Draft, October 2014: Please do not quote or circulate without author's permission

Who bears the burden?

The distributive incidence of the presumptive income tax in Tanzania

Isis Gaddis

The World Bank, Washington DC

Abstract:

Taxation of household and micro enterprises in Sub-Saharan African countries is a controversial topic –
while some argue that a broadening of the tax base is imperative to increase public revenue, others caution that
this would potentially undermine the viability of these enterprises and push families into poverty. At the central
government level, many African countries tax the household- and micro-enterprise sector on the basis of
presumptive income tax systems, which use turnover as a proxy variable to establish tax liabilities. Despite the
salience of these schemes there have been hardly any studies analyzing their distributive incidence – the present
gap seeks to fill this gap using mainland Tanzania as a case study.

In Tanzania small businesses with annual turnover below Tsh. 20 Million qualify for the presumptive
income tax. In July 2012 the presumptive income tax system was reformed and a nil band for enterprises with
annual turnover of less than Tsh. 4 Million was introduced. The 2012 reform and the availability of the 2011/12
Household Budget Survey, which includes a fairly detailed household enterprise module, make the country an
ideal candidate to explore the distributive incidence of the presumptive income tax, and its reform in 2012.

The paper shows that the 2012 reform amounted to a significant tax reduction for the average household
enterprise – statutory tax liabilities per enterprise declined by almost 60 percent, while effective tax payments
(factoring in current levels of tax evasion) declined by half. This reflects that approximately 84 percent of all
household enterprises qualifying for the presumptive income tax became tax exempt through the reform. Even
though in absolute terms most of the gains of the 2012 tax reform accrued to the upper two quintiles of the
consumption distribution, benefits in relation to income/consumption were markedly progressive, hence
benefitting the poorer groups more than proportionately.

The analysis demonstrates further that it is important for the analysis of household enterprise taxes in
developing countries to factor in tax evasion. While statutory tax liabilities were mildly regressive even before
the reform, effective tax payments where progressive, because households with higher levels of consumption are
more likely to comply with the tax code. An analysis based on statutory tax liabilities only could hence
potentially yield misleading results.

JEL Classification: H22, O17, O55

Keywords: Household enterprises, micro enterprises, presumptive income tax, tax incidence, tax evasion,
informal economy, Sub-Saharan Africa, Tanzania

* Paper prepared as part of the Poverty and Social Impact Analysis (PSIA) “Distributional Impact of the Proposed
Presumptive Tax Reform” funded by the Multi-Donor Trust Fund (MDTF). I would like to thank Yutaka Yoshino for
encouraging this study and providing advice. Comments by Stephen Younger and Victoria Cunningham are gratefully
acknowledged. Of course, all errors are my own.
** Email: igaddis@worldbank.org
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1. Introduction

Small scale non-farm enterprises, particularly own-account household enterprises, are an

increasingly important source of livelihood and income for families in Sub-Saharan Africa. Due to
slow but steady structural change away from agriculture and an underdeveloped (albeit growing)
modern wage sector, household enterprises provide an important role in absorbing the rapidly
increasing labor force in most countries in the region.

While the importance of household enterprises for economic development and poverty reduction
is increasingly being recognized, they still often receive insufficient attention in national development
strategies (Kweka and Fox 2011, Fox and Sohnesen 2012).

Policies towards the household enterprise sector are often controversial and questions around
taxation lie at the heart of the debate. Because most household enterprises in Sub-Saharan Africa
operate in the informal sector, policies often focus on formalization, part of which’s objective is to
broaden the tax base (USAID 2005, GIZ 2014). This approach is challenged by Pimhidzai and Fox
(2012), among others, who argue that the household enterprise sector already contributes to
government revenue through various taxes and fees, especially at the local government level, and that
further efforts to formalize and extract tax payments may fundamentally undermine the economic
viability of these household enterprises and drive their owners into poverty. Besides this general
controversy there are also formidable practical challenges associated with taxing household and micro
enterprises, such as high cost of tax administration and a lack of formal accounts and record keeping.

In many developing countries, presumptive income tax regimes form the basis for central
governments’ taxation of small-scale enterprises. In East Africa, presumptive schemes are in effect in
Ethiopia, Kenya, Rwanda, Tanzania and Uganda. While these schemes are not identical, they share
similar features. In particular, tax liabilities are established on the basis of turnover rather than profits,
which reduces compliance cost (on the side of the enterprise) and administration cost (on the side of
the revenue authority).

Despite the salience of presumptive income tax systems in Sub-Saharan Africa, there has been
very little analysis of the distributive incidence of these schemes. The present study seeks to fill this
gap focusing on Tanzania, a country with a large household enterprise sector and a recent reform in
2012 of the presumptive income tax system.

Small businesses in Tanzania qualify for the presumptive income tax if their turnover is below
Tsh. 20 Million per year. The Tanzanian presumptive income tax system is designed to be simple and
yet provide incentives for enterprises to keep books/records for accounting purposes. To achieve this,
the tax schedule distinguishes between book-keeping and non book-keeping enterprises – the former
pay tax in relation to their turnover, while the latter have to make a flat payment. However, there have
been concerns that in practice the presumptive income tax is still too complex to administer and also
inequitable. A recent study commissioned by the Tanzania Revenue Authority (TRA) and conducted
jointly with the University of Dar es Salaam (TRA 2011) recommended reforms to the presumptive
income tax system, such as a nil band for enterprises with turnover below a certain exemption
threshold in combination with a flat tax rate after the nil-threshold.

Under the 2012 Finance Act the presumptive income tax system was reformed and enterprises
with an annual turnover below Tsh. 4 Million became tax exempt, while the different schedules for
book-keeping and non book-keeping enterprises were retained. This paper assesses the distributional
incidence of the pre- and post-reform tax schedules using incidence analysis techniques. Its main

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objective is to provide an improved understanding of the net benefits (and losses) of the reform to
different types of enterprises and the households earning income from these enterprises. In addition, it
also briefly explores the revenue implications of the different tax schedules. Altogether the Tanzania
case study provides important empirical evidence and lessons for policy makers concerned with
reforms of the presumptive income tax systems in countries the region.

The results show that the 2012 reform amounted to a significant tax reduction for the average
household enterprise – statutory tax liabilities per enterprise declined by almost 60 percent, while
effective tax payments (factoring in current levels of tax evasion) declined by half. These results
reflect that approximately 84 percent of all household enterprises qualifying for the presumptive
income tax became tax exempt through the reform. Even though in absolute terms most of the gains
of the 2012 tax reform accrued to the upper two quintiles of the consumption distribution, benefits in
relation to income/consumption were markedly progressive, hence benefitting the poorer groups more
than proportionately. The simulations show further that tax non-compliance has important
implications for tax incidence; suggesting that analyses based on statutory tax liabilities only could
potentially yield misleading results.

