese %en"re
Tana#e #oc:
&)ura$a"i #oc:
;imara %en"re
;imara #oc:norcemen"
-roper"y Ra"es &a)i)o#oc:
16
F#& @ 6 ARM?D&8$ O#!"
;n 4aressalaam city there are 5 (three) tax regions, namely ;lala, 7inondoni and Temeke. ;n these tax regions
there are a total of eight TS-s. !ach TS- is servicing an average of *5 blocks. ;n Arusha city, "hich is the
second largest city in Tan&ania, there is only one tax region kno"n as Arusha tax region. ;n Arusha Tax region,
there are t"o TS-s.
T!87& 36 T!% S*'& C&"$#& ? I7!7! T!% R&o"
T!% C&"$#& B7o' S8 B7o'
7ariakoo Humumba Humumba
Hivingstone
Sikukuu
S"ahili S"ahili
3yam"e&i
-ongo
simba&i simba&i
Shaurimoyo
Fire
Source: Tan*ania Re.enue Authorit"# $%-/&'
#lock anagement System (#S) in Tan&ania
I.II.
III.
ARM/DEBT*
Motor vehicle
& D/Licence
Motor Vehicle
Transfer &
Reregistration
D/Licence
Mwenge
entre
Msasani
Bloc!
"inon#oniBloc!
Mwenge
Bloc!
Real Estate
Tegeta
entre
Tangi Bov$
Bloc!
Tegeta Bloc!
B$n%$ Bloc!
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T!87& 6 T!% S*'& C&"$#& ? A#/! T!% R&o"
T!% C&"$#& B7o' S8 B7o'
Arusha7ati7aloleni
7ienge
bauda bauda
Source: Tan*ania Re.enue Authorit" # $%-/&'
Tables > and ? sho" information about the number of blocks and subblocks being serviced by a Tax Service
-entre.
') B7o' M!"!&.&"$
!ach block has a leader "ho is ans"erable to an assistant manager. The block leader is assisted by subordinates
"ho each have specific duties "hich are measurable.
!ach block0s performance is measured through the allocation of performance targets "hich are measured against
set benchmarks and time frames.
Tables and B sho" information about the number of blocks in a particular tax region, the number of taxpayers
each block has, the number of staff servicing these taxpayers and the revenue targets assigned to each block.
Tables > to B are depicting the structure and set up of various tax regions in terms of block and subblocks.
T!87& @6 B7o'/ !"- S8?87o'/ ? I7!7! T!% R&o"
B7o' S8 B7o' No o, T!%5!+/ No o, S$!,, R&*&"& T!#&$/
Humumba Humumba >+ *
Hivingstone ,*@> 5
Sikukuu ,@@+ *
S8?To$!7 :>333 1 S5*/o# ES .* illion
S"ahili S"ahili ,>?? *
3yam"e&i =,+* *
-ongo =,+>5 5
S8?To$!7 >;2 1 S5*/o# ES *=.? illion
simba&i simba&i *,@> 5
Shaurimoyo ,+> 5
Fire ,5?B 5
S8?To$!7 ;>23 1 S5*/o# ES *+. illion
To$!7 1@>14 2: : S5*/o#/ ES >@. illion
Source: Tan*ania Re.enue Authorit"# $%-/&'
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17#lock anagement System (#S) in Tan&ania
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T!87& 6 B7o'/ !"- S8?87o'/ ? A#/! T!% R&o"
B7o' S8 B7o' No o,T!%5!+/
No o, S$!,, R&*&"& T!#&$/
7ati >,*>*
7aloleni >,5@= B
7ienge =,>>
bauda =,B@* B
ES 5? illion
Source: Tan*ania Re.enue Authorit" # $%-/&'
4; S$!,," ! B7o'
The maority of staff assigned to "ork in a block are experienced tax officers. !xperienced tax payer servicesofficers are also assigned to "ork in a block. Staff assigned to "ork in a block, are reuired to attend an
orientation program, "ith regard to the #S. This is conducted by the T%A0s ;nstitute of Tax Administration (;TA).
The ;TA is an integral part of the T%A. ;t is uniuely positioned to offer and support a range of programs leading
to competencies in policy, la" and administration in the areas of customs, taxation and related fields.
The ;TA0s programs offer a uniue blend of theoretical classroom training and real life customs and taxation
experiences. They are designed to address the competence needs of customs and tax practitioners at different
stages of their careers (Tan&ania %evenueAuthority, *+*K5). The institute is playing a critical role in helping to
disseminate information about the #S and to change the mindset of some longserving tax officers "ho might
be resistant to change. Students from the ;nstitute are also periodically attached to a block to gain experience.
