Advice to government on mobile transaction tax deductions: Provide justificatory clarifications, eliminate arbitrariness in subtractions

Doctor Mama Amon · 2021-07-16T09:16:41+00:00

President Samia Suluhu Hassan of Tanzania This morning, many newspapers have headlines suggesting public panic related to the recent tax deductions related to mobile digital transactions, which effectively commenced yesterday. Such tax deductions through digital transactions are not new in Tanzania. Electronic transactions related to the purchase of energy tokens from TANESCO is a case in point. Suppose that, a typical TANESCO customer buys energy token by electronically paying TZS 5,000/=. This amount is apportioned into four pieces, which are then distributed as follows to different agencies: VAT deduction for TRA is 18%; REA deduction is 3%; EWURA deduction is 1%; NHIF deduction is 0.5%; and TANESCO retains 78%. This example shows that, the customer knows in advance that 22% of his 5,000/=, that is, TZS 1,100/=, will not be used to give him/her any energy token. So, the customer willingly buys energy token worthy TZS 3,900/= and forgoes TZS 1,100/= as his/her contribution to the national tax basket. So, what is new is the public panic that has been witnessed. It is a puzzle. So, why have the recent tax deductions related to mobile digital transactions caused public panic while their twin sisters such as REA, EWURA, VAT deductions were calmly accepted? Are there genuine reasons? I sugest that, there are two reasons for the observed public panic. One is the government’s failure to offer well argued clarifications to justify deductions. And two is the arbitrariness of the deductions. I shall explain these points by way of an example from my personal experience as a researcher. In 2019, I was consulted to perform a feasibility study related to the following question: Is it possible for Tanzania, the nation that has countrywide telecommunications operators, to sustainably implement a “Universal Health Insurance Scheme” based on tax deductions from periodic voice, data and e-money transactions? By using the logic similar to the TANESCO scenario, I found that, given justifiable reasons, it was possible for mobile subscribers to shoulder tax deduction from their data, voice and e-money transactions. By then, the dire need for “Universal Health Insurance Scheme in Tanzania” was considered a good reason for rendering such tax deductions “justifiable,” since the question of saving human life without any discrimination based on one’s income enjoys general public support. In my report, I argued for the creation of a Mobile Health Insurance Policy which would form a legal basis for the imposition of a statutory deduction of 0.5% against each and every sim-card transaction related to airtime purchase, data bundles purchase, voice bundles purchase, mobile money transfers, and mobile money withdrawals. Telecoms operators would be advised to adjust their billing systems accordingly so that this deduction is done through their normal voucher system without any prejudice to their financial models. By using the data set from Tanzanian sources, the implementation of the “Universal Health Insurance Scheme in Tanzania” seemed feasible, effective and sustainable, in the following terms: As of 2019, Tanzania had a population of 55 million residents most of whom were voice, data and emoney subscribers. By then, there were 43,621,499 voice mobile subscribers, 23,142,960 mobile data subscribers and 23,367,826 mobile emoney subscribers. According to the sources that were availed to me by my informers from the telecoms operators registered in Tanzania, monthly financial traffics were as follows per each mode of digital transaction: average monthly financial traffic for voice services was TZS 713,734,966,638/=; average monthly financial traffic for data services was TZS 8,655,467,040; and average monthly financial traffic for emoney services was TZS 199,303,486,919,220/=. I computed average revenue per user (ARPU) for each mode of digital transaction, where, Voice ARPU per month was 16,362/=; data ARPU per month was 374/=, and emoney ARPU per month was 8,528,970/=. Finally I found that, at the tax deduction rate of 0.5%, the nation could collect TZS 12 trillion per annum, that is TZS 12,001,552,641,174/= per annum. From these projections, it followed that, in Tanzania, the premium contributions per individual per year, would be TZS 218,210/=. Given that, not every contributor gets sick, it was concluded that, assuming proper health insurance risk pooling principles, the “Universal Health Insurance Scheme in Tanzania” would be feasible technically, economically and socially. Later, I was informed that, the proposal was dismissed by the late John Magufuli for the reason that, it would interfere with the then predefined revenue sources. I could not get the full explanation of which “predefined revenue sources” were being referred to, and in what sense they could be jeopardized by the new proposal. Since then the question of the “Universal Health Insurance Scheme in Tanzania” was halted. It did not even feature in the CCM election Manifesto for 2020-2025 statecraft cycle. The agenda of the “Universal Health Insurance Scheme in Tanzania” was verbally mentioned by the CCM Presidential candidate during public rallies somewhere in