A long overdue post but slowly and surely we are going through the OGP commitments. Here is our 4th installment of the Uhuru Project where we review commitments made by the Tanzanian government in a bid to join the Open Government Partnership. We review the following two, click on the link to get a more detailed analysis and or verdict in each case. And as always, thank you for your comments and support!
#1.2 Posting orders and receipts of medical supplies from the Medical Stores Department (MSD) online and on notice boards.
#2.3 Establish an open forum in collaboration with civil society to review quality, integrity, depth and pace of progress against OGP commitments.
Wednesday, 15 August 2012
Sunday, 15 July 2012
OGP Update #3
Two more additions to the Open Government Partnership Tracker for Tanzania. Click on the link for detailed analysis:
#1.1 Quarterly reports on the progress of implementation of OGP commitments (the official version of what we are doing here).
#3.5 Prepare legislative amendments and regulations to strengthen asset disclosures of public officials.
#1.1 Quarterly reports on the progress of implementation of OGP commitments (the official version of what we are doing here).
#3.5 Prepare legislative amendments and regulations to strengthen asset disclosures of public officials.
Wednesday, 11 July 2012
Why the OGP should not admit Tanzania.
By Alykhan
If you are a fan of transparency and accountability then it must have come to your attention that Tanzania has submitted its intent to join the Open Government Partnership, a voluntary coalition of member states who are committed to be more open to its citizens. According to my opinion, Tanzania should not be admitted to the OGP. Here is why: Tanzania does not have Freedom of Information Legislation.
The OGP should set as their first and mandatory condition that any country admitted to this coalition should have a Freedom of Information Act legislated or at least in discussion in Parliament. This is an important ideological standpoint, as any country admitted to OGP legitimizes its commitment to transparency and potentially opens up access to more aid (we dont know if this has been set as a pre-condition for more aid). This is similar to joining the United Nations to legitimize a country and joining the EITI (Extractive Industries Transparency Initiative) to legitimize mineral earnings.
OGP country members and hopefuls already have a good track record when it comes to FOI legislation. Out of the 55 countries, only 4 lack any FOI legislation or a bill in discussion in parliament (http://uhuruyamawazo.blogspot.com/2012/05/freedom-of-information-legislation-in.html) and Tanzania is one of them.
If you are a fan of transparency and accountability then it must have come to your attention that Tanzania has submitted its intent to join the Open Government Partnership, a voluntary coalition of member states who are committed to be more open to its citizens. According to my opinion, Tanzania should not be admitted to the OGP. Here is why: Tanzania does not have Freedom of Information Legislation.
The OGP should set as their first and mandatory condition that any country admitted to this coalition should have a Freedom of Information Act legislated or at least in discussion in Parliament. This is an important ideological standpoint, as any country admitted to OGP legitimizes its commitment to transparency and potentially opens up access to more aid (we dont know if this has been set as a pre-condition for more aid). This is similar to joining the United Nations to legitimize a country and joining the EITI (Extractive Industries Transparency Initiative) to legitimize mineral earnings.
OGP country members and hopefuls already have a good track record when it comes to FOI legislation. Out of the 55 countries, only 4 lack any FOI legislation or a bill in discussion in parliament (http://uhuruyamawazo.blogspot.com/2012/05/freedom-of-information-legislation-in.html) and Tanzania is one of them.
Why is Freedom of Information Important?
This is the foundation of a truly transparent and accountable government when an ordinary citizen can request any public information from the government and take action on it. We cannot completely rely or trust government officials to reveal damaging information. Just as we need the police to maintain security in our country so we need an FOI legislation to ensure corrupt officials cannot get away.
Saturday, 30 June 2012
The Time to ACT is NOW: Small Interventions with a Big Impact
By Alykhan
I have penned a number of articles for Uhuru Blog over the last month covering a number of issues, all with the overarching theme of how we can improve Tanzania. What surprised me while researching for these articles is how little of what is accepted globally as good practices are actually implemented in Tanzania. Our government continues its outdated policies year after year as if in suspended animation while the rest of the world speeds by, only bowing to pressure from donor countries from time to time to enact policies which mostly turn out to be detrimental.
