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LGD 2002 (1) - F D A M Luoga


Contents

 

Abstract

1.

A Brief Background to Democratisation and Transition to Free Market Economy

2.

Taxation in Post-Independence Tanganyika

3.

The Arusha Declaration

4.

Taxation in the Post Arusha Declaration

 
4.1
 
4.1.1
4.1.2
4.2
 
4.2.1
4.3
 
4.3.1
4.3.2
4.3.3
5.
 
5.1
5.2
 
5.2.1
5.2.2
5.2.3
5.2.4
5.3
5.4
6.
 
6.1
6.2
6.3
 
6.3.1
6.3.2
6.3.3
6.3.4
6.3.5
6.4
7.
 

Notes and References


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Taxation in the Advent of Democratisation and Transition to Free Market Economy in Tanzania and Concerns on the Rule of Law and Human Rights

F D A M Luoga
PhD Student, University of Warwick
luoga@btinternet.com


Abstract

In this article the focus is to examine the use and functioning of taxation in postcolonial Tanzania before the recent democratisation processes and the change to free market economy. The objective is to demonstrate two things. One, that the legal framework for taxation within which the reforms are implemented[1] was designed for taxation without restraint. It did not contemplate taxation as one of the institutions concerned with state-society relations in governance. Two, the reforms implemented within the retained legal framework may not be viable in the contemporary environment. They lack democratic legitimacy and likely to foment resistance by citizens. To demonstrate the two concerns, a close analysis is made of the philosophies and factors that shaped up the current framework. The starting point is a brief overview of how the pre-independence tax structures survived under the post-independence government and subsequently retained by the system that was established to implement the Arusha Declaration (AD). The latter stands as the hallmark Tanzanian book of principles that organised the polity until recently.

Keywords: Human Rights, Tax, Democratisation, Tanzania, Colonial.


This is a Refereed article published on 8 November 2002.

Citation: Citation: Luoga F, 'Taxation in the Advent of Democratisation and Transition to Free Market Economy in Tanzania and Concerns on the Rule of Law and Human Rights', Law, Social Justice & Global Development Journal (LGD) 2002 (1) <http://elj.warwick.ac.uk/global/02-1/luoga.html>. New citation as at 1/1/04: <http://www2.warwick.ac.uk/fac/soc/law/elj/lgd/2002_1/luoga/>


. A Brief Background to Democratisation and Transition to Free Market Economy

Tanzania like many other developing countries is implementing market reforms and multiparty politics. This follows the agreement signed in 1986 between the government and the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF) that impelled the adoption of Structural Adjustment Programmes (SAP)[2].

The economic stabilisation programmes implemented through SAP focused on the problems of managing of balance of payments, reducing fiscal deficits and increasing economic efficiency. The tools used to achieve those objectives are many[3] but the introduction of multiparty politics and the free market system are prominent because they have changed the governance-relations scenario. They have also had significant impact on tax relations. The latter, stand out as a major challenge not only to government finance and economic relations but also to the structure of governance, rule of law and human rights. They have prompted a major drive on tax reform.

The main study on tax reform is the report by the Presidential Commission of Enquiry into Public Revenues, Taxation and Expenditure (hereafter called the 'Tax Commission') (GOT, 1991). The government also formed a task force at the Ministry of Finance (MoF) that over the past five years produced three reports to guide the reform process (GOT, 1997, GOT, 1998, GOT, 1999). The Fiscal Affairs Department of IMF (FAD-IMF) has supported two studies (FAD-IMF, 1995, FAD-IMF, 1997). In addition the Tanzania Revenue Authority (TRA) has since 1999 produced studies to further the process (TRA, 1998, TRA, 1999, TRA, 2000, TRA, 2001), and sponsored one independent study (ESRF, 1999). The business sector has also sponsored studies that aim at representing their views and concerns on tax reform (ESRF, 1996, ESRF 1997a).

Invariably all the above studies use economic criteria in evaluating taxation and proposing corrective strategies. None of them have attempted to examine taxation in its governance context, which requires an interdisciplinary understanding of taxation in order to redefine tax relations in the changed socio-economic and politico system (Brennan and Buchanan, 1980, Pasquariello, 1985, Steinmo, 1993). Ideas on tax reforms assume the continued suitability of the legal framework that serviced the previous system despite the changed relations. The oversight to re-examine the legal framework for taxation has enabled the continuance of tax practices that do not conform to rule of law and democratic governance (Thuronyi, 1996, Vanistendael, 1996, Davis and Trebilcock, 1999). These raise concerns on the impact of taxation on human rights.

In this article the focus is to examine the use and functioning of taxation in postcolonial Tanzania before the recent democratisation processes and the change to free market economy. The objective is to demonstrate two things. One, that the legal framework for taxation within which the reforms are implemented[4] was designed for taxation without restraint. It did not contemplate taxation as one of the institutions concerned with state-society relations in governance. Two, the reforms implemented within the retained legal framework may not be viable in the contemporary environment. They lack democratic legitimacy and likely to foment resistance by citizens. To demonstrate the two concerns, a close analysis is made of the philosophies and factors that shaped up the current framework. The starting point is a brief overview of how the pre-independence tax structures survived under the post-independence government and subsequently retained by the system that was established to implement the Arusha Declaration (AD). The latter stands as the hallmark Tanzanian book of principles that organised the polity until recently.

2. Taxation in Post-Independence Tanganyika

The colonial tax system was designed to provide the colonial administrator with unfettered powers over the colonial subjects. It reflected the nature of the system of governance of the colonial state in which the subjects had no rights in determining the form of government and its financing. While the British had at the time of their administration of Tanganyika Territory had abolished the prerogative approach to taxation in the United Kingdom (UK) (Tutt, 1985), they did not extend the principles prohibiting arbitrary taxation to their colonial territories. They found no compelling need to define the principles in the exercise of taxing powers. Taxation was interwoven into the exercise of administrative powers. There was thus no legal framework for taxation that can be separately analysed.

One of the factors used to mobilise the colonial subjects in the struggles for independence was the rejection of arbitrary and undemocratic taxation (Kimambo and Temu, 1969, Yeager, 1982). Taxes symbolised the bondage to which the people were held.

Tanganyika attained independence in 1961 (Kimambo and Temu, 1969). Like many other former British colonies her independence Constitution[5] was prepared at Westminster according to the perceptions cherished by the British (Pratt, 1976). Independence did not entail the demolition of colonial institutions and repeal of the colonial laws. This fact is reflected in taxation. Table 1 shows that the genesis of the contemporary taxes is colonial taxation.

There are several reasons why colonial structures and institutions were retained. One, Tanganyika continued to be part of the East African Community (EAC) that subsequently replaced the High Commission although Kenya and Uganda were still British colonies. Concomitantly the community tax departments and tax laws remained in force[6].

Two, all major tax laws apart from those enacted under EAC also remained in force to finance the independence government. Despite the rhetoric replete in the independence struggles propaganda against colonial taxes the independence government did not abolish them.

Three, the independence government was dependent on the institutions structured by the colonial government including the relevant expertise of the colonial civil service for its functioning. At the advent of independence the Tanganyika African National Union (TANU)[7] leadership agreed broadly with the senior British officers in Tanganyika that the independence government would be unable for a considerably lengthy period to staff its civil service with Tanganyikans. The then serving British officers would be retained while qualified Tanganyikans became available (Pratt, 1976). Public finance totally relied on British experts. The then President Nyerere's first Minister of Finance was Sir Ernest Vasey[8] who was previously the British colonial finance minister in Kenya until 1956 (Pratt, 1976). He became very influential within the Nyerere's government especially under its ministerial system. Pratt observes that:

The major coordinating and controlling functions within the government were given to the Minister of Finance. His schedule of responsibilities included financial policy, economic policy, development planning, economic relations, foreign aid, taxation, salary scales, the Establishment Division, and Organisation and Methods Division. Very few functions were assigned directly to the office of the Prime Minister (Pratt, 1976).

The higher ranks in the Treasury were entirely filled by British officers. This explains why most of the taxes enacted during much of the 1960s carry hallmarks of being transplants from old English tax statutes or from other British colonies.

Four, the Independence Constitution was structured according to the British ideas at Westminster despite the late Nyerere's strong reservations on the suitability for Africa of the Anglo-Saxon form of democracy (Nyerere, 1966, Rabl, 1967). On taxation the Independence Constitution simply provided for the establishment of a consolidated fund without even providing for taxing powers (Article 66). This was slightly varied by the Constitution of the Republic of Tanganyika 1962 commonly known as the Republican Constitution whereby Article 54 restricted the enactment of taxes to parliament. The latter has been retained by successive constitutions, namely, the Interim Constitution of Tanzania 1965 (Article 75) and the Constitution of the United Republic of Tanzania 1977 (hereafter called 'the Constitution') (Article 138).

The Westminster constitutional model assumed the viability of parliamentary democracy in post-independence Tanganyika. History shortly proved the assumption wrong with the introduction of the one-party state in 1969 and the ultimate subordination of individual rights to what the leaders considered to be the best interests of the nation. The formulation of the provision on taxation in the Republican Constitution was in line with the government's needs. Inclusion of any principles regulating the exercise of taxing powers was considered obstructive to pursuits for rapid development. The government strongly argued that recognition of individual rights through constitutional guarantees would hamper the government's development initiatives (GOT, 1962, Martin, 1974). In the same vein having constitutional safeguards on the exercise of taxing powers would be contrary to the government's interests (James, 1995).

The omission to provide principles in the exercise of taxing powers meant that the use of taxation was left to executive discretion. Sir Vasey the then Minister of Finance with the extensive functions mentioned earlier found it easier to carry on with the pre-independence tax practices. Budget secrecy rules were strictly applied whereby tax policies were decided upon within the dark corridors of the Treasury[9].

The Presidential Commission of Enquiry into the Monetary and Banking System in Tanzania (GOT, 1990) (hereafter referred to as 'the Mtei Commission') reported that very little tax measures were carried out during the period between 1961 and 1967 despite the government's reliance on tax policies to pursue economic development. A few taxes were enacted for revenue reasons. According to the Mtei Commission during the first decade after independence the economy grew rapidly, sustaining a significant expansion in per capita income and provision of social services. There was internal price stability and a favourable balance of payments. A similar finding is made by the Presidential Commission of Enquiry into Public Revenues, Taxation and Expenditure (GOT, 1991) (hereafter referred to as 'the Tax Commission'). Statistics drawn from the first five year plan (GOT, 1965) and those from the review of important economic indicators for the period in the second five year plan (GOT, 1969) substantiate this. Resort to taxation was strictly prompted by budgetary considerations.

