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Overview

The current financial year is soon ending and discussions on the 2017/18 budget to be concluded in June 2017 are already underway. As usual, we, the members of the Policy Forum (PF) Budget Working Group would like to take this opportunity to share our views regarding the performance of the 2016/17 fiscal year to inform the ongoing deliberations on the national budget, the second under the administration of President John Magufuli.

The 2017/18 budget, also aiming to finance the second year of the ambitious Five Year Development Plan II (FYDP II 2016/17 – 2020/21), adopted in June 2016 which is geared towards heavy investments in infrastructure, to transform Tanzania from an economy reliant mainly on agriculture to an industry-based economy and aims a fiscal deficit of 4.5 percent of GDP, is being faced with almost the same challenges that were encountered during the 2016/17 fiscal year.

Although revenue collection during the first half of the year was promising, attributed mostly to a robust anti-corruption drive, an intense push to curb tax evasion and the collection of several debts from several entities and individuals, mobilization of external finances (which were mostly meant to contribute to the development budget) during this fiscal year has not been impressive mainly due to low and late donor disbursements resulting in development projects stalling. A report by the Minister of Finance and Planning released last month indicates that of the TZS 11.8 Trillion budgeted for development budget in 2016/17, only TZS 3,975.4 billion (about 4 trillion) was released as of February this year, representing a mere 34% of the development budget. The Budget Working Group counsels the government to endeavor addressing the financial shortfall if the already ambitious FYDP II is to be attainable in the stated period given its development agenda massively relies on infrastructure investments.

Despite these revenue constraints, according to the preliminary budget estimate projections for the year 2017/18 presented by the Minister of Finance and Planning, Hon. Philip Mpango, the national budget estimates stand at TZS 32,945.8 billion (TZS 32.9 Trillion), a nominal percentage increase of 10.3 from TZS 29.5 Trillion in the fiscal year 2016/17. The Government intends to spend TZS 19,782,291 Billion on recurrent cost which is equivalent to 60% of the overall budget and spend TZS 13,163,516 billion which is equivalent to 40% of the total budget on development expenditure.

The guidelines for the estimates, however, stipulate that these are subject to change and in this regard the final budget approximations will be established after implementation assessments, policy reviews and final commitment by Development Partners.

Domestic Resource mobilization

Though the 2017/18 revenue projections are preliminary, PF members nonetheless continue to caution for more realistic targets given the financial year 2015/16 saw external financing shortfalls, the fiscal period 2016/17 so far seems to manifest the same trend and the current outlook is one of uncertainty. These shortfalls have impacted budget execution and we would like to recommend that our decision makers carefully consider these and other long existing challenges as they discuss the 2017/18 national budget. Most important of these is realigning development expenditures with actual donor commitments and taking measures to firm up any pledges previously made.

Of the ambitious TZS 32.9 trillion the government intends to collect during the 2017/18 fiscal year, TZS 20.8 trillion is expected to come from domestic revenue sources which is equivalent to 61%. Tax revenues are expected to be TZS 18 Trillion while the non-tax revenues are estimated to be TZS 2 Trillion, implying our revenue authority should collect on average about TZS 1.5 trillion per month to meet the 2017/18 revenue target. In furthering the collection of resources at the subnational levels, the Local Government Authorities (LGAs) intend to contribute only about TZS 0.8 Trillion from its own sources. The remaining 39% is to be collected from other sources such Domestic Borrowing, MCC Basket Support Loans and Grants and non-concessional borrowing. It is important to note that such sources may not be sustainable in the longer term because they leave burden on the taxpayers given some are offered at high interest rates.

Furthermore, we urge the government to seriously consider progressively mobilizing resources domestically to finance national development projects. Increased borrowing to finance development projects increases the fiscal deficit with reference to the Gross Domestic Product (GDP) of the country and tends to divert future revenues to non-prioritized areas such as servicing the ever-ballooning national debt including the exorbitant interest rate payments. In the fiscal year 2015/16, out of domestic debt services, TZS 3,005.8 billion Shillings were for rolling over maturing obligations and TZS 1,009.6 Billion Shillings were for interest payments.

