Every year Tanzania sacrifices TShs 381
billion ($141 million) to tax incentives given to companies. Worse still,
research shows that these incentives are not necessary to attract investments
to Tanzania. Government needs to remove excessive tax incentives, promote
transparency on the tax incentives they give, and coordinate with the East
African Community to avoid harmful tax competition.
A new report
by Tax Justice Network-Africa and ActionAid International shows that tax
incentives reduce revenues available to fight poverty. Tanzania’s revenue
losses from tax incentives given to companies –TShs 381 billion in 2008/09-2009/10
– could increase the national budget for education by a fifth and the health
budget by two-fifths. Removing these
incentives could raise more revenue for essential public services.
Tax incentives are granted by the
Government to businesses to attract Foreign Direct Investment (FDI). The primary beneficiaries of Tanzania’s tax exemptions
and incentives are large domestic firms and foreign multinational companies. The poor bear
the burden of the incentives as they reduce the revenue available to fund
essential public services.
What is worse, there is ample research documenting
that tax incentives are not needed to
attract FDI in countries such as Tanzania. The IMF, World Bank, OECD, UN, and African Development Bank
are among the institutions that endorse this conclusion.
The Government
has promised to review the tax incentives that they have granted, but very
little has so far been done and lack of transparency around tax incentives is
still the norm.
Tanzania’s provision of tax incentives is part of the tax competition among countries in the region.
Countries are being tempted to increase tax incentives in the belief that it
will attract FDI, creating ‘a race to
the bottom’.
Urgent action is needed to address the problem of
excessive tax incentives and harmful tax competition. The Government should:
Remove tax incentives granted to attract FDI,
especially those provided to the mining sector, EPZs and SEZs..
Promote transparency in the granting of tax
incentives by:
Undertake a review of all tax incentives, which
should be made public
During the annual budget process, provide a tax
expenditure analysis with annual figures on the
cost to the government of tax incentives and information on the
beneficiaries of such tax expenditure. This information should be made
freely available.
Promote coordination in the
EAC to address harmful tax competition