This paper is structured as follows: Section 2 describes the data sources and methodology.
Section 3 provides a short introduction to the presumptive income tax system in Tanzania. Section 4
discusses the main empirical results, while section 5 concludes.

2. Data and methodology

This study draws mainly on the 2011/12 Tanzania Household Budget Survey (HBS). The data
were collected from October 2011 to October 2012, hence largely predating the reform of the
presumptive income tax that came into effect in July 2012. The survey contains a detailed household
enterprise (HE) module, which captures all non-farm enterprises that were operated by sample
households during any time of the 12 months preceding the interview, and collects a wide range of
information pertaining to these enterprises, such as profits, input cost, business locality, etc. The
survey also collects information whether the HE pays taxes (income, value added, etc.) and whether it
keeps any records of business transactions (though it remains unclear a priori whether these records
satisfy TRA requirements for tax reporting purposes).

The study here follows the approach taken in TRA (2011) in disregarding farm enterprises.1
There is evidence from several studies that the majority of farms operate outside of the tax system and
that the main taxes collected from farmers are local taxes, particularly agricultural produce cess and
different levies and license fees, while much fewer farmers pay national taxes to the TRA (World
Bank 2006, 2009).

It is worth noting that actual tax payments in the HBS 2011/12 are not observed; the survey only
asks if the HE pays any of the following taxes – Value Added Tax (VAT), Pay As You Earn (PAYE),
income tax and other/specify (as yes/no questions). 2 However, since the survey contains information
on turnover and whether the HE keeps books/records it is possible to simulate statutory tax liabilities

1
Livestock herders are also excluded. The analysis, however, includes a small number of non-farm agricultural enterprises
(engaged in logging, fisheries, etc.) that are captured by the non-farm household enterprise module.
2
There is one additional question, which asks whether the HE paid any taxes incl. trading fees, licenses, etc. over the past 30
days (section 13, Q8-20). However, this question cannot be reliably used because taxes are combined with other types of
payments and because the recall period (30 days) is not well aligned with the periodicity of tax payments to the TRA
(quarterly).
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and effective tax payments (the latter differing from statutory liabilities in that they consider tax
evasion) of HEs for a variety of tax schedules using the following definitions and assumptions:

First, turnover is defined as gross income (see Appendix Table A1 for details). In cases where
HEs only operate for part of the year annual turnover reflects the actual number of months the
enterprise was in operation.

Second, it is assumed that only a small fraction of HEs under the presumptive income tax keep
records that comply with TRA accountancy standards and hence fall under the tax schedule for book-
keeping enterprises. In the HBS 2011/12, one quarter of HEs with turnover below Tsh. 20 Million
report that they keep some records of business transactions. However, it seems likely that not all of
these records satisfy the TRA’s minimum requirements for tax reporting purposes. Amongst the
(urban only) enterprises surveyed in TRA (2011) almost 78 percent were keeping some informal
records, but less than 3 percent satisfied the simplified accounting format for tax payments to the
TRA. Given that the HBS 2011/12 enterprise sample is predominately rural, compliance with TRA
requirements is likely to be even lower. This paper makes the simplified assumption that only the 10
percent largest book-keeping HEs (in terms of turnover) meet TRA accountancy standards
(corresponding to 2.3 percent of all HEs under the presumptive income tax threshold). 3

Third, in order to estimate the economic incidence of the presumptive income tax across
households it is assumed that the presumptive income tax falls on the business owners and, since
income pooled between family members, the household in which s/he lives. This is a typical
conjecture for taxes on profits of small enterprises based on the notion that the owners supply their
production factors inelastically, and hence cannot shift the tax burden onto consumers (see Younger et
al 1999 for a discussion, also Haughton and Khandker 2009).

Fourth, the study estimates tax incidence for two different scenarios – (a) assuming all non-farm
HEs pay taxes to the TRA according to their reported turnover and (b) considering non-compliance/
tax evasion. Factoring in tax evasion is important as many HEs operate outside the tax system and
were hence (de facto) unaffected by the reform even though their statutory (de jure) tax liabilities
changed. It should be noted that tax compliance here is modeled simplistically as a binary decision –
either the enterprise operates entirely outside the tax network (and hence pays zero presumptive
income tax) or the enterprise operates within the tax network and pays taxes according to its turnover.
It is not possible to consider other forms of non-compliance (such as under-reporting of turnover)
because the HBS 2011/12 data do not collect any reliable information on the actual amount of tax
paid. For scenario (b) it is assumed that all HEs that report paying any ‘national’ tax (i.e. taxes
administered and collected by the TRA, such as VAT, PAYE or income tax) as being effectively under
the tax net and hence paying presumptive income tax, while all other HEs are considered to be outside
the realm of the tax authority (see section 4.1 for a further discussion).

Fifth, it is assumed that HEs are taxed independently from other sources of income. The Income
Tax Act of 2004 stipulates that the presumptive income tax only applies to individuals whose ‘income
for a year of income consists exclusively of income from a business having a source in the United
Republic [of Tanzania]” (URT 2006, brackets added). However, around 22 percent of the individuals
running a HE in the HBS 2011/12 report having participated in wage employment for at least one hour

3
The sensitivity of the results to this assumption is tested by running additional simulations that assume that all HEs that
state they keep records and are registered with the Business Registrations and Licensing Agency (BRELA) meet TRA
accountancy standards (this amounts to 7.6 percent of HEs under the presumptive income tax – compared with just 2.6
percent under the main simulation above). This is based on the discussion in TRA (2011) that BRELA sets accounting
standards for the informal sector. However, the simulated distributive incidence does not change materially (results not
reported, but available on request).
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during the past year, and these HE could be excluded from the analysis on the grounds that their
owners may not qualify for the presumptive income tax. On the other hand, however, only 3 percent
of those individuals stated wage employment as their main activity over the past 12 months.
Furthermore, the HBS enterprise module does not easily allow establishing which household member
actually owns the enterprise for tax reporting purposes, and the HBS 2011/12 recall period does not
necessarily coincide with the TRA’s fiscal year. For this reason, all HEs whose annual turnover is
below Tsh. 20 Million are considered to be eligible to the presumptive income tax, irrespectively of
whether the individual that runs the HE pursues wage employment. 4

Finally, the analysis is static because it does not take into account behavioral changes, such as the
effects of the reform on investment decisions of household entrepreneurs or tax compliance. While
these effects could be very important, they cannot be easily analyzed with the data at hand. It should
be noted, however, behavioral reactions are the focus of a companion paper prepared under this
poverty and social impact analysis.