Budget deliberations would also merit from focusing on other aspects such as the notable narrow tax base where taxes disproportionally rely on VAT increasing the burden on the consumers and that despite the new VAT and Tax Administration Laws, there exist implementation challenges and incentives are still being granted especially in the Economic Processing Zones (EPZ) and Special Economic Zones (SEZ) without regular disclosures that report on their impact to the economy and contribution to poverty reduction.

Highlights in Key Sectors

The education sector has remained a top government priority sector as it takes the biggest share in the overall government budget which is around 17% of the total. The lamentable learning environment, however, is still an issue and its impact is visible on the quality of learning and drop-outs rates for primary schools in Tanzania.

The environment and infrastructure in schools have a big stake for quality education in Tanzania including adequacy of latrines and classrooms in primary schools. Pupil Classroom Ratio is 1:77 against the Standard of 1:45. The average male Pit Latrine Ratio (PLR) is 1:57 against the Standard of 1:25, and that of females is 1:56 against the standard of 1:20. In Geita Region, the PLR is very high (1:104) and in an extreme case recorded at Lushoto District, one pit latrine is serving 169 boys and 241 girls.

On the introduction of the fee-free education policy, our call to our government is that in its 2017/18 budget, considerations should be given to the increasing enrolment rate in both pre-primary and primary schools because the move has mobilized parents to send their children to school. According to a study by BEST in 2016, the enrolment rate for pre-primary school has increased by 46% which is an increase of 492,947 pupils while for primary school it increased by 41% which is 552,289 pupils compared to 2015.

On average, this represents about 1 million new pupils in schools. Using the average of 1 classroom for 45 pupils, the increase will require 23,000 new classrooms which cost about TZS 267 billion (with 1 classroom costing TZS 12 million). It should be noted, however, that public schools are already faced with a critical shortage of classrooms, according to a 2016 statement by HakiElimu, the shortfall stood at 95,945 classrooms.

The expenditure for some agricultural activities in the first five months of the year 2016/17 indicates that the subsidy for agricultural inputs was TZS 10 billion, equivalent of 40 percent of TZS 25 billion budgeted for the year 2016/17; purchasing and storing of food, TZS 9 billion was disbursed, equivalent to 33.96 percent of TZS 26.9 billion planned for purchasing, storing and distribution of food; and rural electrification, out of TZS 587.6 billion budged for the year 2016/17, about TZS 266.493 billion was released by Treasury for first five months, equivalent to 45.35 percent. Based on these statistics, the budget execution is promising, anticipating the government continues to implement the development projects as planned and maintain discretionary expenditure.

Agricultural production and productivity have been decreasing partly due to adverse effects of climate change, as many parts of Tanzania engaging in agricultural activities rely on rainfalls. In 2017/18 budget planning, however, the directives from central government to Regional Secretariats and LGAs in implementing the climate change adaptability and mitigation measures are missing.

The 2017/18 budget has mentioned the mega infrastructure development but the rural infrastructure (roads and electrification), which promote the rural industrialization, especially agro-processing were not as significant. It is important that the emphasis be put in the strategic areas where the agricultural investment intends to take place.

Gender

Gender is an important cross-cutting issue during planning and budgeting. This aspect has for many years now been advocated and this statement acknowledges the progress registered thus far in addressing it. In the current financial year for example, there are specific budget lines that are allocated to address the needs of several marginalized groups in the society like pregnant women, children and the disabled.

As CSOs, we strongly believe that gender could be integrated more strategically in the budget rather than simply relying on special budget lines to cater for special groups in society. For this to be addressed and sustained, the Plan and Budget Guidelines need to state this clearly and be consistent throughout which is not always the case. For example, the guidelines clearly state ‘….all MDAs, RSs, LGAs and Public Entities are urged to make budgetary allocations for implementation of cross cutting interventions. These include gender issues, physically challenged people, nutrition, environment and climate change as well as combating new HIV infections.

In addition, Accounting Officers should give priority on the issues pertaining to people with special needs particularly employment, health, education and construction of user friendly infrastructure for physically challenged people.’ The same guidelines, however, carry statements that are not in line with this. In the guideline capitation grant for primary schools will continue to be TZS 10,000 per enrolled pupil per annum, including pre-primary pupils and those in special schools. In this case therefore, capitation grant does not take into consideration of pupils with special needs although it seems to be aware of their existence.

It is in our belief that given the government’s indicated readiness to address the concerns of special needs groups and the marginalized in society, future plans and budgets can be more explicit in this regard.

