Multinational companies are under the spotlight across the world for regularly shifting funds to tax havens or low-tax countries, ostensibly to avoid paying appropriate tax dues in the territories in which they operate.The recent release of the Panama Papers, which exposed pervasive tax avoidance among the world’s elite, highlighted these practices further.
According to analysts, these suspected tax evasion and minimisation moves by the multinationals are causing governments in resource-rich developing countries like Tanzania to miss out on significant revenues from the enormous profits made by the firms which can be spent on important areas like health, education and economic development.
In an exclusive interview with The Guardian, TRA commissioner general Alphayo Kidata said while he wasn’t formally aware of tax evasion practices by multinational firms operating in the country, the complex nature of these companies’ financial set-ups made it difficult to audit their actual tax liabilities.
"We don’t have any reliable information showing large-scale tax evasion by big companies. We however appreciate that as companies grow, their tax affairs become complex, and some of them develop networks beyond borders as is the case for multinational companies,” the government's top taxman said.
“The very nature of the operations of some of these big companies, such as mining, oil and gas, telecommunications and the like, means specialized skills are required to audit them properly," he added.
"The complexities of the organizational set-up of multinationals, range of their operational coverage, complexities of their accounting methods, and interrelations with their supply sources pose a challenge for any tax administration."
The country’s biggest gold mining firm, Acacia Mining (formerly known as African Barrick Gold) was recently accused by the state-affiliated Tax Revenue Appeals Tribunal of engaging in "a sophisticated scheme of tax evasion" and ordered to pay $41.25 million in back taxes owed to TRA.
Acacia denied the allegations and said it would appeal against the tribunal’s ruling which came against the backdrop of an all-encompassing tax evasion crackdown instigated by President John Magufuli.
LARGE UNTAXED INFORMAL SECTOR
Kidata, sworn in as the new TRA boss by Magufuli in March, said the government tax agency "wants to ensure that each taxpayer, mining companies included, pay their fair share in taxes."
"We have strengthened our capacity in auditing areas which require specialized skills, including mining, oil and gas. In addition, we intend to establish a specialized taxation regime for the extractive sector," he said, citing a partnership agreement between TRA and its Norwegian counterpart agency on the matter.
He acknowledged that local mining companies were not paying proper taxes in the past due to legal and administrative weaknesses, saying:
"It is true that for quite a long time we did not manage to collect as much as would have been expected from mining companies.
This was partly because of the tax benefits we had accorded the industry and partly due to having a limited capacity to enforce tax collection from the sector."
"The TRA has established an International Taxation Unit which has staff with specialised skills for auditing sectors of mining, oil and gas, telecommunications, financial services, construction, real estate and tourism," Kidata stated.
Tanzania is also engaging extensively with other national tax administrations in Africa and elsewhere to share experiences in international taxation, and has signed various agreements for automatic exchange of information and capacity building in the area, he added.
According to Kidata: "Equality in a tax system entails embracing fairness and equity…it requires taxpayers to contribute to government coffers in line with the ability of the taxpayer.
“It is not about paying equal, more or less amounts in taxes, it is about paying your fair share.”
He said in addition to the introduction of electronic fiscal devices (EFDs), more plans are in the pipeline to formalise the country’s large, untaxed informal sector.
Although it is a requirement by law that all traders with annual turnovers exceeding 14 million/- must acquire and use EFD machines effectively in their daily transactions, there is still limited use of the devices, the TRA boss said.
"A large number of taxpayers have not installed the (EFD) machines and those who have them in place are using them sparingly," Kidata said, adding:
"The non-issuance of fiscalised receipts remains a problem. Traders are reluctant to issue receipts, while buyers buy without demanding receipts from sellers. This undermines the gains that are expected from these important compliance tools."
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