THE Tanzania Revenue Authority (TRA) is looking into the possibility of joining global tax treaties with the view to control or stop revenue loss amounting to billions of dollars illegally flowed out of the country due to trade misinvoicing.
TRA Commissioner General, Rished Bade, said in Dar es Salaam that such over invoicing and under-invoicing of trade transactions could be countered through legal mechanisms that enable the authority to follow in detail what goes in and out by measuring it against the invoices given.
"This is just an idea. It can counter illicit outflows, "he explained. The move follows a new report that shows that shady practices in international trade, including widespread smuggling and utter manipulation of custom rules were costing Tanzanians trillions of shillings in missed revenue.
The study points out that when goods are brought into the country at highly inflated prices, chances of import over invoicing are big. The practice is usually driven by a desire to manipulate foreign exchange controls, escape corporate income taxes and accumulate money in tax havens abroad, says the report.
Launched in partnership with the Research for Poverty Alleviation (REPOA) in Dar es salaam yesterday, the report by Global Financial Integrity, a Washington DC-based think-tank, shows that 542 billion-dollar worth of capital was lost from Africa in illicit capital flows and estimates that almost 80 per cent of this coming through "trade misinvoicing."
Misinvoicing is where companies and individuals involved in trade deliberately alter the prices of their exports or imports to move money in or out of a country. It can be used to avoid being charged import duties or to shift taxable income out of a country, into a jurisdiction with a lower tax rate.
The report, entitled "Hiding in Plain Sight," examined trade flows into and out of Tanzania, Ghana, Kenya, Mozambique and Uganda between 2002 and 2011.
Contributing to the discussion, the Governor of the Bank of Tanzania (BoT), Prof Benno Ndulu, said the report has opened their eyes regarding those who give wrong information on invoicing, adding that they would look at the reasons why various companies give wrong information on invoicing.
He said BoT was about to start a study with Norway on illicit inflows, noting that as they start the exercise, they should draw on the lessons learnt. The Parliamentary Public Accounts Committee (PAC) Chairman, Mr Zitto Kabwe, welcomed the study, noting that it was significant to their work as they were investigating tax evasion and illicit money transfers by multinational corporations that are doing business in Tanzania.
"This is technical but also political because when a government loses revenue and can't provide social services, the people come up against it," he observed. Mr Zitto said the potential revenue loss from trade misinvoicing meant that Tanzania had less money to spend on healthcare, less money to devote to education and less money to invest in infrastructure.
He noted that the report has confirmed as a reality, the disadvantages that come with significant tax exemptions. He observed that companies subjected to this were the most culprits of overinvoicing. The Kigoma North MP on Chadema ticket further said that many Foreign Direct Investments come from countries that Tanzania has tax treaties with.
He suggested that Tanzania should take the lead, reform the tax system and go for global treaties -- "and not by just adhering to the country-by-country basis."
The study, funded by the Ministry of Foreign Affairs of Denmark, has found out that over-invoicing and under-invoicing of trade transactions facilitated at least 60.8-billion US Dollar in illicit financial flows into or out of five African countries between 2002 and 2011.
"The consequences are simply devastating. The capital drained from trade misinvoicing means that local businesses in Tanzania have less money to grow their companies and hire more workers. The study estimates that, collectively, trade misinvoicing may have cost the taxpayers in the five African nations 14.39 billion US dollars in lost revenue over the decade.
The potential average annual tax loss from trade misinvoicing amounted to roughly 7.4 per cent of Tanzania's total government revenue over the years 2002-2011.
The report made a series of recommendations for government's hoping to combat trade invoicing, including better training for customs staff, higher scrutiny for trade through tax haven jurisdictions and making financial transparency a top political priority.
One of the economists at GFI behind the report, Mr Brian LeBlanc, wrote that while corruption and poor governance in developing countries was a factor, the narrative "fails to acknowledge the role the West plays in facilitating such transactions."
source:dailynews
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