BLock Management System For Enhancement of Revenue Collection

A JOINT PUBLICATION BETWEEN ATAF
AND GIZ
SEPTEMBER 2014
TAXATION OF SMES IN AFRICA

GOOD PRACTICES AND LESSONS
LEARNED
BLOCK MANAGEMENT SYSTEM (BMS) IN TANZANIA
PREFACE
The African Tax Administration Forum (ATAF) in its commitment to improving the capacity and skill base of tax
administrations in Africa aims to help develop, share and influence the implementation of good practices among
its member countries. ATAF is therefore pleased to present the good practices and lessons learned from a series
of reforms in the taxation of small and medium enterprises (SMEs) undertaken in a few countries in Africa,
specifically in Burundi, Ghana, Rwanda, Senegal, Tanzania and Zambia. This research project seeks to empower
and educate tax administrations, policymakers and the society at large, and as a result change the culture of
non- compliance, tax avoidance and tax evasion on the continent.
The undertaking of this research project has been well-informed by the need to tackle major issues and
challenges regarding the informal sector and the importance to design effective tax systems that respond to the
demands and special conditions of the SMEs in the continent. This need has been identified as one of the
fundamental challenges faced by tax administrations, as stated in the ATAF Regional Studies on Reform
Priorities of African Tax Administrations published in 2012. Consequently, ATAF initiated this research project by
focusing on SMEs as they are a significant part of the informal sector.
The present study intends to provide tax administrations with a solid understanding of the Tanzanian Block
Management System (BMS). The Tanzania Revenue authority (TRA) strives to continually improve its functions
to broaden the tax base, reduce tax gaps, improve fairness in the tax systems and enhance the overall rate
of voluntary compliance through various ways, one of which is the taxation of SMEs. Through this research,
ATAF attempts to provide a valuable and practical input and also provides recommendations to other African tax
administrations derived from this reform project.
The potential role of SMEs to increase tax revenue and thus improve the economy is the central conviction of
this study. This research provides information about good practices, which should not be seen as an absolute or
a one-size-fits-all tax system design but rather as options that can assist countries in guiding their reform
strategies and can be adapted to country-specific circumstances. The study also makes a very significant
contribution to the overall tax literature with a methodology that allows for direct input from tax officials of the
Tanzania Revenue Authority (TRA) and other related key stakeholders. ATAF is confident that the value added
from this study will be beneficial to tax administrations in Africa, relevant stakeholders and other users of the
information.
Our appreciation goes to Mr Wisdom Nhekairo for conducting the research. Mr Nhekairo During his field visit in
Tanzania in late September 2013 met and interviewed several key stakeholders whose knowledge and
experience contributed to the quality of this research.
We are immensely grateful to the Ex-Commissioner General of the Tanzania Revenue Authority, Mr Harry Kitiliya,
for honouring the ATAFs wide call for interest to member countries to showcase at least one reform implemented
in the taxation of their small and medium enterprises. ATAF is also grateful to Mr. Patrick Kassera, Commissioner
Domestic Revenue of TRA; to Mr. Yeremiah Mbaghi, who was the resource person as well as to all senior
management and TRA staff interviewed.
Furthermore, ATAF is grateful for the support from the Deutsche Gesellschaft fr Internationale Zusammenarbeit
(GIZ) for making this project a success and would like to give special thanks to Dr Christiane Schuppert and Ms
Vandudzai Mbanda for providing insights, comments and overall support to the project.
Block Management System (BMS) in Tanzania
iii
Finally, we recognize the contribution of the research team of the ATAF Secretariat (Dr Nara Monkam and Frankie
Mbuyamba) and appreciate their overall coordination and comments towards the success of this project.
It is our sincere hope that this study, alongside other showcase reports on the Taxation of SMEs in Africa,
contributes to the development of capacity in African tax administrations.
Logan Wort
Executive Secretary
African Tax Administration Forum (ATAF)
iv
TABLE OF CONTENTS
Executive Summary..................................................................................................................... 1
I. Introduction and Background..................................................................................................... 2
1.1 Introduction......................................................................................................................................................2
1.2 Background.....................................................................................................................................................2
II.SME Context............................................................................................................................. 4
2.1 Definition of SMEs...........................................................................................................................................4
III......................................................................................................................................................... Country
Characteristics........................................................................................................................ 6
3.1 Economic Environment...................................................................................................................................6
3.2 Tax Environment..............................................................................................................................................7
IV......................................................................................................................................................... Description of
the reform measure: the Block Management System (BMS)...............................................12
4.1 Overview of Block Management System (BMS)............................................................................................12
4.2 Purpose of BMS..............................................................................................................................................13
4.3 Setting up of Blocks........................................................................................................................................13
4.4 Administration of a block.................................................................................................................................14
4.5 Staffing a Block...............................................................................................................................................18
4.6 Block management activities..........................................................................................................................19
V.Outcomes and benefits of the project.................................................................................... 22

VI......................................................................................................................................................... Lessons
Learned for Good Practices................................................................................................... 23
VII....................................................................................................................................................... Risks and
Challenges.............................................................................................................................. 24
Conclusion.................................................................................................................................... 25
Bibliography................................................................................................................................. 26
LIST OF TABLES
Table 1: Categories of SMEs in Tanzania..............................................................................................................5
Table 2: Gross Domestic Product (GDP), Tanzania.............................................................................................6
Table 3: Revenue, Expenditure and Total Taxes for the Year ending 30th June of each year: (US$ Billion).......7
Table 4: Income from Taxes for the Year ending 30th June, (US$ Billion)...........................................................7
Table 5: Presumptive Taxation Tax Rates...........................................................................................................10
Table 6: Tax Service Centre - Ilala Tax Region......................................................................................................16
Table 7: Tax Service Centre - Arusha Tax Region.................................................................................................17
Table 8: Blocks and Sub-blocks - Ilala Tax Region...............................................................................................17
Table 9: Blocks and Sub-blocks - Arusha Tax Region..........................................................................................18
Table 10 : Blocks, Taxpayers to Staff Ratio - Kinondoni Tax Region....................................................................19
Table 11 : Blocks, Taxpayers to Staff Ratio - Arusha Tax Region..........................................................................19
Table 12: Key Performance Indicators..................................................................................................................22
vi
LIST OF FIGURES
Figure 1: Percentage Share of GDP at Current Prices, 2012..............................................................................6
Figure 2 : Percentage of TRA Collections by Department...................................................................................8
Figure 3 : TRA Staff Establishment.......................................................................................................................8
Figure 4 : TRA Taxpayer Register.........................................................................................................................9
Figure 5: Defining a Block.....................................................................................................................................19
Figure 6 : Administration of a Block......................................................................................................................19
Figure 7 : Regional Organization Structure Kinondoni Tax Region..................................................................15
Figure 8 : ARM-Debt Organization Structure Kinondoni Tax Region................................................................16
vii
ABBREVIATIONS AND ACRONYMS