What is required is for the government to get its act together, reform a number of key policies on its own doing (without any "technical assistance" from donor countries, by which I mean policies that favour the donors) and truly get our country on the path to sustainable development. Development, not only in terms of increase in GDP every year, but rather increase in the quality of life and dignity of all citizens. Don't let anyone lie to you that we need months to study global best practices and adapt different approaches to suit Tanzania. These are all delay tactics as the best approaches to different problems and how to apply them to unique conditions in developing countries are all known, but what is lacking is the political will to implement them. So I say to you, my fellow countrymen, let us not get left behind the time to ACT is NOW!
If you decide to stop reading this blog post now, I would like you to take one thing from this. The Tanzanian government, for years now, has been slacking, taking short term measures to push the country along slowly while relying too heavily on foreign aid. What it should do is to adopt brave long-term policies that are forward thinking and that will take this country into the 21st century. If we do not keep pace with technological innovation we may end up being left very far behind to struggle for decades to come.
I am going to list FOUR interventions that the government can implement very easily, by enacting laws and changing procedures which may have a huge impact in boosting the country's growth and respectability.
1) Enact a Freedom of Information Law (Right to Access Information)
Citizens have a right to access government and public information. There is no debate about that and there is no debate about what criteria such a law must abide by. By giving citizens the right to demand information from the government, it puts accountability in the hands of the people, thus giving them the incentive to follow national issues and the ability to pursue those issues that are important to them. Currently, citizens only exercise their democratic powers every 5 years during election time however with this law they can monitor the government continuously and expose malpractices when they happen. Now, some people who are already in government will be nervous by such a law and this may be the reason why its taking so long, but in the end governments are responsible to the people and they must act that way.
2) Increase spending on Information and Communication Technology (ICT):
The internet has revolutionized every sphere of our lives from education, communication, entertainment, governance and so on. It has become so central to our lives (those who have access it) that there are calls to classify Access to internet as a basic human right. And it should be a basic right as those without access to it will have a huge disadvantage, an insurmountable barrier compared to those use it growing up. Tanzania has very low internet penetration rate at about 11% compared to Kenya with 25.9%, Uganda -12.5% Rwanda - 13% (2010 figures - World Bank) and an overwhelming majority have never used the internet, let alone seen a computer before. Here is where the government can step in.
1. By making investments in improving the country's fibre optic backbone (which it has started)
2. Itroducing widespread computer literacy programs in public schools and local training centers
3. Modernizing government operations such as paying taxes, keeping of records, filling out forms by taking them online.
By implementing these measures the Tanzanian government can set the country on the path to prosperity and global competitiveness. So far, ICT spending has been pathetic. According to the 2011/12 budget the amount set aside for ICT was 27 billion shs which is roughly 0.002% of the total budget, and with the government's record of underspending in developmental expenditure, this figure is likely much lower. Compare this to the 130 billion that Kenyan government is going to spend in 2012/13 and it is easy to see why we will be left behind in the global technological race. To bridge the technological gap and ensure that the coming generation does not lose out, the government will have to spend upwards of atleast Tshs 100 billion (and all of it!) yearly on ICT infrastructure and training.
3) Reform Business regulations to stimulate Entrepreneurship.
Business is best done by locals. We have been desperately trying to woo foreign investors while ignoring our own latent talent and potential. There are 2 main problems with relying too much on investments from foreign companies. The first is that foreign companies bring technical expertise from their own countries denying local skilled people key managerial positions. Secondly, in order to entice the multinationals to Tanzania, the government gives them huge incentives, mostly in the form of tax exemptions resulting in lower public revenue and eventually capital flight as the foreign companies all have shareholders living abroad.
Therefore it is essential for government to stimulate entrepreneurship among its own citizens by lowering the barriers to starting a business. According to the Doing Business Report, Tanzania was ranked 127th out of 183 nations globally mainly because of complicated, overpriced business regulations particularly in getting Construction permits, registering property and paying taxes. These regulations need to be overhauled completely, making it easier for people to start businesses and paying taxes. One of the ways this can be achieved is by moving to an online system where forms can be submitted to different departments and processed instantly. We also need to integrate different departments so that all forms and licences can be obtained in one place.
