1

The tax systems in Mozambique, Tanzania and Zambia:

Achievements, challenges and recommendations for Norwegian support

Odd-Helge Fjeldstad & Kari Heggstad Chr. Michelsen Institute & International Centre for Tax and Development

www.CMI.no

Maputo, 30 March 2011

“We should elevate ourselves from being just tax collectors and tax administrators to being state builders”

Ms. Allen Kagina, Commissioner GeneralUganda Revenue Authority

Purpose of the study:

(1) Systematise and analyse existing knowledge of the capacity and constraints of the tax systems in Mozambique, Tanzania and Zambia

(2) Advice Norwegian authorities on how this knowledge can be translated into practical, effective and concrete development policies

Outline of the study:

1. Introduction

2. Tax revenues and tax structure

3. Revenue administration

4. Political economy of tax policy and revenue administration

5. Broadening the revenue base

6. External support

7. Conclusions and recommendations

Some reference points

Mozambique Tanzania Zambia

Geographical area (sqkm) 799,380 947,300 752,618

Population (mill)(% < 15 years)

22.9(46%)

42.7(42%)

13.9(47%)

Tax adm staff (2010)(in Customs & Excise)

3010(1776)

3727(1236)

1380(450)

GDP per capita($nominal)GDP per cap ($ppp) (2010)

4731,000

5421,500

1,2861,500

Tax-to-GDP (2009) 15.4 14.2 15

Aid-to-GDP (2008) 20.2 11.2 7.4

Africa

upper middle in

come

Africa

lower m

iddle inco

me

Africa

lower in

come

Tanzania

Mozambique

Zambia0

5

10

15

20

25

30

3534

24.6

14.914.2 14.1

17.7

Tax revenue in percent of GDP 2007

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20070

2

4

6

8

10

12

14

16

Africa: Revenue mix as share of GDP

Direct taxes Indirect taxes Non taxResource tax Trade tax

Mozambique - Tanzania - Zambia: Tax mix as share of GDP

19961998

20002002

20042006

20080 %1 %2 %3 %4 %5 %6 %7 %8 %

Mozambique

19961997

19981999

20002001

20022003

20042005

20062007

20080 %2 %4 %6 %8 %

10 %12 %

Zambia

19961997

19981999

20002001

20022003

20042005

20062007

20080 %1 %2 %3 %4 %5 %6 %

TanzaniaDirect taxIndirect taxNon taxOther taxTrade tax

Zambia mining revenue as share of total tax and non-tax revenue (2005-2009)

20052006

20072008

2009

0 %

2 %

4 %

6 %

8 %

10 %

12 %

14 %

16 %

18 %

5.20 %

8.04 %

13.51 %

16.98 %

12.73 %

Illicit financial flows from and development aid to Africa 2001-2008 (mill USD)

2001 2002 2003 2004 2005 2006 2007 20080

20000

40000

60000

80000

100000

120000

Total ODATotal capital flight

Estimated capital flight from Tanzania, Mozambique and Zambia (1970-2008)

Units: mill USD 2002 2000-2008 1970-2008

Tanzania 597 2 545 7 356

Mozambique 178 1 121 5 450

Zambia 72 5 120 9 348

Sub-Saharan Africa 21 808 323 577 532 926

Tax policy: achievements

Mozambique Tanzania Zambia

Improved tax legislation

• Simplified Tax laws/regulations (ISPC): VAT & income tax

• Clearer rules for tax administration

• Tax laws updated, harmonised, simplified

• Income Tax Act 2004• EAC Customs

Management Act 2005

• Zambia ‘best reformer’ by Doing Business 2009 due to tax reforms

• Income Tax Act & VAT Act have reduced ambiguities

The ease of paying taxes (2009)

Tanzania

Mozambique

Zambia

Sub-Saharan Africa

OECD

0 50 100 150 200 250 300 350Total tax rate (% profit) Time (hours per year) Payments (number per year)

Tax policy: challengesMozambique Tanzania Zambia

Tax policy units in MoF not strong

• Policy analysis in Ministry of Finance often an adjunct and reactive function of the tax administration

Sub-optimal links MoF other public institutions

• Ministry resp. for Mining

• Ministry resp. for renewable nat. res. ?

• Local Gov.• TMAA• Min. resp. for

renewable nat. res. ?

• BoZ on tax payment via banks

• Min. resp. for renew nat. res. ?