Conclusion

It has been noted that the Government has substantially prioritized collecting more taxes though there is still room to improve and perk up domestic revenue in the country, reduce donor dependency and external financial support as per Tanzania’s Development Vision 2025.

We therefore urge:

The government should enhance its external revenue collection strategy by seeking greater clarity on donor commitments which will help set realistic capital spending commitments to enable smooth implementation of the development budget and protecting the integrity of the budget process despite the FYDP II infrastructure targets.

On pending infrastructure projects (roads, railways, port, energy) and agriculture sector (irrigation infrastructure and agro-industries), government should consider using the Public-Private Partnership (PPP) framework as an innovative option to financing stalled projects and reduce harmful borrowing. Opening dialogues with international financial institutions can also be considered as a means of helping forge links with the private sector in this regard.

Modernize the productive sectors such as agriculture so that they can generate more revenue while creating employment.

The government should not confine itself to addressing tax leakages through dealing with tax exemptions but also strengthen its strategies to counter transfer mispricing and harmful Double Taxation Agreements (DTAs).

It is imperative that the government reviews its policies governing tax relief and to seal all tax loopholes. In critical areas such as investment, granting of incentives is subject to abuse and may lead to increased loss of revenue. Instead, more focus should go towards strategies that improve the investment environment through enhanced infrastructure, provision of guaranteed energy (power) and a skilled labor force and prompt legal processes in resolving commercial disputes as a long-term approach to attracting investors.

The government should consider widening the tax base in the following ways:

Harvesting the potential of property tax instead of raising more taxes from simple-to-catch sources such as Pay-as-you-earn (PAYE). This has to be done strategically so as decrease the burden on citizens.

Strengthening of the compliance enforcement: It is important to ensure maximum enforcement of tax payment in accordance with the law. Closing revenue leakages (i.e. controlling corruption at all levels) and setting reasonably affordable tax rates, can be a good incentive to the tax payers to remit their due amounts to the government.

The government should continue with its strategy to formalize to formalize and tax the informal sector. Additionally, it is the role of all stakeholders with the support of the government to promote perceived fairness which is important in inducing formalization and inducing informal operators to see taxation as state-building. Moreover, enhancing the taxability of the informal sector reduces the burden on Micro Small and Medium Enterprise (MSMEs) taxpayers within the informal sectors to make formalizing attractive could be a more promising strategy.

Strengthen the institutional capacity of Tanzania Revenue Authority in collecting taxes through providing financial resource and technical support including the introduction and operationalisation of a new Tax Administration System (IDRAS). Further, TRA together with Government and other stakeholders should work together in establishing and supporting taxpayer assistance and educational programmes (with advanced users electronic filing and the use of Electronic Fiscal Device (EFD) for the SMEs).

The government should explore the potential in mobilizing resources from non-traditional financing options, especially Initial Public Offerings (IPOs), Public Partnership Programs and Build Operate Transfer Rights which are not yet widely used in Tanzania and Local loans syndications for development projects.

 

A Call to Action

In this communiqué, the undersigned Non-State Actors (civil society,pastoralist, research, private, farmers’ unions and other stakeholders) champion a call to action and outline recommendations on livestock policy advocacy strategies that take into consideration the unique conditions and opportunities of the livestock sector development in Tanzania. To read more click here.

                                   Outgoing Board Members

Policy Forum elected its new Board of Directors during its 2017 Annual General Meeting held in Dar es Salaam on the 17th of March. The outgoing board members are Donati Senzia-PELUM, Charles Meshack -Tanzania Forest Conservation Group (TFCG), Dr. Aichi Joseph Kitalyi - Tanzania Association of Women Leaders in Agriculture and Environment (TAWLAE) who retired during this AGM leaving behind Josephat Mshigati-ActionAid-Tanzania, Hebron Mwakagenda-Leadership Forum, Nemence Iriya/Asia Lembariti-Manyara Region Civil Society Organizations Network (MACSNET) and Bakari Bakari- KEPA to stay on for another year so that there is a balance between replacement and continuity on the Board.

