Optimizing Revenue Generation in Tanzania: Key Initiatives for Fiscal Health and Economic Development

Tanzania does not feature among the top 10 African governments with the highest general revenues. Currently, the country is grappling with a government revenue deficit exceeding 34 percent. This deficit aims to bridge the gap between revenue and government expenditure based on the 2023/2024 budget plan.

In August 2023, the government budget performance exhibited notable variations from the estimates and actual operations in various key expenditure and revenue categories. Government expenditure experienced a marginal overall decrease of 6%, totaling TZS 3,028B compared to the estimated TZS 3,224B. Noteworthy shifts include a 20% increase in interest costs, reaching 285.1, and a substantial 27% reduction in other recurrent expenditure, amounting to TZS 562.4B. Development expenditure saw a slight decline of 3%, totaling TZS 1,357.3B. On the revenue side, the government witnessed a 2% increase in total revenues, amounting to TZS 2,537B. Tax on imports notably rose by 15%, reaching TZS824.7B, while tax on local goods and services decreased by 10%, totaling TZS 315.4B. Despite a 4% increase in income tax to TZS 988.9B, other tax and non-tax revenues experienced reductions of 10% and 13%, respectively. Consequently, the deficit decreased by 34%, totaling TZS -491B. These fluctuations in budgetary components highlight the dynamic nature of government finances in August 2023, necessitating a closer examination of the factors influencing these changes.

The leading African nations in terms of general government revenues as a percentage of GDP, according to the IMF's Fiscal Monitor report for October, are Algeria, Morocco, Mozambique, Chad, South Africa, Congo, Rwanda, Angola, Senegal, and Mali. The figures in the list denote general government revenue as a percentage of GDP.

A nation's economic well-being is heavily reliant on its government income, which serves as the financial backbone for crucial initiatives, infrastructure projects, and public services. Assessing a country's fiscal health involves considering the general government revenue as a percentage of GDP, a significant indicator.

Expressing government revenue as a percentage of GDP facilitates standardized comparisons across diverse countries and economic conditions. This ratio offers insights into the government's fiscal activities' size and efficiency relative to the overall economic activity within the country.

To facilitate such assessments, the International Monetary Fund maintains a comprehensive database covering government revenues as a percentage of GDP for every country. These countries are categorized into three financial groups: advanced economies, emerging market and middle-income economies, and low-income developing countries.

In the context of Sub-Saharan African countries categorized under low-income developing countries, the average general government revenue is 14.6, while African countries under the MENA (Middle East and North Africa) region, including North African countries, average 29.7.

For detailed information on African countries with the highest general government revenue, please refer to the IMF's Fiscal Monitor report titled "Climate Crossroads: Fiscal Policies in a Warming World."

Tanzania's specific economic context, can contribute to achieving higher government revenues as a percentage of GDP and, in turn, support sustainable economic development.

Diversify Revenue Sources:

Tanzania could explore diversifying its sources of revenue beyond traditional taxes. This may involve identifying new sectors or industries that have the potential for increased economic activity and taxation.

Improve Tax Collection Efficiency:

Enhancing the efficiency of tax collection processes can contribute significantly to increasing government revenues. This may involve implementing modern tax collection systems, reducing tax evasion, and improving compliance through better enforcement.

Promote Economic Growth:

A growing economy tends to generate higher tax revenues. Tanzania could focus on policies that stimulate economic growth, attract foreign investment, and foster the development of key industries. This could lead to an increase in overall economic activity, contributing to higher tax revenues.

Address Corruption and Illicit Financial Flows:

Corruption and illicit financial flows can undermine government revenue collection efforts. Implementing measures to tackle corruption and enhance financial transparency can help retain a greater portion of the country's economic gains.

Optimize Development Expenditure:

While maintaining necessary investments in development projects, Tanzania should continuously review and optimize its development expenditure to ensure that resources are allocated efficiently and effectively.

Enhance Fiscal Discipline:

Stricter fiscal discipline and prudent financial management can contribute to maintaining a balanced budget and avoiding unnecessary deficits, which can strain government finances.

Invest in Education and Skills Development:

Building a skilled workforce can contribute to increased productivity and, consequently, economic growth. A more skilled workforce can attract higher-paying industries and contribute to higher income tax revenues.

Promote Public-Private Partnerships (PPPs):

Encouraging partnerships between the public and private sectors can lead to the development of infrastructure and services, stimulating economic growth and generating additional revenue streams.

Regularly Review and Adjust Budget Plans:

Given the dynamic nature of economic conditions, regular reviews of budget plans can help identify adjustments and ensure that the government is responsive to changing circumstances.