Dars tax holidays costing economy hundreds of millions of dollars By JOSEPH MWAMUNYANGE THE EAST AFRICAN Posted Monday, February 21 2011 at 00:00 The governments generous tax exemption regime could be robbing the regions second biggest economy of millions of dollars, a new survey has revealed. The findings by Hivos/Twaweza East Africa corroborate recent comments by several donor partners on Tanzanias unwarranted tax exemptions. The report says that while the Tanzanian parliament carefully scrutinises the governments budget, tax exemptions, on the other hand, do not receive the same attention, thus making them hidden expenditures. In 2009/10 tax exemptions amounted to Tsh695 billion ($464 million) more than half the Tsh1.3 trillion ($867 billion) the government plans to borrow from commercial sources for infrastructure financing in 2010/11. The sheer size of the amount involved raises questions about the purpose these incentives serve and whether the amounts spent are justified, said Rose Aiko, a research analyst with Hivos/Twaweza East Africa. Early last year the Minister for Finance Mustafa Mkullo, said the government had formed a task force to review the tax exemption system. He further said that it was inevitable that the government would at some point take bold decisions to remove some of the exemptions, which werent necessarily important or did not contribute to the wellbeing of Tanzanians. These exemptions benefit mainly multinational investors with certificates of incentives from the Tanzania Investment Centre and Zanzibar Investment Promotion Authority. Tanzanias tax exemptions have increased rapidly since the middle of the last decade, standing much higher than those in the other East African countries. Tax exemptions almost doubled in one year, rising from Tsh459 billion ($306 million) in 2004/05 to Tsh772 billion ($515 million) in 2005/06. Mr John Wakeman-Lynn, the International Monetary Fund senior resident representative, told The EastAfrican that the Fund has had discussions with the government over the issue. He further said that it would be in the countrys interest to scale down the level of exemptions and we think it should be part of the new governments agenda. In 2008/9, tax exemptions were 2.8 per cent of GDP and in 2009/10, 2.3 percent. In comparison, Kenya and Ugandas exemptions amounted to 1 percent and 0.4 per cent of their GDPs respectively. In 2008/09 and 2009/10, the government missed its revenue target by Tsh453 billion ($302 million) on average. In the same period, tax exemptions granted averaged Tsh724 billion ($483 million) per year. If brought in line with Kenyas system, Tsh484 billion ($323 million) and Tsh302 billion ($201 million) would have been saved in 2008/9 and in 2009/10 respectively. According to the researchers, one reason Tanzania continues to rely heavily on foreign aid is because it fails to raise sufficient revenue. By comparing amounts of exemptions granted each year with grants received to fill the resource gap in the budget, it is evident that dependence on aid could be reduced significantly if exemptions were granted more prudently. The report also reveals that under Kikwetes first government, (2006-2010), tax exemptions were about 1 per cent of GDP 40 per centhigher than during President Mkapas second five year term (2001-2005). The Tanzania Revenue Authority processes exemptions in two main categories: on customs related taxes and under the value added tax codes.