How will the South African 2019 Proposed Financing Provisioning Regulations affect mining companies? *

As East African Countries grapple on how best to manage environmental payments for compensation and rehabilitation of decommissioned mining sites, the new legal regime in South Africa could be a development to watch as it provides some drastic measures that have sent shockwaves with in the mining fraternity as reported by Ensight Africa, Online tax bulletin.

By Edwin Berman, Ntsiki Adonis-Kgame and Zinzi Lawrence, Ensight Africa Online Tax Newsletter

In May 2019, the South African Proposed Regulations Pertaining to the Financial Provision for the Rehabilitation and Remediation of Environmental Damage caused by Reconnaissance, Prospecting, Exploration, Mining or Production Operations, 2019 (the “2019 Regulations”) were released for public comment. The 2019 Regulations are informed by industry consultation; however, they still fail to address some of the serious concerns raised by the mining industry and introduce new onerous provisions.

The first attempt at regulating financial provision for costs associated with the remediation and rehabilitation of impacts to the environment associated with mining activities, was through the Financial Provisioning Regulations, 2015 (the “2015 Regulations”). Following an outcry from the mining industry, the 2015 Regulations were amended on 26 October 2016. Since then, two iterations of the financial provision regulations (2017 and 2019) which sought to repeal the 2015 Regulations, have been published.

Some of the effects of the 2019 Regulations on mining companies are the following:

Applicants and holders

Applicants and holders of reconnaissance permits will be required to provide financial provision for rehabilitation. By definition, reconnaissance permits, as contemplated in the Mineral and Petroleum Resources Development Act, 2002, involve non-invasive work and therefore do not lead to environmental harm. Accordingly, there is no basis for requiring holders of reconnaissance permits to make financial provision.

Double provisioning

Regulation 7(3) provides that “funds set aside for financial provision must remain in place until a closure certificate is issued, unless a withdrawal as contemplated in regulation 11 is allowed”. Regulation 11 outlines the procedure for holders to follow when seeking to withdraw financial provision, and provides that the Minister of Minerals and Energy (“Minister”) must approve withdrawals with the concurrence of the Ministers of Human Settlements, Water and Sanitation and of Finance. The withdrawal of financial provision can only occur after the stringent requirements stipulated in regulation 11 are met and are only allowed for decommissioning and final closure and not for ongoing or concurrent rehabilitation.

Since the financial provision is not accessible to the holder for use during the life of the right, the holder has to effectively make double provision (the first being financial provision and the second being actual expenditure incurred for rehabilitation). The implications of regulation 7(3), read with regulation 11, is that there will be a rise in the cost of mining.

Auditing and specialist reviews

Regulation 12(2) prescribes that the determination, review and assessment of financial provision must be undertaken by a specialist. Regulation 13(1)(a) requires that the assessment undertaken by a specialist must be audited by an independent auditor, included in an environmental audit report and must be submitted for approval to the minister. This however places an extraordinarily administrative and cost burden on the industry, more so on junior mining companies.

Value-added tax

Another onerous provision introduced in the 2019 Regulations is the inclusion of value-added tax (“VAT”) in the financial provision calculation. Expanding money for rehabilitation is not a vatable supply as contemplated in the VAT Act, 1991. Inevitably, this will result in a further increased cost of mining in addition to the issues of duplicate funding/double provisioning and the burden of auditing discussed above.

Date of compliance

Holders of prospecting rights and mining rights or permits, who applied for the right or permit prior to 20 November 2015, will be required to comply with the new regulations no later than three months following the first financial year end of the holder post 19 February 2020. Given that the due date for submission of comments to the 2019 Regulations was 1 July 2019, the 2019 Regulations are most likely to be finalised later this year, giving holders insufficient time to comply with the 2019 Regulations. Current financial provision quantum calculations for holders would need to be revised in accordance with the new methodology and this would require existing holders to fund the increased financial provision. Practically, most mining companies will encounter difficulties with complying within the contemplated compliance date.

Penalties and offences

The 2019 Regulations have increased the number of offences tha are punishable, by a penalty of up to ZARR10-million, or up to 10 years imprisonment, or both a fine and imprisonment. The offences include inter alia, the failure to provide funds for annual rehabilitation from the operational budget and set aside funds for financial provision; the failure to provide funds using one of the agreed vehicles and failure to make reviews and decisions accessible to the public.

