Multinationals are avoiding paying Tanzanian tax by using tax havens, damaging the country’s economy, while investment treaties need revising, parliamentary committee says

DAR ES SALAAM (Thomson Reuters Foundation) — The Tanzanian parliament, eager to curb a rising tide of corporate tax evasion and avoidance, has launched an inquiry into the extent of illicit financial transfers in Tanzania and ways to stop the flow.

The probe follows a parliamentary declaration last year that called on the government to investigate individuals suspected of stashing away ill-gotten wealth in offshore bank accounts.

Zitto Kabwe, chairman of the parliamentary committee on public accounts, has said Tanzania is losing about $1.25 billion a year in revenue – equivalent to five percent of its gross domestic product (GDP) – through corporate tax avoidance, evasion and corruption.

The money Tanzania loses through these “illicit transfers” would have a significant impact on the economy, especially if spent on improving infrastructure, education and health services, he told a recent conference in Dar es Salaam.

Tanzania was losing enormous revenues due to ‘bad’ contracts, said Kabwe, as he presented a paper called 'Curbing illicit financial transfer: a role for parliaments' at the conference organised by the Tanzania Policy Forum and the Financial Transparency Coalition.

The outflow stems partly from bilateral investment treaties Tanzania signed with other countries up to half a century ago when it was newly independent and had little experience of government or finance, he said.

Some of the biggest multinationals operating in Tanzania aggressively avoid paying tax there by using tax havens such as Luxembourg and the Netherlands, he added. Several of them are registered in London.

“Tanzania has agreements with more than 19 countries, some of them very old. With the United Kingdom, (we agreed) a tax treaty and investment treaty in 1963. We only had 12 graduates. Part of the campaign should be to review all these agreements,” said Kabwe, whose committee will present its report in February next year.

AGGRESSIVE TAX EVASION

Seven of Tanzania’s top 10 taxpayers in the extractive and communications sectors use tax havens to the detriment of the country’s economy, he said. Two of the three largest mobile phone companies in the country are registered in the tax havens of the Netherlands and Luxembourg, costing Tanzania a large amount of revenue.

In a letter to British Prime Minister David Cameron in June this year before a summit of the Group of Eight most developed economies hosted by Cameron in Northern Ireland, Kabwe urged global leaders to intervene over what he called the aggressive tax evasion and avoidance carried out by multinational companies, most of them registered in the United Kingdom.

“This is a constant challenge for our country – a challenge that undermines the same foundation of accountability that we are striving to strengthen and uphold,” wrote Kabwe, who is also deputy leader of the opposition in parliament.

Africa lost between $597 billion and $1.4 trillion in net resource transfers away from the continent between 1980 and 2009, according to a joint report issued in May by Global Financial Integrity and the African Development Bank.

The data shows that the outflow – the proceeds of bribery, theft, kickbacks and tax evasion and avoidance – far exceeded the roughly $80 billion that flowed into Africa in combined Foreign Direct Investment and aid.

Some experts argue that Africa is a net creditor to the world as there is more African money stashed in offshore bank accounts and tax havens than the total of Africa’s foreign debt.

“It is hard to overstate the urgency of this issue. A large number of African countries are now on the point of issuing new licences for the exploration of significant oil, gas and mineral reserves,” said Semkae Kilonzo of the Policy Forum, a think-tank.

The extractive industries sector is central to the illicit outflows of money from Africa, according to Kabwe.

Africa lacks a mechanism to enforce standards of rules to combat money laundering and tax evasion in eastern and southern Africa, said a Financial Transparency Coalition (FTC) press statement.

“The encouraging thing is, we have a real opportunity to introduce new policies that will significantly reduce the profound damage corruption and aggressive tax avoidance inflict on hundreds of millions of people.” said FTC Manager Porter McConnell.

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