In their parting speech they thanked PF members for giving them the opportunity to serve on the Board and for their cooperation during their tenure and wished the new Board of Directors all the best in carrying on the good work of the network and leading the Secretariat. Hence, the new line up is as follows:

New Board Members

1. Amani Mustafa - Hakimadini

2. James Mlali - Human Promotion Tanzania (HDT)

Board Members staying on for another year

3.Yaekob Metena-ActionAid Tanzania

4. Hebron Mwakagenda-Leadership Forum

5. Nemence Iriya/Asia Lembariti-Manyara Region Civil Society Organizations Network (MACSNET)

6. Bakari Bakari- KEPA

Stakeholders have commended the government for enacting the The Tanzania Extractive Industries (Transparency and Accountability) Act of 2015 and have called upon it to address some of the challenges such as the law properly addressing the issue of transfer pricing in the extractive sector and mentioning the kinds of sanctions to be given to companies involved in transfer pricing abuses.

They also advised that the law should have provisions for extractives companies to disclose all their affiliated companies. They also noted that the TEITA Act 2015 is silent on the explicit role of local authorities in the sector and the issue of corporate social responsibility. These were some of he issue raised during a breakfast debate organized by Policy Forum in collaboration with HakiRasilimali at New Africa Hotel on 24th February 2017.

Moreover, stakeholders recommended for a revenue tracking mechanism to be put in place that ensures that all income generated from the extractive sector benefits Tanzanians and information relating to the sector such as reports should be popularized in a friendly manner for the accessibility of ordinary citizens.

Ms. Alice Swai, a representative from Tanzania Extractive Industry Transparency Initiative (TEITI) Secretariat, said Tanzania is among the  countries which have legislated the Extractive Industry Transparency Initiative (EITI), a renowned extractive industry standard in the world geared towards promoting material information disclosure on the legal payments that extractive companies contribute to the government’s revenues.

In the discussion, Ms. Swai mentioned some of the objectives of the law as being  legislating  the EITI and  provide legal mandate for  TEITA Committee as an independent government entity, to improve transparency in the management of extractive sector, to strengthen the level of accountability in extractive companies and government entities and  to ensure compliance from reporting entities and adherence to EITI Standard.

During its one year of implementation among other things, she said the Act has managed to enhance reliability of data for extractive sector regarding payment, revenues, production, legal and fiscal regime, disclosure of names and shareholders who owns shares in mining, oil and gas companies, accessibility and reliability of data through the website, preparation to disclosure of contracts (MDAs and PSAs), increase of public debate and reporting in conformity to the global EITI Standard.

The Executive Director of Lawyers Environmental Action Team (LEAT), Dr. Rugemeleza Nshala,  however, challenged how the Act was passed by the members of parliament under the Certificate of Urgency which he said denied enough time for stakeholders to input in the law. Commenting on this, Hon. Cosato Chumi (MP) said as MPs they require a lot of information from stakeholders so that they come up with laws that are favorable to the public.

Mr. Simon Shayo, the Vice President of Geita Gold Mine said that in its one year of implementation, the law has created an obligatory environment under which companies, the government and other stakeholders are to report on their revenues to the public.

Policy Forum holds the People and Policy Debates on the last Friday of the month to broaden public understanding and debate on a topical policy issue. Issues chosen for the breakfast debates are wide-ranging and speakers are drawn from the public sector, academia, civil society, donor agencies and the private sector, and the talks are open to the public and attended by interested individuals and professionals.

 

 

 

We, representatives of over 450 members of faith-based organisations, civil society organisations, community based organisations, Pan African networks and organisations, labour movements, women movements, human rights activists, media, students from African countries and our international partners met on February 6–8, 2017 in Cape Town to share experience, lessons and deliberate on the role and the impacts of extractives on communities, national economies, the environment and society at large. To read more click here.

Stakeholders have called upon the government to resort to the creation of agro-processing businesses and rural  agro -based  industries as a means of increasing revenues and reducing import bills through value addition. This call was made during the Policy Forum breakfast debate held on 27th January 2017, Dar es Salaam

Presenting a topic entitled “Revenues from the Agricultural Sector: How much is Tanzania Losing from the Sector?”, Mr. Audax Rukonge, the Executive Director of ANSAF said that most of the crops in the country are marketed in their raw  forms,  losing   opportunities    for   higher   earnings   and   employment creation. He said, Tanzanian processing capacity has remained very low, compared to its neighboring countries – such as Mozambique and Kenya because the country has not invested much in the sector in terms of production and productivity.