*This article first appeared in ENSAfrica ENsight Africa online tax bulletin

Basic understanding of Tax justice and illicit financial flows in extractive sector

Basic understanding of Tax justice and illicit financial flows in extractive sector

By Moses Kulaba, Governance and economic analysis centre, Dar es Salaam-Tanzania

The call for tax justice has in recent years gained credence as alarming evidence now shows that while ordinary tax payers are sinking under the burden of taxation on the other hand,  multibillion profiteering corporate and well connected individuals use both illegal (illicit) and deemed appropriate means to dodge taxes and shift their profits and financial proceeds   outside the country and the African continent to other destinations and largely low tax jurisdictions. The amounts moved out of less developed countries and the African continent is estimated in billions of United States dollars. The extractive sector is evidently of one of the major conduits of this illicit game of sorts and hence the focus on illicit financial flows as a subject in the extractive sector makes sense.

This policy brief highlights the basic concepts and practice of this increasing murky subject and the relevancy of   talking about tax justice and tax dogging in the Extractive Sector with various stakeholders such as professionals and students in higher institutions of learning. Students in higher institutions are a critical nexus in defining the current and future landscape of fiscal policy, taxation, tax justice and curbing illicit capital flight from Tanzania and the African continent as a whole. They are;

  • Citizens and have a right to know the intricacies of taxation, dodging tax and development
  • Scholars and Researchers
  • Future politicians and leaders
  • Future policy and decision Makers
  • Future Government Negotiators
  • Future Corporate professional and executives
  • Future Civil Society Activists, Community and Development workers

In simple terms, the future lies in the present!

Taxation and tax justice

A tax is a compulsory imposition of the state on its citizens. The tenor of Tax Justice is that everyone should pay a fair amount of tax so that the government can be able to finance or provide social, public and development needs for its citizens.

Taxation and a strong tax system may contribute to improved governance through 3 maximum channels. Taxation establishes a fiscal social contract between citizens and the taxing state. Tax payers have a legitimate cause to expect something in return for paying taxes and are more likely to hold their governments to account. Governments have a stronger incentive to promote economic growth when they are dependent on taxes.

The major concern from a tax justice point of view is that in recent times, it is evident that those who are able and should pay more are paying less or none while poor and less privileged carry a big burden through payment of various direct and indirect taxes like VAT which are regressive and unfair in nature

In this case, the concern is that available data shows that Corporate persons in the extractive and telecommunications sector dodge paying taxes by enjoying generous tax exemptions and by engaging in tax planning , tax avoidance, outright tax evasion and moving their proceeds out of the country or African continent where its generated to low or zero tax jurisdictions through illicit or deemed legal means.

These illegal movement of tax proceed and capital from one jurisdiction to another is what has been described as Illicit Financial Flight (IFF). According to reports, IFFs typically originates from three sources: Commercial tax evasion (trade mis-invoicing and abusive transfer pricing); criminal activities (including drug trade, human trafficking, and illegal arms dealing, smuggling of contraband; bribery and theft by corrupt government officials.

According to experts (Ndikumana, Boyce and Ndiaye 2015), Africa’s high level of poverty has been aggravated by the high level of capital flight. As a consequence of IFFs, tax revenue collection is low, social delivery has remained poor and development agenda are stagnating in most poor countries where it occurs

Tanzania’s Tax Collections and tax gap 2016/17

According to Tanzania’s Revenue Authority (TRA)

  • Tax Collection of 12.6% of GDP (Tsh15.1Trillion) was envisaged in 2016/17
  • However, proportion of GDP collected has not increased
  • Tanzania’s tax revenues are also low compared to international standards
  • Tax to GDP ratio is 11.9% below the EAC standards which is at 13.1% to 14.7%
  • The current tax to GDP ratio of 12% is far below the targeted mark of 20% by
  • PAYE  and VAT as largest contributors

Illicit capital flight or Illicit Financial Flows (IFF)

Illicit or illegal Capital flight is the transfer of assets abroad in order to reduce loss of principal, loss of return, or loss of control over one’s financial wealth due to government-sanctioned activities”