Northern Tanzania. Later the question of digital deductions was recently revived in the parliament, this time their justification being that, digital deductions are needed for implementing developments megaproject. In my opinion, the argument from the need to implement developments megaprojects is less weightier than the argument from the need for the “Universal Health Insurance Scheme in Tanzania.” The latter argument made sense to almost every citizen in a way that then former argument does not. The new argument, as floated in the parliament by the finance minister, is still abstract. It needs further clarification, given that, some projects being funded by these new digital tax deductions are not universally supported by the general public. This clarification must be accompanied with transparency related to government development plans. Today, the public has not seen the Five Years Development Plan for the period running from 2021 to 2026 (FYDP III). No any government efforts have been made to make FYDP III visible to the general public, which in fact has a duty to monitor its implementation. FYDP III was tabled by the finance minister in the parliament, but parliamentary records have no copy of it. FYDP III was recently publicly inaugurated as it was graced by the presence of Jakaya Kikwete, the fourth President of Tanzania. But the finance ministry website has no softcopy of FYDP III. What all this amounts to is that the government has no smart development plans which can be used to warrant the disputed digital tax deductions. So any argument related to development plans cannot secure easy acceptance. Government polans have never been classified documents anywhere in the world. This fact, partly explains the observed general public panic. It is a panic due to the shallowness of government explanations so far given for justifying the logic of the digital tax deductions. However, personally, I support the logic of the deductions. What I call into question, is the observed second reason for the public panic. Deductions related to REA, EWURA and VAT were not vehemently protested by the public because the deductions were, and still are, predictable in terms of predefined percentages. But, this morning, I have taken the sample of deductions made against cash transfers ranging between TZS 100,000/= and TZS 3,000,000/=, the percentage increase is between 50% and 63%. This variation casts some doubt on the mode of implementation. This arbitrariness is a surest formula for public panic and possible civil protests. It has to be ironed out. Generally, the government should convince the public that, the four principles of a well-functioning tax system are complied with as regards these new digital taxes. They are equity, certainty, convenience, and efficiency. They are described briefly below. Equity: A tax system which stresses equity is one where taxpayers that are similarly situated are also similarly taxed. Two taxpayers with equal ability to pay should be taxed equally and any differential in this ability should be accounted for. This is described as ‘horizontal equity’. The other element of this axis, ‘vertical equity’, says that the taxpayer who can shoulder a greater burden of taxation should accordingly pay more tax. Certainty: A taxpayer must have certainty as to their liability and respective tax burden as well as when and how tax payments should be made. This improves taxpayer compliance and voluntary participation, and increases taxpayer trust in the system. The certainty principle can also include the concept of tax simplicity, which recognises that more complex tax rules can erode and compromise tax certainty. Convenience: within a tax system reflects the ease with which taxpayers can comply with the rules and mechanisms of the system. Tax assessment and payment should present the smallest burden possible on a taxpayer. Strengthening convenience has the added benefit of reducing the cost of tax administration, as well as compliance. For instance, mobile money transactions have the potential to make significant contributions to this principle through Person-to-Government (P2G) transactions. Efficiency: The principle of tax efficiency looks at both economic and administrative factors. Economic efficiency within a tax system reflects the need to balance revenue mobilisation with economic development and functionality. A lack of consideration for the negative impacts of tax can lead to disproportionate negative impacts such as capital flight, labour market shifts, and weakened export markets, and can negatively impact upon national development plans. Administrative efficiency reflects the need for the execution of a tax system to be inexpensive and easy to administer. The cost of tax administration to government should be limited, recognising the impact that finite resources place on the operational capacity of developing countries. Finance Minister, Dk. Mwigulu Nchemba

Thread starter Doctor Mama Amon
Start date Jul 16, 2021
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government mobile tax

Doctor Mama Amon

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Advice to government on mobile transaction tax deductions: Provide justificatory clarifications, eliminate arbitrariness in subtractions

Doctor Mama Amon

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