3. The Arusha Declaration

The AD was announced on 6 February 1967 (Nyerere, 1967). It was a declaration of TANU's[10] policy on socialism and self-reliance (Ngombale-Mwiru, 1967). Its implementation was through nationalisations of enterprises and centralisation of the economy (Van Arkadie, 1973) and collectivisation of the rural population (Nyerere, 1967a, GOT, 1969, Svendsen, 1973) The government assumed the monopoly of developing economic infrastructure, investing, running major businesses and providing social services. This called for increased effort at extraction and transfer of resources to the government (Nyerere, 1966a, Van De Laar, 1973).

The structure of control under the AD was designed to provide the government with overriding power with respect to the Tanzanian society (De La Rue, 1967). At the time of the AD there was already a strong presidency in place with unquestionable powers to take and implement decisions on behalf of the nation (GOT, 1962, Baregu, 1997). Tanzania had become a patrimonial state (Fimbo, 1992, Adelman and Paliwala 1993, Ghai, 1993). The declaration provided the wherewithal to entrench patrimonial rule that would perpetuate the marginalisation of the people from policy making (Baregu, 1997, Mushi, 1997).

4. Taxation in the Post Arusha Declaration

4.1 The Tax Environment

Tax environment denotes the internal conditions that influence choices and strategies in taxation and ultimately reflected in the state-society relations (Hyden and Bratton, 1992, Lewis, 1996). It is created and influenced by a number of factors particularly the framework for governance and the socio-economic set-up.

4.1.1 Governance

The framework for governance defines the state-society relations including the manner of financing the government and public goods and services. In this context taxation is of a quasi-constitutional nature (Brennan and Buchanan, 1980) because the basic principles in the exercise of taxing powers need to be clearly established and are supposed to last for much longer periods that transcend the periodic changes of governments through the ballot. Where no such principles exist political institutions assume that role (Steinmo, 1993). The latter may be undemocratic and submerge the use of taxation to political fiat (Levi, 1988)[11] as is the case in many patrimonial regimes in developing countries (Bratton and Van de Walle, 1997, Moore, 1998).

At the time of the AD the Interim Constitution of Tanzania 1965[12] had no provisions containing guiding principles on taxation. Article 70 merely provided that:

'no tax of any kind shall be imposed save in accordance with a law enacted by Parliament or pursuant to a procedure lawfully prescribed and having the force of law by virtue of a law enacted by Parliament' (sic).

There were two restrictions in legislating on taxes. First, taxes to finance the Union government were under Article 85A (x) restricted to income tax payable by individuals and corporations, customs duty and excise duty on goods manufactured in Tanzania and collected by the Customs Department. Second, only the President through a minister could propose to introduce a Bill seeking to levy a tax or alter taxation otherwise than by deduction.

The above provisions have remained in force todate. Article 70 of the Interim Constitution is reproduced in verbatim in Article 138 of the Constitution, while Article 85A in the former is reproduced in Article 99 of the latter. The Constitution of Zanzibar 1984 (CZ) reproduces Article 70 in Article 132.

The Interim Constitution (Article 6 (2)) and subsequently the Constitution (Article 37 (1)) confer the President with unfettered discretion in the exercise of his functions as the authority of the Government of Tanzania (GOT) including Mainland Tanzania (Article 34)[13]. The late President Nyerere once remarked that he had enough powers to be a dictator (Fimbo, 1992). Similar provisions were contained in CZ where Article 37 of the Constitution is reproduced in Article 50 (Fimbo, 1992).

Implicit from Article 99 of the Constitution taxation fell squarely under the authority of the government and thus a part of the President's unfettered functions. He had an absolute mandate to decide on any form of impost that the Parliament should enact. The power to make the Parliament enact what the president desires emanates from Articles 90 (2) (b) and 97 (4) of the Constitution that empower the President to dissolve the Parliament where the National Assembly refused to approve a budget proposed by the government (Article 90 (2) (b)) or to pass a Bill returned to it by the President[14]. In 1973 the President invoked his powers under the Interim Constitution to compel the National Assembly to pass the Income Tax Act (1973). According to Tanzania Hansards (1973) the MPs had earlier refused to enact the legislation arguing eloquently that the government income tax propositions as contained in the Bill were not acceptable. President Nyerere castigated the MPs for being unpatriotic and gave them an ultimatum to pass the legislation as proposed by the government or face dissolution. Under the one-party rule the MPs were very conscious that upon dissolution the ruling party under Nyerere's leadership would not endorse their nomination to contest re-election to the Parliament. They quickly and unanimously passed the Bill upon its return to the House.

The political institutions in post AD that would otherwise fill in the gap left by the absence of clear principles on state-society relations in taxation were inefficient and submerged to the patrimonial powers of a strong presidency. The executive exercised absolute mandate over the forms and manner of taxation.

4.1.2 The Socio-Economic Set-up

The socio-economic set-up in Tanzania was until the AD operated according to free market principles. Private owners who were mostly of foreign origins controlled both the economic and social services sectors (Van Arkadie, 1973). This is in spite of the efforts by the independence government to steadily expand the public sector since the early 1960s through purchases of private interests and joint venture arrangements (De La Rue 1967). The private sector was still an important component of the tax system.

The AD changed the scenario. It drastically expanded the public sector through expropriations of private interests. Further, massive campaigns were launched to indoctrinate the public against private entrepreneurship. Rose Kalemera[15] succinctly explains the situation as follows:

There was a time in Tanzania when success in private business was equated with an unforgivable sin. A successful businessman was viewed as a traitor to the ujamaa cause- an ideological Judas Iscariot. This was due to the misguided concept, advocated by party politicians who sought praise as Ujamaa front-liners, that socialism was synonymous to poverty.

The decimation of the private sector reduced its role and importance in taxation. The growth of the public sector including the civil service (Van De Laar, 1973a) meant that the government and the parastatals combined represented the major employer in the country (GOT, 1969)[16]. Of the recorded non-agricultural employment in the late 1980s at about 600,000 representing about 5 to 6 percent of the adult population about 250,000 were civil servants and 200,000 employed in the parastatals (GOT, 1991). They constituted a lucrative handle for tapping a wide range of bases for taxation.

Alongside the growth of the public sector the AD Introduced a stringent regulatory regime. Licensing authorities, price controls, special permits and the like were employed to consolidate government control over social and economic life (Green, 1979). By mid 1970s Government bureaucracy totally administered the economy (Ghai, 1993). Even travelling abroad became subject to clearance under the Income Tax Act 1973[17].

In the rural areas, principles of the AD led to the collectivisation of the rural population and organised economic activity through state controlled co-operative societies. In order to win the people the government assumed the responsibility of providing freely basic social services like water, health and education and took the responsibility of controlling prices through massive subsidies to ensure that necessaries like foods, wearing apparel and other essential commodities were affordable to the majority in the citizenry. In policy jargon this was an important measure for redistributing national wealth and implementing socialism (GOT, 1969, Svendsen, 1973, Cliffe, 1973a). This not only increased the need for publicly accumulated capital but also lent justification to the government to lay a claim on private savings through heavy taxation.

The socio-economic set-up that resulted from implementation of the AD produced easy tax handles within the public sector that ultimately became the mainstay of tax policy. It engendered reluctance to direct effort towards developing more appropriate tax infrastructure that would enable fair, balanced and principled taxation.

4.2 The Legal Framework for Taxation

Legal framework for taxation requires that taxation must be according to the rule of law (Vanistendael, 1996, Bentley, 1998, Davis and Trebilcock, 1999). A number of fundamentals guide compliance to the rule of law. These are:

(1) that a tax be levied only if a statute lawfully enacted so provides;

(2) that a tax be applied impartially;

(3) that revenue raised by a tax only be used for lawful public purposes; and

(4) that the principles underlying taxation are enforced by independent courts.

Rule of law requires the imposition of limitations in the power to make tax laws to safeguard against abuse. The limitations depend on the set-up within the country. They would reflect the constitutional principles underlying the governance structures. They also should conform to democratic principles and the various other norms that express and implement the rule of law. These include the principles of legality, annuality, equality, fair play, ability to pay, non-retroactivity and those specific on protection of taxpayers. These ensures that taxes and tax laws are designed and drafted according to clear and democratically accepted principles (Avery, 1996, Prebble, 1998, ICAEW, 1999).

The requirement for principles is developed to curb arbitrary taxation particularly with the uncontrolled growth in governmental powers (Harden and Norman, 1986). In patrimonial systems the need is more pressing. The main argument is that the absence of clear principles to regulate state-society relations in taxation in a patrimonial systems jeopardises democratic governance and impedes the achievement of effective co-operation between citizens and their government in pursuing human development. The examination of the Tanzanian legal framework for taxation will therefore address the legal foundations for taxation, the general principles and limitations on the power to make tax laws, the tax policy and legislative procedures, tax administration and management and judicial control over taxing powers.

4.2.1 The Legal Foundations For Taxation

Taxes must be lawful and legitimate. They express the society's acceptance of the obligation to sustain their own social formation. They provide the socialised financial means that enable government to function. Thus the legal foundation of taxation is people's volition to shoulder the obligations of governance. The social contract in governance in reality is implemented through taxation. When the social contract advocated for the divine ordination of the ruler taxation was a prerogative (Hobbes, 1651). It became a subject of abuse and greedy and fuelled demands for principled definition of powers evidenced in the historical instruments like the Declaration of the Rights of Man and the Citizen proclaimed during the first days of the French Revolution in 1789 that no charge on a subject is to be levied by pretence of prerogative without consent. It was specifically described as:

the right of citizens to take cognisance, either personally or through their representatives, of the need of public contributions, to agree to it freely, to follow its use and to determine its proportion, basis and collection and duration (EBInc, 1992)

The language used above indicates that taxation is not only subject to consent but it is also not necessarily the only means through which a people can support and finance their own governance. However, where taxation is put to use consent is necessary and there must be mechanism(s) to ensure that taxes are applied for mandated public purposes and nothing else. The idea is that each phase of government has its own mandated and approved programme and therefore its public finance needs that the people through democratic choice have agreed to contribute to.

In this context it is wrong to assume that the legal foundation of taxation can be an omnibus prescription that bonds a people to a purported power vested in a government to compulsorily requisition monies from the public for its existence. Taxation is not a perpetual charge but a renewable democratic undertaking as the people exercise support and approval of their governance by the government of the day.

In order to locate the legal foundation for taxation in Tanzania it is important to look beyond the Constitution's proclamation that Tanzania is a unitary state (Article 1). This is because there are four distinct tax jurisdictions. These are the Union jurisdiction, that of Tanzania Zanzibar (hereafter called 'Zanzibar'), Mainland Tanzania (hereafter called 'the Mainland') and the local governments.