  • Also referred to as movement of resources from one jurisdiction to another through illegal means.
  • Legal means are supported by the law or through tax avoidance measures which are used to exploit the weaknesses and lacunas within the tax laws
  • Illicit flows take place through transfer mis pricing, tax scheming, illicit profit repatriation, tax dodging and money laundering.
  • In Tanzania capital flight was reported to be taking place through both legal and illegal means

Statistics of Illicit Financial Flows from Tanzania

  • According to existing studies, it is estimated that Tanzania loses USD1.83Bln (Tsh4.09Trillion) every year from tax incentives, illicit capital flight, failure to tax informal sector and other forms of evasion. This figure is an estimate and yet to be confirmed by the Tanzanian government which commissioned its own independent study.
  • If estimated loss was collected, it would triple government budget on health and nearly double spending on education.
  • Global Financial Integrity (GFI) estimates, USD7.73bln lost from Tanzania illegally in the past five years as a result of trade –mis-invoicing
  • At corporate rate of 30% Tanzania could have lost an average of USD464Mln annually

Statistics of Illicit Financial Flows in Extractive Sector

  • Export revenue from mining increased from 16% in 2013 to 26% in 2015 due to increase in taxes paid by companies. However, this is still low compared to an average 30% for other Countries such as South Africa.
  • TMAA Audit showed Mining (Including Construction) had not paid up to USD688Mln worth of taxes between 2013-2015. An average of USD229Mln annually is not paid
  • This figure has since increased as per the estimates made by the Presidential Commission reports (Dr Osoro report).

Some statistics on Gold mining and Resource leakage in Tanzania in 1998-2005

According to available study reports

  • Gold worth more than USD 2.54bln was exported between 1998-2005
  • Only USD 28mln received in Royalties and taxes
  • This was equivalent to only 10% over a 9-year period
  • The 3 % royalty charged then brought government only an average USD 17mln a year in recent years
  • Cumulatively, USD 26.5mln lost in excessive low rate, government tax concession
  • In 2005 at least 400,000 small artisan miners were unemployed since 1998 when they were evicted from the mining areas and therefore denying government billions in tax revenue.

Consequences of extractive resource leakage and development potential

  • According to the UNDP and World Bank measure of poverty and development standards, Tanzania is still among the poorest Countries in the world. At least 12mln out of 39mln live in abject poverty. Yet, Tanzania processes around 45mln ounces of Gold.  At current prices, Tanzania has a fortune of USD39bln. If well, harnessed Tanzania would be compelled to a middle-income country within less than 10 years.

Vents for extractive resource leakage

  • As per the Mining Act of 2010, mining companies offset 100% after their capital expenditure
  • 100% ownership of Gold mining Companies
  • Mining dominated by two foreign mining companies-Barrick Gold and Anglo Gold Ashanti
  • In 2005-AGA paid USD144mln in Royalties
  • It sold gold worth USD 1.55bln, paid only 9% royalty
  • Barrick Gold paid only 13% of its export. No accurate data on total exports was available
  • The Parliamentary Accounts (PAC) reported in 2007, both companies declared losses worth USD1.045bln. Tanzania Extractive Industries Transparency Initiative (TEITI) reconciliation reports also indicate that Barrick has persistently reported loses and never paid corporate tax
  • Yet, a leaked ASA tax audit report indicated companies overstated losses by USD502mln between 1999-2003
  • Government thus lost revenues worth USD132.3mln between that period alone.

Tanzania’s tax incentive regime as at 2017

  • Non tax incentives include
  • immigration quotas on employment of foreign staff,
  • guaranteed transfer of net profits or dividends of the investments,
  • payment in respect of foreign loans, remittance of proceeds net of all taxes and other obligations, royalties, fees and other charges on emoluments and other benefits to foreign personnel
  • Under mining Act , 2010, Royalty of 3% execpt for diamonds which is 5% & 12.5% for petroleum
  • No tax, duty, fee or other fiscal impost on dividends
  • No capital gain tax
  • No windfall tax
  • Losses carried forward for unrestricted period
  • Duty rate at 5% and VAT charged after 5 years of commercial production
  • Yearly appreciation  of unrecovered capital in investment, exploration, prospecting, mineral assaying, drilling or mining company of goods, imported are eligible from duty under customs law
  • Services  for exclusive use in exploration, prospecting, drilling or mining activities
  • Zero rating of all capital goods, spare parts, fuel, oils together with explosives
  • Corporate tax of 30% and capital allowance of 50% on  Y1 of income
  • All capital expended on  prospecting and mining is expended
  • 100% transferability of  profits  to foreign accounts

Major strategies for facilitating illicit financial flows in Extractive Sector

Tax Base Erosion and Profit Shifting (BEPS)

  • Collective tax planning strategies used by multinational companies that exploit gaps and maximizes in tax rules to artificially reduce its tax base or obligations by shifting profits to low or no tax locations where there is little or no economic activity. In 2012 the OECD Countries initiated collective efforts to tackle concerns over BEPS and perceived international tax systems facilitating tax avoidance (BEPS project and action plan).