3. The presumptive income tax system

In Tanzania, individuals with business turnover of less than Tsh. 20 Million per year qualify for
the presumptive income tax. The presumptive income tax is governed by the First Schedule of the
2004 Income Tax Act and subsequent amendments. The 2012 Finance Act introduced a revised tax
schedule (effective July 2012) – the pre-reform (A) and post-reform (B) tax schedules are shown in
Table 1.

Table 1: Pre- and post-reform tax schedules

A. Previous system under Income Tax Act 2004 and 2006 amendments (effective until June 2012) – baseline
Annual Turnover Entrepreneurs Not Keeping Records Entrepreneurs Keeping Records
3,000,000 or below 35,000 0.011*Y
3,000,000-7,000,000 95,000 33,000+0.013*(Y-3,000,000)
7,000,000-14,000,000 291,000 85,000+0.025*(Y-7,000,000)
14,000,000-20,000,000 520,000 260,000+0.033*(Y-14,000,000)
B. New system introduced by Finance Act 2012 (effective from July 2012)
Annual Turnover Entrepreneurs Not Keeping Records Entrepreneurs Keeping Records
4,000,000 or below nil nil
4,000,000-7,500,000 100,000 0.02*(Y-4,000,000)
7,500,000-11,500,000 212,000 70,000+0.025*(Y-7,500,000)
11,500,000-16,000,000 364,000 170,000+0.03*(Y-11,500,000)
16,000,000-20,000,000 575,000 305,000+0.035*(Y-16,000,000)
Notes: Y denotes annual turnover. All values in Tsh.

The pre-reform tax regime (A) considered four tax brackets for enterprises falling under the
presumptive income tax system (see Figure 1 for a graphic illustration). Businesses not keeping
records had to make a flat payment in each bracket, while enterprises keeping records paid a fraction
of their turnover in addition to a (smaller) flat payment.

4
There is also no ‘family taxation’ in Tanzania and hence no need to adjust tax payments in case multiple HEs are operated
by the same household.
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Figure 1: Pre-reform tax liabilities and effective tax rates by turnover

Schedule A - Pre-reform/benchmark Schedule A - Pre-reform/benchmark
Tax liabilities by turnover Effective tax rates by turnover
800 1000

9 10
Tax liability ('000 Tsh per year)

3 4 5 6 7 8
Effective tax rate (%)
200 400 600

2
1
0
0

0 5 10 15 20 0 5 10 15 20
Turnover (Million Tsh) Turnover (Million Tsh)

with books without books with books without books

Source: Author’s computations.

This system resulted in very unequal effective tax rates (the average rate at which turnover is
taxed) and was characterized by certain ‘regressive’ 5 elements.

• Within and across tax brackets, the effective tax rate declined as turnover increased, and
businesses with a low annual turnover were taxed at a very high effective rate.
• Businesses keeping books were taxed at a lower effective rate than those that do not keep books
(though differences were negligible at the upper end of each tax bracket). This feature of the tax
schedule was designed to provide fiscal incentives for HEs to keep formal accounts.

The new system effective July 2012 (B) increased the number of tax brackets from four to five,
revised the tax rates within each bracket and introduced a nil band for enterprises with annual turnover
below Tsh. 4 Million. As a result the effective tax rate for enterprises with turnover below the
exemption threshold dropped to zero (see Figure 2).

Figure 2: Post-reform tax liabilities and effective tax rates by turnover

Schedule B - New system since 2012 Schedule B - New system since 2012
Tax liabilities by turnover Effective tax rates by turnover
800 1000

9 10
Tax liability ('000 Tsh per year)

3 4 5 6 7 8
Effective tax rate (%)
200 400 600

2
1
0
0

0 5 10 15 20 0 5 10 15 20
Turnover (Million Tsh) Turnover (Million Tsh)

with books without books with books without books

Source: Author’s computations.

Due to the simultaneous adjustment of tax brackets and rates, the net effects of the reform are
fairly heterogeneous. This is illustrated in Figure 3, which subtracts post-reform tax liabilities from
pre-reform tax liabilities; positive (negative) values indicating a net gain (loss) from the reform due to
lower (higher) tax liabilities under the post- than under the pre-reform system.

5
The term ‘regressive’ is used here in the sense that enterprises with a high turnover face a lower effective tax rate. Strictly
speaking, progressivity and regressivity should be assessed at the household level (relative to income).
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Figure 3: (Absolute) benefits of the 2012 reform by turnover

Schedule B - New system since 2012 Schedule B - New system since 2012
Absolute reform benefits by turnover Relative reform benefits by turnover
200

10
Reform benefits relative to turnover (%)
Reform benefits ('000 Tsh per year)

7.5
0

2.5 5
-200

0
-400

-2.5
0 5 10 15 20 0 5 10 15 20
Turnover (Million Tsh) Turnover (Million Tsh)

with books without books with books without books

Source: Author’s computations.

Figure 3 shows that the net impact of the 2012 reform depends on the level of turnover of the HE,
and whether it keeps books/records:

• Non book-keeping HEs with annual turnover below Tsh. 4 Million gained from the nil band:
o HEs with less than Tsh. 3 Million turnover experienced a net benefit of Tsh. 35,000; since the
majority of HEs fall below this threshold this is the dominant effect of the reform.
o HEs with turnover between Tsh. 3 and 4 Million even gained Tsh. 95,000; however, far fewer
HEs fall within this bracket.
• Non book-keeping HEs with annual turnover above Tsh. 11.5 Million generally face higher tax
liabilities under the new system.
o Exceptions are enterprises with Tsh. 14-16 Million annual turnover, which benefit from the
threshold adjustment (Tsh. 156,000 net benefit).
• Book-keeping enterprises experienced positive (but often comparatively small) benefits from the
reform:
o The largest gains (in absolute terms) accrue to enterprises with annual turnover just below
Tsh. 4 Million, which benefit most strongly from the newly introduced nil band.

4. Empirical results

4.1 Descriptive statistics of the household enterprise sector

The HBS 2011/12 data capture approximately 3.5 Million non-farm HEs. 6 97 percent of these
HEs have an annual turnover below 20 Million and hence qualify for the presumptive income tax. Out
of these, 292,699 report income tax payments, and an additional 177,240 report paying other national
taxes administered by the TRA, such as VAT or PAYE (see Table 2). 7 Almost 3 Million HEs do not
report paying any national taxes, which demonstrates that it is important to take non-compliance/ tax
evasion into consideration to simulate effective tax payments (in addition to statutory tax liabilities).