ATAF
African Tax Administration Forum
BMS
Block Management System
DRD
Domestic Revenue Department
EFD
Electronic Fiscal Device
GDP
Gross Domestic Product
GIZ
German International Cooperation
ITA
Institute of Tax Administration
ITAS
Integrated Tax Administration System
LTO
Large Taxpayer Office
MSME
Micro, Small and Medium Enterprise
MTO
Medium Taxpayer Office
SME
Small and Medium Enterprise
STO
Small Tax Office
TRA
Tanzania Revenue Authority
TSC
Tax Service Centre
VAT
Value Added Taxation
viii
EXECUTIVE SUMMARY
Many countries have recorded significant benefits through setting up of specialised units to control the
compliance of large taxpayers. It is from the same gains, achieved through segmentation that the Tanzania
Revenue Authority (TRA) decided to start paying special attention to the SME sector. The TRA recognised that
the methods used in the past had been inadequate to deal with an ever increasing informal sector which had
unique characteristics and had potential to contribute to the revenue base of the country.
However for this potential to be turned into tangible results, the TRA needed to come up with strategies that
recognised the unique characteristics of the SME sector and the environment in which they operate. Against
this background, the TRA introduced the Block Management System (BMS) in 2005 1 to increase tax compliance
within the SMEs with the ultimate aim of enhancing government revenue and deter tax evasion. The BMS was
an improvement of an already existing system, known as the Physical Survey (PS). The PS had become
ineffective as it was not sustainable and was not cost effective. The major disadvantage of the PS system was
that it
was a periodical program, i.e. undertaken periodically as and when funds and time allowed. It therefore
lacked consistency and sustainability in enhancing tax compliance. The BMS is a continuous and permanent
program that is an integral part of the TRA operations.
The overall objective of the BMS is to have in place sustainable methods and strategies of monitoring business
activities of the SME taxpayers to make them pay taxes in a cost effective manner. The BMS focuses on the
physical identification and mapping of areas in which the SME taxpayers are located and operate. These areas
are then demarcated and designated as a block or sub-block. Each block is mandated to operate all the key tax
administration functions of registering, assessing, collecting and accounting for revenue collected. Staff assigned
to specific blocks therefore find it easier and feasible to permanently touch base with taxpayers operating in
these blocks. Similarly, taxpayers find this arrangement more user-friendly and cost effective.
The implementation of the BMS has overall had a positive impact on the tax compliance management of the
SME taxpayers. This is demonstrated by the increase in the revenue yield and increase in the number of
registered taxpayers.
Between the financial year 2010/2011 and 2012/2013, the population of SME taxpayers grew from 372,600
to 493,714 and the revenue collected during these two periods increased from US$ 500 million to US$ 900
million (Tanzania Revenue Authority, 2012). There have been, however, some challenges faced in the process
of implementation which have led to the formulation of further improvements to the system, through constant
monitoring and evaluation.
(Fjeldstad & Heggstad, 2011)
I. INTRODUCTION AND BACKGROUND