Tax avoidance

  • Tax ‘avoidance’ constitutes an ‘arrangement of tax payer’s affairs that is intended to reduce his ability and that although the arrangement could be strictly legal it is usually in contradiction with the intent of the law it purports to follow’
  • Justice Reddy in Mc Dowell & Co. Ltd Vs CTO 154 ITR 148 (19985) India, has defined tax avoidance as ‘the art of dodging tax without breaking the law. It is the avoidance of tax payment without the avoidance of tax liability.
  • Tax avoidance simply involves structuring your affairs legally so that you are paying less tax than you might otherwise pay. It could involve exploiting lacunas with the law to ones advantage.

Tax Evasion

  • Tax evasion can be defined as a deliberate measure to escape one’s tax obligation through illegal means
  • tax evasion is also defined as the illegal non payment or under payment of taxes, usually by making a false declaration or no declaration to tax authorities; it entails criminal or civil legal penalties
  • Tax ‘evasion’ involves ‘illegal arrangements through or by means of which liability to tax is hidden or ignored’ as a consequence of which “the tax payer pays less than he is legally obliged to pay by hiding income or information from the tax authorities

Tax planning

  • Tax planning’ is defined as the arrangement of a person and or private affairs in order to minimise tax liability
  • It enables reduction in the liability through the movement or non movement of person, transaction or funds or other activities that are intended by the legislation
  • There is also something called as ‘aggressive Tax planning’ which is the severest form of tax planning -illegal

Differences and similarities of Tax Evasion and Tax planning

Tax Evasion

Tax Avoidance

A deliberate refusal to pay a tax

Exploitation of the weakness in the low to pay less or nothing at all

Clearly illegal

Appears to be legal

Similarities

Thin line exists between the two and quite often all use to achieve the same goal-minimal or none payment of the tax

Both are unethical in the face of tax Justice

Overlap between tax evasion, avoidance and tax planning

How is tax evasion

  • Failure by a taxable person to notify of a tax authority of a presence of its operations, if they are taxable operations,
  • Failure to report full amounts of taxable income, deduction claims for expenses that have not been incurred or which exceed the amounts incurred but not for the purposes stated,
  • Falsely claiming reliefs that are not due, for example VAT refund and exemptions
  • Failure to pay over to tax authorities’ due taxes,
  • Departure from a country leaving taxes unpaid without intention to pay and
  • Failure to report items or sources of taxable income for example profits or gains where there is an obligation to do so

Tax Avoidance measures include

  • Income splitting measures whereby incomes are shared amongst more than one tax payer for purposes of reducing tax rate or tax obligation.
  • where transactions between two related parties are inflated or fixed a Transfer pricing or mispricing measures above the average market price (arms-length) for purposes of avoiding taxes by minimising profits in a high tax location and maximising profits in a low profit location

Relevant readings

  • Marc Curtis, Tundu Lissu: A Golden Opportunity? How can Tanzania is failing to benefit from gold mining; A report for the Christian Council of Tanzania, Tanzania Episcopal Conference and the National Muslim Council of Tanzania, 2015
  • Marc Curtis, Dr Prosper Ngowi and Dr Attiya Waris: One Billion Dollar Question: How can Tanzania stop losing so much tax revenue; A report for the Christian Council of Tanzania, Tanzania Episcopal Conference and the National Muslim Council of Tanzania, 2012
  • CMI Chr Michelsen Institute: Lifting the veil of secrecy; Perspectives on international taxation and capital flight from Africa, Norway, 2017
Understanding the basics of Transfer pricing, mispricing and other aggressive tax planning measures and concepts

Understanding the basics of Transfer pricing, mispricing and other aggressive tax planning measures and concepts

