New commitments on financing for development are being negotiated in July in Addis Ababa at the Third Financing for Development Conference (FfD3). Tax and domestic resource mobilization have been placed in a central role in the negotiations. In order to increase domestic revenue, illicit financial flows and harmful tax practices have to be tackled.
In February 2015 President Kikwete adopted the African Union High Level Panel (HLP) report on Illicit Financial Flows from Africa. Among the various commitments are robust regulations, increased resources, capacity and transparency and curbing harmful tax incentives to foreign investors.The HLP report estimated that Sub-Saharan Africa loses more than 50 billion dollars annually (average of 2001-2012). This is more than the combined total of foreign direct investment (FDI) and net official development assistance (ODA), which these economies received in the same period.
The budget proposal for 2015/2016 does not take into account the revenue losses that are caused by various factors such as illicit capital flight as well as tax evasion and avoidance. For example Global Financial Integrity has estimated that Tanzania lost 2.5 billion euros in 2002-2011 only due to trade and transfer mispricing by multinational companies.
The 2015/16 budget is pegged at Tshs 22.48 trillion from Sh19.8 trillion for the year 2014/15: an increase of 15%. This move by the government is welcome and commendable. The biggest challenge with the endeavor, however, is whether the government will be able to collect these revenues adequately.
Recognizing this challenge and the adverse effects of these critical issues in Tanzania, we encourage the Government to support the following positions at the FfD3 conference in Addis Ababa:
- Support the establishment of an intergovernmental tax body that is tasked with addressing global tax policy, rather than the current Organization for Economic Cooperation and Development (OECD) led process that does not equally include all countries, including Tanzania. The decision about the tax body should be made during the High Level Meeting in Addis Ababa and not be postponed to a later moment, because otherwise countries are going into the Sustainable Development Goals Summit in New York in September without significant progress.
- End harmful tax incentives nationally, regionally and globally. Multinational companies are receiving too extensive tax exemptions and not paying their fair share of tax while citizens are bearing a disproportionate tax burden due to an over reliance on consumption taxes in revenue collection such as Value Added Tax (VAT) and Pay As You Earn (PAYE). Restrain from further developing Economic Free Zones.
- End harmful tax treaties that limit the ability of Tanzania to raise revenue to fund quality public service delivery. Tax treaties are intended to prevent multinational companies and individuals from paying tax twice in two countries, but instead exploitation of these treaties with poor terms for “source countries” are leading to Tanzania potentially losing revenues.
- Increase the transparencyof the international and national tax systems. In order to regulate, monitor and increase the accountability of tax systems, multinational companies should be obliged to disclose their financial accounts annually. Tanzania should also promote country by country reporting of all Multinational companies. Up to date information about national revenue income should be available to the public at relevant public authorities. Additionally, the government should establish public register of beneficial ownership of companies operating in the country.
- Increase the resources of revenue authorities to oversee and collect revenue from multinational companies.
- Review regressive tax policies, such as indirect taxes, to address inequalities. Taxation reform should mobilize additional and sufficient resources to comply with States’ obligations to commit the maximum available resources to fulfilling human rights.
PF Budget Working Group & Tanzania Tax Justice Coalition