Monday, December 1, 2014

How tax exemptions and low VAT collections causes huge debts

Low collections on Value Added Tax (VAT) and the continued numerous tax exemptions in the country has been cited to be a major cause of a national debt which has tuned to Sh. 22 trillions, it has been learnt. A member of the Tanzania Tax Justice Coalition Moses Kulaba said on Friday last week in Dar es Salaam that, the trend of tax exemptions in the country has been constantly increasing by 50 percent each year for the last four years since 2009. Kulaba was presenting a paper titled ‘Value Added Tax and Tax Administration Bills 2014’ at a breakfast debate organized by Tanzania policy forum in which he said that the trend of Tax exemptions has increased from 2.3 percent to currently 4.6 percent compared to 15.7 percent of Tax revenue to GDP. He also noted that, Tanzania lags behind in the collection of its Value Added Tax (VAT) among the East African region by collecting up to 40 percent compared to other countries like Uganda and Kenya which collects 45 percent and 58 percent respectively. He further noted that, numerous tax exemptions together with other things have been creating a loophole for tax avoidance and which has ultimately undermined transparency and accountability. 

Mr. Moses Kulaba

He noted that, the benefits of tax incentives are widely exaggerated while the cost are often underestimated or overlooked altogether Tanzania policy forum had organized a debate focusing discussions on the two tax bills for VAT and Tax Administration which currently is in parliament waiting for approval to become a law. The forum conducted a debate with a view to see how Tanzania is going to benefit from the two bills if passed. The analysis examined whether these bills will have impact in reducing tax incentives and streamline tax administration as it was stipulated in the 2014/15 budget speech by the Minister for Finance Saada Mkuya that had assured high level of transparency in granting exemptions. Contributing on the debate, the Principal Tax Payers’ Officer of the Tanzania Revenue Authority (TRA), Hamisi Lupenja said that, numerous tax exemptions has been overloading tax base in the country, thus making the national debt to increase tremendously. However he said that, the government need to restructure the whole system of tax collection systems and suggested that all business entities should be registered to let them pay taxes as this is a concern of everybody in the country. The government also needs to concentrate on its defense mechanism against tax evasion and seal the loopholes of some businessmen who tend to be untrustworthy in their trading activities so as to save the nation.

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