operations by the end of 2010. Yet, 4.3 per cent and 27.3 per cent of the population are served by semi-formal microfinance institutions and SACCOS, and informal village associations, respectively. The sector is faced by serious regulatory challenges. 599. The CRM was informed of an unwavering commitment by the authorities to continue with the Second Generation of Financial Sector Reforms aimed at removing structural constraints still impeding financial sector development. 600. The CRM confirmed that Tanzania adheres to the stipulated budgeting process. However, stakeholders, especially the public and mostly in the regions, indicated that consultation is inadequate and they are not knowledgeable enough to competently provide inputs into the budgeting process. 601. The CRM confirmed that Government made significant efforts to enhance tax administration. The TRA initiated interventions to ensure that it meets its revenue targets. Systemic, institutional, and operational reforms in the tax system are being implemented. Some key government initiatives include: continued efforts by the TRA to implement the 2008/09-2012/13 Corporate Plan for increased domestic revenue collection; efforts to strengthen non-tax revenue collection and administration; enhanced efforts to expand the tax base; and, continuing review of the legal and regulatory tax exemption frameworks to minimise the potential for abuse. 602. Government and TRA initiatives narrowed variances between projected revenue and actual collections. They also improved domestic revenue collection. For example, Ministry of Finance data show that total domestic revenue collection (including LGAs) increased from TShs2, 124,843.7 million in fiscal year 2005/2006 to TShs 7,126,448.5 million in the 2011/12 fiscal year (projections). This improvement, translating to an average of a more than 8 per cent annual growth in revenue collection, was recorded for all tax components: import duty; excise duty; value added tax; income tax; and, other taxes. It also applied to non-tax revenue, namely: parastatal dividends; ministries and regions; and, LGAs own tax. 603. However, many stakeholders, including public servants, informed the CRM that key challenges to revenue and expenditure administration persist, namely: poor performance in revenue collection; challenges in institutionalising Public Expenditure Tracking Surveys (PETS); loopholes in the tax regime giving investors especially in the extractive and hospitality industries - opportunities for manipulation and failure to declare taxable income; existence of a growing informal sector that is both cumbersome and expensive to make a part of the formal sector, thereby hindering tax revenue collection. There continue to be too many discretionary tax exemptions and a multiplicity of institutions that need to be coordinated in order to improve efficiency in revenue performance. For example, stakeholders in the regions said that small and medium businesses were unwilling to formalise their businesses for fear that the Tanzania Revenue Authority would descend on them. Also, most stakeholders, including those in authority, confirmed that big private companies are exploiting a loophole in the country’s investment law by periodically changing franchise in order to avoid paying taxes. 604. Further, it is clear that, notwithstanding the reforms and efforts being implemented by both the Ministry of Finance and the TRA to strengthen tax administration, there is still a long way to go if Government is to succeed in enhancing domestic resource mobilisation to reduce its dependency on development partner financing (amounting to 40 per cent of its annual budget). A lot off ethical and corruption cleaning is need for TRA staff to reduce revenue leakages. In addition, TRA operations are also constrained by the existence of institutions also mandated to collect revenues, e.g. LGAs. Many stakeholders, including state actors, are concerned about the significant leakages in revenue collection - especially when it comes to revenue that Local Authorities are supposed to collect - because of corruption and institutional and systems weaknesses. 605. The CRM observed that for the past ten years, Tanzania has been continuously running a budget deficit and in many cases annual estimates diverge from expenditures98. For example, the Estimates of Government Revenue and Expenditure for the fiscal year 2011/2012 (as introduced in the National Assembly) presented trends in government finance showing that the balance between domestic revenues and total expenditures registered deficits to the tune of 9.06 per cent, 7.1 per cent, 11.2 per cent and 14.2 per cent of the country’s GDP for fiscal years 2006/7 to 2009/10, respectively, and was estimated to be 15.6 per cent of GDP in 2010/11 fiscal year. This explains the continued dependency on development partners funding, as well as fiscal management capacity constraints. 98 Bank of Tanzania Annual Report: 2010/11, Bank of Tanzania, 2012, and The Economic Survey 2010, the United Republic of Tanzania, 2010. 127