Tanzania - Tax Administration Program Project

Report No. PID8015 Project Name Tanzania-Tax Administration Program Region Africa Sector Economic Management Project ID TZPA47761 Borrower Government of the United Republic of Tanzania Implementing Agency Tanzania Revenue Authority; Ministry of Finance, Dar es Salaam, Tanzania Date of Initial PID November 1996 Date This PID Prepared July 1999 Environmental Category C Project Appraisal Date November 1998 Board Approval Date March 30, 1999 Background 1. Tanzania's macroeconomic performance during the past decade has been uneven. Growth, driven largely by recovery in agriculture, has averaged close to 4 percent per annum, but inflation has been high and, since 1992, the increase in budgetary deficits has made it even more difficult to achieve stability. After declining in the second half of the 1980s, the incidence of poverty stabilized in the early 1990s with about 53 percent of the population still below the poverty line. This indicates that the first round of liberalization and adjustment launched in 1986 must now be pushed to the next stage. To raise growth in excess of 4 percent, keep inflation at single digit levels and reduce the level of poverty calls for a second generation of reforms that continue and extend efforts to improve fiscal management, liberalize the economy and privatize financial sector institutions and parastatals. 2. Since 1995, Government has engaged with the Bank in a dialogue to introduce far reaching policy measures. The Government's resolve has been reflected in the approval of an ESAF program (November 1996) and a SAC (July 1997). Project Objectives 3. Strengthening of revenue collection is central to macro stabilization in Tanzania. The Government of Tanzania established the Tanzania Revenue Authority (TRA) in 1996 with the objective of improving revenue collection. The World Bank is supporting the Government's program through the Tax Administration project (TAP), whose principal objective is to support the TRA in increasing revenues accruing to Government, without increasing tax rates by: Improving the Legal Framework  Broadening the Tax Base; Strengthening the TRA to increase efficiency and effectiveness of tax administration; and Improving the Administrative Infrastructure. Project Description 4. Initial support has been provided to the TRA through an IDF grant for the establishment of the organization, and by USAID, DANIDA and DFID assistance. This has been primarily directed at improving management, human resource development and financial systems. Under the integrated program as developed, support is to be provided through the medium term to develop modern management and operations systems for the three Revenue Departments and other supporting departments (the Tax Audit and Investigations Department, Information Technology Department, Internal Audit Department, Legal Department, Research Policy Unit and the Public Relations /Taxpayers Education Unit ). Reform of the customs administration is at the heart of the project. Support will be provided under the project for capacity building/institutional development; provision of infrastructure and equipment to TRA tax offices and customs facilities throughout Tanzania; training; computerization; support to public awareness/education programs; and support to review/amend laws and regulations. 5. The project will cover the entire country and there is close coordination with the Ministry of Finance, the private sector (business community, academia and chambers of commerce) and the donor community. Several donors (DANIDA, DFID, EU, FINIDA, and SIDA) are also supporting the program. Project Financing 6. Project costs (including contingencies) are $70.2 million, of which, US$40 million is contributed by IDA, US$ 7 million by Government and the remaining US$23.2 million by the donors. Project Implementation 7. The program will be implemented by the TRA. A Project Implementation Unit, reporting directly to the Commissioner General, has been established to facilitate program implementation. Sustainability 8. Sustainability is evidenced by the fact that TRA has been responsible for the program design and preparation. By supporting a comprehensive tax and customs administration reform, the project will help the Government establish a sustainably higher and more predictable level of revenues. The strong institution-building component of the project is aimed at ensuring sustainability over the medium term; Government commitment to on-going strengthening is necessary for long-term sustainability. Lessons learned from Past Operations in the Country/Sector 9. This is the first operation to support tax administration in Tanzania. Lessons learned from other tax administration projects which are reflected in - 2 -  the project design include: (i) need for political commitment to the reform and active support for its implementation; (ii) appropriate emphasis on organization, business process, human resource selection, pay and training issues and avoidance of over-emphasis on information technology; (iii) competent leadership in implementation and close supervision by Government; (iv) focus on voluntary compliance through improvements in legal framework, administration and quality of services, and fair grievance redressal; and (v) mechanisms to ensure transparency and accountability of tax administration such taxpayer registration number prioritization of assessment, investigation and collection activities, and an effective public relations campaign to educate taxpayers regarding their legal obligations. Poverty Category 10. The project will have a bearing on poverty alleviation, but this is not among the Program of Targeted Interventions. Environmental Aspects 11. The TAP is ranked "C" for environmental purposes. Project Benefits 12. The major benefits from the project would be: (i) qualitative improvements in tax administration with respect to transparency, effectiveness and assistance to taxpayers; (ii) increased tax revenues; (iii) measurable improvements in control and monitoring compliance. Project Risks 13. The critical risks include: (i) TRA's ability to attract and retain qualified staff; (ii) weak capacity to coordinate interrelated tasks and supervise consultants effectively; (iii) incompatible information systems across revenue departments; and (iv) insufficient counterpart funds. Contact Points: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Rakesh Nangia Task Manager Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending August 6, 1999. - 3 -