4) Bringing innovation to the Agriculture sector
Agriculture remains the backbone of the economy in Tanzania and whether formal or informal, it still provides a means of living for majority of the country. Even though the government should push for a diversification of economic activity, any sustainable growth solution will involve reforming the Agriculture sector. Some estimates put agricultural exports at 30% of our total exports and employing 80% of the population making it the one of the most important economic activities in the country.
First of all, the government needs to make a push for increased production from agricultural land. Estimates from 2010 put average productivity for cereals at around 1.3 tons per hectare where as with good management 3.5-4 tons per hectare can easily be produced (For comparison Malawi - 2.2t Kenya - 1.6t, Uganda- 1.6t South Africa - 4.2t Rwanda - 1.9t). Not surprisingly we still import food crops to the tune of 10% of our total merchandise import per year We need to increase agricultural output to sustain our ever growing population, reduce reliance on food imports and increase the export of our crops. However, it should also put into place policies to ensure that this is done in an organic and sustainable manner to prevent destruction to the environment. Farmers need to trained on using modern organic farming techniques such as crop rotation, growing a variety of compatible crops, effective water management, integrated pest management and so on.
Secondly and perhaps the biggest impediment to the agriculture is the lack of infrastructure and credit facilities for rural population. The government needs to make significant investments such as large scale irrigation systems, providing machinery such as tractors, harvesters, cold storage facilities (for fisheries), seed banks for storage of extra seed in case of droughts, and provide a ready access to markets for farmers as an incentive for growing food crops. Another significant intervention (which is currently being undertaken) is to provide access to credit facilities so that farmers have the capital to purchase machinery and fertilizers resulting in increased yields. We need our farmers to change their mindset from one of subsistence farming to farming for profit
I have penned a number of articles for Uhuru Blog over the last month covering a number of issues, all with the overarching theme of how we can improve Tanzania. What surprised me while researching for these articles is how little of what is accepted globally as good practices are actually implemented in Tanzania. Our government continues its outdated policies year after year as if in suspended animation while the rest of the world speeds by, only bowing to pressure from donor countries from time to time to enact policies which mostly turn out to be detrimental.
What is required is for the government to get its act together, reform a number of key policies on its own doing (without any "technical assistance" from donor countries, by which I mean policies that favour the donors) and truly get our country on the path to sustainable development. Development, not only in terms of increase in GDP every year, but rather increase in the quality of life and dignity of all citizens. Don't let anyone lie to you that we need months to study global best practices and adapt different approaches to suit Tanzania. These are all delay tactics as the best approaches to different problems and how to apply them to unique conditions in developing countries are all known, but what is lacking is the political will to implement them. So I say to you, my fellow countrymen, let us not get left behind the time to ACT is NOW!
If you decide to stop reading this blog post now, I would like you to take one thing from this. The Tanzanian government, for years now, has been slacking, taking short term measures to push the country along slowly while relying too heavily on foreign aid. What it should do is to adopt brave long-term policies that are forward thinking and that will take this country into the 21st century. If we do not keep pace with technological innovation we may end up being left very far behind to struggle for decades to come.
I am going to list FOUR interventions that the government can implement very easily, by enacting laws and changing procedures which may have a huge impact in boosting the country's growth and respectability.
1) Enact a Freedom of Information Law (Right to Access Information)
Citizens have a right to access government and public information. There is no debate about that and there is no debate about what criteria such a law must abide by. By giving citizens the right to demand information from the government, it puts accountability in the hands of the people, thus giving them the incentive to follow national issues and the ability to pursue those issues that are important to them. Currently, citizens only exercise their democratic powers every 5 years during election time however with this law they can monitor the government continuously and expose malpractices when they happen. Now, some people who are already in government will be nervous by such a law and this may be the reason why its taking so long, but in the end governments are responsible to the people and they must act that way.
2) Increase spending on Information and Communication Technology (ICT):
The internet has revolutionized every sphere of our lives from education, communication, entertainment, governance and so on. It has become so central to our lives (those who have access it) that there are calls to classify Access to internet as a basic human right. And it should be a basic right as those without access to it will have a huge disadvantage, an insurmountable barrier compared to those use it growing up. Tanzania has very low internet penetration rate at about 11% compared to Kenya with 25.9%, Uganda -12.5% Rwanda - 13% (2010 figures - World Bank) and an overwhelming majority have never used the internet, let alone seen a computer before. Here is where the government can step in.
