Zitto Kabwe: Tanzania faces tax exemptions dilemma

Ng'wamapalala

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Jun 9, 2011
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As politicians in the rich world debate how to close corporate tax loopholes and plug yawning fiscal gaps, it is worth taking into consideration the curious case of Tanzania.
The government in Dar es Salaam has set itself the goal of reducing the tax incentives it offered to companies to below 1 per cent of its national output. It is a big call, given in the past two years it doubled to 4.3 per cent of gross domestic product, or $1.1bn.

The issue highlights a dilemma facing Tanzania and other governments in east Africa as their economies develop: how do you encourage investment by companies, which have traditionally been courted with the offer of tax incentives, and at the same time collect the revenues you need to build infrastructure and reduce poverty?
The problems that arise through using exemptions is one that Tanzania is pushing David Cameron, Britain's prime minister, to tackle at the summit of the Group of Eight leading economiesnext week.
Zitto Kabwe, who chairs Tanzania's parliamentary public accounts committee and is shadow finance minister, says the main problem is that the exemptions, which amount to a tenth of the government's annual budget, are often opaque. It is unclear who is receiving them and how much they are worth.
The consequences, Mr Kabwe argues, are worth fighting for.
The $1.1bn granted in tax exemptions, he points out, is "the same as the amount Tanzania borrowed from China to build a 500km gas pipeline. So it's a big issue. We really need to know who is enjoying these exemptions."
Tanzania's government has agreed to an audit starting in July, through which tax exemptions are to be made public but it is not a mandate that forces any change. Mr Kabwe believes many exemptions are given not only to public officials. "just because they're powerful" but also to private sector players in what he says is the erroneous hope that it will secure investment into the country.

East African countries are losing $2.8bn in revenues a year to exemptions, according to a 2012 report on regional tax competition from lobbyists Tax Justice Network-Africa and campaign group ActionAid. Tanzania consistently gives away the most in the region via tax exemptions. The International Monetary Fund estimates that its tax revenues, at 15 per cent of GDP, are 5 percentage points below its potential.

"Most countries including Tanzania [have] had little to show in exchange for the incentives offered," the Tanzania Revenue Authority said in a presentation this year and it argued that tax exemptions do not top the list of reasons why companies invest in the country.
"When you look at the top 10 reasons given by investors as enabling factors you find they mention things like rule of law, human resources capacity, infrastructure and so many other issues that are all more influential and significant than just tax incentives," says Alvin Mosioma, director of Tax Justice Network-Africa, who is pushing for the removal of tax exemptions for Tanzania's gold mining sector.

He argues that global organisations are sending mixed messages on the subject. On the one hand the IMF is urging Tanzania to reduce its tax exemptions, while on the other, the World Bank's annual global ranking of business environments rewards countries that offer such incentives.

African Barrick Gold, Tanzania's largest gold producer, says the tax exemptions are crucial. The company declared a gross profit of $285m last year and paid Tanzania taxes of $150m. "In total we have invested over $2.25bn in the country on the basis of future returns and tax stability is a vital element for this," the company said. "If the tax status agreed upfront for the life of the assets were to change it could compromise the ability to make an acceptable return on our investment."
Mr Kabwe argues that Barrick's complex system of subsidiaries – in its annual report it lists more than two dozen in places such as the Cayman Islands – makes it difficult for the government to collect all the tax it should, given the company mines only in Tanzania.

London-listed African Barrick Gold says it intends to close some subsidiaries as part of a plan to streamline its corporate structure. It denies using them to avoid paying tax and says it complies with disclosure requirements. Its mines also are "still in the process of recovering the capital invested into the country before they pay corporate taxes", as per its agreement with the government.

Mr Kabwe argues that Tanzania also faces a broader avoidance problem. He has written to Mr Cameron requesting his assistance at the G8, saying Tanzania lost $2bn between 2002 and 2008 through illicit money transfers.
"Some of this money is held in British overseas territories and crown dependencies," Mr Kabwe wrote to Mr Cameron in a letter dated May 27. The answer, the Tanzanian MP argued, was for the British government to force more transparency in these jurisdictions in line with his commitment to fighting aggressive tax avoidance.
For citizens of Britain – and other rich countries – there is good reason to do so, Mr Kabwe argues. The amount of aid from the UK given to Tanzania each year is dwarfed by the amount his country loses to tax evasion and aggressive tax avoidance managed by "by multinational corporations, most of them registered in the United Kingdom".

The article written By Katrina Manson for Financial Time.

Baadhi ya maeneo ya malighafi nchini.
 

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This is kind of article we miss badly as a nation. It gives the inside topic (investigative) and teaches as well.

The lack of investigative journalist in Tanzania is for everyone to see.

It makes things even worse and sad when you know the writer of this article is English woman and doesn't even live in Tanzania, but her article carried much about Tanzania economy than could find on much of Tanzania economic journalists and editors. VERY VERY SAD.

Tanzanian Journalists have a long way to learn and as a result, we have investigative journalist vaccum. It's not coincidence the nation can't even THINK BIGGER on sensitive issue like Arusha bomb explosion.

Tunakuwa na majibu mepesi kwenye maswala yanayohitaji fikra pana.

Back to topic,

Mh. Zitto has a SOLID points.

Why do we have to give tax incentives to investors of the product or natural resources the nation has absolute advantage, Comparative advantage and competitive advantage. You name it...

You don't need to attend economic course to understand the whole idea of tax incentives in our country is dodge. This is not political and economic hot potato. Kuna mikono na midomo ya watu. It's simple and straight forward.

Why do we have to give tax incentives to foreign investors if our country has peace, rule of law, human resources capacity and infrastructure. What's this tax incentives for?. Something has to give!.

Hizi tax incentives hazifai Tanzania bali zinafaa kwenye nchi zenye machafuko na kwenye maliasili ambazo hazina demand kwenye soko.

The more we give out tax incentives the more we borrow with sky high interest!. Kuna tatizo kubwa hapa. Are we serious?.

I wish, we could have more Zitto Kabwe in Tanzania.
 
Hivi huyu Bwamdogo ameshiriki Kampeni yeyote katika hizi chaguzi tokea zianze?
Maana Nasikia Tu mara Moroco, Mara kwa MwanaFatuma.
 
hivi wote ni vipofu, hatuoni au tu punguani kama wao? tuamke
 
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