Tanzania is said to lose millions of dollars through various means that include tax evasion, granting of unnecessary tax incentives by government, tax dodging, corruption, illicit financial flows, and lack of capacity and unfair double taxation agreements.
According to Dr. Balozi Morwa, a Senior Lecturer at Catholic University College of Mbeya (CUCoM), Tanzania loses a whopping $1.23 billion that could be used to fund public services.
He said the amount could triple the government’s entire health spending, or nearly double the government’s education spending, completely transform social protection measures in Tanzania and support the most vulnerable.
Dr. Morwa made the remark with reference to a study that was conducted by Action Aid Tanzania titled “Sealing the Gaps: An analysis of revenue forgone within the Tanzania tax system and how it could be used to fund public education.”
Tanzania currently collects approximately TZS 14,943,114 million tax revenues per year, a figure equivalent to around 14 per cent of its GDP. This covers approximately three quarters of the Government’s expenses. This is insufficient, particularly when other sources of funding, such as foreign inflows, are declining, or limited.
Tanzania is said to have lost its domestic taxing power hence loss of revenues since there is no strong economic and or investment ties with contracting states thus a high risk of double taxation.
The Issue in point here is that, in view of the budgetary constraints and the unreliability of development aid, African countries ought to strengthened and explored options for mobilizing domestic resources to finance productive activities and the ever-increasing social demands.
Domestic Resource Mobilization (DRM) through taxation is envisaged as a critical tool to ensure that governments have enough finance to provide for public services to the masses, redistribute the national income and ultimately achieve inclusive growth and development.
This is mainly because unlike aid and debt, taxation is the most reliable source of financing development. DRM is a central issue to Governments: Crucial requirement for achieving SDGs by 2030, part of the Addis Ababa Action Agenda on FfD, critical to Developing Countries in upgrading infrastructure and improving social services, financing high levels of debt. Developing countries are in-dire need of financial resources given the dwindling donor support.
Despite its importance, DRM is marred with numerous challenges ranging from tax evasion and tax avoidance which are exacerbated by incoherent international tax regimes, weak tax systems as well as lack of clear nexus between tax policy and administration. These problems are bleeding Africa a lot of revenue which would have otherwise been used to finance its development.
For example, illicit financial flows (IFFs) largely consisting of tax avoidance, tax evasion, and trade mis-invoicing is estimated to be bleeding Africa USD 100 billion annually.
In view of the budgetary constraints and the unreliability of development aid, African countries ought to strengthen and explore options of mobilizing domestic resources to finance productive activities and the DTAs provide the room for payers to choose on where he/she can be taxed and since most give preferences to their resident country because of exemptions provided hence Tanzania tended to lose its taxing right and power.
Routing financial flows through a number of different tax jurisdictions allows companies to avoid withholding tax on cross-border transfers whether or not there is a bilateral treaty between the country in which the income is generated and the final destination country; this is known as treaty shopping.
What is less usual in regard to direct taxes is Tanzania’s high reliance on personal income tax (PIT) such as Pay as You Earn (PAYE) rather than on corporate income taxes (CIT). PIT contributes to more than 40 per cent of total income tax. Placing an increased emphasis on the CIT and a decreased emphasis on the PIT would create a greater sense of fairness.
“Any nation that aims to climb the ladder of economic development must be able to finance a significant share of its public expenditure through the collection of domestic revenue. With re-negotiated DTAS, the government will enjoy a larger tax base enabling greater spending on education, infrastructure, and social services using domestically mobilized resources.” Dr. Morwa said.