1. By making investments in improving the country's fibre optic backbone (which it has started)
2. Itroducing widespread computer literacy programs in public schools and local training centers
3. Modernizing government operations such as paying taxes, keeping of records, filling out forms by taking them online.
By implementing these measures the Tanzanian government can set the country on the path to prosperity and global competitiveness. So far, ICT spending has been pathetic. According to the 2011/12 budget the amount set aside for ICT was 27 billion shs which is roughly 0.002% of the total budget, and with the government's record of underspending in developmental expenditure, this figure is likely much lower. Compare this to the 130 billion that Kenyan government is going to spend in 2012/13 and it is easy to see why we will be left behind in the global technological race. To bridge the technological gap and ensure that the coming generation does not lose out, the government will have to spend upwards of atleast Tshs 100 billion (and all of it!) yearly on ICT infrastructure and training.
3) Reform Business regulations to stimulate Entrepreneurship.
Business is best done by locals. We have been desperately trying to woo foreign investors while ignoring our own latent talent and potential. There are 2 main problems with relying too much on investments from foreign companies. The first is that foreign companies bring technical expertise from their own countries denying local skilled people key managerial positions. Secondly, in order to entice the multinationals to Tanzania, the government gives them huge incentives, mostly in the form of tax exemptions resulting in lower public revenue and eventually capital flight as the foreign companies all have shareholders living abroad.
Therefore it is essential for government to stimulate entrepreneurship among its own citizens by lowering the barriers to starting a business. According to the Doing Business Report, Tanzania was ranked 127th out of 183 nations globally mainly because of complicated, overpriced business regulations particularly in getting Construction permits, registering property and paying taxes. These regulations need to be overhauled completely, making it easier for people to start businesses and paying taxes. One of the ways this can be achieved is by moving to an online system where forms can be submitted to different departments and processed instantly. We also need to integrate different departments so that all forms and licences can be obtained in one place.
4) Bringing innovation to the Agriculture sector
Agriculture remains the backbone of the economy in Tanzania and whether formal or informal, it still provides a means of living for majority of the country. Even though the government should push for a diversification of economic activity, any sustainable growth solution will involve reforming the Agriculture sector. Some estimates put agricultural exports at 30% of our total exports and employing 80% of the population making it the one of the most important economic activities in the country.
First of all, the government needs to make a push for increased production from agricultural land. Estimates from 2010 put average productivity for cereals at around 1.3 tons per hectare where as with good management 3.5-4 tons per hectare can easily be produced (For comparison Malawi - 2.2t Kenya - 1.6t, Uganda- 1.6t South Africa - 4.2t Rwanda - 1.9t). Not surprisingly we still import food crops to the tune of 10% of our total merchandise import per year We need to increase agricultural output to sustain our ever growing population, reduce reliance on food imports and increase the export of our crops. However, it should also put into place policies to ensure that this is done in an organic and sustainable manner to prevent destruction to the environment. Farmers need to trained on using modern organic farming techniques such as crop rotation, growing a variety of compatible crops, effective water management, integrated pest management and so on.
Secondly and perhaps the biggest impediment to the agriculture is the lack of infrastructure and credit facilities for rural population. The government needs to make significant investments such as large scale irrigation systems, providing machinery such as tractors, harvesters, cold storage facilities (for fisheries), seed banks for storage of extra seed in case of droughts, and provide a ready access to markets for farmers as an incentive for growing food crops. Another significant intervention (which is currently being undertaken) is to provide access to credit facilities so that farmers have the capital to purchase machinery and fertilizers resulting in increased yields. We need our farmers to change their mindset from one of subsistence farming to farming for profit
Sunday, 24 June 2012
Doing Business in Tanzania
By Alykhan
Any discussion about reviving an economy in the end always comes down to boosting local businesses and job creation. This is the surest way of achieving robust economical growth that is distributed evenly among all classes of society. Other sources of income such as exploitation of natural resources comes with its own drawbacks most notably the natural resource curse. Tanzania is a land of opportunity, characterized recently by robust economic growth and, thankfully, peace and stability in a region that is notorious for political unrest and civil war. This makes it an ideal place for attracting foreign investment but more importantly it should, at least in theory, be fertile ground for fostering local entrepreneurs that cater for Tanzanian consumers and hopefully even export their goods and services to other countries. In this article we want to examine some of the barriers to starting a business in Tanzania and how the government can rectify this situation to ensure our entrepreneurial culture is a thriving one.