The #S is no" part of the syllabus in some of the 4omestic Tax courses being offered by the ;nstitute. ;n the
;nstitute library there "ere t"o (+*) research papers, on the #S, produced by students as part of their thesis.
The levels of staff have been raised as a challenge related to the #S. The benefits of the system, i.e. increased
taxpayer registrations, is not being matched "ith a corresponding increase in staff numbers. This can be seen in
tables + and belo" "hich depict varying taxpayer to staff ratios across blocks and tax regions.
The issue regarding the integrity of staff "as also raised. Some staff can be tempted to connive "ith the
taxpayers. 6ence, the policy that the staff ideally should be transferred every three years to avoid familiarity
setting in has been formulated. 6o"ever, in practice this is not al"ays possible due to various reasons, for
example, constraints on the operational budget to fund all the reuired transfers.
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18
#lock anagement System (#S) in Tan&ania
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T!87& 10 6 B7o'/> T!%5!+/ $o S$!,, R!$o ? K"o"-o" T!% R&o"
B7o' A*!& T!%5!+ $o S$!,, R!$o
sasani = C 7inondoni @ C
"enge ?* C
burahati B? C
Tandale >@* C
Tangi #ovu =@@ C
Tegeta 5=* C
#unu ** C
7imara *++ C
abibo 5 C
T1 *@ C
Total 420 6 1
Source: Tan*ania Re.enue Authorit"# $%-/&'
T!87& 11 6 B7o'/> T!%5!+/ $o S$!,, R!$o ? A#/! T!% R&o"
B7o' A*!& T!%5!+/ $o S$!,, R!$o
7ati ?5 C
7aloleni ?+> C
7ienge @?? C
bauda @@+ C
Total 3;2 6 1Source: Tan*ania Re.enue Authorit" # $%-/&'
43 B7o' .!"!&.&"$ !'$*$&/
Ender the #S, all compliance and monitoring activities are performed on identified taxpayers located "ithin a
specific block. 1ne maor compliance activity that officers in the field are reuired to carry out is to enforce the
use of !lectronic Fiscal 4evices (!F4). !F4 means a machine designed for use in business for efficient
management controls in areas of sales analysis and stock control system and "hich conforms to the
reuirements specified by the la"s.
;n Duly *++, the $overnment of the Enited %epublic of Tan&ania introduced an !F4 system to be used by all
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E7&'$#o"' F/'!7 P#"$ (EFP)6 The device is used by computeri&ed retail outlets. ;t is connected to a computer
net"ork and stores every sale transactions or details made in its fiscal memory.
E7&'$#o"' S"!$#& D&*'& (ESD)6 the device is designed to authenticate by signing any personal computer(8-) produced financial document such as tax invoice. The device uses a special computer program to generate
a uniue number (Signature) "hich is appended to and printed to every invoice issued by the user0s system.
Esers are obliged to issue receipt or invoice on each sale and notify any changesK malfunctioning
of the machinery to -ommissioner 4%4 "ithin *= hours. The supplier of the machine "ill install, configure and
attend the malfunctioning of the machine "ithin = hours.
The !F4 is preferred compared to other devices like the cash register because of the follo"ing reasonsC
O ;t has inbuilt Fiscal emory "hich cannot be erased by mechanical, chemical or electromagnetic interferences.
O ;t has automatic selfenforcing issuing of daily transaction reports after every *= hours and it transmits
tax information to the T%A system automatically.
O ;t has irreversible date mechanism, issues fiscal receiptsKinvoice "hich is uniuely identifiable and it can
be used as a standalone and configured into a net"ork.
O ;t has at least = hours po"er backup, and it can use external battery in areas "ith no electricity supply.
;t saves configured data and records on permanent fiscal memory automatically and it has tax memory
capacity that stores data for at least @ years or 1'' #a( transactions.
!) F&7- */$/
;n order to ensure optimum utilisation of resources, a risk based approach is undertaken through preparation for
the field visit. 8reparation entails staff establishing the purpose of the visit by gathering information to support
the need of the visit from the files as "ell as the ;TAR system (it is an integrated system developed by the T%A
to support 4omestic %evenue operations). The purpose of the visit can include registration, taxpayer education,
audit or enforcement. 1nce the visit has been established and approved, officers are reuired to sign out in the
1utgoing %egister indicating "here the visit is to be made and the purpose of the visit.
