Tanzania examines its tax exemptions

From the Financial Times:

"The government in Dar es Salaam has set itself the goal of reducing the tax incentives it offered to companies to below 1 per cent of its national output. It is a big call, given in the past two years it doubled to 4.3 per cent of gross domestic product, or $1.1bn."

Should countries like Tanzania be giving tax exemptions? Well, the Tanzania Revenue Authority doesn't seem to think so. Still, from the FT article:

“Most countries including Tanzania [have] had little to show in exchange for the incentives offered,” the Tanzania Revenue Authority said in a presentation this year and it argued that tax exemptions do not top the list of reasons why companies invest in the country.

“When you look at the top 10 reasons given by investors as enabling factors you find they mention things like rule of law, human resources capacity, infrastructure and so many other issues that are all more influential and significant than just tax incentives,” says Alvin Mosioma, director of Tax Justice Network-Africa, who is pushing for the removal of tax exemptions for Tanzania’s gold mining sector.

It seems particularly silly to provide special incentives in the natural resources sector. Those resources are in the ground, and if investors want to extract them, they will be prepared to pay high tax rates. Some established oil producing countries levy effective marginal tax rates of 90 percent and more - and still find that the investors are scrambling to get a piece of the lucrative action. A post-tax return is, after all, still worth fighting for, even if a lot of tax has been paid.

The article also reports on some very interesting statements and work by Zitto Kabwe, Tanzania's dynamic shadow finance minister who chairs Tanzania’s parliamentary public accounts committee. We've written about him recently.