Investment chiefs back tax exemptions

05May 2016
Henry Mwangonde
The Guardian
Investment chiefs back tax exemptions

PRESIDENT Magufuli's government has launched a major tax crackdown, faces some intriguing questions ahead of the unveiling of the much-anticipated 2016/17 fiscal year budget, how do you encourage investment through tax incentives and collect revenues needed to build flagship infrastructure projects?

President John Magufuli

The issue of tax exemptions has come under sharp focus following revelations that former president Jakaya Kikwete's administration waived taxes worth close to 8 trillion/- in just the past five years alone.

But top government officials in the Magufuli administration yesterday defended the use of tax exemptions as a tool to court both foreign and domestic investment companies, saying it was a necessary evil.

According to the government's investment chiefs, tax waivers are used by different nation's around the world to woo foreign direct investments (FDIs) and boost local manufacturing industries.

Like other African countries, Tanzania is competing for scarce FDI inflows, hence has to offer some tangible incentives to investor companies, they said.

“This is a global tradition that we, as a country, cannot shy away from ... but there is a lot of misinformation out there among members of the public concerning tax exemptions,” Tanzania Investment Centre's (TIC) acting executive director, Clifford Tandari, told The Guardian.

According to Tandari, even some developed nations such as Ireland and Turkey have also been using tax incentives as a magnet to lure investors and have successfully benefited from the practice.

Likewise, the director general of the state-run Economic Processing Zone Authority (EPZA), Col.(rtd) Joseph Simbakalia, defended tax incentives, saying the government does not waive taxes without conducting thorough research on the beneficiaries and the expected benefits to the national economy at large.

He said government tax is exempted only after a well thought out cost-benefit analysis is done.

Simbakalia explained that most investors who are given tax exemptions have something substantive to offer the country, such as job creation.

“We do not forfeit government taxes just like that ... we have done our research and we have concrete numbers on everything that we carry out," he insisted.

"Look at this on both sides of the coin then you will come to notice the reason why we grant such incentives.”

His sentiments were echoed by the Permanent Secretary in the Ministry of Trade, Industry and Investments, Dr Adelhelm Meru, who also threw his weight behind tax exemptions, saying there was a misconception on the matter.

According to Meru, there was no nation in the world that does not give some sort of tax incentives to investors.

The PS, himself a former director general of the EPZA, said tax exemptions were not only offered to investment companies, but also to various other sectors.

“We are in a very competitive world where every country is striving to attract more investors, therefore if we frustrate them, they will definitely not come to our country and we will lose out,” Meru said.

He noted that some countries have even changed the name of tax exemptions to "subsidies" to highlight their importance to the economy.

The recent trend of tax exemptions shows that Tanzania has consistently failed to cap tax waivers to 1 per cent or below of the gross domestic product (GDP).

Latest data from the Ministry of Finance and Planning seen by The Guardian indicate that tax waivers have amounted to 7.78 trillion/- since 2010.

The recent report by the Controller and Auditor General (CAG) slammed government tax exemption as "over-generous", saying they only benefited a few individuals, companies and groups at the expense of the country’s economy.

The tax waivers have even forced the Tanzania Revenue Authority (TRA) to consistently miss its revenue collection targets and in turn compelled the government to borrow heavily to fill yawning fiscal gaps.

It remains to be seen how the Minister for Finance and Planning, Dr Philip Mpango, will tackle tax exemptions in his maiden budget speech on June 9.

Magufuli's government is expected to unveil an infrastructure-heavy budget, with massive public investments in a new standard gauge railway, flyovers, ports, roads and power plants.

A new government initiative to wean itself off donor dependency means that the funding of development projects would have to increasingly rely on domestic financial resources, which are under threat from tax incentives.

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