According to the report, Tanzania is not faring so well when it comes to Ease of Doing business and is firmly in the bottom half of global rankings. In the East African region, Tanzania is ranked 4th out of the 5 countries, beating only Burundi but lagging far behind Rwanda, who have reformed their business sector considerably in recent years. (Report focus on Tanzania here)
Any discussion about reviving an economy in the end always comes down to boosting local businesses and job creation. This is the surest way of achieving robust economical growth that is distributed evenly among all classes of society. Other sources of income such as exploitation of natural resources comes with its own drawbacks most notably the natural resource curse. Tanzania is a land of opportunity, characterized recently by robust economic growth and, thankfully, peace and stability in a region that is notorious for political unrest and civil war. This makes it an ideal place for attracting foreign investment but more importantly it should, at least in theory, be fertile ground for fostering local entrepreneurs that cater for Tanzanian consumers and hopefully even export their goods and services to other countries. In this article we want to examine some of the barriers to starting a business in Tanzania and how the government can rectify this situation to ensure our entrepreneurial culture is a thriving one.
So how easy is it to start a business in Tanzania? This is a difficult question to answer. A seasoned Tanzanian would answer "It depends on who you know". Therefore, the odds are already stacked up against someone who has a brilliant idea but lacks the contacts to get their business of the ground. But lets put this hard-to-objectively measure problem aside for now and focus on the legitimate way to start a business in Tanzania. How does it compare to other countries in Sub-Saharan Africa and indeed globally. Fortunately, there is a report published by a World bank funded project aptly named the Ease of Doing Business Report. This report covers all aspects of conducting a business, from starting one to buying/selling properties as well as dealing with bankruptcies. It contains a detailed analysis of 183 countries ranked on 11 criteria, all which are objectively measured and standardized to make it comparable. The report (which can be found online here) goes further to list important information which the authors have used to conclude their ranking (such as number of procedures and hours required to file a typical tax return)
Source: Doing Business: Doing Business in a more Transparent World Report 2012
Summary of procedural problems in conducting business in Tanzania and proposed reforms:
In order to improve efficency of the business environment in Tanzania, we need to focus on the main areas where Tanzania is lagging considerably. Here is our analysis (in decreasing order of severity):
1. Getting Construction Permits (Rank: 176 out of 183)
This is by far Tanzania's worse ranking and possibly a major stumbling block for those business requiring construction (factories, warehouses, office buildings).
Officially, it requires a total of 19 procedures which takes on average 303 days to complete and the fees cost a whooping 1190% of an average Tanzanian's annual earnings. Compare this to Kenya where it takes 8 procedures, 125 days and 160% of annual income per capita and you can see Tanzania needs a major overhaul of construction permits.
This long waiting time may also be a breeding ground for corruption as officials will seek bribes to speed up the process.
2. Registering Property (Rank: 158 out of 183)
Property acquisition and selling are common practices either as a business by itself (real estate) or for expanding an existing business.
In Tanzania, property transfers require 9 procedures, take on average 76 days to complete and cost 4.4% of the property value. In Sub-Saharan Africa, Botswana has the highest rank (50) when it comes to Registering property. It requires 5 procedures, takes 16 days and costs 5% of the property value. This is about 5 times as fast as in Tanzania and requires half the number of procedures to complete.
3. Paying Taxes (Rank 129 out of 183):
Businesses pay taxes to the government for the privilege of benefiting from the resources of Tanzania. Countries are ranked on the number of tax payments made per year and the relative time required to fill out all the necessary documents.
For Tanzania, an average company is required to make 48 payments to the government per year which requires 172 man hours to complete. Rwanda emerges the leader in Sub-Saharan Africa for ease of paying taxes. It requires 18 payments and 148 hours to complete on average.
Also another factor to consider is the percentage of net profits that a business typically pays to the government as taxes. In Tanzania this amounts to 45% (Rwanda-31.3%) which places a huge strain particularly on small and medium sized businesses (SME), the majority of whom dont qualify for tax exemptions from the government where as the large corporations get away with paying much less in taxes (for a good example consider the mobile phone operators who despite making huge profits dont appear in the list of top tax payers). Changing the tax code to favor SME or atleast ensure all businesses pay their fair share of taxes will stimulate grassroot level entrepreneurship and create stable well paying jobs for the country.
