Dodoma/Dar es Salaam: Finance minister William Mgimwa has narrowly escaped a budget crisis after legislators withdrew their demands for an increased development budget. However, as he tables his budget in Parliament tomorrow, the minister faces a huge challenge of how to plug tax loopholes which cost the nation about Sh2 trillion annually in uncollected taxes.
In frantic efforts in Dodoma early this week, the government team led by Prime Minister Mizengo Pinda succeeded in convincing chairpersons of Parliamentary standing committees to accept the budget proposals as they are, because “it was too late to make any major reallocations for now.”
The chairpersons, who participated in a high level consultative meeting that also brought together the Prime Minister, the Speaker of National Assembly, the Finance minister and key members from the opposition on Monday, acknowledged that it is now difficult to change the budget. They took into consideration technical complications involved in making significant reallocations.
Preliminary estimates for the 2012/13 budget show that the proportion of the development budget will be about 30 per cent (Sh4.5 trillion) of the total budget of Sh15 trillion. This compares with 38 per cent (Sh4.9 trillion) out of Sh13.5 trillion in the 2011/12 budget.
Members of the Finance and Economy Committee rejected these estimates last week when they were presented to them by Dr Mgimwa because of what they said was a low development budget which, among other things, is supposed to fund infrastructure projects. They told the minister that unless reallocations were made to increase the proportion of the development budget to, at least, 35 per cent of the budget, they will reject the whole budget when it is tabled in Parliament tomorrow.
But Dr Mgimwa felt it was impossible for now to make any reallocations. “We expressed our deep concern over lower allocations for the development budget, but after appraising the situation we realised that it is not possible to overhaul the entire budget because the process is much more complicated,” said one of the participants in the high level meeting.
However, despite Dr Mgimwa escaping from the MPs’ fury he faces another hurdle of reducing tax loopholes.
A report entitled ‘One Billion Dollar Question: How can Tanzania stop losing so much revenue?’ launched yesterday in Dar es Salaam said the country loses a maximum of Sh2.06 trillion ($1.29 billion) annually in tax exemptions, illicit capital flight and tax evasion.
If collected, the amount could have significantly reduced the country’s dependence on aid, which stood at Sh3.9 trillion in the 2012/13 budget.
Legislators, donors and opposition politicians have been urging the government to plug tax loopholes as a way of increasing budgetary resources. A heated debate is expected from legislators if Dr Mgimwa fails to live up to their expectations in plugging the loopholes in tomorrow’s budget.
A study launched yesterday by the Interfaith Standing Committee on Economic Justice and Integrity of Creation (ISCJIC) says that tax holidays and exemptions to investors account for Sh458.6 billion, illicit capital flows account for Sh478 billion while tax evasion accounts for another loss of Sh240 billion. The ISCJIC is an umbrella body comprising the Muslim Council of Tanzania (Bakwata), Christian Council of Tanzania (CCT) and the Tanzania Episcopal Conference (TEC).
“But the key question is whether the extent of these exemptions is justified in terms of the foreign investment resulting from them. Our analysis is that Tanzania has lost more revenue from tax exemptions given to corporations in the last three years than it has received in all foreign investments since EPZs were established in 2002,” the report says.
The launch was officiated by ISCJIC chairman, Reverend Bishop Paul Ruzoka, who was accompanied by his deputy, Sheikh Hassan Fereji and other committee members.