Taxing Powers at the Union Level
The legal foundation for taxation at the union level is found in Article 138 (1) of the Constitution, which provides that:

(1) No tax of any kind shall be imposed save in accordance with the law enacted by Parliament or pursuant to a procedure lawfully prescribed and having the force of law by virtue of a law enacted by Parliament.

(2) The provisions contained in sub article (1) of this Article shall not preclude the House of Representatives of Zanzibar from exercising its power to impose tax of any kind in accordance with the authority of that House.

Article 138 (1) read on its own appears broad enough to enact any taxes for the Union's purposes. However Article 4 (3) as read with item 10 in the First Schedule to the Constitution restrict the imposition of taxes other than those listed as union matters, namely:

(10) Income tax payable by individuals and by corporations, customs duty and excise duty on goods manufactured in Tanzania collected by the Customs Department.

Article 64 (1) provide for the authority of Parliament to legislate on union matters thus:

Legislative power in relation to all Union Matters also in relation to all other matters concerning Mainland Tanzania is hereby vested in Parliament.

Article 64 (3) declares that:

'if any law enacted by Parliament concerns any matter which is within the legislative jurisdiction of the House of Representatives that law shall be null and void' (sic).

However there is an apparent inconsistency to that stipulation. Sub-article 4 thereof provides that:

Any law enacted by Parliament concerning any matter shall not apply to Tanzania Zanzibar save in accordance with the following provisions:

(a) such law shall have expressly stated that it shall apply to Mainland Tanzania as well as to Tanzania Zanzibar or it replaces, amends or repeals a law which is in operation in Tanzania Zanzibar;

(b) such law replaces, or amends or repeals a law which was previously in operation in Mainland Tanzania and also in operation in Tanzania Zanzibar pursuant to the Articles of the Union of Tanganyika and Zanzibar, or pursuant to any law which expressly stated that it shall apply to Mainland Tanzania as well as Tanzania Zanzibar; or

(c) such law relates to Union Matters; and whenever reference is made to the term 'Tanzania' in any law, it is hereby declared that such law shall apply in the United Republic in accordance with the interpretation contained in the provisions of this Article.

The above provision means that the Parliament can enact laws that can be made operative in both the Mainland and Zanzibar. The language used implicitly includes tax laws. However since Article 98 provides for a procedure for altering the Constitution and the limitation on the Parliament to legislate on taxes is a constitutional provision, it envisages that taxes other than those specifically listed as union matters can only be enacted for union purposes after the constitution is properly altered to expand the Parliament's powers to impose taxes.

Apart from the above limitations the Constitution does not explain the basis for taxation. That is, whether the Parliament is conferred with taxing powers because of a constitutional undertaking by the people to pay taxes for specified purposes or because the constitution imposes an obligation upon the citizens to pay taxes. If Article 138 (1) is read together with Article 99 it is implicit that taxation was envisaged for the purposes of the government. The latter decides on the need and initiates measures for enacting taxes. In this sense the Constitution does not treat taxation as part of the tenets of governance but simply provides a fiscal tool. It is not surprising that it does not define the taxes that are listed as union matters. For example, what constitutes an income tax is left for the Parliament's determination. The lessons flowing from the United States of America (USA) case of Pollock Versus Farmers' Loan & Trust Co. et al Hyden v Continental Trust Co. of City of New York et al[18] caution of the dangers of leaving the meaning of taxes to open ended construction. This point will be further discussed later when examining tax practices.

Taxing Powers in Zanzibar

Sub-article 138 (2) (supra) recognises the power of the House of Representatives under the CZ (Article 132) to enact taxes for the purposes of the government of Zanzibar (GOZ) other than those listed as union matters. The language conferring taxing powers upon the House of Representatives in Article 132 (CZ) is similar to that used in Sub-article 138 (1) (supra). The concerns raised in respect of the manner the Constitution provides for taxation are therefore relevant in respect of Zanzibar.

Taxing Powers in the Mainland

The Constitution does not provide for separate taxing powers in respect of the Mainland. While Sub-article 138 (2) makes a specific mention in respect of Zanzibar there is no similar mention of the Mainland. The legal foundation for taxation in the Mainland can only be established by reading Article 138 (1) together with Article 64 (1).

The Parliament has plenary powers to enact any taxes other than the listed union taxes in respect of the Mainland. However the imposition of taxes in the Mainland is not based on the existence of a separate government as in Zanzibar. Notwithstanding, Article 135 creates a consolidated fund of the union government into which all tax revenue is paid[19]. Albeit the Joint Finance Account (JFA) envisaged to be created under Article 133 is not expected to receive contributions from the Mainland government and that of Zanzibar but from the union government that has authority over matters concerning the Mainland (Article 34 (1)) and that of Zanzibar.

For more than 20 years since Article 133 was first enacted the Joint Finance Committee (JFC) that would oversee JFA has not been established (ESRF, 1997, Maliyamkono, 2000) and since July 1984 Zanzibar stopped contributing to the union government after the enactment of CZ that specifically provided that there will be no such contributions unless the JFC is established. Revenue from non-union taxes levied in the Mainland are therefore used to finance the union government through the consolidated fund (Maliyamkono, 2000). The legitimacy and legality of that practice is questionable.

Taxing Powers of Local Governments

Local governments are established pursuant to Article 154 of the Constitution. They are, however not directly conferred any taxing powers. The powers are delegated from the Parliament. Two pieces of legislation empower them to levy taxes. The Local Government Finances Act 1982 (LGFA) and the Urban Authorities (Rating) Act 1983 (UARA). LGFA provides for sources of revenue to urban authorities (section 6), district councils (section 7), township authorities (section 8) and village councils (section 9). The power to impose taxes and rates is provided for under sub-section 13 (1) thus:

Subject to this Act and to rules made by the Minister under this section, a local government authority may make by-laws imposing such rates to be paid by the inhabitants or such categories of inhabitants, for, on or in connection with such services, things, matters or acts as the authority may describe or specify in the by-laws in question.

Further under section 14 LGFA imposes a duty upon local government authorities to make sufficient rates. It provides that:

Every district council and every urban authority shall, subject to this Act, make or levy such rates as will ensure the raising of income from rates which, in combination with income from other sources of revenue, will be sufficient to provide for such part of the estimated total expenditure to be incurred by it during the period in respect of which the rate is made or levied as is to be met out of money raised by rates including in that expenditure any additional amount as is, in the opinion of the authority, required to cover expenditure previously incurred or to meet contingencies or to defray any expenditure which may fall to be defrayed before the date on which the money to be received in respect of the next subsequent rate will become available; save that an authority which submits for the necessary approval a proposal to make or levy a rate which complies with the requirements contained in this section shall be deemed to have complied therewith.

The above provision read together with section 15 (LGFA) allows the levying of different rates using different approach as between one authority and another. It means that people living in jurisdictions of authorities that are well endowed by resources or those with concentration of public investments and hence more tax handles are likely to suffer less taxes than those in less endowed authorities. It also means that the authorities can choose to levy rates and taxes on just a portion of the available taxpayer base.

UARA provides rating powers to Councils comprised of town, municipal and city councils (section 2)[20]. Like LGFA the Councils are empowered to impose rates differently (section 16) and obligated to make sufficient rates (section 17) subject only to the approval of the Minister (sections 2 and 16). Likewise the methods of rating differ depending on the endowment standing of each authority.

4.3 Principles and Limitations on the Powers to Make Tax Laws

In some jurisdictions like Canada it has been argued that the exercise of tax law making powers is sufficiently regulated against abuse by the Charter of Rights (Li, 1998). GOT has also used that argument[21]. It is thus necessary to establish whether or not the Bill of Rights address this need. This is important in understanding the choices and practices in designing and implementing tax strategies examined subsequently.

To test whether the Bill of Rights in the Constitution embody effective safeguards on the exercise of taxing powers a few basic principles that have been widely used in evaluating legal frameworks for taxation are used (Pasquariello, 1985, OECD, 1990, Thuronyi, 1996, Vanistendael, 1996). Although the Bill of Rights was included in the Constitution in 1977 the legal framework for taxation has remained unchanged since pre-independence as pointed out earlier. The principles used are:

(1) in respect of assignment of tax bases between the different levels of governments;

(2) legality; and

(3) on the role of the courts.

4.3.1 Assignment of Tax Bases

Tanzania is a unitary state that has four tax jurisdictions. This reality envisions the existence of rules that delimit taxing powers between the various jurisdictions in order to prevent inter-jurisdictional competition that may lead to indiscriminate taxation.

Assignment of tax bases is a matter that relates to principles that organise the state. It cannot be efficiently provided for in a Bill of Rights. Chapter One Part Three of the Constitution that contains the Bill of Rights does not contain this principle.

4.3.2 Legality

Tax law is of the nature of public order law. It has a special status as law that is essential to an organised society similar to that of criminal law (Vanistendael, 1996). It is therefore not sufficient to confer taxing power without laying down the requisites for its exercise. These range from:

(1) equality, that there should not be preferential or discriminatory treatment in the application of taxes;

(2) restriction on delegation of tax law making powers, for example the prohibition of tertiary tax legislation;

(3) nonretroactivity in taxation;

(4) public trust in tax administration whereby tax authorities are prohibited from taking unfair advantage in dealing with taxpayers; and

(5) lawful public purpose, that taxes are not to last in perpetuity but must be subject to periodic consent (the annuality requirement) or that where taxes are hypothecated they should terminate after the specific objective(s) are achieved.

The Tanzanian Bill of Rights provide for equality before the law (Article 13) (Luoga, 1996). However such general provision may not cater for taxation because equality in taxation may at times mean differential taxation dictated by requirements of vertical and horizontal equity. Without specific principles differential taxation may lead to inequitableness and tax privileging. In respect of the other requirements there is no provision that address delegation of taxing powers, retroactive taxation, public trust in tax administration and lawfulness of purpose. Understandably these requirements are very specific to taxation such that they cannot be captured within the broad provisions of a Bill of Rights (Baker, 2000). They need to be provided for either as part of the constitutional provisions on taxation or separately in a tax code.

The deficiency of the Bill of Rights to cater for tax relations means that GOT has powers to cause the imposition of taxes and the mandate to decide the rules by which it exercises those powers. It is apparent that the principle of legality appears simply to mean the enactment of tax laws however objectionable or in violation of rights they may be.

4.3.3 The Role of the Courts

The presupposition in state-society relations in taxation is that legality is strictly adhered to and the courts would oversee conformity strictly. Absence of principles fetters judicial supervision. In many patrimonial systems tax statutes contain provisions to oust the jurisdiction of courts in tax matters. Using tax strategies that rely on penal tax legislation whereby taxpayers are dealt with administratively without resort to courts as the practice was during the colonial period also restricts the role of the courts. The Bill of Rights in Tanzania does not protect taxpayers against the deprivation of access to courts of law in tax matters. This is not surprising because history of the Bill of Rights in Tanzania indicate that it was drafted with a state-centric focus during the one-party rule (Luoga, 1996). The Bill was more of public relations concession aimed at putting a human face to a system of governance that is fundamentally undemocratic.