By Moses Kulaba, Governance and economic analysis centre, Dar es Salaam-Tanzania

In a persistent ambition and search to maximize share vale and returns to their beneficial owners, Multinational companies use various means to gain a tax advantage. Some of these advantages are achieved by legally existing means while others such as Transfer mispricing are purposely designed to circumvent existing provision of the tax law.  As Countries grapple to increase their domestic resource mobilization, governments, policy makers and tax authorities will need to learn and adapt new techniques to debunk and disrupt the various tactics and schemes used by these MNCs. Such learning and adoption has to take place at a faster than lightning speed and gusto In less developed and resource rich countries where value and wealth is generated and sourced yet little is paid back in the form of taxes.

Transfer pricing is setting of the price for goods and services sold between controlled (or related) legal entities with an enterprise. For example, if a subsidiary company sells goods to a parent company, the cost of those goods paid by the parent is the transfer price.

Transfer price is not illegal if the goods are sold between related parties at an actual comparable price in the market (arm’s length price).  However, if the prices are distorted so as to achieve a tax advantage (by either selling below or above the market price), then transfer mispricing or aggressive transfer pricing is said to have occurred which is an illegality.

Multinationals engage in transfer mis-pricing for purposes of achieving a tax advantage by shifting profits from subsidiaries in high tax jurisdiction to low tax jurisdictions. By doing so multinationals pay less or no taxes at all in countries where they have economic activities (generate income) and should be paying taxes.

Demonstration of Transfer pricing arrangements

Figure 1: Transfer pricing arrangements of a telecommunications company-Source: http://thecastreet.com/introduction-to-transfer-pricing

From the above illustration the Company A located in India will sell goods and services worth 120 rupees to its 100% controlled subsidiary Company C located in a tax haven in Dubai and thereafter the Company C will sell to another Subsidiary B located in the US at a higher or inflated price of 130 rupees. The 30 rupees made in profit will be kept in Dubai where the pay company pays 0% tax.

Exemptions & Reliefs

Generous tax breaks and advantages given to a taxable entity for purposes of achieving a given economic or tax objective such as increasing or facilitating investment. Tanzania extends generous incentives and exemptions to foreign investment corporations.  In recent times, there is limited evidence to show that tax exemptions and reliefs are major factors influencing investor’s choice of investment destinations.  On the contrary they have been used for tax evasion by circumventing the provisions within the law

Round tripping

A self-explanatory term denoting a trip where a person or thing returns to the place where the journey began.

In illicit financing and tax evasion terms, it refers to a situation where money or income leaves the country through various channels such as inflated invoices, payments, to shell companies overseas (tax haven) etc and returns back to the same country as investment for purposes of benefiting from existing gaps and incentives within the Country’s laws.

False Declaration

A deliberate measure by a liable tax payer or corporation to under disclose or not to disclose at all the accurate taxable income or items or services for purpose of reducing the tax payers tax obligations or evading paying taxes completely. Individuals or corporations use this strategy to hide their taxable liabilities from the tax authorities.

Thin Capitalization

Thin capitalisation measures, where a company finances its operations with a high proportion of loans rather than shares and therefore reduces the business profits of its subsidiary in highly taxed jurisdiction and maximises profits via interests paid on the loan to a bank or financial institution located in a lower tax jurisdiction.

Profit laundering and re-invoicing

These methods also include profit laundering and re-invoicing measures;  a process which involves transferring profits from a territory in which they would be taxed to another in which there is either no tax or a lower tax rate or a sale to an agent based in a safe tax haven who subsequently sells on to a final purchaser.

The agent pays part of their mark-up price to the original vendor or to the purchaser, usually to an offshore account located in a secrecy jurisdiction

Use of Offshore, Secrecy Jurisdictions and Tax ‘Havens’

The use of low tax jurisdictions or tax havens has become the common strategy for hiding income from the tax authorities.

Tax havens are legal jurisdictions that offer a combination of low tax rates, limited regulations and total secrecy about ownership of registered corporations and individual assets.

In the Cayman Island there is a famous building called Ugland House, a small building, where 12,748 companies are registered and supposedly conduct their business (among them Coca Cola and Intel Corp). However, in reality these are shell companies and postal addresses and no real business activity goes on here. In a sarcastic remark of surprise, the US President Barack Obama on January 5th, 2008 said either this is the largest building in the world or the largest tax scam.