;n the field, the officers then carry out functions that include moving from door to door to check taxpayers0
activities including the usage of !F4s. They "ill identify none and late filers and determine the categori&ation of
taxpayers into large, medium and small based on turnover over a three year period. ;f necessary, they "ill make
adustments to reconcile the records. To ensure checks and balances in the conduct of staff, field visits are to be
undertaken in pairs. Epon return to the office officers sign in.
8) I",o#.!$o" M!"!&.&"$
As a "ay of ensuring that proper record keeping is achieved, each block is reuired to maintain the follo"ing
registersC
M!" B7o' R&/$/C contains the list of all taxpayers in the blocks and all the necessary details like Taxpayer;dentification 3umber,
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S8 ? B7o' R&/$/6 like the main block registers, sub G block registers contain the list of all taxpayers in the
respective subblocks.
Mo-&7 B7o' R&/$/6 contain the list of all model taxpayers in the respective #locks. The model taxpayersare the most compliant and high revenue contributing taxpayers in the blocks.
B7o' S#*&77!"'& R&/$C used to record all the important information before and after the officer has gone
for the field "ork, like name of outgoing officer, time leaving the office, area earmarked for the visit, nature of
information gathered and time of return to the office.
B7o' A//&//.&"$ R&/$ records the stock of assessment issued and tax position of each taxpayer in the
block. ;t therefore contains information like9 name of taxpayer, T;3 L
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21#lock anagement System (#S) in Tan&ania
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OUTCOMES AND BENEFITS OF T=E PROJECT
The implementation of the #S has overall had a positive impact on the tax compliance management of S!
taxpayers. This is demonstrated by the increase in the revenue yield and increase in the number of registered
taxpayers.
T!87& 126 K&+ P,o#.!"'& I"-'!$o#/
2010 2011 2012
Taxpayers Harge 400 400 4;0
%evenue GES #illion 11 1: 2:
Taxpayers S! :2>300 4:2>012 4:>14
%evenue GES #illion 0; 03 0
Source: Tan*ania Re.enue Authorit"# $%-$&'
The system has facilitated easy registration of ne" taxpayers and expansion of the tax base through permanent
doortodoor visits. The visits are undertaken periodically based on the risk assessment and also based on
reuests by taxpayers. The visits also enabled the tax administration to provide taxpayer services, for example,
provision of tax education to taxpayers at their business premises and resolution of ueries on the spot. ;n order
to ensure cost effectiveness, the visits are risk based and there are plans to enhance third party information
gathering collaborations.
Ep to date and reliable data about taxpayer0s activities is no" available through the #lock %egisters. This has
improved the uality of tax assessments as "ell as providing more accurate statistics on business activities"ithin sectors or geographical areas.
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22#lock anagement System (#S) in Tan&ania
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I LESSONS LEARNED FOR GOOD PRACTICES
The #S as implemented in the T%A has overall achieved its intended purpose of having in place a sustainable
method and strategies of monitoring the business activities of the S! sector. The ourney started in BB@ after
previous methods had proved unsustainable. 6o"ever it "as the lessons learned from the previous methods,
especially the Iphysical surveyJ, "hich set the foundation for the #S.
The #S may not be applicable /"holesale0 in other countries as it has been applied in Tan&ania. There "ould
be a need for modification depending on the prevailing local situations and conditions. There is need to first
understand the current systems and strategies applicable to the taxation of S! and then blend in the solutions
offered by the #S.
;n general ho"ever, the adopted strategies for effectively dealing "ith the S!s taxation should endeavour to
facilitate tax compliance, to apply the tax la"s uniformly, consistently and transparently, and to address theuniue problems of each taxpayer segment. This is "ith respect to registration, returns filing and agreed bases
and methods of calculating taxable income.
;nformation technology and stakeholder cooperation have been sho"n to play a significant role in building the
information pool and data matching capacity of tax administrations as tools of helping S!s to comply "ith tax
la"s as "ell as to assist S!s in the informal sector to become formal.
The follo"ing are considered as success factors in the implementation processC
H S&$$" 5 o, $& 87o' the process of mapping the area reuires that information about taxpayer pop
ulation, activities and the geographical area be available. ;t also reuires collaboration "ith other stake
holders like, local councils, "ards, business associations, etc.
H A-&!$& /$!,, ".8/ G the tax administration establishment must be able to respond to the
dynamics of the S! population and the environment. Alternatively high levels of automation must be
achieved so that an increase in taxpayers does not reuire a corresponding increase in staff numbers.
H A$o.!$o" o, $& $!% /+/$&. the tax system must be as fully automated as possible to ensure timely
processing of information gathered from field visits and generally increase the efficiency and effective
ness of operations of a block.