6
Of course, the 2011/12 HBS (being a sample survey) only collects data from a fraction of these HEs but the survey
estimates can be inflated to national totals using sampling weights. It should be noted that the 2011/12 HBS captures fewer
HEs than another nationally representative survey, the National Panel Survey (NPS). The NPS shows 4.9 Million enterprises
in 2010/11 and 5.2 Million in 2012/13 (excluding Zanzibar), compared with just 3.5 Million in the HBS 2011/12. It is
beyond the scope of the study to investigate what causes these discrepancies; but differences in the training of enumerators,
probing for HEs that operate only for part of the year, etc. are likely to play a role.
7
Missing turnover is imputed based on median by sector.
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For the purpose of this study it is assumed that all 469,939 HEs that report paying income or other
national taxes are effectively under the tax net and hence pay presumptive income tax, while the
remaining HE operate outside of the tax system. During initial stages of the analysis a narrower
definition of tax compliance was used – restricted to those 292,699 HEs that actually report paying
income tax – but the wider definition above (which includes HEs paying other national tax) matches
more closely the number of TRA registered presumptive income tax payers (437,003 in 2011/12).
Moreover, it is plausible that not all micro-entrepreneurs are well enough informed to report accurately
on which specific tax they are paying, which also supports the use of a wider definition.8

Table 2: Household enterprises in the HBS 2011/12, 2011/12

Total number of enterprises 3,505,425
Turnover below Tsh. 20 Million 3,396,939
Report paying any national taxes 469,939
Income tax 292,699
Other national tax (VAT or PAYE) 177,240
Do not report paying any national tax 2,927,001
Turnover above Tsh. 20 Million 108,485
Source: HBS 2011/12.

The remainder of this paragraph presents a short profile of the Tanzanian HE sector. We start
with a simply taxonomy based on the typology suggested by Kweka and Fox (2011). More than 90
percent of HEs under the presumptive income tax are household enterprises without employees. The
majority (66 percent) are own account workers, while the rest have at least one additional family
member working in the enterprise. Just under 9 percent are household enterprises with employees,
which are sometimes also called micro enterprises. However, for the remainder of this paper, the term
HE is used to denote all non-farm household enterprises with a turnover below 20 Million (i.e. HEs
that fall under the presumptive tax system) – irrespectively whether they employee outside family
members or not.

Table 3: Typology of household enterprises, 2011/12

Type of enterprise: Share
Household enterprise without - own account (only one family member) 66.2
employees - with family workers (more than one family member) 25.1
Household enterprise with employees (at least one non-family worker) 8.7
Total 100.0
Note: Only HEs subject to the presumptive income tax (annual turnover below Tsh. 20 Million).
Source: HBS 2011/12

Given Tanzania’s large rural population share (71 percent) it is not surprising that the majority of
HE (63 percent) are in rural areas (Figure 4). However, compliance with the tax code is somewhat
more common in urban areas: 15 percent of HEs in Dar-es-Salaam and 22 percent in other urban areas
report paying taxes, compared with only 10 percent of rural HEs. As a result, Dar es Salaam and other
urban areas jointly account for more than half of tax-paying HEs.

8
Using the narrower definition (e.g. restricted to HEs that report paying income tax) renders lower simulated effective tax
payments and tax revenues (in absolute terms), but only affects marginally the distributive incidence of the tax schedules.
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Figure 4: Geographic location of enterprises, 2011/12

All enterprises Enterprises paying taxes to the TRA

13.1 14.4
Rural Rural
24.2 47.6
Other urban Other urban
62.8
Dar es Salaam 38.0 Dar es Salaam

Note: Only HEs subject to the presumptive income tax (annual turnover below Tsh. 20 Million).
Source: HBS 2011/12

Most HEs are in trade (75 percent) – followed by manufacturing (8 percent) and
hotels/restaurants (6 percent). As shown in Table 4 there are significant variations across sectors in
the share of HEs paying income tax, which is highest in transport/storage (50 percent), and lowest in
the mining sector (4 percent).

Table 4: Sectoral allocation of enterprises, 2011/12

All enterprises under Percent paying Enterprises under presumptive
presumptive tax schedule taxes tax schedule and paying taxes
Column shares Number Column percent Number Column percent
Agriculture 159,500 4.7% 10.4% 16,563 3.5%
Mining 39,421 1.2% 4.2% 1,656 0.4%
Manufacturing 261,999 7.7% 8.0% 21,018 4.5%
Utilities, construction 15,780 0.5% 15.4% 2,433 0.5%
Trade 2,529,908 74.5% 14.5% 366,999 78.1%
Transport, storage 45,215 1.3% 50.0% 22,626 4.8%
Hotels, restaurants 187,245 5.5% 7.5% 13,982 3.0%
Other services 157,871 4.6% 15.6% 24,661 5.2%
Total 3,396,939 100.0% 13.8% 469,939 100.0%
Note: Only HEs subject to the presumptive income tax (annual turnover below Tsh. 20 Million).
Source: HBS 2011/12.

Turnover varies significantly across sectors (Figure 5). HEs in transport/storage and
utility/construction have significantly higher turnover than other enterprises. Overall, median turnover
is significantly lower than average turnover, indicating a large number of enterprises with very low
turnover. Turnover amongst HEs paying income tax is on average almost twice as high amongst HEs
not paying tax. 9

Figure 5: Annual turnover by sector, 2011/12

3.0 2.9
Mean Median
Annual turnover (Million

2.5 2.2
2.0
2.0 1.8 1.8 1.7
1.6 1.4 1.5
1.3
Tsh)

1.5
0.9
1.0 0.6
0.4 0.5 0.5 0.5
0.4 0.4
0.5
0.0
Agriculture Mining Manufacturing Utilities, Trade Transport, Hotels, Other Total
construction storage restaurants services

Note: Only HEs subject to the presumptive income tax (annual turnover below Tsh. 20 Million).
Source: HBS 2011/12.

9
Due the small number of enterprises paying taxes, average turnover for these enterprises cannot be disaggregated across
sectors (as sample sizes are getting too low).
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Figure 5 already suggest that a very large number of HEs that are subject to the presumptive
income tax fall under the nil threshold introduced in 2012 (i.e. they have an annual turnover below
Tsh. 4 Million). This is also further illustrated in Figure 6, which ranks HEs by turnover and plots the
average annual turnover for each percentile. Approximately 84 percent of HEs that are subject to the
presumptive income tax have an annual turnover below Tsh. 4 Million – confirming that the vast
majority of HEs became tax exempt through the 2012 reform, and that the introduction of the nil band
was the most important feature of the reform. 79 percent of HEs subject to the presumptive income
tax have annual turnover below Tsh. 2.5 Million, the nil threshold proposed by the TRA (2011) study.

