How Mining Firms are Milking Tanzania Dry

As Tanzanians wait for the 2014/15 national budget with bated breath, a new report shows that the government loses about $248 million (Sh415 billion) annually in tax revenue through misinvoicing by mining companies alone.

Falling revenue in the current financial year has led to speculation that the government will raise taxes and impose new ones on consumers in its budget proposals to be tabled in Parliament on Thursday.

Although wide ranging in scope, the Global Financial Integrity (GFI) report fingers Tanzania’s mining sector as a major culprit in over-invoicing, which accounts for a big chunk of the estimated $1.87 billion the country loses each year through the malpractice.

Experts argue that if the government clamps down on tax fraud, the money saved could be enough to finance a significant portion of the Sh18 trillion-plus budget plan.

MPs have been debating ministerial budgets in Dodoma in the past fortnight during which they put the government to task over budget plans that are not implemented.

A number of lawmakers have warned that they will not approve the budget proposals to be tabled by Finance minister Saada Mkuya without assurances on how the government plans to raise the money.

Details of the GFI report focusing on the mining sector have been released by the US-based International Centre for Investigative Journalism (ICIJ).

Reports on how mining companies have been ripping the country off over the years are not new, but the fresh details should add credence to claims that not enough is being done to deal with tax cheats.

This is happening despite Tanzania being a signatory to the Extractive Industries Transparency Initiative (Teiti), which aims to increase transparency in the mining tax regime. Teiti is set to release its fourth report later this month. Teiti coordinator Athuman Kwariko was last week quoted as saying the initiative had played a pivotal role in the doubling of revenue from the extractive industry to Sh800 billion.

But since the GFI report was released, neither the Tanzania Chamber of Minerals nor individual mining companies have commented on the findings.

Illicit flows and secretive tax practices are robbing many nations, particularly in Africa, of riches that could go towards development and stability, according to the report.

GFI says developing countries lose about $424 billion each year when importers and exporters mislead governments about the value of goods and services.

This dishonesty – known as trade misinvoicing – accounts for nearly 80 per cent of all the money that developing countries lose each year through illegal means. Trade misinvoicing occurs when companies charge too much (over-invoicing) or too little (under-invoicing) for imports or exports. Depending on the laws in place, this allows companies to pay less in taxes or receive more generous government assistance.

“Mining companies could be over-inflating their import costs to shift capital out of Tanzania illicitly with the added kick-back of lower taxable income due to artificially inflated inputs,” the GFI report says.

The Citizen could not independently verify the authenticity of the data, but judging from the figure mentioned, the amount lost during the past 11 years amounts to over $2.48 billion.

The report estimates that the government misses out on about $248 million per year in tax revenue from mining companies as a result – a substantial amount for a country in need of funds for development.

Weak governance and companies seeking to reduce their taxes are not the only players in this game. GFI found that most of Tanzania’s misinvoiced trade is with Switzerland and Singapore – two reputed tax havens.

Only six per cent of Tanzania’s imports come from Switzerland and Singapore, yet the countries accounted for 67 per cent of Tanzania’s total import misinvoicing over ten years.