H T!%5!+ &-'!$o" !"- '/$o. /*'& T%A has developed a dedicated taxpayer service divisionthat "orks in collaboration "ith the tax officers. T%A has also developed effective call centres to deal "ith
taxpayer ueries. 2hen dealing "ith the S! sector, taxpayer education and customer service are
critical in the process of registration
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23#lock anagement System (#S) in Tan&ania
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II RISKS AND C=ALLENGES
There "ere ho"ever instances "here the T%A faced a challenge in getting cooperation from local authorities for
various reasons, sometimes political. Another challenge is that only areas that the local authorities have
surveyed can be considered for definition as a block. Therefore in a region "here the area is largely not
surveyed, block creation is limited. A surveyed area is an area "here the local authorities have provided the
normal services, i.e. streets, se"erage and "ater, street lighting, etc. and the areas are occupied for residential
or business purposes.
The issue of lack of adeuate staff numbers poses a serious risk to the effectiveness of the #S. This is in terms
of being able to create sufficient blocks that are of a manageable si&e. Staff numbers can also affect the ability
of T%A to effectively implement the staff transfer policy. The transfer policy ensures that staff are rotated "ithin
blocks and regions to avoid familiarity "hich can impact negatively on the integrity of staff.
Another maor risk is the issue of full automation of the tax system. -ertain functions "ere not automated.
;nformation from field visits is captured manually then brought to the office for input into the system. A backlog
in data capture can lead to various challenges "ith regard to the availability of up to date information. 2ithout
up to date information and data planning, the risk assessment become ineffective. !specially "ith regard to
registration and tracking of small taxpayers "ho are highly mobile. Any delay in capturing this information on
the database means losing track of the taxpayers. ;f the database is incomplete, it makes the risk assessment
process inefficient and in accurate.
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24
#lock anagement System (#S) in Tan&ania
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CONCLUSION
As developing countries aim to achieve economic independence, the need to generate internal revenues
becomes critical. This reuires "idening the tax base by ensuring that the gap bet"een potential and actual
revenues is reduced. 1ne such potential gap is presented by the existence of a large informal sector "hich is
made up of mostly the S!s. The introduction of the #S aims to capture the informal sector in a cost effective
"ay.
The implementation of the #S has overall had a positive impact on the tax compliance management of S!
taxpayers. This is demonstrated by the increase in the revenue yield and increase in the number of registered
taxpayers.
;t is recommended that other ATAF member countries consider implementing the #S as part of their strategy to
deal "ith the management of S! tax compliance. The critical consideration is that this is a system that providesa sustainable "ay of administering the S! sector. ;t may not be a uick "in solution, but it can be an effective
and sustainable compliance strategy.
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25#lock anagement System (#S) in Tan&ania
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BIBLIOGRAP=Y
3ational #ureau of Statistics, *++*. Informal Sector Sur.e"# s.l.C s.n.
AATF and -1ST!-6, *++. itigating the impact of drought in Tan&aniaC the 2!A intervention. Polic" ,rief,
3ovember.
Feldstad, 1.6. L 6eggstad, 7. 7., *+. The tax s"stems in !o*ambi1ue# Tan*ania and Zambia: 2a3acit" and
constraints# s.l.C -;.
inistry of ;ndustry and Trade, *++*. S!4 De.elo3ment Polic"# s.l.C s.n.
3ational #ureau of Statistics, *+*. Tan*ania in Figures# s.l.C s.n.
Tan&ania %evenue Authority , *+5.Arusha Tax Region' s.l.Cs.n.
Tan&ania %evenue Authority, *+*.Annual Re3ort# s.l.C s.n.
Tan&ania %evenue Authority, *+5. Ilala Tax Region' s.l.Cs.n. Tan&ania
%evenue Authority, *+5. 5inondoni Tax Region' s.l.Cs.n.
Tan&ania %evenue Authority, *+5. Tan&ania %evenue Authority 2ebpage, Tax -ollection Statistics
4epartmental -ollections.. 1nline Available atC httpCKK""".tra.go.t&Accessed *+5.
Tan&ania %evenueAuthority, *+*K5. Institute of Tax Administration# Pros3ectus' s.l.Cs.n.
Tan&ania, %. o., *++. Income Tax Act6 Re.ised 4dition' s.l.Cs.n.
http://www.tra.go.tz/http://www.tra.go.tz/http://www.tra.go.tz/ -
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27
NOTES
#lock anagement System (#S) in Tan&ania
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NOTES