The overall assessment on the principles and limitations on the exercise of taxing powers is that the government has power not only to impose taxes and decide its own rules of play but it is also left to operate without effective judicial oversight. This also explains why there is no case law on taxpayers' rights in the post-independence period until the advent of market reforms and the shift to multiparty politics. It is in this environment that the tax strategies surveyed below are applied.

5. Tax Strategies

5.1 Policy Formulation

The practice in systems that designate taxation as a technical function of the government is to fuse it into the budgetary process. Tanzania retained this practice both as a colonial legacy and because it suited the objectives of the post-independence government to achieve rapid economic development through the use of maximum government. No tax policy documents existed save for the broad guidelines contained in the AD extolling some aspects of tax objectives like redistribution of wealth, accumulation of capital by the state and equity.

The government's tax policy measures and their objectives can only be deduced from the annual budget speeches by the Minister for Finance (Tanzania Hansards) and the yearly Finance Acts. There is no statutory obligation for the government to publish tax policy.

Within the budget framework tax measures are designed to respond to the budget frame prepared by the Treasury. Budget guidelines are prepared to reflect the budget frame. The guidelines translate the frame into budget policy objectives and operational priorities[22]. According to budgetary processes one of the first steps in preparing the budget is revenue forecasting. This is an intricate and difficult task but very important in developing tax policy. Ideally revenue forecasting would require data on macroeconomic projections, detailed understanding of the effects of tax rules and data on tax units (their number, size, income generation and the like including how they are likely to be affected) (Gordon and Thuronyi, 1996). Expertise in revenue forecasting is lacking in many developing countries including Tanzania. In addition there is lack of accurate data on which to base such estimates. Only serviceable revenue estimates can be raised from the Parastatals and statements from receivers of government revenue[23].

The other step in the budget process is the preparation of expenditure estimates. The estimates dictate the tax effort that should be exerted. The thinking is from expenditure to revenue. Taxes are therefore raised to satisfy the government's expenditure projections particularly where other expected sources or revenue such as non tax revenue (ESRF, 1999), grants and loans (domestic and foreign) are not sufficient.

One feature of the budget process is the application of budget secrecy rules. The general public is left in the dark and are not consulted on proposed tax measures despite the immense impact of tax laws on people's lives (Oliver and Peel, 1996).

5.2 Criteria for Selection of Taxes

The tax environment examined above not only shaped the legal framework for taxation but also influenced choices of imposts and how they are to be administered. The focus was on the tax handles created through the implementation of the AD as examined below.

5.2.1 The Parastatals

The management and control of the parastatals created under AD[24] vested directly under the government (Svendsen, 1973)[25]. These were perceived to be readily compliant to any tax measures that may be introduced. Being state owned they were least concerned with schemes for profit retention through tax avoidance or evasion schemes.

The Parastatals constituted lucrative tax handles that could be used for collection of a variety of taxes such as income tax, excise duty, sales tax, stamp duty on receipts and tax on small industries[26]. They also provided avenue for stealth taxation, for example through the creation of statutory funds like the production development fund[27] that was collected for cash crops development but the Minister for Finance empowered to appropriate the monies for other public purposes, or the industrial promotion and development fund[28], the energy fund and until recently the road fund that were used to raise revenue that went into general government coffers[29]. The major contributors and the collectors of revenue from such stealth taxes were the parastatals. Other forms of stealth taxes included the compulsory investment into government bonds under the Companies (Regulation of Dividends and Surpluses and Miscellaneous Provisions) Act 1972 under which the Minister of Finance could order any specified company to submit a cash flow projection budget for the current year and demand that the company invest a certain percentage of the anticipated cash receipts in government bonds immediately (section 12). The companies specified were until the legislation's repeal in 1996[30] predominantly parastatals. It is logical that private companies would strongly resist such arbitrary interference in corporate finances and planning.

5.2.2 State Monopolies

The nationalisations effected by AD created state monopolies in production, commerce and social services. Imports and exports were under direct control of parastatals or other state agencies. Similarly the production and supply of mass consumption commodities like sugar, cigarettes, fuel, beverages, electricity, water, and services like telecommunication. The monopolies ensured the availability of high yield taxable articles and services. The monopolies facilitated high revenue yield from taxes on international trade (custom duties and sales tax), excise duty, consumption taxes on electricity[31] sugar[32], soft drinks[33], beer[34], fuel and aviation spirit[35] to mention only a few.

The creation of the State Trading Corporation[36] (STC) in 1967 (Loxley, 1973) facilitated the government's control over commerce and thus the imposition of various forms of commodity taxes.

5.2.3 State Control Over Labour Relations

After the AD the government and the parastatals not only became the major employers but also a stringent labour regime was introduced whereby wages and other employment relations were heavily regulated. Salary scales were fixed and enforced by the government through presidential circulars. The control of salary scales enabled the government to direct salary increases without adjustments for inflation. Such increases triggered mass ascensions of employees into higher income brackets and thus exposure to steep progressive rates of income tax and high tax revenue yield to the government (Luoga, 1988).

The labour force also became very indoctrinated to support government policies in the spirit of ujamaa[37] (Shivji, 1970). Workers felt obligated to respond favourably to tax measures on account of the protection afforded by the government through controls over price increases[38] and free provision of social services and subsidies. There seemed to be a visible link between taxes paid and benefits enjoyed by the workers.

Using the parastatal tax handle it was feasible to levy a variety of taxes on labour. Until 1967 employment was subject to income tax on emoluments payable through the Pay-as-you-earn (PAYE) system[39]. The only other tax on employment was development levy under the Development Levy Act 1965[40]. In 1972 training levy was enacted[41]. It was purportedly hypothecated for the training of local staff but the whole of the revenue yield went into the consolidated fund for general governmental use. The levy was on the employment of expatriates who were predominantly employed by parastatals because the private sector had been truncated. Expatriates employed in the civil service were not covered. In 1974 a housing levy was introduced by the Workers' and Farmers' Housing Development Fund Act 1974. It was an impost of 4% of gross emoluments payable by specified employers. The latter comprised largely of parastatals. The government itself as an employer of the civil servants was exempt from the tax. In 1978 a social security tax was enacted under the Parastatal Pensions Act 1978. Both the employer and the employee were subject to compulsory contributions based on emoluments. Again only parastatals and their employees were the taxpayers (Luoga, 1989). Subsequently at the advent of liberalisation the government relied on its regulatory mandate to impose other forms of employment taxes specifically targeting the private sector. These include the Payroll Levy Act 1985, vocational education levy[42] and the enlarged social security taxes[43].

5.2.4 Control Over the Agricultural Sector

Control over the agricultural sector was achieved through the use of state controlled co-operative societies[44], statutory crop authorities and cash crop marketing boards. These made it possible to tax rural agriculture in a manner that could not produce tax revolts. All cash crops were subject to specific legislation regulating its husbandry and marketing. Each such legislation established a crop authority that was also made responsible for collection of imposts that ranged from production cesses, levies on input supplies to export tax. Special compulsory contributions were also provided for in most legislation regulating cash crop production[45].

Control over the agricultural sector was further aided by the collectivisation into development and ujamaa villages[46] (McHenry, 1979) of the rural population. Through the TANU ten-cell system every rural dweller could be accounted for and made to pay any dues that could be imposed. While it is often believed that it is very difficult to tax peasant communities that may not be the case where the same are collectivised and subjected to a stringent regulatory regime. The Tanzanian rural population was a captive base for rural taxation because they had no choices in deciding on cash crop production, marketing, export and acquisition of inputs. Every adult person in any designated cash crop production area was compelled by law to cultivate a prescribed minimum acreage of the crop under supervision. The produce could only be sold to the state through crop boards and co-operative societies. The state controlled crop prices and exports. It is recorded that co-operatives and the crop boards were also used to administer a variety of non-statutory imposts like 'Kilimo cha Kufa na Kupona' Fund[47].

5.3 The Tax Structure

The focus on utilisation of easy tax handles influenced the identification of tax bases and selection of taxes. Direct taxes like income tax were confined to the parastatals and employees. The private sector contributed very little. Direct taxation of the rural sector on incomes was considered sensitive and cumbersome although since 1973 ITA provided for procedures for assessment to income tax of the rural income earners (sections 57 (4) and 129)[48]. Direct taxation on adult persons faced resistance and disruption of rural activities and led to the repeal of all forms of poll tax after the last unsuccessful attempt at direct personal tax in 1967[49].

The tax structure indicates more reliance placed on indirect taxation through custom duties, excise, stamp duty on receipts and taxes on cash crop production and export.

According to a survey on the composition of tax revenue carried out for the Tax Commission (GOT, 1991) direct taxes contributed fairly to government expenditure when parastatals were performing and declined steeply when the public sector collapsed in the 1980s. The survey also indicates that very little effort was directed to tapping other tax bases such as property and wealth. A review of amendments effected by Finance Acts during the 1980s indicates over reliance on indirect taxes. The Tax Commission also found that there was concentration of taxes on just a small range of domestic products that were in mass production and under state monopolies. These were beer and other alcoholic beverages, textiles, cigarettes, petroleum, sugar, soft drinks, soap and detergents that accounted for 30-35 per cent of the total tax revenue (GOT, 1991).

It is apparent from such a narrowly focused attitude to taxation that the government was not attracted to any measures for developing tax infrastructure and balancing the use of taxation. The available tax handles were turned into beasts of burden upon which to saddle any tax revenue measure.

5.4 The Rate Structure

In a country where taxation is typically a budgetary instrument financial pressure experienced by the government and the breadth that is provided by the tax structure to support increased tax effort influence the rate structure. In the case of Tanzania after 1967 the government assumed heavier responsibilities in the economic and social services sectors. The AD principles dictated the use of progressive taxation for purposes of redistributing wealth and achieving income equality. There was thus a combination of need for increased capital transfer from private hands to public coffers, restrictive tax structure and political objectives in the determination of tax rates.