1.1 Introduction
The objective of the good practice study on the Taxation of Small and Medium Enterprises in Africa, good
practices and lessons learned, which was undertaken at the Tanzania Revenue Authority (TRA), was to collect
information necessary to describe the design and implementation of the Block Management System (BMS). This
is one of the reforms that the TRA has undertaken in the recent past in order to enhance the effectiveness and
efficiency of taxing the SME sector in Tanzania.
The Tanzania Revenue Authority (TRA) was established by Act No.11 of 1995 and became operational on July
1, 1996. The TRA is a semi-autonomous agency of the Government, responsible for the administration of the
Central Government taxes, as well as several non-tax revenues. The functions of TRA are to assess, collect and
account for all central government revenue and to administer efficiently and effectively all the revenue laws of
central government. TRA also performs an advisory role to government on tax matters relating to fiscal policy. For
taxpayers, the TRA is required to promote voluntary compliance and has an obligation to improve the quality of
service provided to taxpayers. At the same time, the TRA must counteract fraud and other forms of tax and fiscal
evasion and produce trade statistics and publications for use by government and the general public.
The result of this good practice study is intended to provide other countries with an indication as to the
effectiveness of the system and to understand the factors and circumstances contributing to its successful
implementation. The study continues as follows. Chapter one continues, giving the background to the study.
Chapter two provides
a brief overview of SME taxation in Tanzania. Chapter three presents the country
characteristics and economic and general tax environments in Tanzania. Chapter four gives a description of the
Block Management System. Chapter five analyses the outcomes of the project, identifying success factors and
risks of the project. Chapter six identifies good practices and lessons learned. Chapter seven is conclusion and
proffers suggestions to other ATAF member countries interested in the implementation of such scheme.
1.2 Background
The contribution of the informal sector (of which small and medium enterprises (SMEs) make a substantial
component) to economic growth in African countries is large, making taxation of SMEs an important issue
for tax administrations. The vast number of SMEs and economic nature of SMEs (narrow taxable base,
undocumented, cash-based business transactions, high mobility and activity in rural areas) are both reasons
why tax administrations face difficulties in properly administering the group of SME taxpayers. This is even more
pronounced in African countries where tax administrations encounter various capacity constraints in terms of
skills and financial resources.
Apart from the revenue generating potential of SMEs, broadening of the tax base through inclusion of all
businesses into the tax net is also seen as critical for increasing the perceived fairness of the tax system among
citizens. The fact that the majority of the labour force in Africa, especially in rural areas, is employed in the
informal (SME)
sector makes SMEs an important aspect for building a strong and stable economy.
This study on taxation of small and medium enterprises in Tanzania focuses on good practices and lessons
learned on the block management system reform measure. The block management system was adopted and
introduced to change and simplify the tax processes in the taxation of SMEs. The field trip was conducted in Dares-Salaam during the last week of September 2013. The good practice and lessons learned study on taxation of
SMEs in Tanzania makes use of extensive key stakeholder interviews with, among others, Commissioners and
senior staff of the TRA and business associations.
The aim of this visit was to equip the expert with the following: the collection of information on SMEs and the tax
system in Tanzania; the identification of cases of reform processes within the Tanzania Revenue Authority; and
finally the description and analysis of the reform measures that have been implemented by Tanzania to allow a
similar implementation in another country. The scope of this study covers the period 2008 to 2013 but in certain
cases much earlier information, especially on reform measures, was collected to better our understanding on
SME taxation reform in Tanzania.
II.SME CONTEXT
It is now increasingly recognized that the Small and Medium Enterprises (SMEs) play a crucial role in
employment creation and income generation in Tanzania. SMEs all over the world and in Tanzania in particular,
can be easily established since their requirements in terms of capital; technology and management are not as
demanding as it is the case for large enterprises. These enterprises can also be established in rural settings and
thus add value to the agro-products and at the same time facilitate the dispersal of enterprises. Indeed SMEs
development is closely associated with more equitable distribution of income and thus important as regards
poverty alleviation. The rural settings are predominantly agricultural and specifically peasant based, under which
outdated and un- mechanized farming methods and tools are utilized. In the urban settings, unemployment
forces the majority to create self- employment opportunities through establishment of small business
undertakings. Both the urban and rural undertakings usually operate in an economic environment that is informal,
predominantly untaxed and ever expanding.
It is estimated that about a third of the GDP originates from the SME sector (Ministry of Industry and Trade,
2002). According to the Informal Sector Survey of 1991 ( National Bureau of Statistics, 2002), micro enterprises
operating in the informal sector alone consisted of more than 1.7 million businesses that engage about 3 million
persons representing about 20% of the Tanzanian labour force (Ministry of Industry and Trade, 2002). This
demonstrates the importance of SME in stimulating economic growth and employment creation. Yet the tax
revenue contribution by this sector remains far below the desired levels.
The SMEs, important as they are to the economy, have however been facing a number of problems. This is due
to a number of factors, one of which is a persistent culture that has not recognised the value of entrepreneurial
initiative in improving the lives of the people. Other factors include complex, bureaucratic and costly legal,
regulatory and administrative environment where SMEs are at a greater disadvantage than their counterparts
that are larger in size. The high cost of compliance to regulations may discourage potential entrepreneurs from
formally setting up their businesses, while driving some existing enterprises out of business and those working
for them into unemployment.
Clear and precise compliance strategies are therefore pertinent that create an enabling environment for SMEs
to thrive and ultimately graduate from the informal sector to formal sector. This will enable the tax administration
to extract the revenue potential inherent within the SMEs, for the purpose of increasing the revenue contribution.
2.1 Definition of SMEs

The definition of an SME varies from country to country dependent on the level of economic and social
development prevailing in each country. The definition also varies within countries as defined by different
institutions. The various definitions are usually aimed at meeting the different objectives of each stakeholder.
Tanzania, like many other African countries does not have a single official definition of SMEs. In Tanzania, one
important and broad definition is contained in the Tanzania SME Policy which was published by the Ministry for
Industry and Trade in 2002 (Ministry of Industry and Trade, 2002).
4
Table 1 : Categories of SMEs in Tanzania

Category
Employees
Capital Investment in Machinery (Tshs.)
Micro enterprise
14
Up to 5 m. (US$3,125)
Small enterprise
5 49
Above 5 m. to 200 mil. (US$3,125 to US$125,000)
Medium enterprise
50 99
Above 200m. to 800 mil. ((US$ 125,000 to US$500,000)
Large enterprise
100 +
Above 800 m. (US$500,000)
Source: (Ministry of Industry and Trade, 2002).
In the event of an enterprise falling under more than one category, then the level of investment will be the
deciding factor. Various criteria are therefore used to define Micro, Small and Medium Enterprises (MSMEs).
They include: turnover, number of employees engaged, capital base, and profit, among others. The TRA uses a
definition that classifies entities based on the annual turnover. In the Tanzanian tax administration context,
turnover level is used to categorize Small, Medium and Large taxpayers. The lack of a single and uniform
definition of SMEs at national level adds to the challenges faced by revenue authorities in coming up with
strategies aimed at dealing with the compliance of this sector. Especially with strategies that deal with information
sharing and the production of uniform statistics at national level.
III.
COUNTRY CHARACTERISTICS
3.1 Economic Environment

Tanzania, officially the United Republic of Tanzania (Swahili: Jamhuri ya Muungano wa Tanzania), is a country
in East Africa in the African Great Lakes region. The country is divided into 30 administrative regions: five on the
semi-autonomous islands of Zanzibar and 25 on the mainland. The economy is heavily based on agriculture,
which accounts for more than 25 percent of gross domestic product, provides 85 percent of exports, and
employs 80 percent of the workforce (AATF and COSTECH, 2010). Tanzania has vast amounts of minerals
including gold, diamonds, coal, iron, uranium, nickel, chromium, tin, platinum, Colten, niobium, natural gas, and
others. The country is also known for Tanzanite, a type of precious gemstone that is found only in Tanzania.
Tables 3 to 5 below highlight selected macro - economic indicators for Tanzania Mainland.
Table 2: Gross Domestic Product (GDP), Tanzania