Characteristics of tax havens and examples of ‘Tax Havens’

  • Assured Total Secrecy on identity of owners, accounts and operations
  • Assured legal assistance
  • 0% Corporate tax or Low Tax rates on income
  • Financial and Auditing assistance
  • Logistics and supplies assistance
  • Human Resource Management assistance and facilitation
  • Reported Tax Havens or Secrecy Jurisdictions include:
  • Canary Islands
  • Bahrain
  • Ireland
  • Bermuda
  • Antigua
  • Bahamas
  • Panama
  • Andorra
  • British Virgin Islands
  • Jersey Island
  • The Netherlands
  • Liechtenstein
  • Isle of Man
  • Mauritius
  • Barbados
  • St Kits and Nevis
  • Guernsey
  • Cabo Verde
  • Hong Kong
  • Maldives
  • Albania
  • Brunei
  • Nauru
  • Azerbaijan
  • Monaco
  • Aruba
  • Belize
  • Curaçao
  • Armenia
  • St Vicent and Grenadines
  • Dominica
  • UAE-Dubai
  • American Samoa Islands

Selected corporations operating in Tanzania and potentially incorporated and using tax havens

Extractive Company

Country (ies) of Incorporation and Subsidiaries

Acacia Mining

Incorporated in UK. Has 3 subsidiaries in the Cayman Islands, One in Mauritius and one in Barbados

AngloGold Ashanti

Incorporated in South Africa, Has one subsidiary in the Isle of Man and One in New Jersey

Petra Diamond

Incorporated in Bermuda

Shanta Gold

Incorporated in Guernsey

Bezant Resources

Incorporated in UK. Has one subsidiary in the British Virgin Islands

Orphir Energy

Incorporated in UK, Has 24 Subsidiaries in Jersey, 14 the British Virgin Islands, 3 in Bermuda and 3 in Delaware

Stratex International

Incorporated in the UK has 100% owned subsidiaries in Switzerland and 33% owned subsidiary in Jersey

Wentworth Resources

Incorporated in Canada. Has 3 Subsidiaries in Jersey and in in Mauritius

Statoil

Incorporated in Norway, with one Subsidiary in Switzerland

Telecommunications

Bharti Airtel Tanzania

Incorporated in India. Has 25 subsidiaries in the Netherlands and one in Jersey

Milicom (Owns Tigo)

Incorporated in Luxemburg. Has 4 subsidiaries in the Netherlands

Estimated value of wealth held in Tax Havens

The actual estimates of the total size of wealth held in tax havens is not quite clear. However it is estimated that

  • The value of assets held offshore, either tax-free or subject to minimal tax, was estimated in 2015  at over US$11.5 trillion; over one-third of global GDP;
  • It is estimated Developing countries lose over $385 billion annually to tax dodging by wealthy individuals, profits laundering by companies and to untaxed activities in the grey economy
  • Recent financial leaks show that wealthy Africans hide their wealth in tax havens
  • It is estimated that USD 500 billion in financial wealth is kept offshore amounting to 30% of all the financial wealth held by Africans.
  • It is estimated that African Countries are among the fastest growing but capital flows to tax havens are one factor limiting the benefits of economic growth for ordinary Africans.

Comparison of living standards of poor families in Tanzania and the Caribbean tax havens

Examples of some documented tax planning cases reported in Tanzania

Examples of cases of Tax planning measure undertaken by companies to benefit from the various exemptions under the Investment Act and Customs and Excise Acts have been reported in Tanzania.

  • In the matter of the Commissioner General Vs Geita Gold Mining Ltd which appeared before the Tax Revenue Appeals Tribunal (Originating from Tax Revenue Appeals Board, Case No 22 and 23 of 2004, Geita Gold Mining Limited had failed to pay PAYE as required under section 41 of the Income Tax Act, 1973. In this case a TRA audit revealed that PAYE was paid as additional salary to the employees and recorded as expenses to the company and demanded it to be set off.

TRA argued such an act reduced the taxable income of the respondent and subsequently the tax paid by the company was reduced. Geita had illegally claimed expenses which it was not entitled to.