Figure 6: Annual turnover by percentile, 2011/12

20
annual turnover - Million Tshs.
5 10 0 15

0 20 40 60 80 100
percentile

annual turnover nil-threshold in introduced in 2012

Note: Only HEs subject to the presumptive income tax (annual turnover below Tsh. 20 Million).
Source: HBS 2011/12.

4.2 Distributional effects of the 2012 presumptive income tax reform across enterprises

This section now uses the HBS 2011/12 data to simulate pre- and post-reform tax liabilities for
Tanzanian household enterprises (HE) and to investigate how various types of enterprises (by location
and by sector) were affected by the 2012 reform. As discussed earlier two different scenarios are
considered: The first scenario (denoted as ‘statutory tax liabilities’ and ‘statutory benefits’) ignores tax
non-compliance and simulates tax liabilities and reform benefits based on the assumption that all HEs
pay taxes; this allows assessing the ‘statutory’ (de jure) effects of the reform. The second scenario
(described as ‘effective tax payments’ and ‘effective benefits’) factors in that only a subset of the HEs
actually pay taxes and adjusts the simulations accordingly (HEs not paying taxes are assigned zero tax
payments before and after the reform). Scenario (b) hence reflects more closely the de-facto impact of
the reform. 10

Figure 7 shows simulated statutory tax liabilities and effective tax payments per enterprise by
location. Prior to the reform (Figure 7, left), HEs in mainland Tanzania had an average statutory tax
liability of Tsh. 58,600 per year. Tax liabilities were highest in Dar es Salaam (Tsh. 97,800), followed
by other urban (Tsh. 67,400) and rural areas (Tsh. 47,100), largely a reflection of differences in
turnover. Not surprisingly, average effective tax payments (considering non-compliance) per
enterprise were significantly lower than statutory tax liabilities – on average HEs paid only Tsh.
11,200 per year (this now being an average over a large number of HEs not paying any taxes and a
smaller number of HEs paying taxes according to schedule). Effective tax payments (considering non-
compliance) were significantly higher in Dar es Salaam (Tsh. 18,900 per HE) and other urban areas
(Tsh. 19,300) than in rural areas (Tsh. 6,400), which mirrors both higher turnover and a lower
incidence of tax evasion in urban areas.

10
It should be noted that in both cases, average benefits are expressed over all HE subject to the presumptive income tax.
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 Draft, October 2014: Please do not quote or circulate without author's permission

With the 2012 presumptive income tax reform, simulated statutory tax liabilities and effective tax
payments declined significantly as most HEs fell under the newly introduced nil band (Figure 7, right).
For mainland Tanzania, the average statutory tax liability (per enterprise) fell to Tsh. 21,500 under the
new system (compared with Tsh. 58,600 prior to the reform) and effective tax payments (considering
non-compliance) declined to Tsh. 5,600 (compared with Tsh. 11,200 previously). This shows that the
2012 reform was not revenue-neutral, but amounted to a significant tax reduction for the average HE.
Statutory tax liabilities and effective tax payments are also more strongly concentrated in Dar-es-
Salaam under the new system, due to its larger share of HEs with turnover above the nil-band.

Figure 7: Pre- and post-reform tax liabilities and effective tax payments by location
Average tax liabilities and payments per enterprise Average tax liabilities and payments per enterprise
A - Pre-reform B - New system
97.8
60.1

60
'000 Tsh per year

'000 Tsh per year

67.4
58.6

40
20 40 60

47.1 29.4
21.5

20
19.3 18.9 10.5 13.3
11.2 10.0
6.4 5.6
2.3
0

0
n

n
am

am
al

al
ia

ia
ba

ba
an

an
ur

ur
la

la
ur

ur
R

R
nz

nz
Sa

Sa
er

er
Ta

Ta
es

es
th

th
d

d
O

O
an

an
ar

ar
D

D
nl

nl
ai

ai
M

M
statutory tax liabilities effective tax payments statutory tax liabilities effective tax payments

Note: Only HEs subject to the presumptive income tax (annual turnover below Tsh. 20 Million).
Source: HBS 2011/12.

Figure 8 shows the net benefits of the 2012 reform (as the difference between pre- and post-
reform statutory tax liabilities/ effective tax payments) by location. In mainland Tanzania, as in all
three geographic areas, HEs received an average statutory benefit of approximately Tsh. 37,000
through the 2012 reform, which once again reflects that the nil band for enterprises with turnover
below the exemption threshold was the most important element of the reform. Benefits in terms of
effective tax payments (considering non-compliance) are significantly lower, at Tsh. 5,600 per HE,
and higher in other urban areas (Tsh. 9,400) and Dar es Salaam (Tsh. 5,600) than in rural areas (Tsh.
4,100). However, since most HEs are found in rural areas, 62 percent of the statutory reform benefits
and 46 percent of effective benefits go to rural areas.

Figure 8: Reform benefits by location

Average benefits per enterprise Distribution of reform benefits
B - New system B - New system
80 100

38.0 37.7
40

36.6 37.0
Share of total benefits (%)
'000 Tsh per year
30

62
60
20

46
41
20 40

9.4
10

5.6 5.6 25
4.1
13 13
0

am
al

ia

0
ba

an
ur

la

am
al
ur
R

nz
Sa

ba
ur
er

Ta

la
ur
R
es
th

Sa
d

er
O

an
ar

es
th
D

nl

ar
ai

D
M

statury benefits effective benefits statury benefits effective benefits

Note: Only HEs subject to the presumptive income tax (annual turnover below Tsh. 20 Million).
Source: HBS 2011/12.

11
 Draft, October 2014: Please do not quote or circulate without author's permission

Figures 9 and 10 disaggregate the results by the sector of the HE, instead of by geographic
location. Both before and after the reform, HEs in the transport/storage sector have somewhat higher
statutory tax liabilities and significantly higher effective tax payments than HEs in other sectors, a
reflection of both higher turnover and a higher rate of tax compliance in this sector (as discussed in
section 4.1). This also explains that effective reform benefits are highest for HEs in this sector, though
there is little cross-sectoral variation in statutory reform benefits (Figure 10). However, due to the
dominance of HEs engaged in trade, around three quarters of total benefits (both in terms of statutory
tax liabilities and effective tax payments) go to the trade sector.

