Parliamentary Inquiry on the extent of tax evasion/avoidance, use of tax havens and illicit financial transfer
Parliamentary Inquiry on the extent of tax evasion/avoidance, use of tax havens and illicit financial transfer has started
During its 10th annual conference, Southern Africa Development Community organization of Public Accounts Committees a resolution was passed that ” PACs or similar committees should encourage their member states to pass legislation to control the use of tax havens by companies and individuals in order to curb illicit money transfer and tax avoidance/evasion“.
The resolution has a footnote “PACs should initiate investigations on the extent of tax avoidance/evasion and illicit money transfer in their jurisdictions”.
The Tanzanian PAC requested permission from the speaker of National Assembly Rt. Hon Anne Makinda to conduct a parliamentary inquiry on the mentioned subject and she granted it. The inquiry has started and will take several weeks.
The inquiry started by inviting authorities dealing with matters of tax, banking and financial accountability to a consultative meeting. Bank of Tanzania, Tanzania Revenue Authority, Controller and Auditor General and Financial Intelligence Unit attended the first session.
PAC was briefed that the problem of tax avoidance is a huge issue and drains necessary resources from the country.
Data from global financial integrity are shocking;
FDI inflows v Illicit outflows – Tanzania
FDI inflows to Tanzania in 2011 were USD 1.2 billions (BoT 2013). Illicit financial outflows that year was USD 917 millions (GFI 2013)
Tanzania FDI sources? Top 5 in 2011
1) United Kingdom ( including British Oversees Territories and Crown Dependencies) USD 451m
2) South Africa USD 443m
3) Canada USD 392m
4) Mauritius USD 291m
5) Kenya USD 98m
56% of FDI to Tanzania into extractive industry (mining, oil and gas).
Illicit outflows from Tanzania millions usd
TRA gave vivid examples of tax avoidance like issues of transfer pricing done by multinational corporations. All sectors are affected but mostly agriculture, tourism and mining are leading. An example of a mining company which was declaring losses to be discovered to be making profit to the tune of USD 330m was made. Discovery was done after a forensic investigation. Exporters of tobacco, cashew and coffee are all involved in tax avoidance schemes through under declaration of selling prices. Case studies were presented to the PAC. Telecommunication companies were mentioned as serial loss making facilitated by tax avoidance schemes including management contracts as well as technical services agreements entered with related companies.
Tax exemptions is another huge challenge in Tanzania: 1/3 of customs revenue Exempted
TRA commissioner general has informed PAC that a third of customs revenue is exempted to various beneficiaries of tax exemptions. In 2013/14 budget TRA expected to collect TZS 6trn but only TZS 4trn will be delivered to treasury as a third of it is exempted. It is surprising that while TZS 2trn is given up through exemptions, Tanzania is undergoing spending cuts of almost TZS 1.2trn in all ministries, departments and agencies due to low tax collections ( down by 10%), low non tax revenue ( down by 30%) and cuts of donor funds by 25%.
PAC directed an audit of all tax exemptions and transparent publishing of the latter in order to enhance accountability.
First report on exemptions is expected in the new CAG report to be made public during May budget sessions. CAG has already submitted his report to the President
During inquiry some large tax payers and multinationals will be summoned to be appear before PAC and respond to queries from members.
This will be the first time the Tanzanian parliament performs such a role on oversight.