2001
----
2008
2009
2010
2011
2012
At Market Prices
5.7
---
15.5
17.6
20.2
23.5
27.9
At 2001 Prices
5.7
---
9.3
9.8
10.5
11.2
12.0
GDP Growth Rate (%)
6.0
---
7.4
6.0
7.0
6.4
6.9
GDP per Capita (USD) at

market Prices
316
----
525
525
547
558
652
Source: (National Bureau of Statistics, 2012).
Tables 1 shows a steady increase in GDP over the last five years, indicating growth of the economy. The growth
of the GDP has averaged 6.6% over this period. The per capita income has increased from US$316 in 2001 to
US$652 in 2012 which is in line with the increase recorded in the GDP. This figures indicate an economy that is
growing through increased economic activity.
Figure 1 below shows that 26.8% of the GDP is generated by the agriculture, hunting and forestry sector, the
sector in which most of the SMEs operate.
Figure 1: Percentage Share of GDP at Current Prices, 2012
Table 2 shows an increase in national revenue (which is inclusive of domestic revenue, borrowings, external
support and fiscal deficits) and expenditure from US$ 2.0 billion in 2005 to US$ 6.7 billion in 2012. Total taxes
during the same period increased from US$ 1.1 billion to US$4.4 billion. This shows that the tax revenue alone
(US$ 1.1bn in 2005 and US$ 4.4bn in 2012) is not sufficient to meet the expenditure (US$ 2.0bn in 2005 and
US$ 6.7bn in 2012). There is therefore need to continuously extract the revenue potential lying with the SME
sector for the benefit of the economic growth of the country.
Table 3: Revenue, Expenditure and Total Taxes for the Year ending 30th June of each year:
(US$ Billion)
2005
2006
2007
2008
2009
2010
2011
2012
Total Revenue
2.0
2.5
2.8
3.3
4.3
5.1
5.9
6.7
Total Expenditure
2.0
2.5
2.8
3.3
4.3
5.1
5.9
6.7
Total Taxes
1.1
1,3
1.7
2.3
2.7
2.9
3.5
4.4
3.2 Tax Environment

The TRA collects a number of tax types as illustrated in table 3 below.
Table 4: Income from Taxes for the Year ending 30th June, (US$ Billion)
2009
2010
2011
2012
Income Tax
0.8
0.9
1.1
1.4
Customs & Excise Duty
0.7
0.8
0.9
1.0
Sales tax/VAT
0.8
0.9
1.0
1.3
Other Taxes
0.2
0.3
0.3
0.5
-0.09
-0.1
-0.1
-0.1
Non-Tax Revenue
0.2
0.1
0.2
0.3
Total Taxes
2.7
2.9
3.5
4.4
Refunds
The TRA has three departments, which are directly involved in assessing and collecting tax revenue through the
administration of various tax laws.
Domestic Revenue Department (DRD): it collects income taxes, VAT, and other taxes from medium and
small taxpayers. It accounts for 30% of domestic revenue.
Customs and Excise Department (C&E): it collects customs, excise duties, VAT and other taxes.
Large Taxpayers Department (LTO): it collects income taxes, VAT, and other taxes from large taxpayers. It
accounts for 70% of domestic revenue.
Figure 2 shows the revenue contribution of the three departments, the DRD accounts for 18% of total TRA
collections, C&E accounts for 42% while LTO accounts for 40% of total TRA collections (tax year 2012/13).
Figure 2 : Percentage of TRA Collections by Department
Source: (Tanzania Revenue Authority, 2013).
Figure 3 shows the total TRA staff establishment of 3,627 of which as at 2002, 2,102 are staff in the DRD, who are
responsible for the collection of taxes from SMEs.
Figure 3 : TRA Staff Establishment
Figure 4 shows the total tax register for the TRA which consists of 901,121 taxpayers of which 317,586 are SMEs
on the presumptive tax regime.
Figure 4 : TRA Taxpayer Register
a) Corporate tax and Individual tax

In Tanzania, income of individuals is taxed under the individual income tax regime, and the income of bodies
corporate is taxed under the corporation tax regime. Corporation tax is a tax charged on taxable income (profits)
of entities such as limited companies, institutions or organizations including clubs, societies, associations, cooperatives, charities and other unincorporated bodies. Individuals are categorized in two groups, small individual
traders who are not required to maintain audited accounts and medium individual traders who are required to
maintain audited accounts. Small traders are taxed under a presumptive tax system, whereas medium taxpayers
are taxed based on the annual profit determined from the audited accounts.
Presumptive tax system

This is a tax system where individuals are taxed based on their annual turnover. The taxpayers under this system
are not obligated to prepare and submit audited accounts to the TRA. However, they may opt not to apply the
system and prepare audited accounts and pay tax based on profits.
Table 5: Presumptive Taxation Tax Rates

Annual Turnover
Tax payable when records

are incomplete
Tax payable when records

are complete
Where turnover does not exceed

US$2,500
Nil
Nil
Where turnover exceeds

US$2,500 but does not exceed
US$4,700
US$63
2% of the turnover in excess of

US$2,500

US$7,200
US$133
US$ 44 + 2.5% of the turnover in

excess of US$4,700

US$10,000
US$228

excess of US$7,200
Where turnover exceeds US$

10,000 but does not exceed US$
12,500
US$360

excess of US$10,000
Source: (Tanzania, 2008).
Individuals who prepare audited accounts.

This is a group of taxpayers whose annual turnover is above US$ 12,500 and are required to prepare audited
accounts/financial statements in respect of their business. Taxpayers under this group are taxed based on their
profits.
b) Withholding Tax
Withholding tax is the amount of tax retained by an individual or legal person when making payments to another
individual or legal person in respect of goods supplied or services rendered by the payee. An individual or legal
person receiving or entitled to receive a payment from which income tax is required to be withheld is a
withholdee while an individual or legal person required to withhold income tax from a payment made to a
withholdee is referred to as the Withholding Agent.
10
c) VAT
The VAT is a consumption tax charged on taxable goods and services whenever value is added at each stage
of production and at the final stage of sale. VAT is charged by business registered for VAT only. The VAT shall be
charged on any supply of goods or services in Mainland Tanzania where it is a taxable supply made by a taxable
person in the course of any business carried on by him. The VAT on the importation of taxable goods or services
from any place outside Mainland Tanzania shall be charged VAT and the procedures applicable under the
Customs Laws for imported goods shall apply in respect of VAT on imports.
d) Employment Taxes (Pay-As-You-Earn & Skills Development Levy)

