How Tanzania loses Sh3 trillion annually

Dar es Salaam. Tanzania loses about Sh3 trillion ($1.87 billion) in tax revenue every year through cheating by dishonest companies in import and export transactions, a new study reveals.

Tanzania, according to the study, loses the most among five countries surveyed last year. The survey also involved Kenya, Uganda, Ghana and Mozambique.

The amount lost annually through tax evasion can build 374 modern dispensaries at the cost of $5 million (Sh8.1 billion) each or restore the dilapidated Central Railway Line.

This sum can enable Tanzania Electric Supply Company (Tanesco) to generate an additional 1,800 megawatts to greatly boost power supply in a country that has been grappling with an acute shortage of electricity for two decades.

Alternatively, the amount could be used to buy for the struggling Air Tanzania Company Limited (ATCL) 30 Airbus A320 passenger jets, which cost $60 million each.

Global Financial Integrity (GFI), the US-based international financial watchdog, says in its latest report that illicit flows due to massive cheating totalled $18.73 billion in Tanzania from 2002 to 2011. Most of the money was lost in the last five years of this period.

The estimates of trade misinvoicing show that over-invoicing was common with regard to fuel imports, for which mining companies enjoy import duty exemption.

This suggests that mining companies could be inflating their import costs to shift capital out of Tanzania illicitly with the added kickback of lower taxable income due to artificially inflated inputs, the report says.

But The Citizen could not independently verify whether mining companies are inflating their invoices to avoid paying more taxes to the government.

The Sh3 trillion which Tanzania loses yearly is equivalent to about 16 per cent of the current budget estimates and more than three times the General Budget Support provided by development partners, including the African Development Bank, European Commission, World Bank and nine countries.

The amount is also nearly three times the amount the government will borrow through non-concessional loans in the current financial year year.

According to GFI, trade misinvoicing is the intentional misstating of the value, quantity or composition of goods on customs declaration forms and invoices, usually for the purpose of evading taxes or to facilitate money laundering.

The reports says Kenya losses $1.51 billion (Ksh131 billion) annually through the misinvoicing of goods followed by Ghana at $1.44 billion, Uganda at $884 million (Ush2.2 trillion) and Mozambique at $585 million.

Tanzania Revenue Authority Commissioner General Rished Bade could not be reached for comment, as he neither picked up our calls or respond to s text message.

GFI says that the vast majority of trade that is misinvoiced in Tanzania occurs with Switzerland and, to a lesser extent, with Singapore, which the International Monetary Fund and the Organisation for Economic Cooperation and Development (OECD) consider to be tax havens.

“Despite only consisting of six per cent of Tanzania’s total imports from advanced economies, Switzerland and Singapore represent over 67 percent of total import misinvoicing over the 10 year period of this study. To put this into further perspective, over 25 per cent of the total import misinvoicing present in Tanzania since 2002 was specifically the misinvoicing of fuel imports from Switzerland alone,” the report says.

The drastic rise in import over-invoicing that began in 2008 coincides with the implementation of the country’s Export Processing Zones (EPZs) that provide investors who establish firms import-duty exemption on raw materials used in the production of manufacturing goods as well as a 10-year corporate tax holiday.

“The elimination or easing of import duties provides a perverse incentive to move capital out of the country illicitly through import over-invoicing. The loss of revenue and the loss of capital available domestically for development undermine the benefits of the EPZs for Tanzania’s economy and development,” the report says.