Figure 9: Pre- and post-reform tax liabilities and effective tax payments by sector
Average tax liabilities and payments per enterprise Average tax liabilities and payments per enterprise
A - Pre-reform B - New system
20 40 60 80

20 40 60 80
71.2
'000 Tsh per year

'000 Tsh per year

60.4 60.0 60.1 61.5 58.6
56.0
43.8 47.7
42.4
33.8
29.3
20.2 24.3 22.8 24.2 21.5
16.8 17.8
9.2 11.6 11.9 11.2 11.5
5.6 7.5 6.3 5.51.3 6.9 3.6 6.0 5.9 3.4 6.1 5.6
0

0
n

n
e

ge

ge
g

g
s

s
g

s
ia

ia
re

re
nt

nt
ce

ce
rin

rin
io

io
ad

ad
in

in
an

an
tu

tu
ra

ra
ct

ct
in

in
ra

ra
i

vi
tu

tu
Tr

Tr
ul

ul
rv

nz

nz
o

to
ru

ru
M

M
au

au

r
ac

ac
ric

ric
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se
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Ta
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st
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uf
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Ag
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on

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H

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til

til
U

U
statutory tax liabilities effective tax payments statutory tax liabilities effective tax payments

Note: Only HEs subject to the presumptive income tax (annual turnover below Tsh. 20 Million).
Source: HBS 2011/12.

Figure 10: Reform benefits by sector

Average benefits per enterprise Distribution of reform benefits
B - New system B - New system
40.2
20 40 60 80 100

38.1
Share of total benefits (%)
40

36.8 35.7 37.3 37.4 36.3 37.0

32.2
'000 Tsh per year

75 77
30

19.6
20

10.7
10

4.3 5.8 5.8 5.6

2.3 3.9 2.9 8 5
5 4 1 0 0 1 1 5 5 3 5 5
0

0
n

n
e

e
g

g
es

s
ts
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ts

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ia
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ur

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Tr

or
ul

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rv
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ru
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ct

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se
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uf
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Ag
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,r
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,
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nl
el

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an

an
ot

ot
ai
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iti
Tr

Tr
M
H

H
til

til
U

statury benefits effective benefits statury benefits effective benefits

Note: Only HEs subject to the presumptive income tax (annual turnover below Tsh. 20 Million).
Source: HBS 2011/12.

4.3 Distributional effects of the 2012 presumptive income tax reform across quintiles

The analysis in the previous section has focused on the distribution of tax liabilities/payments and
reform benefits across enterprises in different geographic locations and economic sectors. However,
the ultimate interest of this study lies in how the presumptive income tax system, and its reform in
2012, affected the households and individuals operating and earning an income from these businesses,
which is the focus of this section. This also allows for an assessment if the presumptive income tax is
progressive or regressive in relation to household consumption (as a proxy for income), and if there
was any change in progressivity/ regressivity due to the reform in 2012. To estimate and present the
12
 Draft, October 2014: Please do not quote or circulate without author's permission

distributional incidence across households, the population is grouped into five quintiles on the basis of
total (price-deflated) consumption per capita. 11

Figure 11 shows simulated per capita statutory tax liabilities and effective tax payments by
quintile before and after the 2012 reform. Under the pre-reform system, Tanzanians had on average a
statutory tax liability of Tsh. 4,700 per capita (per year) from the presumptive income tax, which was
significantly higher for the least poor quintile (Tsh. 9,600) than for the poorest quintile (Tsh. 1,700).
This income gradient (in terms of absolute tax liabilities/payments) reflects that better-off households
are more likely to operate a non-farm HE, and if they do so, often have higher business turnover, than
poorer households. Effective tax payments (considering non-compliance) were significantly lower at
just Tsh. 900 per capita (per year) on average, but increased more strongly with consumption per
capita than statutory liabilities, which shows that individuals with higher levels of consumption are
less likely to operate outside the tax net.

Under the new system introduced in 2012, average statutory tax liabilities have declined to just
Tsh. 1,700 per capita (compared with Tsh. 4,700 prior to the reform), while effective tax payments
declined to Tsh. 500 per capita (compared with Tsh. 900 previously). For the poorest quintile, tax
liabilities basically dropped to zero, since virtually all of the HEs operated by this group fall within the
nil-band. There continues to be an income gradient in that individuals with higher consumption per
capita have higher statutory tax liabilities and effective tax payments (in absolute terms) than poorer
individuals.

Figure 11: Pre- and post-reform average tax liabilities and effective tax payments by quintile
Average tax liabilities and payments per capita Average tax liabilities and payments per capita
A - Pre-reform B - New system
9.6
0 1 2 3 4 5 6 7 8
'000 Tsh per year

'000 Tsh per year

0 1 2 3 4 5 6 7 8

5.5 4.7
4.7
3.8
3.0
2.5 2.0 1.7
1.7 1.1 1.4
1.1 0.9 0.7
0.4 0.5 0.2 0.0 0.1 0.2 0.5 0.5
0.1
2

r
t

t
ia

ia
es

es
oo

oo
an

an
e

e
or

or
il

il

il

il

il

il
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tp
nt

nt

nt

nt

nt

nt
nz

nz
Po

Po
as

as
ui

ui

ui

ui

ui

ui
Ta

Ta
Q

Q
Le

Le
d

d
an

an
nl

nl
ai

ai
M

statutory tax liabilities effective tax payments statutory tax liabilities effective tax payments

Note: Presumptive income tax only.

Source: HBS 2011/12.

Figure 12 shows how the reform benefits in absolute terms are distributed across quintiles. The
statutory benefits of the 2012 reform are higher for the better off – amounting to Tsh. 4,900 per capita
(per year) for the least poor quintile compared with just Tsh. 1,500 per capita for the poorest quintile.
Similarly, effective benefits (considering non-compliance) are significantly higher for the least poor
quintile (Tsh. 1,000 per capita per year) than for the poorest quintile (Tsh. 100 per capita per year). As
a result, a significant share of the total reform benefits (in absolute terms) goes to the better off: 56
percent of statutory benefits and even 72 percent of effective benefits are accounted for by the two
upper quintiles (i.e. the 40 percent Tanzanians with the highest consumption per capita).

11
An alternative welfare measures would be consumption per adult equivalent, which is used for Tanzania’s official national
poverty estimates (though consumption per capita is used for the international poverty estimates). For simplicity, since tax
payments are normalized on a per capita basis, consumption per capita is used for the analysis in this paper.
13
 Draft, October 2014: Please do not quote or circulate without author's permission

Figure 12: Reform benefits by quintile

Average benefits per capita Distribution of reform benefits
B - New system B - New system
4.9

60
5

Share of total benefits (%)

'000 Tsh per year
4

3.5 45.9
3.0
2.7
3

40
2.3
32.7
2

1.5 25.8
1.0 23.7
1

0.6 0.4 18.2

20
0.1 0.2 0.3 15.7
12.8
9.8 10.7
0

r
t

ia
4.8
es

oo

an
e

e
or

il

il

il

tp
nt

nt

nt

nz
Po

as
ui

ui

ui

Ta

0
Q

Le

r
t
d

es

oo
an

e
or

il

il

il

tp
nl

nt

nt

nt
Po

as
ai

ui

ui

ui
M

Le
statury benefits effective benefits statury benefits effective benefits

Note: Presumptive income tax only.

