'VAT hits low-income earners too hard

 

REPOA Executive Director, Dr Donald Mmari

 The government has been urged to revisit the tax regime especially Value Added Tax (VAT), which is levied equally on products and services at the expense of low-income earners. 

 

A researcher with the Research on Poverty Alleviation (REPOA), Flora Myamba said during her presentation in Dar es Salaam yesterday that charging VAT on essential goods and services hurt  most the poor and defeats the idea of taxes being a means of addressing income inequality and poverty. 

 

Presenting her findings of a study titled, ‘Fiscal Policy, Inequality and Poverty: A commitment to Equity Project, Myamba said the finding showed that taxes which reduce inequality quite often don’t reduce poverty.

“Indirect taxes in Tanzania increase poverty somewhat because poor people buy goods that they pay   Value Added Tax (VAT), import duties and excises,” Myamba noted.

 

She mentioned another tax which burdens the poorest most as excise duty on kerosene which is higher than that charged on petrol and diesel despite the fact that the former was mainly used by the majority poor.

 

“Tanzania could make taxation on petrol more progressive by reducing the tax on kerosene and compensating it with higher taxes on other fuels,” she said.

 

The REPOA study also revealed that electricity subsidies were poorly targeted at low income people despite the lifeline tariff 

suggesting the need by the government to eliminate electricity subsidy and use the money saved to fund conditional cash transfers.

 

Myamba said the main expenditure sectors that help address poverty were education and health noting that, “Without benefits of these expenditure items, the net effect of such taxes is to increase poverty.”

 

She said except for education and health, Tanzania had relatively little expenditure that reduced poverty in terms of conditional cash transfers.

On the other hand the study showed that the government had managed to reduce inequality among the people by five per cent.

 

Myamba pointed out that both direct taxes like Pay -As – You- Earn and presumptive taxes on small businesses, VAT and excise duty are highly progressive in Tanzania than in other countries where similar studies have been conducted.

 

Public expenditure on education  especially  primary schooling and health care  especially  services  at dispensaries  and health centres  had also  helped  redistribute resources  from richer to poorer  households  in the country.

 

Commenting on the findings, REPOA Executive Director, Dr Donald Mmari said however that according to the study, government subsidies had to some extend contributed in reducing poverty because they benefit people with low income through the provision of social services.

 

Dr Mmari said the taxes were also progressive because they had helped to reduce inequality between the poor, middle class and the rich who pay taxes or gain the benefits of government spending.

 

Tanzania Revenue Authority Principle Research Officer, Cecilia Kagoma called upon the government to come up with a good system which will enable small scale enterprises to pay tax which would help in reducing poverty through social service provision.

 

The study has been conducted by Repoa in collaboration with Ithaca College, Tulaine University, and Centre for Inter- American Policy and Research, The dialogue leadership for the Americans and CEQ Institute Commitment to Equity. The study was conducted between 2013 and 2014.