4. Starting a business (Rank 123 out of 183):
Here the report evaluates the effort required to legally start a new business, by determining the number of procedures, time taken and the costs associated with formally registering the new business entity.
In Tanzania, starting a new business requires 12 procedures, takes 29 days and costs 29% of the annual per capita income. It is important to minimize the effort and cost of this crucial first step which may discourage many potential entrepreneurs from starting a business. Again compare this to Rwanda (Rank 8) who are really committed to reducing barriers for new businesses. It requires 2 procedures, takes 3 days and costs 4% of annual income to start a business. Amazing!
Therefore we can clearly see that Tanzania has a lot of unnecessary bureaucratic blocks when it comes to conducting business in the country. We desperately need to change this and we have many examples both globally and regionally like Rwanda of how this can be done to ensure Tanzania is not left behind in the global revolution to foster local businesses and attract more foreign investment.
Wednesday, 20 June 2012
Critiquing the proposed Tax increase in Alternative Shadow Budget
By Alykhan
I gladly welcomed the Alternative Budget 2012/13 proposed by Shadow Finance Minister Hon. Zitto Kabwe which amongst other things aims to increase development spending, reduce recurrent expenditure and drastically increase government revenue (from 8.7 trillion to 11.9 tril) a whopping 36% more! This is going to be achieved by a combination of cutting tax exemptions to sectors such as mining and telecommunications and raising the Pay As You Earn (PAYE) income tax. I support his brave attempt at changing our long held attitudes regarding our country's budget, that we are destined to accumulate debt and rely heavily on foreign donor support. The government should strive towards raising its own funds to finance the growth of Tanzania, and with the GDP growing at a rate of close to 7%, it should be able to raise significantly more revenues.
The new proposed rates are as follows
Source: zittokabwe.wordpress.com
That being said, I still have a number of reservations about exploiting PAYE as a revenue stream. The proposed PAYE tax hike includes a top rate of 42% for those earning 10 million and 38% for those earning more than 3.2 million. This undoubtedly will affect a very small percentage of Tanzanians who are lucky to earn this much. This will include top surgeons, CEOs of companies, people with PhDs, engineers and other professionals. My worry is that these professionals are highly mobile, and unlike say business owners, can easily move to a different country where their skills are in demand. In this globalized age, it has become very easy for people to migrate to a different country, one that perhaps has better social services than Tanzania. Furthermore, young professionals deciding to move to Tanzania may be discouraged by such a high taxation rate. Other countries (with their top bracket tax rates in brackets) such as Canada (30%), New Zealand (33%), South Africa (40%) and even our neighbours Kenya (30%) who are by the way recruiting qualified people in a big way, have lower income taxes and yet provide more social services. That's why I feel that imposing a 42% tax rate may cause people to leave our shores for greener pastures while Tanzania suffers from the brain drain.
Secondly, as laid out by the Shadow minister above, the rate at which different earning brackets are charged for PAYE may cause unfairness for certain people. For example take someone earning 3,000,000 under the above scheme. They will take home 2,149,500. However, if they got a raise of 200,000 shs and are now in the next tax bracket (earning 3,200,000) they will take home 2,067,600! That raise of 200,000shs actually becomes a loss of 100,000shs! Now you may think this is a mathematical trick but its not. Its the way in which the PAYE system and the base tax amount (the amount added to the % calculated) is structured. We propose an alternative which will remove this irregularity (for a more dramatic example calculate the tax rate for 9,999,999 and a raise of 1shs to 10,000,000. You pay about 360,000shs less in taxes after you get your 1shs raise!)
Here's our alternative:
Using this method, we get the following:
As you can see, using our method we get a more realistic calculation of taxes which are still higher than current PAYE rates for salaries above 3,200,000 shs making it more progressive and fair compared to that suggested in the Alternative Budget. With these small changes suggested by Uhuru Blog, Mr Kabwe can strengthen his proposal of increasing PAYE as means of cutting the budget deficit. However, we still maintain that proper studies be done before adopting this increase in PAYE to make sure we dont have talented and educated professionals leaving our country.