High rates of taxes have been maintained in Tanzania for different reasons. Between 1967 and 1980 the AD was still enforcing income equalisation and wealth redistribution. After the collapse of the parastatals and in the course of trade liberalisation the government was faced with persistent recurrent deficits due to the impact of economic crises and mismanagement of the public sector. Recurrent spending increased sharply in the 1980s due to the rise in the cost of debt servicing and plummeting of the gross domestic product (GDP). Consequently tax rates were again kept very high through yearly amendment of the rate Schedules by the Finance Acts. The Third Schedule to ITA was amended yearly to provide for increased individual rates of tax. By 1980 the top marginal rate stood at 95%. A person earning Tshs. 20,000 paid about Tshs. 14,000 in basic tax and any amount in excess of Tshs. 20000 was subject to 95% tax (Luoga, 1988). Custom tariffs by 1983 had been increased to 500% of the dutiable value[50]. Similar increases affected sales tax, excise duty and other taxes.

The emphasis by the government as deduced from the annual budget speeches (until late 1980s) was that it was justified to apply high tax rates because the government carried the heaviest responsibilities in the socio-economy and that those targeted for the high rates of tax were those who benefited most from government services and more able to carry the national tax burden. It is a simple deduction that this is not a correct description of the ultimate bearer of the national tax burden where there is a heavy reliance on indirect taxes and there are no mechanisms for provision of tax relief to consumers. It is interesting to note that in 1970 a rather rhetorical tax legislation was enacted to prevent price increases on account of the levying of or increases in duties and taxes, namely the Duties and Taxes (Prevention of Price Increases) Act, 1970. The legislation is rather contradictory because commodity prices were controlled and only supplied by state monopolies. The fixing of official prices for controlled commodities reflected their costs after collection of taxes and other imposts. The individual retailers could not easily be monitored and subjected to its provisions.

6. Tax Administration

Tax administration entails the interpretation and application of tax laws by tax authorities. It is dependent on the design of the taxes and the procedures for determination of taxability. In a democratic context tax administration contemplates principled relationship between taxpayers and tax authorities. This may not be the case where taxation is a prerogative of the ruler who orders the impost and decides who pays, how much is paid, time of payment and the consequences for failure to comply.

Choice of what tax to impose and the tax base upon which the tax is applied is followed by the design of its administration. The latter must expressly and clearly state the basis of taxability, rules for ascertainment of liability, its incidence and mode of payment, procedures for collection and enforcement of tax obligations, rights of taxpayers and safeguards against wrongful, erroneous or abusive application of the tax laws. It has been pointed out that:

For the ordinary citizen, the power to tax is the most familiar manifestation of the government's power to coerce (Brennan and Buchanan, 1980). The power to coerce is most visible in tax administration as experienced under colonial administration (Mamdani, 1997). In modern times and the essence of the rule of law it is imperative that no tax can be imposed on a subject without the words in the Act showing clearly the intention to impose tax. That even where it may be within the spirit of the Act to impose tax on some item or person no tax should be imposed if the statute is silent or has no clear provision. This is the long accepted principle that has survived the test of time since its pronouncement in the landmark case of Cape Brady Syndicate Versus IRC (1921). In examining tax administration therefore the focus is to establish how its design enables the achievement of taxation according to the rule of law using the aspects mentioned above.

6.1 Basis of Taxability

Tanzania has not had a tax code that spells out the rules for tax administration. Each tax statute is designed to deal with all aspects from imposition of tax to its administration. However there are several common characteristics in the existing tax laws with regard to provisions on basis of taxability.

The first is the language used to impose tax obligations. A survey of the tax statutes show the preference in using very broad terms and leaving it to the tax authorities to make the final determination as to whether a subject, transaction or thing falls within the ambit of taxability. For example ITA imposes the obligation on residents and non-residents to pay income tax in respect of income accruing to them in Tanzania or derived from sources situated in Tanzania (section 3 (1) and (2)). However it also confers powers upon the Minister for Finance (section 2 (1)) to declare any person to be a resident for purposes of income taxation in respect of any year of income (section 2 (2) (d)) and also permits the amendment of the Act to provide for the deeming of any amount to be income subject to the tax (section 3 (3)). These powers have been used to subject persons who were non-residents to treatment as residents and to tax receipts that otherwise do not constitute income such as transaction turnovers (sections 9, 13A, 13B, 13C and 34 (2A) and (2B)).

The Sales Tax Act 1976 made similar provisions on ministerial powers to make variations to the basis of taxability (sections 3 (2) and 4 (2)). As well the Customs Tariff Act 1976 (section 4, 5 and 8), the National Social Security Fund Act 1997 (section 11 (4) and 12 (2))[51], Payroll Levy Act 1985 (section 3 (5) and the Transfer Tax Act 1967 (section 5 (1)). There are several other tax statutes with similar provisions. The point demonstrated is that the basis of liability to tax is apt to changes according to executive preferences.

The second is the use of exemptions. More than 90% of the tax statutes in Tanzania contain statutory exemptions that modify the basis of taxability. For example the exemptions under section 14 (1) of ITA and ministerial variation powers under subsection (2) thereof. The Customs Tariff Act 1976, Stamp Duty Act 1972, Export Tax Act 1974 and the Sales Tax Act 1976 provide exemptions by omission to list articles in the tariff schedules. Similar exemptions characterise the Airport Service Charge Act 1962 (section 4), Port Service Charge Act 1973 (section 4), Hotel Levy Act 1972 (section 3), Road Tolls Act 1985 (section 5) and Entertainment Tax Act 1970 (section 7). The basis of taxability is thus open to lobbying and privileging.

The third is the use of discretion. The provisions imposing tax obligations are subject to exercise of discretionary powers by any specified authority. This is in addition to the direct statutory exemptions above. The tax laws allow the specified authority under circumstances he considers fit to do so and without assigning any reason to grant exemptions or tax remissions to any person. Again such wide powers are found in more than 90% of the tax statutes.

The fourth is tertiary delegation of the powers to determine the basis of taxability. Tax administering authorities are invariably conferred with powers to decide the subject of the particular tax, its timing and the amount payable. The classic example of such tertiary powers is section 13C (2) and (3) of ITA that provides that:

(2) With effect from the tenth day of September, 1990 there shall be charged, levied or collected in respect of petroleum and petroleum products imported and sold by a dealer, a windfall tax amounting to one hundred percentum of the windfall profit.

(3) The Commissioner may from time to time by notice to the dealer determine the manner and time for the assessment and collection of the windfall tax payable under this section.

A dealer may not know of the existence of an obligation to pay tax until and unless a notice to that effect is issued and served upon him or her by the Commissioner. The above four characteristics indicate that the basis of taxability is not always ascertainable and subject to variation.

6.2 Rules for Ascertainment of Liability

The requirement that only the correct amount of tax should be paid by a taxpayer necessitates having in place firm and ascertainable rules for the determination of tax liability. These depend on the design of the tax. Some taxes are designed in a manner that tax liability is subject to assessment procedures using prescribed records. Others are subject to valuation procedures, yet others are flat rate impositions payable on account of existence, presence or per transaction.

Broadly in most major taxes like income tax, value added tax, custom and excise duties, stamp duty on receipts, hotel levy and the social security taxes determination of liability is on the basis of records and submission of returns. Of the 37 surveyed taxes 23 are assessed in this manner. However of the 23 taxes 13 are also subject to estimated or presumptive assessment and to additional assessments. The administering authorities are conferred with powers to reject returns and records submitted for determination of liability and apply independent criteria in determining liability or at any later stage revisit their decisions and raise fresh assessments. Ideally such provisions aim at safeguarding against tax evasion and avoidance (LSEW, 1988) but they may be problematic and subject to abuse where there are no proper safeguards for their use or where tax administration agencies operate in compliance with revenue collection targets.

In the surveyed tax laws the provisions conferring powers upon the respective Commissioners to raise presumptive assessments, reject taxpayer records, revisit assessments and raise additional assessments invariably use terms like 'where in his opinion', 'where the commissioner considers that a person has been assessed at a less amount' or 'where the Commissioner has reasonable cause to believe'. There are no corresponding provisions that require the Commissioner to disclose reasons to the taxpayer for his decision or give notice of his intention to exercise any of such powers. The powers are just too broad.

Another method of ascertaining liability is physical verification. It is a permissible practice that where disclosure of the value of a taxable item is manifestly suspect for tax officers to conduct physical verification using impartial procedures. In the surveyed tax laws tax officers have discretion to substitute value or basis of assessment according to what he or she considers to be the appropriate value or basis. What raises concern is the practice of inserting in the tax laws provisions to the effect that where a taxpayer contests the tax authorities' estimation of value and hence the tax computed thereon such a disputant has first to pay the contested tax or half of the same before a disputed tax is admitted for adjudication. As pointed above where such powers are exercised in an environment in which tax agencies are compelled to meet revenue collection targets they become an object of concern.

Standard assessments are used in the case of individual income tax for small traders and for purposes of development levy. A standardised tax is payable based on nominated averages of yearly business turnover. For example under the new three-band structure under ITA[52] and the progressive development levy rate structure applicable in Dar es Salaam. The fixed tax bands assume that all affected taxpayers possess equal or similar ability to pay and operate in similar circumstances. This may be unrealistic especially where development levy may tend to tax the same measure of ability several times. For example in many tax areas the appropriate unit of taxation is the family either because of the joint family effort on production (peasant families) or because it is a single income family (urban low and middle class workers). Development levy that standardises tax liability and applied on poll basis end up taxing a family with three adult members three times on the assumption that each member has own turnover or income.

The tax laws in Tanzania make very little use of voluntary compliance through self-assessment. The only taxes that use this method are the value added tax introduced recently[53] and the corporation and individual income taxes through filing of provisional returns (ITA section 58). However the significance of self-assessment is greatly eroded by the powers to reject taxpayer records discussed above.

Flat rates are confined to very few taxes like stamp duty on instruments, produce and livestock cesses and the withholding taxes under ITA.

The overall assessment of the rules on ascertaining tax liability indicates heavy reliance on direct policing of taxpayers. The tax laws were drafted in a manner whereby taxpayers were potential offenders or defaulters who required compulsive measures in tax administration. This is further confirmed by the modes of collection and enforcement of taxes examined below.

6.3 Tax Collection Strategies

Tax collection strategies are influenced by the nature of the relations between the government and the society. In modern democracies where the emphasis is on taxation according to clear principles and rules the trend is towards enhancing voluntary compliance by taxpayers (FAD-IMF, 1999). Effort is made to develop tax compliance principles that mutually assist the taxpayers and tax authorities to ensure the smooth discharge of obligations (Kidder and McEwen, 1989, Bird and Jantscher 1992, Gordon, 1996a). Taxpayer defaults and resistance is not unexpected but principled tax administration address circumstances or causes of possible non-compliance. It may be unknowing non-compliance because the laws and rules are difficult to understand and comply with (Gordon, 1996a) or non-compliance as resistance to a tax or a tax system that is considered unfair or unjust or possibly deceitful non-compliance because the tax laws are porous and easily yield to tax evasion and avoidance schemes (Blumstein, 1983).