PAYE stands for Pay-As-You-Earn. It is a tax levied on taxable incomes of employees. Under this system, an
employer is required by law to deduct income tax from an employees taxable salary or wages. An employee
means an individual who is a subject of an employment conducted by an employer. It includes a permanent
employee, part time, manager, director and casual employees. Employees may be employed by one or more
employers (Primary and Secondary Employment). An employer means a person who conducts, has conducted
or has prospect of conducting the employment of an individual. An employer is required to withhold income tax
from salaries, wages and all other payments forming taxable income paid to an employee.
SDL stands for Skills Development Levy; it is a levy collected by the TRA under the Vocational Education
Training Act and Income Tax Act. The SDL is charged based on the gross pay of all payments made by the
employer to the employees employed by such employer in the particular time. Unlike PAYE, the SDL is due and
payable by an employer.
11
IV. DESCRIPTION OF THE REFORM MEASURE: THE BLOCK MANAGEMENT SYSTEM (BMS)
The taxation of Small, Micro and Medium Enterprises (SMEs) poses a number of challenges to the tax
administration, which have to be mitigated in order to ensure that SMEs become tax compliant and contribute
effectively to government revenue. These challenges include the following:
Lack of appropriate compliance management coupled with SMEs non-compliance tradition that is aggravated by volatility in trading activities and patterns.
Existence of a large number of non-registered business activities.
Difficulty of identification, which is a pre-requisite for reliable and credible taxpayers registration.
Disincentives to comply with tax laws, due to the complexity, wide knowledge gap and inadequate assistance of the tax laws, regulations and procedures.
Rapid development of the underground economy and innovation in some SMEs which deliberately take
the form of tax evasion.
Non-existence of records or poor record-keeping.
The emphasis of tax administration reforms on assuring appropriate administration and collection of
taxes from Large Taxpayers which put little chance in designing and implementing a compliance strategy
for SMEs.
The situation outlined above regarding SMEs poses a severe challenge to the Tanzania tax administration and
system. This is with respect to the level of the tax burden, tax administration processes and other factors which
are considered as reasons for SMEs informal operations. The TRA has had to introduce changes and
simplification of the tax processes as specific strategies for the taxation of SMEs.
After unsuccessfully attempting a number of methods to manage the compliance of SMEs, the TRA eventually
formulated a more viable and sustainable system known as the Block Management System (BMS) in 1995. A
team of senior managers, led by Mr. Patrick Kassera, who is currently the Commissioner for Domestic Revenue
(CDR), pioneered the project. They were responsible for the design and implementation of the project. A policy
document was produced which defines a block and provides guidance on the operations of blocks, to ensure
uniformity across the various tax regions.
4.1 Overview of Block Management System (BMS)

The Block Management System was designed in order to manage tax affairs of individuals, small and medium
enterprises by demarcating the areas in which they conduct business into sizeable and manageable blocks. The
BMS evolved from and replaced a previous strategy known as physical surveys (PS) which was a periodical
program that proved not to be cost effective. It further lacked effectiveness in terms of enhancing tax compliance.
The physical survey was undertaken periodically as and when funds and time allowed. It could sometimes take
two or three years before another physical survey was undertaken. This meant starting all over again as data
from the previous physical survey would not be current and complete. It therefore lacked consistency and
sustainability in enhancing tax compliance. On the other hand, the BMS is a continuous and permanent program
that is an integral part of the TRA operations.
12
The design and implementation of the BMS was therefore not viewed as a completely new project, but a
transformation of an existing system by building on its weaknesses. Hence, complete project management
procedures, with well documented project plans and timelines were not available as would be the case in a
completely new project.
The BMS concept was designed and implemented by the TRA management without any external involvement in
terms of technical assistance or funding. The BMS was rolled out in stages, first as a pilot in the Dar-es-Salaam
tax region and then subsequently to other regions.
The BMS covers taxes falling under the Domestic Revenue Department (DRD), which are:
Corporate Tax
Personal Income Tax
Withholding Taxes
Value Added Taxes
Employment Taxes (PAYE & SDL)
4.2 Purpose of BMS

The purpose of the BMS is to identify and facilitate easy registration of new taxpayers and facilitate the close
monitoring of taxpayers activities and their movements. The BMS helps to meet taxpayers requirements
promptly and enhances the expansion of the tax base both quantitatively and qualitatively. It facilitates the setting
of collection targets, especially with respect to small taxpayers or individual taxpayers in the block. The BMS
helps to combat tax evasion emanating from under-declaration of business transactions and provides a feasible
way of touching base with the informal sector through simplified field visits. It enhances tax compliance through
permanent visits
to business premises which also enables dissemination of taxpayer education and prompt delivery of services.
4.3 Setting up of Blocks

Block allocation can be applied at both the Regional level and at District level, by creating Blocks or Sub-Blocks.
A block or sub-block can be created at regional level or at district level without any necessary coordination
between them, provided the BMS policy is adhered to. A block according to the BMS policy shall be a specified
manageable area that is mapped by sketches showing distinctive boundaries like street names.
The starting point of the BMS is the physical identification and mapping of areas in which the SME taxpayers are
located and operate. This is usually done with close collaboration with other stakeholders, like local authorities
and business associations.
The TRA collaborates with local authorities that also have jurisdiction over small taxpayers as the local
authorities collect levies and fees under their by-laws and have information about where the taxpayers are
located. The TRA thus collaborates with local authorities with regard to sharing information about the location and
nature of small taxpayers.
13
The TRA also collaborates with the Chambers of Commerce and other trade associations, as another way of
obtaining information and data regarding those taxpayers who are members of the associations.
The TRA and local authorities work together, particularly with regard to information and resource sharing, since
the tax base and block boundaries are usually the same. The collaboration is with regard to creation of blocks as
well as to tax collection and enforcement. There is no need for TRA to try and invent the wheel where taxpayers
have already been grouped and defined by the local authorities.
Business or areas of trading concentrations are mapped up into small segments which may be defined on the
basis of geographical/ administrative set-ups or according to a combination of a few streets to form a block.
Blocks can further be subdivided into sub-blocks. The TRA has mostly used wards (Kata) as the basis for
defining the blocks. Each Kata or a combination of two or more could form a block. A Kata is a political
subdivision.
Figure 5: Defining a Block
DistrictRegionTown/CityKataStreet
A block can also be identified as:
Particular type of business: fish mongers, bakeries, etc.
Particular economic or social sectorial activity: cross border traders, fishermen, farmers, etc.
Mapped geographical area: kata, a street, farming block, housing and commercial estate.
In summary, given that the defining criteria is the taxpayer population one question that arises is whether it is
manageable given the resources available (See Appendix III Sketch map of blocks in the Arusha Tax Region).
4.4 Administration of a block

Each block is mandated to operate all the key tax administration functions of registering, assessing, collecting
and accounting for revenue collected. In effect, the block is a permanent set-up which is allocated staff to carry
out these functions, subject to rotations after a period of, normally, three years.
Support functions like debt management; audit and taxpayer services are usually centralized in a Tax Service
Centre (TSC).
Figure 6 : Administration of a Block
RegionTax Service CentreBlockSub-Block