Comments are welcome, working together and debating we can find a solution to our debt crises!
I gladly welcomed the Alternative Budget 2012/13 proposed by Shadow Finance Minister Hon. Zitto Kabwe which amongst other things aims to increase development spending, reduce recurrent expenditure and drastically increase government revenue (from 8.7 trillion to 11.9 tril) a whopping 36% more! This is going to be achieved by a combination of cutting tax exemptions to sectors such as mining and telecommunications and raising the Pay As You Earn (PAYE) income tax. I support his brave attempt at changing our long held attitudes regarding our country's budget, that we are destined to accumulate debt and rely heavily on foreign donor support. The government should strive towards raising its own funds to finance the growth of Tanzania, and with the GDP growing at a rate of close to 7%, it should be able to raise significantly more revenues.
The new proposed rates are as follows
Source: zittokabwe.wordpress.com
That being said, I still have a number of reservations about exploiting PAYE as a revenue stream. The proposed PAYE tax hike includes a top rate of 42% for those earning 10 million and 38% for those earning more than 3.2 million. This undoubtedly will affect a very small percentage of Tanzanians who are lucky to earn this much. This will include top surgeons, CEOs of companies, people with PhDs, engineers and other professionals. My worry is that these professionals are highly mobile, and unlike say business owners, can easily move to a different country where their skills are in demand. In this globalized age, it has become very easy for people to migrate to a different country, one that perhaps has better social services than Tanzania. Furthermore, young professionals deciding to move to Tanzania may be discouraged by such a high taxation rate. Other countries (with their top bracket tax rates in brackets) such as Canada (30%), New Zealand (33%), South Africa (40%) and even our neighbours Kenya (30%) who are by the way recruiting qualified people in a big way, have lower income taxes and yet provide more social services. That's why I feel that imposing a 42% tax rate may cause people to leave our shores for greener pastures while Tanzania suffers from the brain drain.
Secondly, as laid out by the Shadow minister above, the rate at which different earning brackets are charged for PAYE may cause unfairness for certain people. For example take someone earning 3,000,000 under the above scheme. They will take home 2,149,500. However, if they got a raise of 200,000 shs and are now in the next tax bracket (earning 3,200,000) they will take home 2,067,600! That raise of 200,000shs actually becomes a loss of 100,000shs! Now you may think this is a mathematical trick but its not. Its the way in which the PAYE system and the base tax amount (the amount added to the % calculated) is structured. We propose an alternative which will remove this irregularity (for a more dramatic example calculate the tax rate for 9,999,999 and a raise of 1shs to 10,000,000. You pay about 360,000shs less in taxes after you get your 1shs raise!)
Here's our alternative:
As you can see, using our method we get a more realistic calculation of taxes which are still higher than current PAYE rates for salaries above 3,200,000 shs making it more progressive and fair compared to that suggested in the Alternative Budget. With these small changes suggested by Uhuru Blog, Mr Kabwe can strengthen his proposal of increasing PAYE as means of cutting the budget deficit. However, we still maintain that proper studies be done before adopting this increase in PAYE to make sure we dont have talented and educated professionals leaving our country.
Comments are welcome, working together and debating we can find a solution to our debt crises!
Tuesday, 19 June 2012
2nd UPDATE: OGP COMMITMENT TRACKER
We continue our rating of Tanzania's Open Government Partnership commitment by reviewing a further three promises. Click on the links below for detailed analysis:
#1.6 Post quarterly disbursements and execution reports on Ministry of Finance (MoF) website in machine readable format, updated in real time.
#1.8 Publish quarterly all Tax Exemptions granted in Health, Education and Water related sectors on the Ministry of Finance (MOF) website, in machine readable format.
#3.1 Improve National Audit Office/Controller and Auditor General's website to make it more open and user friendly and provide data in machine readable format
#1.6 Post quarterly disbursements and execution reports on Ministry of Finance (MoF) website in machine readable format, updated in real time.
#1.8 Publish quarterly all Tax Exemptions granted in Health, Education and Water related sectors on the Ministry of Finance (MOF) website, in machine readable format.
#3.1 Improve National Audit Office/Controller and Auditor General's website to make it more open and user friendly and provide data in machine readable format
Subscribe to:
Posts (Atom)