After independence governance in Tanzania was structured to enable maximum government in order to allow the ruler free latitude to make and implement decisions that would bring forth rapid development. It was perceived that government decisions would not necessarily be popular especially on tax measures. There also appears to have been a general perception that the people and thus the taxpaying public was not literate enough to understand legal obligations and effectively comply (GOT, 1991). The thinking favoured the use of compulsion and deterrence to implement policies (Nyerere 1966a, Martin, 1974). In taxation this is reflected in the use of involuntary tax collection strategies backed up with extensive enforcement powers.

A review of Tanzanian tax laws shows a preference on six collection methods. The most commonly used is the payment on due dates or by notice method. 16 of the 37 surveyed taxes use this method. Use of due date and notices is not on account of taxpayers' willingness to pay taxes. According to records and interviews with tax agencies this method is restricted to taxpayers who are known and registered. For example registered VAT taxpayers, manufacturers of excisable goods, and those registered for stamp duty, hotel levy, income tax, vocational education levy, payroll levy, social security taxes and so forth. Registered taxpayers are compelled to pay their taxes on specified due dates or at notice because the payments is a pre-condition for business and other licences and because their physical locations are known and sequestration can be levied on default.

The withholding strategy is the most common in all taxes where the targeted taxpayers may themselves not be easily identified and reached by the tax authorities such as non-resident persons, sporadic suppliers of goods and services, employees and contributors to statutory funds. Withholding makes it more difficult for a taxpayer not to comply (Roth, Scholz et al, 1989). However at times the preference for the withholding tax mechanism is to achieve the arbitrary objective to create a unit of taxation against which liability of elusive taxpayers can be pegged.

The use of collection agents is based on the wide powers conferred upon tax Commissioners to appoint any person an agent for collection of tax against any other person who has been assessed to tax whether the liability is disputed or otherwise. Often this power is exercised to appoint bankers to collect tax against their customers by direct appropriation of bank accounts to satisfy liabilities indicated by the Commissioner in the appointment instrument. No notice of such appointment is required to be issued to the affected taxpayer and the appointee cannot challenge the validity of the appointment instrument. Although only 11 of the 37 surveyed taxes contain provisions on use of collection agents the practice is for the tax authorities to extend the use of this method to all taxes administered by them using the broad rule-making powers they wield.

The tax included invoice method is akin to withholding but relates to commodity taxes collected from manufacturers, importers or specified persons directly on completion of production, at the time of importation or at other specified times. For example the previous manufacturers' sales tax, excise duty and stamp duty on receipts. The ultimate consumers and taxpayers are unaware that the prices of goods or services include a tax already collected. This is different from the tax extra invoice method that is used for VAT where the taxpayer pays the tax as an addition to the price for the supply of goods or services.

Other collection strategies that have been employed include the pre-condition to pay taxes on registration. For example the payment of tax on nominal capital upon registration of companies under the Companies Ordinance (Cap.212)[54], the requirement to pay income tax as a pre-condition for obtaining or renewal of business licence under ITA or previously as a pre-condition for travelling abroad. It also applies as a pre-condition for registering interest in land for capital gains tax purposes (ITA section 13) or in respect of property taxes.

Physical policing complements all the above measures. However this latter strategy is more common to local government taxes that use tax collectors to physically demand evidence of tax payment from individuals and arrest defaulters.

The collection strategies are backed up with extensive enforcement powers. The most extensively used powers are the following.

6.3.1 Use of Penal Tax Legislation

A number of taxes are what can be described as penal taxes. Penal tax legislation have been so labelled because they provide no dispute settlement procedures, no right of appeal and imposts are levied in a manner that leads to direct criminal prosecution. Payment is a conduct that is demanded and breach of which amounts to crime. Non-penal tax legislation are those where the tax is subject to assessment based on records or other forms of measuring liability and there are mechanisms for taxpayers' representations and procedures for contesting decisions on liability to tax.

The use of criminal sanctions in taxation can be over relied upon to enhance tax compliance and negate principled taxation. Ideally such sanctions are justified where applied to behaviour that is reasonably capable of being deterred and only when the sanctioned person is at fault somehow. They should not be unduly harsh or disproportional or imposed in violation of principles of due process (Gordon, 1996a).

The penal tax legislation in Tanzania include the Custom Tariffs Act 1976, Excise Duty Ordinance (1954), Export Tax Act 1974 and Entertainment Tax Act 1970. They all manifestly negate principles of due process. This is in line with the thinking that lack of compliance by taxpayers is an impediment to implementation of government efforts on rapid development hence criminalisation of conduct on tax default.

6.3.2 Use of Extra-Judicial Powers

The post independence government believed that institutionalisation of a Bill of Rights and therefore a firm mechanism for compliance with individual rights would negate the dictates of rapid development. The executive preferred a free hand in implementing decisions and measures that it considers to be for the public good. The same attitude is reflected in enforcement of tax obligations. In the case of the non-penal tax legislation extensive powers are conferred to enable tax authorities to enforce taxes without the fear of being censured by the courts of law.

The common extra-judicial powers embedded in tax legislation include the extra-judicial sequestration of property by distress, extra-judicial conviction of tax offenders through compounding of offences, extra-judicial garnishee-like orders, extra-judicial arrests and extra-judicial search and seizure.

Use of distress is found in all major tax legislation. Section 109[55] (ITA 1973) confers powers upon the Commissioner of Income Tax to levy distress against taxpayers without resort to courts of law and to order any police officer to assist in the exercise of such powers. Recently the exercise of this power has been extended to apply even in cases where tax liability is disputed and subject to court proceedings[56]. This provision is replicated in section 46 East African Excise Management Act 1973, section 34 Value Added Tax Act 1997, Part VII of the Sales Tax Act 1976[57], Part VII of Stamp Duty Act 1972[58] and section 114C of East Africa Customs and Transfer Tax Act 1970[59].

Powers to compound offences are invariably used in most tax legislation. Under section 75 of the Stamp Duty Act 1972 the Principal Secretary of Treasury can issue an order to compound an offence and require the taxpayer to pay fine. In other tax statutes the power to compound offences is exercised purportedly with the consent in writing of the accused taxpayer[60]. In a number of provisions however an offence can be compounded without agreement. For example section 174 of the East African Customs and Transfer Tax Act 1970, section 95 of the East African Excise Management Act 1973 and section 7 of Car Benefit Tax Act 1991. It should be noted that the provisions requiring compounding of offences by agreement presume that the taxpayer is well informed and in a position to make a rational decision. That is not always the case. In a research conducted at Dar es Salaam in November 2000[61] it was discovered that tax authorities except local government authorities very rarely instituted criminal proceedings against tax offenders. The interviewees admitted that compounding of offences is more lucrative both in terms of revenue collection and easy of administration.

The garnishee-like orders are orders issued by tax authorities in the guise of orders of appointment of collection agents. The latter are usually taxpayers' bankers and other persons believed to be in possession of monies owing to taxpayers. The orders are garnishee-like because they have the effect of attaching monies similar to judicial garnishee orders. Examples of provisions conferring such powers include section 103 (ITA), section 9 of Specified Buildings Tax Act 1993, and section 114A of the East African Customs and Transfer Tax Act 1970.

In the exercise of extra-judicial powers the tax authorities are invariably insulated against liability for wrongful decisions or actions and the relevant laws do not provide safeguards against misuse of such powers[62]. Previously some legislation like East African Excise Management Act 1973 provided for actions against the tax authorities (section 86). Most of the penal tax legislation do not directly provide for such insulation because the procedural laws governing public prosecution like the Criminal Procedure Act 1985 extend protection against individual liability to the tax officers. Recently an omnibus protection is provided for by section 18 of the Tanzania Revenue Authority Act 1995.

6.3.3 Use of Discretionary Powers to Make Administrative Rules

The administration of the various tax laws was made subject to rules created by the respective tax authorities. The common practice was for the legislature to confer powers either upon the Minister for Finance or directly upon a designated tax Commissioner to make rules for the carrying out of the provisions of any particular tax law. This powers was invariably used for making rules for administration of taxes that were confidential and of restricted circulation. For example the Laws and Departmental Instructions issued by the East African Income Tax Department that carried instructions that:

This volume is the property of the East African Income Tax Department. It is supplied for official use only and is to be regarded as STRICTLY CONFIDENTIAL. It must be retained in the personal possession of the officer to whom it is issued, until he leaves the Department, when it must be given up (EAITD, 1958)

Such instructions and rules were common in each tax department. Periodic departmental circulars directing officers how to interpret various provisions of the tax laws supplemented these. Regulations issued by the Minister would often reflect the needs of the tax authorities. It meant therefore that taxpayers would not be aware how the tax authorities would interpret any fact or law until they are faced with an aggrieving decision.

6.3.4 Use of Special Procedures in Tax Proceedings

The practice noted from the surveyed tax laws is to provide special procedures where tax proceedings are subject to judicial determination. In the case of tax proceedings of a civil nature a special summary procedure is applied whereby proceedings are instituted by a certificate filed by the relevant Commissioner that constitutes complete proof of the demands against the taxpayer and that obliges the court to endorse it and thereby making it a court decree capable of direct enforcement. In all tax laws taxes are recoverable as debts due to the government. The tax recovery provisions usually provide for such special procedure. Examples include section 6 of the Car Benefit Tax Act 1991, section 108 (ITA), section 9 of the Hotel Levy Act 1972, section 57 of the Stamp Duty Act 1972 and section 25 of the Sales Tax Act 1976 to mention only a few. The latter provision is a classic example of the phrasing of the provisions. It reads:

(1) Any tax, penalty or other sum payable under this Act shall be a debt due to the Government and may be recovered as a civil debt by a suit at the instance of the Commissioner or any proper officer authorized by the Commissioner in that behalf;

(2) Where any tax or penalty payable under this Act is due from any person and such person has failed to pay the amount of such tax or penalty; and

(a) no appeal in relation to such person's liability to such tax for payment of such tax or penalty is pending, or if there has been an appeal, such appeal has been disposed of and the tax or penalty is payable in accordance with the decision of the Appeals Tribunal; and

(b) any time allowed by this Act for an appeal to the Appeals Tribunal has expired,

the Commissioner may lodge in a court of a resident magistrate having jurisdiction over the area in which the person from whom such amount is due ordinarily resides or carries on business or works for gain, a certificate signed by him and stating:

(i) the name and address of the person from whom the tax or penalty is due; and

(ii) the amount of tax and penalty; and

(iii) the fact that any time allowed by this Act for an appeal to the Appeals Tribunal has expired and no appeal has been made to the Appeals Tribunal or that if an appeal has been made to the Appeals Tribunal, the amount of the tax or penalty due is due in accordance with the decision of the Appeals Tribunal,

and upon such certificate being lodged in such court, such certificate shall be deemed to be a decree passed by such court against the person named in the certificate for payment by such person to the Government of the amount stated in the certificate together with interest thereon at 12 per centum per annum, from the date on which such certificate is filed until the date of payment, and every such decree may be executed in the same manner as a decree passed by a court of a resident magistrate in a civil suit.

