Scrap tax incentives, experts urge govt

Dar es Salaam. Economic experts have urged the government to review its policy on tax incentives because a number of them were being abused and shortchanging the Treasury.

Speaking during a breakfast meeting in Dar es Salaam yesterday, they said Tanzania must scrap unnecessary tax incentives that are a stumbling block in efforts to boost revenue collection. They also argued that there was no empirical results to prove the efficacy of tax incentives and their impact to investment.

“We need to measure and analyse the effectiveness of each tax incentive since they are meant to attract investment,” said Mr Silas Olan’g, Natural Resource Governance Institute (NRGI) manager for East and Southern Africa.

“But, if we can attract investment using minimal tax incentives and focus more on improving non-physical incentives, it can be a strategy to minimise loss of revenue in the area,” he said.

The breakfast meeting hosted by Policy Forum under the theme ‘Lifting the Veil of Secrecy: Perspective on International Taxation and Capital Flight From Africa’. The theme was culled from the title of a book launched in Tanzania last year – and part of a research project that investigated the effects of tax havens on domestic revenue systems.

Renowned Tanzanian economist and one of the editors of the book, Prof Honest Ngowi, said there are widespread concerns over revenue losses resulting from tax incentives.

“Other concerns are the misuse and abuse of tax incentives, granting of tax incentives without conditions such as creating employment and technology transfer and discretion powers vested to the minister in provision of incentives,” he said at the breakfast meeting.

Prof Ngowi cited the Controller and Auditor General (CAG)’s 2015/2016 report that also revealed abuses of tax incentives by the beneficiaries.

One of the cases he cited from the CAG report was the abuse of tax relief of Sh3.46 billion provided to two beneficiaries in the transportation sector who ordered 238 cars. According to the report, the cars were registered and used by unintended beneficiaries of exemption.

The CAG report also singled out a case in which no documentation was provided for 4.2 million litres of oil transported from Dar es Salaam between October 2014 and December 2015 for use in mines in Buzwagi, Bulyankulu and Geita. “We could not get confirmation from documents that the oil arrived to the intended terminals, which indicates that the exempted oil was used for unintended activities,” the CAG noted in his report.

Prof Ngowi said the CAG has also recommended that the government should continue reforming the incentives regime.

Another acclaimed economist, Prof Haji Semboja, said ideally, the purpose of tax incentives was to encourage investors to use the funds they were supposed to pay as corporate tax, for example, for investment in key areas of the economy. “But, if you look at the taxation structure of this country, a total of 40 per cent of tax collected by the Tanzania Revenue Authority comes from goods imported to the country. The other 40 per cent is collected from large taxpayers, currently about 485 companies,” he said.