Rukonge said an average of 85% of cashew nuts produced in the country is exported as raw materials denying the country huge amount of revenue and other benefits because of its contribution to episodes of global supply shortages and strong swings in prices. Export from the sector contributes to an average annual loss of over USD 110 million, which could have been directed to building enough cashew nut factories to process the entire Tanzania cashew crops.

Tanzania loses a lot of its other revenues through the sugarcane, sunflower, hides and skin and livestock industry, Rukonge added. He therefore highlighted some key recommendations to address this as maintaining the checks and balances between the imports and exports of various commodities and supporting  both farmers and processors access to credit, equipping them with management skills and technical expertise to enhance production and productivity.

Mr. Godfrey Kirenga, CEO of Southern Agricultural Growth Corridor of Tanzania (SAGCOT) called on  the government to develop an industry that is competitive in the world market through supporting local agricultural industries/farmers.

Related to this call, the Executive Director of Tanzania Private Sector Foundation (TPSF) - Godfrey Simbeye pointed out that in order to ensure value addition so that agricultural products generate more income to the nation, the government should opt to address the issue of Value Added Tax (VAT) on the products locally produced.

During the plenary participants were of the view that resorting to agro processing will also mean supporting President Dr. John Pombe Magufuli in his industrialization agenda  and the Second Five  Year  Development  Plan  2016/17-  2020/21 which has the theme entitled  “Nurturing  Industrialization  for  Economic  Transformation  and  Human  Development” with  the  main  objective  of  enhancing  the  pace  of  progress  towards  the  Tanzania  Development  Vision  2025.

The debate offered opportunity to revisit the government’s Agricultural Marketing Policy that was issued through the Ministry of Industry, Trade and Marketing in 2008 to promote value addition in agricultural produce and address the challenges of crops in the country being marketed in their raw forms. The systemic issues highlighted during the event are expected to feature in future stakeholder dialogues to ensure the potential of agro processing to increase earnings through value addition is realized and that rural communities are offered moe employment opportunities.

Policy Forum holds the People and Policy Debates on the last Friday of the month to broaden public understanding and debate on a topical policy issue. Issues chosen for the breakfast debates are wide-ranging and speakers are drawn from the public sector, academia, civil society, donor agencies and the private sector, and the talks are open to the public and attended by interested individuals and professionals.

The 2016/2017 edition of the Citizens’ Budget intends to provide a simple and clear overview of 2016/17 Government Budget in a more transparent manner, as it was for the previous editions1. Essentially, Government Budget is the annual estimates of revenue and expenses prepared by Government. It is a fundamental tool that the Government uses to translate its policy decisions into actions politically, socially and economically. Furthermore, it is a document that reveals how the government plans to collect revenues through different sources and spend the collected revenues basing on priorities in that particular financial year. To read more please click here.

Kindly be informed that Policy Forum Secretariat office will be closed for Christmas and New Year Holiday from 21st  December 2016 to 9th January 2017.

The office will be opened and resume its regular activities and operations on Monday 9th January 2016.               

We apologize in advance for any inconvenience that this may cause.                         

We encourage you all to send us any pressing/urgent matters to the PF Secretariat Office by end day today (Tuesday evening) by email (info@policyforum.or.tz), phone:  +255 22 2780200

All other matters will be addressed when our office will be re-opened.

We would like to wish a Happy Holiday Season to you all.

Tax avoidance is one of the biggest economic issues of our time. According to International Monetary Fund (IMF), developing countries currently lose $ 100- $ 300 billion of tax revenue through tax avoidance. One among many reasons for such a problem is inefficient taxation of extractive activities and the inability to fight abuses of transfer pricing by multinational enterprises. This was said in Dar es Salaam in the last breakfast debate of Policy Forum (PF) slated for November 25, 2016.

The debate focused on the presentation titled The Implementation of Transfer Pricing Rules in the Extractive Industry in Tanzania: Highlights from 2015 Natural Resource Governance Institute (NRGI) study presented by Thomas Scurfield.

According to Scurfield, transfer pricing is the price of a transaction between two entities that are part of the same group of companies. For example, a South Africa-based company might sell mining equipment and machinery to its Ghana-based subsidiary. The price agreed is the “transfer price.” The process for setting it is referred to as “transfer pricing.” The difficulty in monitoring and taxing such transactions is that they do not take place on an open market.