Tax exemptions extensive & increasing

Foreign-owned mega projects:• 12% of GDP• <3% of tax rev

Exemptions (09/10): • 2.3% of GDP • 15% of TRA net-

collection

Special tax regimes: ‘a race to the bottom’

• Rapid Dev. Zones

• EPZ • Mining• Export of non-

trad prod.

Tax administration: Achievements MozambiqueATM (2006)

TanzaniaTRA (1996)

Zambia ZRA (1994)

Revenue enhancement

Dramatic increase in Tax/GDP since 2005

Substantial increase in T/GDP

Stable (17%) until 2008, then drop >2%

Broadened tax base(reg. taxpayers)

2006: 382,000 2009: 960,000

2002/03: 190,000 (TIN)2007/08: 398,080 (TIN)

2002/03: 13,634 (VAT)2007/08: 9,036 (VAT)

Informal sector taxation

35,000 new small taxpayers 2009/10

Block Management System

Tax adm. modernisation

3 LTUs (regional) to become integrated

• TMP• Integration of tax

depts.• ICT

Zambia best performer by ‘Doing Business 2009’ due to tax reform

ICT Customs Scanners

Itax, TIN, TISS, Motor vehicle reg. system, ASYCUDA++, DIS

ASYCUDA++

Tax administration: challenges MozambiqueATM (2006)

TanzaniaTRA (1996)

Zambia ZRA (1994)

Integration of departments

• Integration Domestic Tax Dept. & Customs

Specialised capacity • Hard(er) to recruit, develop, retain specialists in areas such as ICT, accounting, auditing, and legal issues

Transfer pricing and capital flows

• Capital flight is seriously eroding the tax bases• Tax adm expertise in short-supply

ICT • Introduction and application of ICT at different stages of implementation.

Performance indicators

• Need for better balance between revenue and service targets

• Weak integration with ICT-systems in other parts of public sector

Integrity • Procedures and practises must filter down throughout the organisation to be fully functional and effective

Accountability: achievements & challenges Mozambique Tanzania Zambia

Taxpayer-tax administration relations

• Regular + occasional meetings ATM & bus. ass.

• Formal and informal forums

• Taskforce for Tax Policy Reform

• Citizens can submit tax and exp. prop to Gov.

• Formalised consultative process Gov-priv. sector

Taxpayers’ rights • Important element of administrative accountability • Tax appeals boards and tax tribunals • Fair and transparent procedures to address tax disputes

Customer friendliness

• Window dressing?

Civil society • CIP • Revenue Watch• NCA

• Caritas• Revenue Watch• NCA

EITI • All 3 countries candidate countries • Validation May 2011

Extractive industries

Mozambique Tanzania Zambia

Revenue from mining (% of total tax & non-tax revenues)

3.6% (2007/08)

12.7%(2009)

First EITI-report

Outcome

Complete validation

March 2011

14 May 2011

11 Feb 2011

Companies: $ 84.4mGov: $ 48.3m

15 May 2011

23 Feb 2011

Comp: $ 463mGov: ≈ $ 460mDiscrep: $ 66m

14 May 2011

Companies Mining: 6 largeOil/gas: 3

Mining: 8 largeOil/gas: 7

Mining: 9 large

Action matrix for Norwegian support: what and who (i) Support to

tax policy reform

(ii) Capacity building of ATM, TRA, ZRA

(iii)Support to civil society

(iv) Build research capacity on taxation

(a) Capital flight MoF, IMF, Central Banks, ATAF, AfDB, OECD

NTA (specialised capacity building); ATAF

Internat. and domestic NGOs; TJN-Africa; media

Research Inst; ATAF, ICTD, Research Depts. in ATM, TRA,ZRA

(b) Natural resource taxation

MoF, IMF, ATAF, EITI, OfD, RAs & NGOs

NTA (specialised tax audits); ATAF; EITI; OfD

Caritas, NCA RWI, CIP; media

ICTD in coll. with ATM, TRA, ZRA, ATAF, AERC

(c) Accountability

Bus. associations, Taxpayer ass, CBOs, EITI

NTA (technical support to tax compliance); ATAF

Caritas, NCA, RWI, CIP; media,bus.as& taxpayer ass; media

ICTD in coll. with ATM, TRA, ZRA, ATAF, AERC (research on compliance)

Muito obrigado!

THANK YOU FOR YOUR ATTENTION!