Members of parliament have blamed poor business environment as the main contributor to the increasing tax exemptions which reached over 1.0trn/- for the year 2011/12, in bid to attract foreign investors.
The lawmakers said that if the government improves the business environment such as roads, reliable power, railways there will be no need for it to provide such a wide range of tax incentives.
They were contributing to the report titled “Tax Competition in East Africa: A race to the Bottom? Presented by Policy Forum to the members of African Parliamentarians Network Against Corruption (APNAC) –Tanzania Chapter in a meeting here yesterday.
Ilemela Member of Parliament Ezekiel Wenje said that poor business environment is one of the main problems that cause tax competition to be stiff among the East African member states.
He said the country’s poor infrastructure such as roads and unreliable power are important factors for investment. He also cited a private airline Precision Air, saying that it purchases jet fuel in Kenya because it is cheaper than in Tanzania.
“If the service industry in Tanzania is improved there will be no need of providing a wide range of tax incentives…sometimes the government decides to provide incentives to business due to poor environment,” Wenje said.
Kigoma- South legislator David Kafulila (NCCR-Mageuzi) said it is high time the country formed a budget committee to increase financial accountability instead of leaving everything to the finance minister, saying the system is applied in other countries.
Kafulila said tax exemption in Kenya and Uganda is 1 percent of the Gross Domestic Product, Rwanda 0.4 percent while for Tanzania it ranges between 3 to 4.8 percent.
He urged Policy Forum to establish a system of meeting with the members of finance and economy parliamentary committee to present their findings so that they can be incorporated into the budget.
Busega MP Dr Titus Kimani called on the government to look into the possibility of reducing taxes which caused many to find ways to evade paying them.
He said many investors evade taxes because one business can be associated with payment of taxes to more than one institution discouraging investors from complying.
Igalula legislator Athuman Mfutakamba called for harmonisation of taxes for EAC member states which benefit from Lake Victoria resources so as to enable the country get revenue.
Presenting the report to the MPs, a Lecturer with Mzumbe University –Dar es Salaam branch and Economic Consultant Dr Honest Ngowi said the tax incentives led to revenue losses and may not necessarily be needed to attract and retain Foreign Direct Investments.
He said the presence of tax holidays has enabled a number of firms, notably mining companies, manufacturing and processing firms, hotels and tourist lodges to effectively escape taxation.
He said according to the available estimates revenue losses from all tax exemptions and incentives may be as high as 1.8trn/- in 2008 and that the minimum revenue loss from tax incentives granted to companies alone is 381bn/- a year for the years 2008/09 to 2009/10.
“Due to the exemptions the country is being deprived of the badly needed financial resources for financing public expenditure of goods and services both in the development and recurrent budget. These are resources that if collected could contribute substantially to reduce the number of 36 percent of Tanzanians living below poverty line,” Dr Ngowi said.
The report recommended that the government should remove some tax incentives granted to attract and retain FDIs especially those provided to the mining sector, Export Processing Zones, and Special Economic Zones and be responsible and accountable to the public in all matters related to granting of tax incentives and exemptions.