Towards Taxation of Community Microfinance Groups in Mainland Tanzania

This article examines the possibility of taxing income derived from Community Microfinance Groups (CMGs) and the distributed profit to members. It proceeds on the assumption that, despite generating profit, the CMs operate as tax-exempt microfinance entities. The existing law does not adequately provide a mechanism for taxing income generated by CMGs, thereby creating a loophole that results in a loss of government revenue. It adopts a mixed-methods approach comprising doctrinal and empirical legal research. The doctrinal part examines legal doctrines, legislation, case law and legal texts, as well as secondary literature concerning the taxation of CMGs. The empirical field research involved interviews with officials from the Tanzania Revenue Authority (TRA), members of CMGs, and legal professionals. Collected data were analysed using content and thematic data analysis techniques. Additionally, the canons of statutory interpretation were invoked to interpret tax statutes. The article finds the following:- (i) the law does not specify the legal nature of Community Microfinance Groups (CMGs), making it difficult for tax authority to allocate tax liability under the income tax laws, (ii) Non requirement of Taxpayer  Identification Number (TIN) for members of CMGs affects effective tax administration and revenue collection; (iii) although not explicitly stated under the law, CMGs are treated as de facto tax-exempt entities, which contradicts the principle of every income is taxable unless exempted under the law. It recommends amending the law to address the following areas: it should clarify the legal nature of CMGs, preferably to be a partnership for tax purposes; the rules governing the taxation of partners should apply to CMGs; and members should be required to obtain and submit a TIN during the registration of CMGs for easy tax compliance.