Govt should find lasting solution to tax evasion

What do you recommend as a permanent solution to our business problems?

We expect that the government will allocate enough resources to implement the five-year development plan which addresses most of the concerns raised by the private sector.

We also expect that specific duty rates will be imposed in order to challenge rampant tax evasion. There is serious under-invoicing and under-declaration of imported textiles. We have been proposing this since 2010.

This will enable the government to collect enough revenue which, in turn, will enable the government to get funds for development expenditure.

The private sector can effectively work if infrastructure is improved, so we expect the government to allocate enough funds in that direction. The problem with our government is that it has many priorities.

It would be better if the government injects enough funds to improve one sector—let’s say, the ports and the central railway—and postpone other things to next year. But with the redistribution of development funds to different sectors, we won’t attain the desired goals.

We also expect the government to reduce VAT from the current 18 per cent to 16 per cent and consider reducing government expenditure to get enough funds for development.

Statistics indicate that the government spends most of its revenue on recurrent expenditure and depends on donors to finance development. We cannot get where we want to go if we depend on donors. I hope the government will come up with a strategy to reduce government expenditure.

What other means do you expect the government will deploy to boost its revenue?

For years, the government has depended on traditional sources to get revenue through excise duty. In other countries, excise duty is just a tool for monitoring imports and exports. Excise duty stands at 25 per cent now and there is speculation that it may rise in the coming budget.

Last year alone, the government lost about Sh80 billion by hiking excise duty. If it continues to do so, it will hurt traders and some may opt to close shop, which in turn will deny the government a lot of money.

The private sector proposes that the government concentrates next year on taxing non-traditional sources such as forests, fishing, and tourism. These sectors have been forgotten despite their huge potential. We urge the government to consider allocating a special desk at Tanzania Revenue Authority to monitor non-tax revenue, which currently is collected by ministries. It should also find a way to tax the informal sector—and this can be achieved through village leaders, who know all businesses in their neighbourhoods.

It is well known that energy is essential in ensuring that the business sector and the economy flourish. What do you expect the government to do in the next budget to eliminate energy problems?

First, we want the gas pipeline from Mtwara to be constructed as soon as possible as planned in the next budget—preferably in the next 18 months, as promised.

The government must clearly educate Mtwara residents on the importance of the pipeline to the country’s economic development. Every business depends on electricity, and it is well known that electricity generation plants are in Dar es Salaam and that it will be difficult to build new plants in Mtwara.

We also expect the government to reform the Tanzania Electric Supply Company (Tanesco) so that it can serve the more than 40 million Tanzanians.

Its capacity currently is that of 40 years ago and if we continue like this, the country cannot have reliable power supply.

We also expect the government to work closely with the private sector to increase power generation and supply. The government should get rid of the notion that it can do everything. It should leave some important issues to the private sector.

We also expect the alternative minimum tax (ATM) to be scrapped. We have been advocating the abolition of this tax since 2009 to no avail. The acceptable principle is that there should be no income tax where there is no income.

Currently, ATM is charged when there is loss and this distinguishes it from Pay as You Earn and the other forms of collecting income tax. It is not right to equate PAYE, or presumptive taxes, with ATM. PAYE is based on the fact that the individual is generating an income. This also applies to the presumptive taxes and other types of withholding taxes.

The basis for charging the ATM is that the corporation in question has made losses for three consecutive years. These are obviously two different approaches.

Section 17 (7) of the VAT Act authorises TRA to withhold any refund and to use it to recover outstanding tax liabilities. TPSF is proposing that similar privileges be granted to taxpayers who are entitled to VAT refunds. Such taxpayers are allowed to decide how to utilise their refund entitlement if they intend to pay other taxes.

The proposal will create an equitable environment and will safeguard taxpayers’ cash flow position in a win-win situation with the Government. We are not saying that people must use this option were it to be available but it should be an option.

VAT law allows payment of interest for late refunds. But since there is evidence that the Government cannot make payments where large sums of money are involved, a special fund should be set up to settle VAT claims and others.