New report puts Budget in danger

As MPs start debating the 2012/13 Budget today, a report on tax incentives made available to some of the legislators here yesterday reinforced their reasons to reject it.

Titled ‘Tax Competition in East Africa: Race to the Bottom,” the report compiled by three NGOs shows that tax exemptions, which are given as inducement to investors, do not serve that purpose effectively. 

Debating the report, MPs wondered why the government extends so many tax incentives and exemptions and then proceed to lament about little revenue collections from its own sources. 

“The Tanzania Revenue Authority has been collecting a lot of money but the ministry says there is no money. Where does all the money go?” asked Rachel Mashishanga, a Special Seats MP on Chadema ticket.

 Ms Christowaja Mtinda (Special Seats – Chadema) asked fellow MPs to be categorical as they contribute to the Budget debate in the Parliament starting today.

“It is also time we stopped listening to IMF and World Bank. These are our major consultants in taxation matters and they pretend to tell us that we should remove the incentives. But as we have seen in the report, incentives are actually extended to foreign companies that hail from countries that control the IMF and World Bank,” she said.

She said there was a need to enact a law that would push the government to table investment contracts in the Parliament so that MPs could go through them and expose the unnecessary tax exemptions and incentives.

Mr Ezekiel Wenje (Nyamagana – Chadema) said the East African countries have been looking at tax incentives as the best way of luring investors because of the region’s unfavourable conditions for doing business.

Mr David Kafulila (Kigoma South - NCCR-Mageuzi) asked Policy Forum to make sure that well before the Budget session, it avails the presentations to the Parliamentary Committee on Finance and Economy, which would carefully go through the Budget before it is presented in the august House.

“The Finance and Economy Committee members have the opportunity and powers to influence Budget changes… experience shows that it is very difficult to push for major changes in the estimates at this stage,” said Mr Kafulila.

For her part, Ms Suzan Kiwanga, also a Special Seats lawmaker said the solution was to sensitise villagers so that they say No to any projects in their areas if an investor hasn’t paid taxes in full.

“There is no need to continue lamenting; let’s act and the best way is to empower villagers so that they can reject all investments which are not beneficial to them and the country,” said Ms Kiwanga amid cheers from other MPs.

The report has been jointly compiled by Tax Justice Network Africa (TJN-A), ActionAid International and Policy Forum.

The report shows that most incentives are being extended through Tanzania Investment Centre (TIC), Exports Processing Zones (EPZ), Special economic Zones (SEZ) and to mining investors.

An analysis done by the three organisations shows that major beneficiaries of tax incentives and exemptions in Tanzania are a small group of foreign investors.

“The losers are the general population, for the country doesn’t gain much from the investments which enjoy the tax incentives and exemptions,” said Dr Honest Ngowi when presenting the report to the MPs who are members of the Africa Parliamentarians’ Network Against Corruption (APNAC).

Dr Ngowi, a renowned economist and lecturer at Mzumbe University, told the lawmakers that studies conducted by the IMF focusing on East Africa have concluded that investment incentives, commonly referred to as tax incentives, were not an important factor in attracting foreign direct investment.

He noted for instance that Uganda, which offers less lucrative incentives compared to this country, has continued to attract more foreign direct investments than Tanzania, according to studies done by the IMF.

In his recent report, the Controller and Auditor general (CAG) indicates that tax exemptions have been massively eating into government revenues. Calculations made by the three NGOs show that revenue losses from all tax exemptions and incentives reached 1.8tr/- in 2008 while in 2011/12 tax exemptions alone reached Sh1.016 trillion, being about 18 per cent of the total tax collections.

“Due to the exemptions, the country is being deprived of the badly-needed financial resources for financing public expenditure… these are resources that could contribute substantially to reduce the number of the 36 per cent Tanzanians who live below the poverty line,” reads part of the 32-page report.

It adds that if spent on education and health, revenue lost through tax incentives could improve their budgets by more than 20 and 30 per cent respectively.

Dr Ngowi warned in his presentation that the increased competition among EAC countries to provide tax holidays as attraction to FDI threatens their efforts to collect revenue.

Speaking before the launch, APNAC chairperson from Tanzania Parliament, Ms Mary Mwanjelwa (Special Seats - CCM), said the document has come at the right time as MPs brace themselves for the Budget debate today.

“I am sure that this report will inform most of us and make our contribution to the Budget debate more effective,” she said.

In its recommendations, the three organisations which compiled the report ask the government to remove tax incentives granted purportedly to attract FDI, especially in the mining sector.

 They also ask the government to conduct an independent study to evaluate the economic impact and volume of foreign revenue that has been generated by EPZ and SEZ against incentives extended by the government.

The government should also undertake a review of all tax incentives with the aim of reducing or removing many of them, especially those which give discretionary powers to ministers to offer exemptions, the report recommends.

Meanwhile, another report entitled ‘One Billion Dollar Question: How can Tanzania Stop Losing so Much Revenue?’ launched last week in Dar es Salaam said Tanzania loses up to Sh2.06 trillion ($1.29 billion) annually in tax exemptions, illicit capital flight and tax evasion. 

The report, launched by the Interfaith Standing Committee on Economic Justice and Integrity of Creation (ISCJIC) said tax holidays and exemptions to investors account for Sh458.6 billion, illicit capital flows account for 478bn/- while tax evasion accounts for another loss of Sh240 billion.
Source: The Citizen,http://www.thecitizen.co.tz, reported by Peter Nyanje in Dodoma.

Share on Google Plus

About Abduel Elinaza

This is a short description in the author block about the author. You edit it by entering text in the "Biographical Info" field in the user admin panel.