Source: HBS 2011/12.

Figures 11 and 12 only show absolute tax liabilities/payments and reform benefits. However,
even if the absolute gains of the reforms are larger for the better-off, the poor could still gain more
than proportionately in relation to their income. To gauge the degree of (relative) progressivity/
regressivity of the pre- and post reform presumptive income tax schedules it is necessary to assess tax
liabilities/ payments relative to consumption (as a proxy for income). 12 Progressive taxes reduce
(relative) income inequality, because the poorest groups pay less tax in relation to their income than
the better off.

Figure 13 graphs the cumulative proportion of tax liabilities/ payments per capita (tax
concentration curve) and consumption per capita (Lorenz curve) (both on the y-axis) against the
cumulative distribution of the population, ranked by consumption per capita (x-axis). If the tax
concentration curve lies below the (dotted) Lorenz curve of consumption per capita, the tax incidence
is progressive because tax payments/liabilities are less concentrated amongst the poor than the
distribution of consumption. Conversely, if the tax concentration curve lies above the consumption
per capita distribution, the tax is regressive and more concentrated amongst the poorest groups. 13

In terms of statutory tax liabilities, the pre-reform system was mildly regressive, in that poorer
Tanzanians had slightly higher tax liabilities in relation to their consumption than the better-off
(though the tax was almost proportional to consumption for the poorest 25 percent). Under the new
2012 system, statutory tax liabilities are less concentrated amongst the poor than amongst the better-
off and hence progressive. This is also shown by the Kakwani index (K), which is a summary
measure of progressivity and allows distinguishing a progressive tax (K>0) from a proportional (K=0)
or regressive tax (K<0). In the case here, the pre-reform Kakwani index is -0.03 (mildly regressive),
compared with 0.15 (progressive) after the reform. 14

Conversely, effective tax payments were progressive already before the reform, because the poor
are more likely to operate outside the tax system (K=0.15). The 2012 reform, however, contributed to

12
Ideally, tax payments would be compared with pre-tax income. This study compares tax payments with consumption
because the HBS 2011/12 does not collect reliable data on incomes. However, consumption (as measured in the survey) may
not be a good proxy for income of the better off – because the consumption aggregate excludes spending on rent/housing and
other durables and because richer individuals are more likely to save some their income. Hence care must be taken in
interpreting the results. Differences between pre- and post-tax income are also ignored, but these are likely to be minor given
that presumptive income tax payments are relatively small in comparison to total household income.
13
If the concentration curves cross, progressivity/regressivity cannot be established unambiguously from the graph.
14
The Kakwani measure (K) subtracts the gini index of consumption per capita (G) from the ‘quasi-gini’ of tax
liabilities/payments per capita (C) (K=C-G). A progressive tax is distributed ‘less equally’ than consumption, such that the
richer groups have a larger burden in relation to their consumption and C>G (K>0).
14
 Draft, October 2014: Please do not quote or circulate without author's permission

an even more progressive distribution of effective tax payments, as post-reform payments are less
concentrated amongst the poor than pre-reform payments (K=0.25). Overall this shows that the 2012
reform has enhanced progressivity of the presumptive income tax system, even though (as discussed
above) in absolute terms a significant proportion of reform benefits accrued to the upper two quintiles.
This information is summarized in Figure 14.

Figure 13: Distributive incidence of statutory tax liabilities and effective tax payments
Cumulative proportion of consumption/taxes

Cumulative proportion of consumption/taxes

Concentration curve - statutory tax liabilities Concentration curve - effective tax payments
1

1
.8

.8
.6

.6
.4

.4
.2

.2
0

0
0 .2 .4 .6 .8 1 0 .2 .4 .6 .8 1
Cumulative proportion of the population ranked by p.c. consumption Cumulative proportion of the population ranked by p.c. consumption

45 degree line consumption 45 degree line consumption

A - Pre-reform B - New system A - Pre-reform B - New system

Note: Presumptive income tax only.

Source: HBS 2011/12.

Figure 14: Kakwani index

0.30 0.25

progressive
0.20 0.15 0.15
Kakwani index

0.10

0.00
-0.03
regressive

-0.10
A - Pre-reform B - New system
Statutory tax liabilities Effective tax payments

Note: Presumptive income tax only.

Source: HBS 2011/12.

4.4 Revenue effects

While the distributional incidence of various taxes and alternative tax schedules is an important
criterion in tax policy design, the overall capacity of the tax system and its sub-components to
generate revenue must also be taken into consideration. This section takes a closer look at the revenue
implications of the presumptive income tax reform.

A first step is to assess to what extent simulated tax revenue based on the pre-reform presumptive
income tax schedule and HBS 2011/12 enterprises (taken into consideration actual levels of tax
evasion) matches the TRA records of revenue generated from the presumptive income tax in 2011/12.
Table 5 shows that simulated revenue only amounts to approximately 58% of the actual revenue
collected by the TRA. Disaggregation of revenue between book-keeping and non book-keeping
enterprises shows further that the simulations perform significantly better in projecting tax revenue
generated from the segment of non book-keeping HEs (with a ratio of simulated to actual revenue of
73 percent) than from the segment of book-keeping HEs (with a ratio of just 52 percent).
15
 Draft, October 2014: Please do not quote or circulate without author's permission

The above discrepancies point to an underestimation of turnover in the HBS 2011/12. One
potential explanation could be that the survey has not been specifically designed as an enterprise
survey. Similarly, household surveys of this nature often face difficulties in adequately capturing
better-off population groups and may hence also not give reliable estimates for a small segment of
enterprises with higher levels of turnover. 15 In addition, the way turnover is measured in the HBS
might differ in nuances from the way the TRA assesses turnover for taxation purposes. All this
suggests that the simulations (particularly where they relate to average tax payments and total tax
revenues in absolute terms, rather relative measures) need to be considered with some caution and may
underestimate effective tax payments.

Table 5: Simulated and actual tax revenue, 2011/12

Ratio of
Revenue
Simulated simulated
according to
revenue revenue to TRA
TRA records
records
(Tsh. Million) (Tsh. Million) (Tsh. Million)
Non book-keeping enterprises 13,891 19,104 73%
Book-keeping enterprises 24,094 46,665 52%
Total 37,985 65,769 58%
Note: Presumptive income tax only. T
Source: HBS 2011/12 and TRA (2011).