Figure 6 shows that in a tax region there is a Tax Service Centre (TSC) which will provide support functions to a
block and sub-block. A region can have one or more TSCs. A TSC can service one or more blocks and sub
blocks.
14
a) Tax Region Administration

In Tanzania, there are a total of 13 tax regions spread around the country. A regional tax office is headed by a
Regional Manager. The administration of a tax region with regard to block administration will provide centralised
support services that include human resource and administration, finance and ICT. The Regional Manager is
also in charge of the centralised support functions, audit and debt management, that are provided by a TSC. The
functions of audit and debt management are each headed by an Assistant Regional Manager.
Figure 7 below shows the organisation structure of the Kinondoni tax region.
Figure 7 : Regional Organization Structure Kinondoni Tax Region

Regional Manager
Taxpayer Services Officer
Human Resources and Administration
ICT
Finance
ARM Audit*
In Charge - Medium Tax Debt I

Service Centre
ARM Debt*
Supplies Officer
Technical Corrections and Appeals
III
Motor Vehicle Reg. & D/Licence
I
II
Service Centre
Service Centre
Service Centre
Data Processing
In Charge Small Taxpayer Unit
*ARM = Assistant Regional Manager

The ARM Debt is responsible for managing all the debt that is generated in all the blocks and sub-blocks within
a tax region.
Figure 8 shows the organisation structure for the Assistant Regional ManagerDebt for Kinondoni tax region.
15
Figure 8 : ARM-Debt Organization Structure Kinondoni Tax Region

ARM/DEBT*
Collection & Enforcement

Motor vehicle
I.
& D/Licence
II.
Mwenge
Centre
Motor Vehicle
Transfer &
Reregistration
Msasani
Block
Tangi Bovu
Block
Kinondoni
Block
Tegeta Block
D/Licence
Enforcement
III.
Property Rates
Mwenge
Block
Tegeta
Centre
Manzese Centre Kimara Centre
Tandale Block
Mburahati Block
Kimara Block
Mabibo
Block
Bunju Block
Real Estate
*ARM = Assistant Regional Manager Source:

(Tanzania Revenue Authority, 2013).
b) Tax Service Centre

In Dar-es-salaam city there are 3 (three) tax regions, namely Ilala, Kinondoni and Temeke. In these tax regions
there are a total of eight TSCs. Each TSC is servicing an average of 2-3 blocks. In Arusha city, which is the
second largest city in Tanzania, there is only one tax region known as Arusha tax region. In Arusha Tax region,
there are two TSCs.
Table 6: Tax Service Centre - Ilala Tax Region

Tax Centre
Kariakoo
Block
Lumumba
Sub Block
Lumumba
Livingstone
Sikukuu
Swahili
Swahili
Nyamwezi
Congo
Msimbazi
Msimbazi
Shaurimoyo
Fire
16
Table 7: Tax Service Centre - Arusha Tax Region

Tax Centre
Block
Sub Block
Kati
Arusha
Kaloleni
Kijenge
Mbauda
Mbauda
Source: (Tanzania Revenue Authority , 2013).
Tables 6 and 7 show information about the number of blocks and sub-blocks being serviced by a Tax Service
Centre.
c) Block Management
Each block has a leader who is answerable to an assistant manager. The block leader is assisted by subordinates
who each have specific duties which are measurable.
Each blocks performance is measured through the allocation of performance targets which are measured against
set benchmarks and time frames.
Tables 8 and 9 show information about the number of blocks in a particular tax region, the number of taxpayers
each block has, the number of staff servicing these taxpayers and the revenue targets assigned to each block.
Tables 6 to 9 are depicting the structure and set up of various tax regions in terms of block and sub-blocks.
Table 8: Blocks and Sub-blocks - Ilala Tax Region

Block
Sub Block
No. of Taxpayers
No. of Staff
Lumumba
Lumumba
860
Livingstone
1,256
Sikukuu
1,550
Sub-Total
3,666
7 + 1 Supervisor
Swahili
1,677
Nyamwezi
4,012
Congo
4,063
Sub-Total
9,752
7 + 1 Supervisor
Msimbazi
2,856
Shaurimoyo
1,061
Fire
1,379
Sub-Total
5,296
9 + 1 Supervisor
US$ 20.8 Million
Total
18,714
23 + 3 Supervisors
US$ 65.1 Million
Swahili
Msimbazi
Revenue Targets
US$ 18.2 Million
US$ 24.7 Million
17
Table 9: Blocks and Sub-blocks - Arusha Tax Region

Block
Sub Block
No. of
Taxpayers
No. of Staff
Kati
6,262
Kaloleni
6,354
Kijenge
4,616
Mbauda
4,952
Revenue Targets
US$ 137 Million

4.5 Staffing a Block

The majority of staff assigned to work in a block are experienced tax officers. Experienced tax payer services
officers are also assigned to work in a block. Staff assigned to work in a block, are required to attend an
orientation program, with regard to the BMS. This is conducted by the TRAs Institute of Tax Administration (ITA).
The ITA is an integral part of the TRA. It is uniquely positioned to offer and support a range of programs leading
to competencies in policy, law and administration in the areas of customs, taxation and related fields.
The ITAs programs offer a unique blend of theoretical classroom training and real life customs and taxation
experiences. They are designed to address the competence needs of customs and tax practitioners at different
stages of their careers (Tanzania RevenueAuthority, 2012/13). The institute is playing a critical role in helping to
disseminate information about the BMS and to change the mindset of some long-serving tax officers who might
be resistant to change. Students from the Institute are also periodically attached to a block to gain experience.
The BMS is now part of the syllabus in some of the Domestic Tax courses being offered by the Institute. In the
Institute library there were two (02) research papers, on the BMS, produced by students as part of their thesis.
The levels of staff have been raised as a challenge related to the BMS. The benefits of the system, i.e. increased
taxpayer registrations, is not being matched with a corresponding increase in staff numbers. This can be seen in
tables 10 and 11 below which depict varying taxpayer to staff ratios across blocks and tax regions.
The issue regarding the integrity of staff was also raised. Some staff can be tempted to connive with the
taxpayers. Hence, the policy that the staff ideally should be transferred every three years to avoid familiarity
setting in has been formulated. However, in practice this is not always possible due to various reasons, for
example, constraints on the operational budget to fund all the required transfers.
18
Table 10 : Blocks, Taxpayers to Staff Ratio - Kinondoni Tax Region

