Dangers of zero-rated goods in transit explained

Dar es Salaam. Analysts are worried that the amendment of the Value-Added Tax (VAT) Act to zero-rate goods in transit will encourage tax evasion.

Tabling the 2017/18 budget in Parliament a fortnight ago, Finance and Planning minister Philip Mpango proposed that VAT on ancillary transports services in relation to goods in transit be zero- rated.

Speaking to BusinessWeek at separate interviews, experts said unless the tax administration system was improved the decision would result in revenue loss.

Repoa strategic research director Abel Kinyondo said the move might influence transporters to submit false information to not pay tax.

He said since complete information would not be provided, less tax might be paid.

“I appreciate the government decision in boosting business at the Dar es Salaam Port,” said Dr Kinyondo. “But my worry is that transporters might use the decision to declare false information that their cargo was transit just to evade from paying tax.”

He said if the government was to benefit from its decision, it would ensure that no loopholes for tax evasion prevailed at the ports.

Business expert Donath Olomi said zero-rating VAT would boost the economy if no room for tax evasion is given by port officials.

Dr Olomi was optimistic that would make Tanzania’s ports cheap.

‘This will open up the international cargo business through our ports to and from neighbouring landlocked countries as well as create employment for Tanzanians.”

The national chairman of the Tanzania business community, Mr Johnson Minja, described zero-rated VAT as a “win-win” that would boost revenue in tax and help finance needed infrastructure.

He said the government should expect more from port charges including railway and development levy (RDL), customs processing fee and import duty.

RDL and customs processing fee charges, according to him, stood at 1.5 and 0.6 per cent respectively.

An average import duty stood at 25 per cent.

But the problem is that the country has been facing a massive problem with tax evasion, according to Mr Minja.

He added that people who should be paying taxes have found ways not to pay them and, as a result, it may be said that the income of the country has been suffering.

In 2016, the government incurred losses in revenue of at least Sh317 billion attributed to undervaluation of imports.

Speaking during the official opening of the five-day Tanzanian Industries exhibition in Dar es Salaam last December, Industry, Trade and Investments minister Charles Mwijage, admitted that unscrupulous importers were evading taxes.

Up to October last year, the government had lost Sh317 billion due to importers who were undervaluing goods, according to minister.

He said that was a huge chunk of money and it was high time investors in the country concentrated on setting up industries to avoid imports.

Mr Minja said the malpractice has a negative impact on local businesses and creates unfair competition as imported goods were being sold at cheaper prices.

“Revenue collection would not go up unless there is proper tax administration system not only on transit goods but on all goods,” he warned.

“So let’s take a look at what are the ways in which people are avoiding taxes and what are the penalties for it.”

The vice president of the Tanzania Association of Transporters, Mr Omari Kiponza, rejected the claims that they would evade from paying tax.

He said that was impossible in the era of current technological advancement.

“Our vehicles have a tracking system device, of which is monitored by the Tanzania Revenue Authority.”

He applauded the government for lowering transport costs, saying the Dar es Salaam Port would attract more customers as it did before the VAT.

But he said strong marketing should be made to woo customers who had shifted to Mombasa and Beira ports to use the Dar es Salaam Port.