Taxation denies govt 2trn/- in revenue

The government loses close to 2trn/- annually (about 10 percent of its budget) due to the ineffective and inefficient taxation system it employs, members of civil society organizations and faith based organizations have said.

They said although the tax structure has expanded and revenue collection has jumped from 8.5 percent in 1999/2000 to 15.7 percent in 2011/12, the amount lost through various means is over one sixth of the 2009/10 government’s entire expenditure budget of 9.5trn/-.

The organizations made the remarks at a capacity building workshop on taxation and tax advocacy organised by Agenda Participation 2000 in collaboration with Policy Forum and Norwegian Church Aid.

They said loses are mainly made in three areas, which are tax incentives, trade mispricing and capital flights.

Citing an example of tax incentives given to mining companies and firms operating in the Export Processing Zones (EPZs), Programme Officer, Public Resources and Finance of the Norwegian Church Aid, Francis Uhadi, said Tanzania offered 4.3 percent of GDP compared to the legal limit in Kenya and Uganda which is one percent of the GDP.

He said such exemptions given to corporations have deprived the country of an average of 458.6bn/- ($288 million) per year between 2008/09 and 2010/11.

He cited other areas as trade mispricing and capital flight, saying it was a relatively new area that needed capacity building to most tax experts in Tanzania.

He explained that studies estimate huge revenue losses resulting from illegal capital flight.

“Recent figures suggest that illicit capital flows from Tanzania range from $94m – 660m a year and those illicit flows from trade mispricing alone amount to $109m – 127m a year,” he said.

He said the large growing uncontrolled informal sector, which is not taxed, contributes to revenue losses and transferring the tax burden to the poor in terms of indirect taxes and taxes to employees in terms of Pay-As-You-Earn.

For his part, Silas Olang from the Revenue Watch institute said that transfer pricing which is the pricing arrangements for transactions between two or more corporate entities that are members of the same firm have caused huge loss in tax collection.

Commenting on its effects on tax revenue, he said transfer pricing affects determination of the base value for customs duties and taxable profits where a higher transfer price of inputs may increase the taxable income in the country of export and reduce the taxable income in the country of importation and vise versa.

He said where the transfer prices do not reflect the true profits earned in a particular country, the country is unfairly deprived of revenue for development.

A legal officer with the Lawyers Environmental Action Team (LEAT), Musa Mnasizu, attributed the huge loss to weak institutional framework on the tax system, saying the current tax regime does not have a clear and defined tax base and tax structure.

“Tax policy should be revisited. The tax laws should be amended and new techniques to curb against tax evasion and tax avoidance should be introduced,” he said.

Some of their recommendations were that the government must ensure improved collection and administration of non-tax revenue by reviewing mechanisms of issuance of receipts and licenses as well as improving the retention rates by ministries, departments and government institutions.

Also there must be expansion of tax base through formalisation of informal sector in order to capture it into the tax net, review of legislation establishing agencies or public Institutions that collect revenue with the aim of increasing their respective contribution to the Consolidated Fund Services (CFS).

The organizations also suggested review of various legislations granting tax exemptions with the aim of controlling and reducing them as well as review of the mechanism of collecting property tax in cities, municipalities, towns, districts and townships. They urged the people to understand their rights and educate themselves on the country’s taxation system and how it impacts on their lives.

Efforts to get Tanzania Revenue Authority director general Harry Kitilya for comments on the criticisms proved futile yesterday.

SOURCE: THE GUARDIAN