(3) The provisions of subsection (2) shall apply notwithstanding that the amount involved exceeds the pecuniary jurisdiction of a court of a resident magistrate.

(4) Every certificate filed in a court or a resident magistrate pursuant to the provisions of subsection (2) shall be conclusive evidence of the truth of the statements contained in such certificate.

(5) The method of recovery of tax or penalty prescribed by subsection (2) shall be without prejudice to any other method for recovery of such tax or penalty.

Recently subsection (5) above has been made more specific that even where judicial proceedings are underway in respect of a disputed tax liability the tax authorities can proceed with other recovery measures such as distress and collection from third parties.

The above procedure was designed on the assumption that taxpayers will have access to Appeals Tribunals and therefore enforcement by suit does not envisage any further litigation or disputed liability because such matter has become res judicata. This assumption was not real as subsequently discussed.

In the case of criminal proceedings the tax laws have consistently provided that the accused taxpayer who is thereby presumed guilty until innocence is proved carries the burden of proof.

6.3.5 Use of Administrative Tribunals
Resort to the use of administrative tribunals is often the case where the Government desires to retain an upper hand. Three facts were noted during the review of tax laws and examination of the functioning of tax disputes settlement procedures.

The first is the ouster of jurisdiction of ordinary courts to entertain tax disputes. All the major tax legislation created separate tribunals with exclusive jurisdiction over tax disputes. Tax Appeals Boards and Tribunals were created for income tax purposes (ITA Part XV)[63].

The second is the imposition of the pre-condition to pay demanded taxes before a tax dispute is admissible for appeal. The aggrieved taxpayer has to pay the demanded tax or an amount deemed by the specific tax law to be half the demanded tax before being granted audience by the appellate body.

The third is the absence of obligation on the part of the Government to create the tax appellate bodies. Hence the appeals organs under ITA were not established from 1973 until 1989 when the Minister finally appointed the chairpersons for the appeals board and tribunal respectively. The same functioned for hardly three years and ceased to function from 1992 when the chairperson of the appeals board was appointed judge of the High Court. No replacement appointment was made until 1999 when the appeals board resumed functioning after about 7 years.

The Minister from 1976 until the sales tax was repealed in 1997 by the Value Added Tax Act 1997 never constituted the appeals tribunal. The Commissioners for purposes of stamp duty adjudication have not been appointed since 1972 when the Act came into operation. Section 81 (a) (i) of the Stamp Duty Act 1972 saved the appointments of such Commissioners made under the Stamps Ordinance 1949. However under the latter legislation specified office holders were designated as such Commissioners. Most of those offices have ceased to exist and no new publication of such Commissioners has been made. In the course of research it was revealed that since 1972 there have not been a single case that is recorded to be referred for adjudication to the Commissioners. Similarly under the Value Added Tax Act 1997 no appeals body was created and any appeal now awaits the establishment of a Tax Revenue Appeals Board and the Tax Revenue Appeals Tribunal under the new Tax Revenue Appeals Act 2000.

While the tax laws provide for the creation of administrative tribunals their actual creation was not made obligatory and left to the discretion of the Minister for Finance. The latter has consistently argued that financial constraints debilitated him from constituting such appeals organs. Apparently given the multiplicity of appeals organs that were required to be established under each tax legislation the financial implications upon the Treasury were immense (GOT, 1998, TRA, 2001). Notwithstanding it is also suspect that the reluctance to create the tribunals is financially beneficial to the government because judicial processes that would entail refund of unlawful collections or compensation for wrongful acts do not redress arbitrariness in taxation. The government is left to use foul play and enjoy the spoils.

6.4 Organisation of Tax Administration

Until recently Tanzania has not had a unified tax agency that is responsible for tax administration. At independence Tanzania remained under the East African tax management arrangements whereby there was the East African Customs and Excise Department that was responsible for all the taxes on international trade, namely customs and import duties[64] as well as excise duty[65]. There was also the East African Income Tax Department responsible for the administration of income tax[66]. Tanganyika like the rest of the Community States of Kenya and Uganda had its own Inland Revenue Department that was responsible for the administration of non-community taxes. This department administered stamp duty, hotel levy, estate duty, motor vehicle taxes and a horde of other imposts. In 1969 it changed designation to Sales Tax and Inland Revenue Department after the introduction of sales tax[67]. However, each of the tax legislation provided for a different tax authority conferred with administrative powers. It could be a Commissioner, the Principal Secretary of the Treasury, the Minister of Finance or otherwise.

The lack of harmony in tax administration meant that taxpayers were compelled to deal with officers from different tax departments and treated according to different administration rules. Income tax officers visiting a taxpayer will be followed by proper officers for sales tax, then stamp duty officers, followed by officers for employment taxes, those for property taxes, local government taxes and other imposts. The string of tax officers to deal with became perplexing and harassing. There was no certainty as to time of payment, incidence or even who will next demand a tax of whatever nature.

A hotel owner had to prepare returns based on business turnover for sales tax purposes, a different set on the same basis for stamp duty, another one for hotel levy, maintain valuation records for property tax and local government rates, prepare returns for housing/payroll levy, for vocational education levy and for the social security taxes. In each instance the hotelier will deal with a different tax officer who will subject similar records to different administrative interpretation and different rules of administration.

7. Concerns on the Rule of Law and Human Rights

At the advent of liberalisation and the change to multiparty political system the tax system can best be described as narrow and arbitrary. It was state-centric and not structured to operate in a democratic and free market system. The above discussion shows multiplicity of taxes without safeguards against arbitrary taxation, use of high rates of taxes, inequitable distribution of tax burdens, tax administration practices that offend due process rights and generally the use of taxation without due regard to taxpayers' rights.

The challenge facing Tanzania like many other developing countries that are changing from one-party rule towards democratic governance and free enterprise is the designing of legal framework for taxation that responds to the changing state-society relations. It is necessary to recognise that the contemporary legal framework for taxation is not a product of organic development within the societal structures. It is a carryover from the colonial framework that was adopted under the maximum government philosophy of the one-party state.

Interest conflicts intensify as the free market economy takes hold. Historical lessons in developed countries caution of the possibilities of spontaneous tax revolts that may cause serious social upheavals with severe impacts on development and peace. These were the experiences preceding the Magna Carta and other revolutions mentioned earlier. Recently a number of countries in Africa have been on the verge of experiencing serious tax revolts on account of public resistance to tax policies. Most were associated with the introduction of value added tax, for example Ghana, Kenya, Zambia and Uganda. In Uganda the government was impelled to contemplate imposing state of emergence measures to maintain peace during the transition to value added tax.

The problem does not lie with wanton resistance to taxation. Where there is no public trust in tax administration citizens are wary to co-operate with governments to resource the state. Co-operation is only possible if the institution of taxation is democratically organised and administered with due regard to the rights of taxpayers.

Increasingly the subject of taxpayers' rights is addressed in other countries of the world (OECD, 1990, Bentley, 1998). However, the level at which this is done assumes the existence of effective democratic governance. The content of taxpayers' rights is thus invariably linked to the exercise of powers by tax authorities. Hence the American Taxpayers' Bill of Rights focuses on a few powers of the Internal Revenue Services (IRS)[68]. In other countries the tax authorities have proclaimed charters of taxpayers' rights. These include the Declaration of Taxpayers' Rights released by Revenue Canada in 1985 (Li, 1998), the UK Taxpayers' Charter of taxpayers' Rights in 1986 (Williams, 1998), New Zealand Inland Revenue Department declared a Statement of Principles in 1986 (NewZealand, 1986, Sawyer,1999), as well, the Australian Tax Office followed suit in 1997 (Wheelwright, 1998) and South African Revenue Service proclaimed a Client Charter in the same year (Williams, 1998).

The common characteristics of the charters of taxpayer rights are that, the charters have no legal authority and provide no protection to taxpayers. They are documents released by the tax authorities aimed at improving their respective credibility and restore taxpayer confidence in tax administration machinery. For example the UK charter which reflects the common phraseology in most declarations read as follows:

You are entitled to expect the Revenue -

To be fair -

- by settling your tax affairs impartially
- by expecting you to pay only what is due under the law
- by treating everyone with equal fairness

To help you -

- to get your tax affairs right
- to understand your rights and obligations
- by providing clear leaflets and forms
- by giving you information and assistance at our enquiry offices
- by being corteous at all times

To provide an efficient service -

- by settling your tax affairs promptly and accurately
- by keeping your private affairs strictly confidential
- by using the information you give us only as allowed by the law
- by keeping to a minimum your costs of complying with the law
- by keeping our costs down

To be accountable for what we do -

- by setting standards for ourselves and publishing how well we live up to them

If you are not satisfied -

- we will tell you exactly how to complain
- you can ask for your tax affairs to be looked at again
- you can appeal to an independent tribunal
- your MP can refer your complaint to the Ombudsman

In return, we need you-

- to be honest
- to give us accurate information
- to pay your tax on time

Source: UK ,Taxpayers' Charter, 1986

The US, where the Taxpayers' Bills of Rights (TBR 1 and 2) are in a statutory form, only deal with few matters. Meland explains that the legislation purports to increase taxpayers' awareness of their rights during an IRS audit and to enhance procedural safeguards available to taxpayers during an audit (Meland, 1988). The Bills are therefore very restrictive in their scope and do not adequately address the broad taxpayers' rights. He calls the Bill of Rights a political placebo.

There is an apparent reluctance by governments to introduce legislative protection of taxpayers' rights. On one hand the argument has often been the difficult of identifying and cataloguing such rights while balancing revenue needs of the government. Mrs M Buquicchio-de-Boer is perhaps more forthright in advancing this view in her assertion that:

Taxation matters, being the means by which states fund the broader issues of welfare rights and their like, are traditionally regarded as the preserve of the state, which should not be subject to judicial review either at domestic level or at an international level by organs deciding on individual petitions (IFA, 1988).

On the other hand the argument has been that rights of taxpayers are adequately and effectively covered through the general Bill of Rights (IFA, 1988). This is a questionable proposition that also lacks universality. Bills of rights are not sufficient to protect rights in the tax context because the contents of such Bills differ and the rights that may require specific recognition also differ according to the tax system in which they are of concern (Baker, 2000). As earlier noted even where the rule of law is upheld matters of taxation require special protection. This is more valid in the context of patrimonial systems that are prevalent in developing countries. It is important to identify precisely how the tax system fits within the legal order.


