Examining Withholding Tax on Goods and Services: Challenges and Remedial Approaches in Tanzania’s Public Institutions

Abstract

This study aimed to assess the challenges and prospects of withholding tax (WHT) on goods and services in Tanzania, employing both qualitative and quantitative methods. The analysis revealed a concerning trend, with a significant gap between potential and actual withholding tax, which has consistently widened annually from 2017/18 to 2023/24. On average, WHT agents managed to withhold only 25% of the legally expected tax on payments for goods, while for services, the gap between potential and actual withholding tax ranged from 98.70% to 100%. Key challenges identified were: ambiguities in tax laws regarding professional services, dissatisfaction with the credibility of withholding tax deductions, limited proficiency of withholding tax agents in TRA systems and other government digital payment systems, absence of designated withholding tax officers within public institutions, inadequate audit coverage, delay in issuing withholding tax certificates, and lack of coordination between TRA, withholding agents and public institutions. The study proposes several measures to address these issues, including enhancing TRA staff competence and WHT agents in other ICT systems such as MUSE and TAUSi to improve information management, implementing continuous and frequent WHT audits, adopting a proactive approach to compliance, differentiating WHT rates for local contractors (local fundi) and revisiting the WHT legal framework to accommodate the specific circumstances of local contractors.