Sunday, July 20, 2014

How FDI systems denies government with tax revenues

Tanzania government will continue losing billions of shillings as tax revenues in its coffers through trading systems which it has adopted under Foreign Direct Investments (FDI), a renowned economist has observed. Under the trading system, various international companies which come to invest in the country are entitled to free tax holidays for five years of the trading period, an aspect which the government continues to lose billions of money as tax revenues. Senior Economic Affairs of the United Nations Economic Commission for Africa (UNECA), Andrew Mold made the observation in Dar es Salaam on Tuesday this week during a dissemination seminar of the economic report on Africa 2014 which focuses on the dynamic industrial policy in the continent. The report jointly compiled by UNECA in collaboration with the African Union Commission (AUC) emphasizes the need for strong and inclusive institutions which identifies industrial policy development constraints in African continent. The report the first to be launched in the country by UNECA this year,  talks about some key important sectors of development in Africa and concludes that, poor implementation of industrial policy is a major drawback of economic development of most African countries. The report incorporates several country case studies across Africa, Tanzania included with a view to assess the critical ingredients for spurring Africa’s industrialization, innovative institutions, effective processes and flexible mechanism. During his presentations, Andrew outlined some crucial factors being the major effects of the FDI in Africa and noted that, governments which have allowed the system to operate in their countries have been losing billions of shillings notably due to poor policies which do not favour industrial production. For Tanzania he said the implementation of the policy is extremely poor. Highlighting about the FDI as detailed in the report, Andrew who was the key speaker noted that, East African countries have been having a considerable number in global FDI inflows during the last decade, with Tanzania government being the largest recipient. He noted that, about 104 foreign firms have acquired FDI opportunities since the country adopted the system over a decade ago, adding that, their number covers about 16.7 percent of all firms operating in the country. He said FDI in Africa does not provide sufficient employment opportunities to the youths as per the demand, except investors take away money and benefit own countries. In addition to that, FDI does not use the raw materials available in the country as they import all materials from their countries of origin. Speaking in support of the matter, a renowned economist and senior lecturer of economy at University of Dar es Salaam (UDSM) Professor Humphrey Mushi said that, the government need to make amendments on Investment Act of 1997 so as to save the nation from losing its capital revenue. The investment Act provides a period of five years for establishing investment project during which the projects are entitled to tax exemptions on capital goods, an aspect which he said needs to be put forward for discussion as a nation. He said offering of too much taxes to such investors, the government would not make a profit for the business invested, citing an example of changing of names of business entity. Al these he said is one way of taking a loophole to evade necessary taxes. He said in an exclusive interview that, the Act needs to be reviewed as it does not match with the current business environment under which people are trading.

Tanzania's Minister for Finance Saada Mkuya

 However, he has appreciated what the Minister for Finance Saada Mkuya has amended some of the elements within the Act. He also noted that, the amendments of the Act should also allow professional contracts on the resources to increase local content with a win-win-situation. Professor Mushi, being a professional economist noted that, if tax revenues disappear in such a dubious manner, coupled by tax exemptions, the rate at which the national debt is growing would increase at a higher pace. He further noted that, if this situation is effectively controlled, then the government would be in a position to save a lot of money and be able to engage in various development projects without depending on external aid. Discussants over the matter poured much blame to the government when the issue was put across to the audience for discussion, with some saying that, the government is not serious to defend the local resources for the future generations. Contributing on the issue, Joachim Mallya of the Private Sector Foundation noted that, as the government had made a mistake in minerals, and then he is appealing should the same mistakes occur in oil and gas again. Samson Kisore an economist noted that, lack of vision, coupled by poor leadership code the two have contribute to poor implementation of the industrial policy to enable work effectively in the country. A Member of Parliament for Maswa East (Chadema) John Shibuda commented the issue and said that, Tanzania is still lagging behind to implement the policy simply because of the continued poverty stricken situation most people in the country have. He said Africa has not yet received liberators for its people bearing in mind the fact that, the technological convergence has changed the lives of those who have and it has despised those who do not have. The bridging gap in between has been drawing back the participation of many in terms of policy making manly due to poor advocacy of the importance of the national policies in general, an aspect which he noted that, poverty and disease would continue to haunt the minds of many.

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