Understanding Tax Leakages in Public Institutions in Tanzania

When Revenue Slips Through the Cracks

Taxes are the lifeblood of government revenue, funding infrastructure, health, education, and national development programs. Tanzania has made progress in mobilizing revenue through institutions like TRA, local councils, and other government agencies, but significant gaps remain. Tax leakages, funds lost due to underreporting, mismanagement, corruption, or weak enforcement, reduce resources available for public investment and service delivery.

Understanding the causes and consequences of tax leakages is essential for improving governance, strengthening fiscal stability, and ensuring that public institutions fulfil their development mandate. Without addressing these gaps, even strong economic growth cannot translate into improved living standards for citizens.

1. Weak Compliance and Reporting Systems

Many public institutions struggle with incomplete or inaccurate financial reporting. Departments may fail to submit timely revenue reports, while others understate collections to avoid scrutiny. Manual record-keeping increases the risk of errors, duplication, or manipulation. Weak compliance mechanisms mean that government revenue is underestimated and public accountability is compromised.

2. Corruption and Mismanagement of Funds

Corruption remains a major contributor to tax leakages. Public officials may divert collected taxes, inflate procurement costs, or collude with private actors to underreport revenue. Mismanagement, including poor bookkeeping and lack of internal audits, further reduces funds available for essential services. These practices undermine public trust and compromise development goals.

3. Inefficient Tax Collection Processes

Fragmented and outdated tax collection systems create opportunities for revenue loss. Multiple agencies managing overlapping streams of revenue can result in duplication, oversight gaps, or intentional leakage. Manual cash handling and weak reconciliation processes, especially at the local government level, exacerbate inefficiencies and increase the risk of misappropriation.

4. Large Informal Sector and Underreported Business Activity

Over 70% of Tanzanians work in the informal economy. Many small businesses operate outside formal taxation, while some formal businesses underreport sales or profits. Limited data and monitoring make it difficult for authorities to capture the true size of economic activity. This structural leakage reduces revenue capacity and limits the government’s ability to fund infrastructure and social programs.

5. Limited Audit and Enforcement Capacity

The Controller & Auditor General (CAG) and TRA often lack sufficient staff and technological tools to conduct thorough audits. Follow-up on discrepancies is frequently weak or delayed. Without effective enforcement of penalties and corrective measures, tax leakages continue unchecked, weakening fiscal discipline.

Way Forward: Strategies to Reduce Tax Leakages

• Digitalize Revenue Collection: Introduce e-tax platforms and real-time reporting to reduce human error and manipulation.
• Strengthen Auditing and Oversight: Expand CAG and TRA capacity, conduct regular internal audits, and ensure prompt follow-up on discrepancies.
• Promote Transparency: Publicly release revenue collection data and institutional performance metrics.
• Enhance Enforcement: Apply clear and consistent penalties for underreporting and non-compliance.
• Integrate Informal Sector Data: Use mobile payments, trade licenses, and surveys to capture contributions from informal businesses.
• Capacity Building: Train public staff in modern accounting, auditing, and anti-corruption measures to ensure better financial management.

Conclusion: Closing the Gaps for a Stronger Economy

Tax leakages weaken Tanzania’s ability to invest in infrastructure, public services, and economic development. By addressing weak compliance, corruption, inefficient collection systems, and gaps in informal sector data, the government can recover lost revenue and strengthen fiscal accountability. Effective strategies, including digitalization, transparency, enforcement, and capacity building, are essential. Reducing tax leakages is not just about increasing revenue; it is about promoting good governance, public trust, and sustainable development that benefits all Tanzanians.