Tanzania: parliamentary inquiry on tax abuses, tax havens, illicit flows

Adapted from an email from Tove Maria Ryding, Eurodad:

Good news from Tanzania – the Public Accounts Committee there has kicked off an inquiry on tax evasion and avoidance, amid severe concerns about illicit financial flows and capital flight.  We might have some interesting times ahead:

“During inquiry some large tax payers and multinationals will be summoned to be appear before PAC and respond to queries from members.”

(Here’s what it looked like when the UK Public Accounts Committee summoned Starbucks, Amazon, and Google.)

A brief summary of events was provided, below. One source of this information is Zitto Kabwe, the chair of the public accounts committee in Tanzania.

Parliamentary Inquiry on the extent of tax evasion/avoidance, use of tax havens and illicit financial transfer has started

During its 10th annual conference, the Southern Africa Development Community Organisation of Public Accounts Committees (SADCOPAC) saw a resolution 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. Tanzanian PACs requested a permission from the speaker of National Assembly Rt. Hon Anne Makinda is to conduct an inquiry on the mentioned subject, and she granted it. PAC has started the work and it 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.

They quoted data from Global Financial Integrity, estimating that FDI inflows to Tanzania in 2011 were US$ 1.2 bn, while illicit financial outflows that year were USD 917 m (GFI 2013.)

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. 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 are another huge challenge in Tanzania.

1/3 of customs revenue Exempted 

Today TRA commissioner general has informed PAC that a third of customs revenue is exempted to various beneficiaries of tax exemptions. In the 2013/14 budget TRA expected to collect 6trn Tanzanian Shillings (Tshs)  but only Tshs 4trn will be delivered to treasury, as a third of it is exempted. It is surprising that while Tshs 2trn is given up through exemptions, Tanzania is undergoing a spending cuts of almost Tshs 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 is 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 the 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 Tanzanian parliament performs such a function on oversight.