Block
Average Taxpayer to Staff Ratio
Msasani
481 : 1
Kinondoni
588 : 1
Mwenge
728 : 1
Mburahati
978 : 1
Tandale
652 : 1
Tangi Bovu
455 : 1
Tegeta
342 : 1
Bunju
221 : 1
Kimara
200 : 1
Mabibo
318 : 1
MTO
25 : 1
Total
420 : 1
Table 11 : Blocks, Taxpayers to Staff Ratio - Arusha Tax Region

Block
Average Taxpayers to Staff Ratio.
Kati
783 : 1
Kaloleni
706 : 1
Kijenge
577 : 1
Mbauda
550 : 1
Total
652 : 1
4.6 Block management activities

Under the BMS, all compliance and monitoring activities are performed on identified taxpayers located within a
specific block. One major compliance activity that officers in the field are required to carry out is to enforce the
use of Electronic Fiscal Devices (EFD). EFD means a machine designed for use in business for efficient
management controls in areas of sales analysis and stock control system and which conforms to the
requirements specified by the laws.
In July 2010, the Government of the United Republic of Tanzania introduced an EFD system to be used by all
VAT registered traders. This system is for use by taxpayers for the issuance of invoices and receipts. The use of
EFDs is expected to improve taxpayers business record-keeping and to enhance voluntary tax compliance. It is
being implemented in phases. The first phase covers only VAT registered traders, whereas the second one will
bring on board non-VAT registered traders.
There are a number of types of EFDs that are have been approved by TRA for use by various categories of
taxpayers.
Electronic Tax Register (ETR): the device is used by retail business that issue receipts manually.
19
Electronic Fiscal Printer (EFP): The device is used by computerized retail outlets. It is connected to a computer
network and stores every sale transactions or details made in its fiscal memory.
Electronic Signature Device (ESD): the device is designed to authenticate by signing any personal computer
(PC) produced financial document such as tax invoice. The device uses a special computer program to generate
a unique number (Signature) which is appended to and printed to every invoice issued by the users system.
Users are obliged to issue receipt or invoice on each sale and notify any changes/
malfunctioning
of the machinery to Commissioner- DRD within 24 hours. The supplier of the machine will install, configure and
attend the malfunctioning of the machine within 48 hours.
The EFD is preferred compared to other devices like the cash register because of the following reasons:
It has in-built Fiscal Memory which cannot be erased by mechanical, chemical or electromagnetic interferences.
It has automatic self-enforcing issuing of daily transaction reports after every 24 hours and it transmits
tax information to the TRA system automatically.
It has irreversible date mechanism, issues fiscal receipts/invoice which is uniquely identifiable and it can
be used as a stand-alone and configured into a network.
It has at least 48 hours power backup, and it can use external battery in areas with no electricity supply.
It saves configured data and records on permanent fiscal memory automatically and it has tax memory
capacity that stores data for at least 5 years or 1800 day transactions.
a) Field visits
In order to ensure optimum utilisation of resources, a risk based approach is undertaken through preparation for
the field visit. Preparation entails staff establishing the purpose of the visit by gathering information to support
the need of the visit from the files as well as the ITAX system (it is an integrated system developed by the TRA
to support Domestic Revenue operations). The purpose of the visit can include registration, taxpayer education,
audit or enforcement. Once the visit has been established and approved, officers are required to sign out in the
Outgoing Register indicating where the visit is to be made and the purpose of the visit.
In the field, the officers then carry out functions that include moving from door to door to check taxpayers
activities including the usage of EFDs. They will identify none and late filers and determine the categorization of
taxpayers into large, medium and small based on turnover over a three year period. If necessary, they will make
adjustments to reconcile the records. To ensure checks and balances in the conduct of staff, field visits are to be
undertaken in pairs. Upon return to the office officers sign in.
b) Information Management
As a way of ensuring that proper record keeping is achieved, each block is required to maintain the following
registers:
Main Block Registers: contains the list of all taxpayers in the blocks and all the necessary details like Taxpayer
Identification Number, Vat Registration Number, Nature of business, Commencement/Registration date, Account
or non-account case, Segmentation based on Annual turnovers etc.
20
Sub - Block Registers: like the main block registers, sub block registers contain the list of all taxpayers in the
respective sub-blocks.
Model Block Registers: contain the list of all model taxpayers in the respective Blocks. The model taxpayers
are the most compliant and high revenue contributing taxpayers in the blocks.
Block Surveillance Register: used to record all the important information before and after the officer has gone
for the field work, like name of outgoing officer, time leaving the office, area earmarked for the visit, nature of
information gathered and time of return to the office.
Block Assessment Register: records the stock of assessment issued and tax position of each taxpayer in the
block. It therefore contains information like; name of taxpayer, TIN & VAT Registration Number of the taxpayer,
year of assessment, type of tax assessed, assessed tax, tax paid, tax outstanding etc.
c) Management Reports
For purposes of reporting on activities undertaken during any particular period, each block is required to prepare
a number of reports, for example:
Report on Presumptive Assessments: which shows monthly presumptive assessments issued and collection
of taxes under different bands. The report is submitted to the Commissioner. Report on Collection of Current
Taxes: this is also submitted to the Commissioner on monthly basis.
21
V.
OUTCOMES AND BENEFITS OF THE PROJECT
The implementation of the BMS has overall had a positive impact on the tax compliance management of SME
taxpayers. This is demonstrated by the increase in the revenue yield and increase in the number of registered
taxpayers.
Table 12: Key Performance Indicators

2010
2011
2012
Taxpayers - Large
400
400
450
Revenue US$ Billion
1.1
1.3
2.3
372,600
432,012
493,714
0.5
0.6
0.9
Taxpayers -SME
Revenue US$ Billion
The system has facilitated easy registration of new taxpayers and expansion of the tax base through permanent
door-to-door visits. The visits are undertaken periodically based on the risk assessment and also based on
requests by taxpayers. The visits also enabled the tax administration to provide taxpayer services, for example,
provision of tax education to taxpayers at their business premises and resolution of queries on the spot. In order
to ensure cost effectiveness, the visits are risk based and there are plans to enhance third party information
gathering collaborations.
Up to date and reliable data about taxpayers activities is now available through the Block Registers. This has
improved the quality of tax assessments as well as providing more accurate statistics on business activities
within sectors or geographical areas.
22
VI. LESSONS LEARNED FOR GOOD PRACTICES

