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How government loses trillions yearly

27th April 2013
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Kisesa legislator (CCM), Luhaga Mpina

Amid donor dependency for development, there’s a shocking revelation of how the same government that begs for aid from foreign nations loses about Sh2.780 trillion ($1.684 billion) yearly due to failure to collect what it deserves from potential taxpayers.

This amounts to more than what the government borrowed from the Chinese Bank to finance the construction of a 524km gas-pipeline from Mtwara to Dar es Salaam. Or put simply, this represents 18 percent of this year’s budget.

Speaking in Dodoma on Thursday evening shortly after the Parliament rejected the Sh398 billion budgeted for the Ministry of Water, Kisesa legislator ( CCM) Luhaga Mpina said the government was losing a whopping Sh2.870 trillion annually due to its failure to collect revenue from various sectors.

The Kisesa MP later told reporters Thursday evening in Dodoma, the man who has a knack for an independent in virtually anything national said the government had been losing billions of shillings in revenue from telecommunication, fishing, forestry and mining sectors. Giving a breakdown, Mpina said various studies by a number of institutions within and outside the country had demonstrated that Tanzania loses an annual Sh525 billion in revenue through tax evasion within the mining sector alone.

Within the telecommunication industry, he said the government loses a whopping Sh600 billion through tax evasions as well, as it does in the fishing industry where some Sh362 slips through ‘white-collar’ thieving hands. The informal sector has meanwhile broken the record, where data shows the government loses Sh 1.3 trillion annually.

Such a financial trend is worrisome considering the fact that Controller and Auditor General ( CAG) Ludovick Utouh just a week ago released various government audited financial reports for 2011/2012 year in which it was revealed that the government in the respective financial year lost Sh789.883 billion overall through tax exemptions – which could have could facilitated finance a five-year water development plan implemented under the Big Result Now ( BRN) initiative that calls for an annual allocation of Sh500 billion.

As it is, the CAG says all tax exemptions would be subjected to stringent audit by his office to determine their merit. According to CAG, tax exemptions until 2011/2012 financial had reached Sh1.8 trillion.

At his news briefing Thursday evening, Luhaga blamed the government for its failure to reduce the exemptions by at least 1 per cent of the National Gross Domestic Product (GDP) by 2015/2016 as it had promised.

Explaining how the government had failed to walk its talk, he used CAG data that showed that tax exemptions were increasing annually. He said in 2009/2010 tax exemptions amounted to Sh 608 billion while in 2010/2011 tax exemptions reached Sh 1.01 trillion.

In 2011/2012 the exemptions reached 1.8 trillion, which raised alarm on their merits.

Mathematically, Mpina said the exemptions offered in 2010/2011 financial year rose from 2.9 per cent of the GDP to 4.3 in 2011/2012. He also said the exemptions rose yet again from 19 per cent of the government revenue to 27 per cent during the same period. Mpina said Tanzania was ranked first among the East Africa countries in granting exemptions. He said Kenya’s exemptions account for only one per cent of its GDP while Uganda is set at 0.4 per cent.

On government expenditure, Mpina said the situation was even worse, citing enormously spending in travel allowances, vehicle procurement and maintenance, exhibitions and administration. Mpina said while in 2011/2011 domestic revenue amounted to Sh 7.3 trillion recurrent expenditures amounted to Sh 8.6 trillion, meaning that the government borrowed Sh 1.3 trillion to finance its recurrent expenses.

In 2012/2013 financial year, domestic revenue was projected at Sh9.1 trillion against a recurrent budget of Sh 10.6 trillion, a difference of Sh 1.5 trillion. Himself an economist, Luhaga said that despite the national economy registering an impressive growth of 7 per cent, such an annual growth does not tally with the level of government revenue collection.

“Despite the government telling us every time when Bunge convenes for budget meetings that it would craft strategies to increase internal government revenue studies show huge losses of government money,” he said.

However, Mpina fell short of identifying the institutions in question, but insisted he would question the government to explain about the new sources of revenue that the government crafted since last budget and amount of revenue generated.

He said it was shameful that the government year after another depended on traditional sources of revenue such as cigarettes and drinks.

In the 2011/2012 financial audit reports of the government expenditures, CAG Utouh offered several strategies to widen tax base and enhance government revenue.

One of them included imposing tax on mobile phone money transfer businesses ( M-Pesa, TigoPesa,Airtel Money ect).

He also says telecom operators should pay withhold tax payable by mobile phone transfer companies at a pre-determined rate which would be set off against income tax payable at the end of the year.

He also asked the government to target the informal sector by taxing petty businesses, medium and large scale farmers, small scale minors and owners of social hall Following the introduction of National Identity cards, Utouh says there should be a link between the IDs and tax registration, including raising public awareness on the importance of paying tax.

The CAG called upon the government to conduct aggressive market research to identify the location and market value of the houses and introduce individual tax returns by having a requirement to disclose rent paid by individuals.

On how to deal with tax exemptions the CAG argues that in order to harmonize tax exemptions administration the government should introduce capping of exemptions as a percentage of Gross Domestic Product (GDP) and grant exemption to the maximum of that limit.

He added that in the spirit of national interest, and the public in particular, it was worthwhile that all mining development agreements be subjected to a review by special committees approved by Parliament.

The CAG’s report sys the government should also revisit its decision to grant tax exemptions in various areas with a view to establishing their importance to the economy and abolishing all exemptions which seem to have negative effect to the revenue collection.

He said where tax exemptions had been granted, a timeline should be established for an investor to account for the exemptions offered and the revenue generated before comparing with the business plan and objectives agreed within the period to enable the government assess whether it is worthwhile to keep on granting such exemptions.

The report tax exemption certificates should state the lifespan of exemptions within its validity period, proposing that a tax exemptions tracking system should be introduced to track exemptions granted by the Ministry of Finance through a government notice ( GN).  

SOURCE: THE GUARDIAN