Dar es Salaam. Transfer pricing – the rules and methods for pricing transactions within and between enterprises under common ownership or control – is costing Africa dearly, and Tanzania may not be spared.
A survey by The Citizen has established that though the government has been taking precautionary measures to avoid losing its revenue through transfer pricing, but shortage of experts and experience companies evading tax thwart the efforts.
Tanzania - together with Nigeria, Kenya, Ghana, Mozambique and South Africa - are rated as some of the resource-rich countries on the continent, which have been keenly developing transfer pricing capability.
In an effort to provide more directives on how businesses should set prices of transactions between related entities, on November 21, last year, Tanzania released new transfer pricing regulations (The Tax Administration Transfer Pricing Regulations, 2018), which were meant to replace the regulations, which were approved in 2014.
Within the 2018 regulations, the Tanzania Revenue Authority (TRA) requires taxpayers – whose annual transaction with associates exceed Sh10 billion - to submit transfer pricing documentation at the time of filing the annual corporate income tax return.
However, despite the efforts, the Commissioner for Large Taxpayers Department, Mr Hebert Kabyemela, said the government was working hard to stem the tide of tax evasion through transfer pricing by multinationals.
He, however, noted that shortage of the right number of experts with relevant expertise on the International Taxation Unit (ITU) was a cause for concern.
“We also experience a challenge of timely submission of documents. Some companies, especially those in the extractive sector, do not bring their documents on time due to a myriad challenges. Since most companies in the extractive industry are subsidiaries of groups of companies outside the country, their transactions need to be examined carefully,” he told The Citizen.
Despite the challenge, Mr Kabyemela said since the inception of the ITU during the 2011/12 financial year, the unit has managed to collect Sh1.2 trillion from the extractives industry, which would have been lost as uncollected tax.
“As we are talking, we have a number of cases in court, and we believe some of them will be completed within the current financial year. During the years, we have collected Sh35.17 billion and $526.98 million, which is equivalent to almost Sh2 trillion,” he said.
Chances of losing tax through transfer pricing are high in some cases, as when parent companies which are based overseas supervise the financial and procurement processes of their subsidiaries in Tanzania.
“As a result, the companies raise production costs through salaries of expatriates, costs for procurement and servicing equipment and interests on bank loans among others,” said the director for Africa Zone of the National Resource Governance Institute (NRGI), Mr Silas Olan’g.
An expert from the Tanzania Minerals Commission, Mr Michael Kambi, said Tanzania and other African countries need to emulate how European countries and the US managed to stamp out tax evasion in multinational Information and Communication Technology (ICT) firms like Google, Apple, Amazon and Microsoft, to mention but a few.
The Tanzania Extractive Industries Transparency Initiative (TEITI) committee chairman and former Controller and Auditor General (CAG), Mr Ludovick Utouh, said the Tanzania government has no option but to invest in experts.
“I congratulate TRA for the initiatives it has so far taken. Our people must be given the opportunity to go and learn from what developed countries have experienced in this area,” he said.
No loopholes in oil and gas
The Tanzania Petroleum Development Corporation (TPDC) acting managing director, Mr Kapuulya Musomba, said there was no revenue leakage loophole in the Production Sharing Agreements (PSAs).
Mr Musomba said under the Petroleum Act 2015, stern penalties have been set to discourage companies from evading tax payment by any means.
“Every invoice is checked. Every procurement process has to be verified. We have set a ceiling for management fee. The investor must submit his work plan for the next financial year,” he said.
The Shell Tanzania managing director, Mr Marc den Hartog, said Tanzania’s laws - just like those in other countries - give authorities the freedom to look into a companies’ books of accounts without any hindrance.
“Pura (the Petroleum Upstream Regulatory Authority) and TRA can look into our books of accounts without any hindrance. We are working under the guidance of the PSAs and everything is very open,” he said. The communications manager of International Development, Production and Exploration at Equinor, Mr Erik Haland, shared similar sentiments.
Various African countries are currently grappling with ways of ending tax avoidance through transfer pricing.
In Ghana, West Africa, reports show that between the period of June 2017 and April 2018, the country’s taxman worked on no less than fourteen tax disputes and found that payment of tax amounting to $75 million was about to be dodged.