The subject of human rights in taxation appears arcane to many people including the afflicted taxpayers. Some ask whether taxpayers have human rights (Tiley, 1998, Wallworth, 2000); or, whether taxpayers should have rights (Maas, 1999). Bentley (Bentley, 1998) points out 'that traditional human rights lawyers look somewhat askance at the concept. They are unsure whether taxpayers' rights should really be categorised as human rights'(sic). He reveals that:

Until recently there has been little theoretical examination of taxpayers' rights. As a result, there was little context in which to place the debate (Bentley, 1998).

The debates on human rights in taxation arise from the deficiencies in the concepts of justice, fairness and equity in taxation. Traditionally these have been viewed as proper safeguards against arbitrariness and unjust taxation. However, they are concepts that do not yield to any agreeable definitions. The concepts are also founded on the wrong premise that taxing powers are plenary powers and that in the exercise of such powers there is need to have a human face. They are articulated in the form of morals in taxation rather than binding principles. It is significant that these concepts do not form part of the tenets in tax legislation (IFS, 1993).

It is acknowledged in the OECD study that taxpayers need more explicit and comprehensive provisions to protect their rights particularly as taxation and tax laws become more complex (OECD 1990). The study emphasises that a high degree of co-operation from taxpayers is required if complex tax systems are to operate efficiently. That such co-operation is more likely to be forthcoming if taxpayers perceive the system as being fair and if their basic rights are clearly set out and respected. Commenting on the human rights debate the study joins issues that:

Taxpayers' rights should be seen in the broader context of human rights and the international obligations that most countries have entered into in this respect.

The extent to which the debate on taxpayers' rights has progressed indicate that the political process that rely on Parliamentarians to protect freedoms, particularly in taxation is not effective and there is a strong case that the legal process in protecting liberties should take over. Sawyer observes that:

an Executive-dominated unicameral Parliament without the democratic support of the general population may repeal or erode administrative practices and ordinary legislation. A formalized approach is less likely to allow taxpayers' rights to be subrogated than would an informal approach and a benevolent Executive (Sawyer, 1999).

The questions that should be addressed are, (a) what should be considered as human rights specific to taxpayers, and (b) how should they be protected? According to Feldman the broad test is that a right can be recognised and protected if the law is inadequate to provide a remedy (Feldman, 1993).

Examining the Tanzanian scenario in the above light it is apparent that the legal framework for taxation poses serious questions. Analysed in the context of the rule of law the above exposition does not attest to the existence of taxation in accordance with the rule of law. Rather it attests to the existence of prerogative taxation. Taxing powers during the period examined were akin to monarchical prerogative that existed in England before the Magna Carta or in France before the French Revolution in 1789 or USA before the Declaration of Independence in 1776. The human rights concerns that led to revolts that did away with uncontrolled taxation need to be carefully studied to safeguard against similar social upheavals.

In this article the aim was to demonstrate that the tax system at the advent of economic liberalisation and multiparty politics was not structured to service a democratic society and free market. It was also not designed to secure the respect for human rights. As De Soto argues, it is a wrong approach to prescribe solutions to problems experienced in developing countries without understanding their historical context (De Soto, 2000). The article provides that historical context in the case of Tanzania. A more focused study is needed to address how the system should be restructured and taxes redesigned in order to achieve state-society co-operation in financing governance and human development[69] and aligning taxation with human rights.

Notes and References

1.See the list of implemented tax reforms in (GOT, 1999a).

2. The history of SAP in Sub-Saharan Africa began with the World Bank's 1981 Berg Report on social and economic crisis in Africa (Gibbon, 1993). The programmes in Tanzania include the Economic Recovery Programme I (ERP I) in 1986, ERP II, Economic and Social Action Plan (ESAP) and the Priority Social Action Plan (PSAP) in 1989. See (GOT, May 1986) and (GOT, June 1982).

3. Broadly the conditions demanded by SAP include the control of money supply, devaluation of the local currency, reduction of public borrowing and government expenditure, introduction of user charges (cost-sharing) in education and health, trade liberalisation, reduction of tariffs, abolition of price controls, privatisation of parastatals, withdrawal of subsidies, retrenchment of workers, creation of conducive environment for foreign direct investments (Lipumba, Msambichaka et al, 1984).

4. See the list of implemented tax reforms in (GOT, 1999a).

5. The Tanganyika (Constitution) Order in Council 1961.

6. The East African Income Tax (Management) Act 1958, The East African Customs and Transfer Tax Management Act 1952 and the East African Excise Management Act 1952 remained in force until re-enacted in 1970 by the EAC and subsequently continued to operate by virtue of the East African Community Mediation Agreement Act 1987.

7. The party that won independence for Tanganyika.

8. It is said that in February 1960, on the invitation of Governor Turnbull and with Nyerere's approval, Vasey came to Tanganyika to become Minister of Finance (Pratt, 1976).

9. He was later succeeded by Mr. Bomani and in 1965 by the late Amil Jamal who were both staunch supporters of the Nyerere's developmentalism philosophies (Pratt, 1967, Cliffe and Saul, 1973).

10. The then ruling party. It subsequently changed to Chama cha Mapinduzi (CCM) after the merger of TANU and the ruling party of Zanzibar, the Afro-Shirazi Party (ASP) in 1977.

11. Levi argues that rulers are predatory because they need state revenue to pursue their personal objectives of staying in power (Levi, 1988).

12. This was the Tanzanian Constitution after the union between the Republic of Tanganyika and Zanzibar that formed the United Republic of Tanganyika and the People's Republic of Zanzibar. The name was later changed on 11th December 1964 to 'United Republic of Tanzania.' See section 2, of the United Republic (Declaration of Name) Act 1964, Act No. 61 of 1964 (Cap. 573).

13. Officers of the government discharge the functions of government on behalf of the President. See article 35 of the Constitution.

14. The Parliament under (Article 62) is made up by the National Assembly comprised of the elected constituent representatives (MPs) and the President with the latter wielding the final authority in the legislative process (Article 97).

15. Quoted in (Maina, 1997).

16. See also the Tanzania Basic Industrial Strategy of 1971.

17. Section 106 that was finally repealed by under section 29 of the Finance Act 1996.

18. 158 U.S. 601, S. Ct. 15:912. In this case the Supreme Court declared the US Income Tax Act unconstitutional because it sought to impose income tax on non-income receipts.

19. See section 2 of the repealed Exchequer and Audit Ordinance and section 11 of the new Public Finance Act 2001.

20. Established either under the Local Government (District Authorities) Act 1982 or the Local Government (Urban Authorities) Act 1982.

21. This is the position of the Tanzanian Treasury and Chief Parliamentary Draftsman in the Attorney General's Office as established from interviews carried out by the author at Dar es Salaam.

22. The recent guidelines were prepared in 1992 but they are in content not new as they carry forward past practices (GOT, 1992a).

23. Apparently this is also a problem experienced by many developing countries (Goode, 1990).

24. A total of 395 parastatals were created (PSRC, 2000).

25. See also the Public Corporations Act 1969.

26. Small Industries (Imposition of Tax) Act 1977.

27. The Production Development Fund (Establishment and Management) Act 1974.

28. The Industrial Promotion and Development Fund (Establishment and Management) Act 1984.

29. This changed recently under IBRD and donor pressure that led to the enactment of the Road Tolls (Amendment) No. 2 Act 1998 that created the Tanzania Road Fund and took road tolls revenue from the consolidated fund.

30. Finance Act 1996.

31. Electricity (Consumption Tax) Act 1968.

32. Sugar Consumption Tax Ordinance, Chapter 202 of Tanganyika Laws.

33. Soft Drinks (Consumption Tax) Act 1968.

34. Beer Consumption Tax Act 1964.

35. Aviation Spirit Tax Act 1966.

36. State Trading Corporation (Establishment and Vesting of Interests) Act 1967.

37. The term refers to the variant of socialism practised in Tanzania.

38. Duties and Taxes (Prevention of Price Increases) Act 1970.

39. East African Income Tax (Management) Act 1958.

40. Section 6 (1) and (2). Employers were the collection agents.

41. Training Levy (Imposition) Act 1972.

42. Vocational Education Training Act 1994.

43. National Social Security Fund Act 1997.

44. Co-operative Societies Act 1968.

45. See list of cash crop legislation in (Juma, 1997).

46. Villages and Ujamaa Villages (Registration, Designation and Administration) Act 1975.

47. The fund was established by the ruling party to support a campaign for irrigation schemes.

48. See also The District Tax Advisory Committee Regulations 1988.

49. This was under the Personal Tax Act 1967.

50. See section 6 of the Finance Act 1983.

51. See also section 8 of the National Provident Fund Act 1964.

52. Implemented by the Finance Act 2000 in accordance with TRA recommendations in (TRA, 2001).

53. Section 17 of the Value Added Tax Act 1997.

54. Formerly under the Companies (Tax on Nominal Capital) Ordinance (Cap. 188).

55. Read with the Income Tax (Distraint) Regulations 1975.

56. See amendment to section 108 (3) effected by section 30 of the Finance Act 1996.

57. As amended by section 42 of the Finance Act 1996.

58. As amended by section 48 of Ibid.

59. As amended by section 13 of Ibid.

60. For example under section 121 (ITA), section 48 of the Value Added Tax Act 1997, section 13 of the Payroll Levy Act 1985, sections 94 of the East African Excise Management Act 1952, section 173 of the East African Customs and Transfer Tax Act 1970, section 14 of Training Levy (Imposition) Act 1972 and section 12 of Hotel Levy Act 1972.

61. This was part of the author's PhD research in Tanzania.

62. For example under section 68 of the Sales Tax Act 1976.

63. Similar bodies were created for sales tax (Part XI of the Sales Tax Act 1976) and the Minister for Finance invariably empowered to make regulations on how disputes are to be resolved for example under section 13 of the Hotel Levy Act 1972.

64. The East African Customs and Transfer Tax Management Act 1952. This legislation has been in operation until its replacement by the East African Customs and Transfer Tax Act 1970.

65. The East African Excise Management Act 1952.

66. The East African Income Tax (Management Act 1952, succeeded by the East African Income Tax (Management) Act 1958 that was replaced by the East African Income Tax (Management Act 1971.

67. The Sales Tax Act 1969.

68. See Tax Equity and Fiscal Responsibility Act 1982; Taxpayer Bill of Rights 2 1996 and An Act to Amend the Internal Revenue Code of 1986 to Restructure and Reform the Internal Revenue Service, and for Other Purposes 1998.

69. The author is currently undertaking that study as part of his PhD thesis at the University of Warwick.

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