The Tax Revenue board also made reference to a provision within Geita Gold Mines’ Expatriate Conditions Terms of Service which was aimed at avoiding taxes.  Section 3.1 of the expatriate conditions terms of service stated that subject to Article 3.2 the employees offshore Salary component will paid free of local income tax into the employees nominated bank account. All other benefits may attract local taxation. The tax appeals board ruled in favour of TRA.

In 2017 there more reports of tax avoidance and evasion by the Canadian firm Barrick and its local subsidiary Acacia mining companies. The report was tabled by presidential commission appointed to investigate claims and suspicions of tax evasion by the mining firm. Following this report, the government confiscated the company’s consignment of Gold concentrates and required the firm to pay billions of dollars in accumulated tax arrears. The findings from the commission were disputed and negotiations to resolve the dispute were still ongoing

Causes or Aggravating factors for illicit Financial Flows

  • Weak legislative framework
  • Global Financial Systems which allows capital to move freely across jurisdictions
  • Poor –Interagency collaboration
  • Limited institutional capacity and technical competency
  • Corruption and poor ethical values amongst those entrusted with power and decision making
  • lack of Patriotism

Measures or initiatives that are being undertaken nationally and internationally to tackle IFFs

  • Establishment and training of international tax departments in National Tax Authorities
  • OECD- Base Erosion and Profit Shifting (BEPS) project which seeks to provide guidelines on how multinationals should conduct business abroad and requiring for mandatory disclosure and exchange of information on tax matters.
  • Advocacy for wider transparency through initiatives such as Extractive Industries Transparency Initiative (EITI) and Open Government Partnership (OGP).
  • Advocacy for governments and companies to publish what they pay and what they earn
  • Advocacy for improved reporting of corporate operations such as Country by Country reporting or Project by Project reporting of operations.

Relevant readings

  • Marc Curtis, Tundu Lissu: A Golden Opportunity? How can Tanzania is failing to benefit from gold mining; A report for the Christian Council of Tanzania, Tanzania Episcopal Conference and the National Muslim Council of Tanzania, 2015
  • Marc Curtis, Dr Prosper Ngowi and Dr Attiya Waris: One Billion Dollar Question: How can Tanzania stop losing so much tax revenue; A report for the Christian Council of Tanzania, Tanzania Episcopal Conference and the National Muslim Council of Tanzania, 2012
  • CMI Chr Michelsen Institute: Lifting the veil of secrecy; Perspectives on international taxation and capital flight from Africa, Norway, 2017
Fiscal Governance and Taxation : Latent deficits & Citizen participation

 

Tax is a block on which governments rely to finance development. Implicitly there is a social contract that exists between the citizens who pay the taxes and the government as a recipient, which spends on their behalf. Yet in reality there appears to be a gap and a none mutual accountability.

Taxes must be fair and just. There is weak citizen engagement in fiscal governance. Most citizens view fiscal governance and tax matters as complex, unfair and exploitative. They least see the relationship between taxation and development and this factor has led to low tax compliance amongst citizens. Multiple studies and surveys by Afro Barometer Survey and others reveal that citizens are willing to pay slightly more taxes if the quality of social services would be improved. Citizen apathy against taxation and affinity to evasion and avoidance is increased, with a perception that the fiscal policies are exploitative and taxes collected are not well spent.

Domestic resource mobilisation and quest for alternative development financing

Domestic resource mobilization is growing  as the best fiscal governance approach to reduce aid dependency and take full ownership of national development strategies. Overall, whilst traditional aid donors continue to be critical , foreign aid budgets have become increasingly under stress over the medium and long-term.

The search for alternative sources of development finance is  important yet constant reports show that African countries, such as Tanzania,  have been missing domestic revenue collection targets. National debts have  bludgeoned to unsustainable levels as governments seek to fill their tax holes, required to finance essential development. Tax evasion and illicit financial outflows are rampant. Reports by organizations such as the Global Financial Integrity and Tax Justice Network show massive resources lost through illicit outflows and tax dodging by multinational companies through aggressive avoidance measures such as transfer mispricing.  People’s awareness and participation in  fiscal governance is limited. Taxes are generally unfair and unjust for the poor.

The purpose of this project is to increase awareness and citizen participation in tax matters via

  • Simplified Analytical pieces on fiscal policy and Taxation
  • Strategic convenings and trainings or tax clinics
  • Local and  International advocacy for just and equitable tax policies and systems