A commercial transaction between two independent companies in a competitive market should reflect the best option for both companies; two affiliated companies are more likely to make transactions in the best interest of their global parent corporation.

Presenting the results of the qualitative study on the challenges to implementation of transfer pricing rules in the extractive sector done in Ghana, Tanzania, Guinea, Zambia, and Sierra Leone, Scurfield explained that 75 interviews with government officials, companies, civil societies (CSOs) and non-governmental organizations (NGOs) were conducted.

Statistics of the report shows that governments in Africa depend much on goods and services as its tax revenue source which accounted for 33% followed by corporate income tax with 30%. Personal income tax indicates 20% and 10% of tax revenue is collected from international trade. Tax revenue collection from other sources is only 7%.

The study found numerous weaknesses/challenges in transfer pricing enforcement in Tanzania extractive sector. The challenges were grouped in three categories as: Legal Framework, Administrative Arrangements and knowledge and skills.

Legal framework challenges

  1. Weak transfer pricing regulations

The presenter recommended Ministry of Finance to amend the transfer pricing regulations to state whether Organization for Economic Cooperation and Development (OECD) or UN guidance should be followed where inconsistencies arise regarding interpretation of the regulations.

  1. Hedging losses

The Ministry of Finance was recommended to introduce separate tax treatment of hedging to limit the risk that extractive companies engage in abusive hedging to offset income.

  1. Cost of debt is not subject to limitation

The Ministry of Finance was recommended to introduce a rule to limit deductibility as a function of company’s earnings.

Administrative Arrangements

  1. Poor coordination between Tanzania Petroleum Development Corporation (TPDC) and Tanzania Revenue Authority (TRA)

The government was recommended to improve cooperation between the extractive industry regulators and the TRA by establishing a formal inter-agency coordination mechanism to oversee tax and revenue collection.

  1. No integrated, automatically accessible database for all extractive industry information

The Ministry of Finance and Ministry of energy and Mineral Development were recommended to develop an online information-sharing platform where all information concerning exploration, development and production of mineral and petroleum resources is made automatically available to TRA.

Knowledge and Skills

  1. Limited industry expertise

The presenter emphasized that limited extractive industry expertise may be used as a reason to avoid investigating taxpayers. Scurfield recommended the government and international partners to ensure that TRA officials especially from International Tax Unit (ITU) receives specialized training on transfer pricing as it relates to the extractive sector, as well as further capacity building on taxation of extractive industries generally. This will equip the ITU with the expertise and confidence to conduct transfer pricing audits in the extractive industry.

Conclusively, the presenter explained that the government of Tanzania has made considerable progress towards establishing a robust transfer pricing regime. Since the introduction of transfer pricing regulations in 2014, the ITU has completed five transfer pricing audits amounting to TZS232 billion in tax adjustments. Consequently, the ITU is in high demand not just from the Large Tax payers Office (LTO) but the rest of the TRA to investigate transfer pricing issues in relation to a range of taxpayers.

The mining industry in Tanzania has failed to deliver on its promises to transform the economy and develop the country. This is largely due to generous tax incentives and weak governance structures, often reinforced by political corruption.

Discussing the presentation, Ted Frank Silkiluwasha a Principal Tax Investigation Officer from TRA gave experience on how multinational companies are conducting transfer pricing. He further explained that some policies in the country are limiting TRA to stretch its arms to collect essential tax revenue related information. For instance some of the contacts are confidential.

Some policies are also limiting the locals to benefit from international companies. For instance some companies are importing materials/goods from abroad instead of buying materials/goods from the country.

He insisted the CSOs to pressurize the government to change or improve the rules and policies since they give loopholes which multinational companies use to avoid tax and also conduct transfer pricing.

 

 

 

 

 

 

 

 

 

 

 

Kindly be informed that Policy Forum offices will be closed from Monday November 5th to Thursday  8th December for our Annual Retreat 2016.

The office will be opened and resume its regular activities and operations on Tuesday,13th December 2016.

We apologize in advance for any inconvenience that this may cause.

We encourage you all to send us any pressing/urgent matters to the PF Secretariat Office via +255 782 317434. All other matters will be addressed when our offices re-open on 13 December, 2016

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