Table 6 shows the simulated revenue from the presumptive income tax for the pre- and post-
reform tax schedules. The left column is based on the scenario of full compliance / no tax evasion and
hence illustrative of the revenue generating potential of the various presumptive income tax schedules
if the tax base is broadened and tax evasion reduced. The right column is based on the scenario that
takes current patterns of non-compliance / tax evasion as given and adjusts revenue projections
accordingly.

Table 6: Simulated revenue from the presumptive income tax under different schedules
Annual revenues from the presumptive income tax
(Tsh. Million)
Full compliance With non-compliance
(no tax evasion) (tax evasion)
A - Pre-reform 199,046 37,985
B - New system 73,204 19,038
Note: Presumptive income tax revenues only.
Source: HBS 2011/12.

The revenue simulations in Table 7 confirm that the 2012 reform of the presumptive income tax
system amounted to a considerable tax reduction – simulated tax revenues declining by almost half
from 37,985 to 19,038 Tsh. Million.

Based on the simulations there is some scope for increasing revenues through a broadening of the
tax base. For the post-reform tax schedule (B), tax revenues would increase by a factor of 3.8 if non-
compliance with the tax code was eliminated and all HEs with turnover above the exemption threshold
brought into the tax net. For the pre-reform tax schedule (A) tax revenues would even increase by
factor 5.2 if tax evasion was eliminated. However, since this schedule does not consider a nil band,
the administrative burden of collecting taxes from 3.5 Million micro entrepreneurs would most likely
be prohibitively high. In addition, as discussed in the previous section, schedule (A) without tax

15
First, it is difficult to estimate ‘rare’ population characteristics from household surveys. Second, to the extent that survey
non-response rates are higher for wealthier population groups, HEs operated by this group would be underestimated.
16
 Draft, October 2014: Please do not quote or circulate without author's permission

evasion is regressive, indicating that the economic burden from a reduction of tax evasion under this
schedule would be higher for the poorest groups.

5. Conclusion

The paper shows that the 2012 reform of the presumptive income tax system amounted to a
significant tax reduction for the average HE – statutory tax liabilities per enterprise declined by almost
60 percent, while effective tax payments (factoring in current levels of tax evasion/non-compliance)
declined by almost half. This considerable reduction in tax liabilities and payments reflects that
approximately 8 out of 10 HE became tax exempt under the new tax schedule, because their annual
turnover is below the exemption threshold of Tsh. 4 Million. While the reform gains can be
significant for specific HEs operating in compliance with the tax code, effective benefits per capita
across the population are comparatively small, at just Tsh. 400 per year. This reflects that non-farm
HEs are still not the dominant source of income and employment in Tanzania, and that 86 percent of
non-farm HEs are not registered with the tax authorities.

The simulations further illustrate that 56 percent of statutory reform benefits and even 72 percent
of effective benefits (in absolute terms) accrued to the better off quintiles – as HE ownership is
concentrated amongst this group of Tanzanians, and (in addition) they are more likely to comply with
the tax code. However, benefits in relative terms (i.e. in relation to income/consumption) were
progressive and hence benefitted the poorer groups more than proportionately.

At a more methodological level, the analysis demonstrates that it is important for the analysis of
household enterprise and potentially other direct and indirect taxes in developing countries to factor in
tax evasion. While statutory tax liabilities of the presumptive income tax in Tanzania were mildly
regressive even before the reform, effective tax payments where progressive, because households with
higher levels of consumption are more likely to comply with the tax code. This reveals than analysis
based on statutory tax liabilities only can potentially yield misleading results.

17
 Draft, October 2014: Please do not quote or circulate without author's permission

References

Fox, L. and T. Sohnesen (2011), “Household Enterprises in Sub-Saharan Africa. Why They Matter for
Growth, Jobs and Livelihoods”, World Bank Policy Research Working Paper 6184, Washington
DC, The World Bank.

GIZ (2014), “Enterprise Formalization. Fact or Fiction? A Quest for Case Studies”, Study
commissioned by International Labour Organization (ILO) and Gesellschaft für Internationale
Zusammenarbeit (GIZ) GmbH on behalf of the Federal Ministry for Economic Cooperation and
Development (BMZ).

Haughton, J and S. R. Khandker (2009), Handbook on Poverty and Inequality, The World Bank,
Washington D.C.

Kweka, J. and L. Fox (2011), “The Household Enterprise Sector in Tanzania: Why it Matters and Who
Cares”, World Bank Policy Research Working Paper 5882, Washington DC, The World Bank.

Pimhidzai, O. and L. Fox (2012), “Taking from the Poor or Local Economic Development: the
Dilemma of Taxation of Small Informal Enterprises in Uganda”, Paper prepared as part of the
World Bank Africa Regional Project on Improving the Productivity and Reducing Risk of
Household Enterprises, Washington DC, The World Bank.

TRA, Tanzania Revenue Authority (2011), Review of Informal Sector for Taxation Purposes, First
Draft Report, Dar es Salaam.

URT, United Republic of Tanzania (2006), The Income Tax Act, Chapter 332, Revised Edition 2006,
Dar es Salaam.

USAID (2005), “Removing Barriers to Formalization. The Case for Reform and Emerging Best
Practice”, Publication prepared by Development Alternatives, Inc and Bannock Consulting Ltd,
mimeo.

World Bank (2006), “Sector Study of the Effective Tax Burden - Tanzania”, Foreign Investment
Advisory Service (FIAS), Washington D.C.

World Bank (2009), “Tanzania – A Study of the Burden of Local Taxes on the Agricultural Sector”,
Draft, Investment Climate Advisory Services, Washington D.C.

Younger, S. D., D. E. Sahn, S. Haggblade and P. A. Dorosh (1999), “Tax Incidence in Madagascar:
An Analysis Using Household Data”, World Bank Economic Review 13(2): 303-331.

18
 Draft, October 2014: Please do not quote or circulate without author's permission

Appendix

Table A1: Questionnaire overview HBS 2011/12

HBS 2011/12
Question referring Section 13, Q15-3: Do you pay any taxes?
to tax compliance (a) VAT
(b) Pay as you earn
(c) Income tax
(d) Other (specify)
(e) None
Question referring Section 13 Q16: Do you keep records of business transactions
to book keeping
Definition of Income from (i) sales of products mined/manufactured, (ii) sales of goods purchased
turnover from others for resale, (iii) construction work done, (iii) receipts for services
rendered. Annualized values in current Tsh. based on Section 13, Q9.
Source: HBS 2011/12 questionnaire.

19