The BMS as implemented in the TRA has overall achieved its intended purpose of having in place a sustainable
method and strategies of monitoring the business activities of the SME sector. The journey started in 1995 after
previous methods had proved unsustainable. However it was the lessons learned from the previous methods,
especially the physical survey, which set the foundation for the BMS.
The BMS may not be applicable wholesale in other countries as it has been applied in Tanzania. There would
be a need for modification depending on the prevailing local situations and conditions. There is need to first
understand the current systems and strategies applicable to the taxation of SME and then blend in the solutions
offered by the BMS.
In general however, the adopted strategies for effectively dealing with the SMEs taxation should endeavour to
facilitate tax compliance, to apply the tax laws uniformly, consistently and transparently, and to address the
unique problems of each taxpayer segment. This is with respect to registration, returns filing and agreed bases
and methods of calculating taxable income.
Information technology and stakeholder cooperation have been shown to play a significant role in building the
information pool and data matching capacity of tax administrations as tools of helping SMEs to comply with tax
laws as well as to assist SMEs in the informal sector to become formal.
The following are considered as success factors in the implementation process:
Setting up of the block - the process of mapping the area requires that information about taxpayer population, activities and the geographical area be available. It also requires collaboration with other stakeholders like, local councils, wards, business associations, etc.
Adequate staff numbers the tax administration establishment must be able to respond to the
dynamics of the SME population and the environment. Alternatively high levels of automation must be
achieved so that an increase in taxpayers does not require a corresponding increase in staff numbers.
Automation of the tax system - the tax system must be as fully automated as possible to ensure timely
processing of information gathered from field visits and generally increase the efficiency and effectiveness of operations of a block.
Taxpayer education and customer service - TRA has developed a dedicated taxpayer service division
that works in collaboration with the tax officers. TRA has also developed effective call centres to deal with
taxpayer queries. When dealing with the SME sector, taxpayer education and customer service are
critical in the process of registration
23
VII. RISKS AND CHALLENGES

There were however instances where the TRA faced a challenge in getting cooperation from local authorities for
various reasons, sometimes political. Another challenge is that only areas that the local authorities have
surveyed can be considered for definition as a block. Therefore in a region where the area is largely not
surveyed, block creation is limited. A surveyed area is an area where the local authorities have provided the
normal services, i.e. streets, sewerage and water, street lighting, etc. and the areas are occupied for residential
or business purposes.
The issue of lack of adequate staff numbers poses a serious risk to the effectiveness of the BMS. This is in terms
of being able to create sufficient blocks that are of a manageable size. Staff numbers can also affect the ability
of TRA to effectively implement the staff transfer policy. The transfer policy ensures that staff are rotated within
blocks and regions to avoid familiarity which can impact negatively on the integrity of staff.
Another major risk is the issue of full automation of the tax system. Certain functions were not automated.
Information from field visits is captured manually then brought to the office for input into the system. A backlog
in data capture can lead to various challenges with regard to the availability of up to date information. Without
up to date information and data planning, the risk assessment become ineffective. Especially with regard to
registration and tracking of small taxpayers who are highly mobile. Any delay in capturing this information on
the database means losing track of the taxpayers. If the database is incomplete, it makes the risk assessment
process inefficient and in accurate.
24
CONCLUSION
As developing countries aim to achieve economic independence, the need to generate internal revenues
becomes critical. This requires widening the tax base by ensuring that the gap between potential and actual
revenues is reduced. One such potential gap is presented by the existence of a large informal sector which is
made up of mostly the SMEs. The introduction of the BMS aims to capture the informal sector in a cost effective
way.
The implementation of the BMS has overall had a positive impact on the tax compliance management of SME
taxpayers. This is demonstrated by the increase in the revenue yield and increase in the number of registered
taxpayers.
It is recommended that other ATAF member countries consider implementing the BMS as part of their strategy to
deal with the management of SME tax compliance. The critical consideration is that this is a system that provides
a sustainable way of administering the SME sector. It may not be a quick win solution, but it can be an effective
and sustainable compliance strategy.
25
BIBLIOGRAPHY
National Bureau of Statistics, 2002. Informal Sector Survey, s.l.: s.n.
AATF and COSTECH, 2010. Mitigating the impact of drought in Tanzania: the WEMA intervention. Policy Brief,
November.
Fjeldstad, O.-H. & Heggstad, K. K., 2011. The tax systems in Mozambique, Tanzania and Zambia: Capacity and
constraints, s.l.: CMI.
Ministry of Industry and Trade, 2002. SME Development Policy, s.l.: s.n.
National Bureau of Statistics, 2012. Tanzania in Figures, s.l.: s.n.
Tanzania Revenue Authority , 2013. Arusha Tax Region. s.l.:s.n.
Tanzania Revenue Authority, 2012. Annual Report, s.l.: s.n.
Tanzania Revenue Authority, 2013. Ilala Tax Region. s.l.:s.n. Tanzania
Revenue Authority, 2013. Kinondoni Tax Region. s.l.:s.n.
Tanzania Revenue Authority, 2013. Tanzania Revenue Authority Webpage, Tax Collection StatisticsDepartmental Collections.. [Online] Available at: http://www.tra.go.tz [Accessed 2013].
Tanzania RevenueAuthority, 2012/13. Institute of Tax Administration, Prospectus. s.l.:s.n.
Tanzania, R. o., 2008. Income Tax Act- Revised Edition. s.l.:s.n.
26
NOTES
27
NOTES
28

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A JOINT PUBLICATION BETWEEN ATAF

TAXATION OF SMES IN AFRICA

BLOCK MANAGEMENT SYSTEM (BMS) IN TANZANIA

Block Management System (BMS) in Tanzania

Block Management System (BMS) in Tanzania

V.Outcomes and benefits of the project.................................................................................... 22

Block Management System (BMS) in Tanzania

Block Management System (BMS) in Tanzania

Block Management System (BMS) in Tanzania

ABBREVIATIONS AND ACRONYMS

African Tax Administration Forum