Dodoma: Tanzania’s national debt increased during the period ending March 2012 according to a report read to parlianment. A report entitled; One B Dollar Question: How Can Tanzania Stop Losing So Much Tax Revenue availed to East African Business Week in Dar es Salaam showed that Tanzania loses revenues between Tsh1.35 trillion ($847 m) - Tsh2.05 trillion ($1.29 b) a year.
Presenting the State of The Economy for 2011 and National Development Plan for 2012/13 to Parliament in Dodoma recently, Minister for State, President's Office, Social Relations and Coordinator, Stephen Wasira said the national debt increased by 15.4%. According to the report jointly published by Tanzania Episcopal Conference (TEC), National Muslim Council of Tanzania (BAKWATA) and Christian Council of Tanzania (CCT), tax revenue losses mean less money available to be spend for development.
As part of the research team, Dr Honest Ngowi, who is also a Senior Lecturer at Mzumbe University Dar es Salaam College Campus said this figure is, however, an under-estimate since it does not include tax revenue losses from other forms of unreported trade such as smuggling, for which no data is available. He said it also does not include revenue losses from the untaxed informal sector.
The report said Tanzania provides an array of tax incentives and exemptions, especially to mining companies and firms operating in the Export Processing Zones (EPZs). "Many of these exemptions represent an unnecessary loss of revenue."
Exemptions given to corporations have deprived Tanzania of an average of Tsh458.6b ($288m) a year in the three years 2008/09 - 2010/11, it added. According to Dr Ngowi, the government claims that the tax incentives offered in the EPZs are necessary to attract foreign investment. But the key question is whether the extent of these exemptions is justified in terms of the foreign investment.
"Our analysis is that Tanzania has lost more revenues from tax exemptions given to corporations in the last three years than it has received in all foreign investment since the EPZs were established in 2002," he lamented.
The report said that mining companies pay $100m a year in all taxes which amounts to less than 7% of the value of mineral exports - their tax payments are low mainly because of the tax incentives they receive. "Sixty five percent of mining taxes are paid by employees in the form of PAYE not by the companies themselves."
The new Mining Act, passed in 2010, brings some important changes to the mining sector but in effect applies only to new projects since existing gold mines remain governed by the generous fiscal terms and tax stabilisation clauses outlined in individual mineral development agreements, it added.
A 2008 study for the World Bank found that business managers in Tanzania estimated that firms report only 69% of their sales for tax purposes.
"We calculate that if Tanzania's current tax revenues from corporations amount to only 69% of the correct figure, then the country is losing a further Tsh 240b ($151 m) a year," the researcher said.
The failure to collect taxes from the informal sector, which accounts for 40-60% of GDP, also produces large revenue losses.