$2.48 Billion is What Dar Has Lost Through Trade-mis-invocing In a Decade

By ADAM IHUCHA -- The little-understood practice of trade mis-invoicing or over-invoicing has cost Tanzania’s economy $2.48 billion in a decade. The concept of trade mis-invoicing or over-invoicing is where companies and their agents deliberately alter the prices of their exports and imports in order to justify moving money out of, or into, a country illicitly. The practice is slowly, but surely becoming common in Tanzania. For instance, mining corporations to avoid paying income taxes inflate fuel import costs and shift taxable income out of Tanzania into tax havens abroad have allegedly used it. The amount Tanzania loses annually to trade misinvoicing or over invoicing is astounding. An international taxation researcher Ms Rhiannon McCluskey, estimates that on average $248 million worth of capital has been extracted out of Tanzania per year using this process over the past decade. This means that over-invoicing on fuel imports on which mining firms were exempted from paying duties in Tanzania has been denying the country revenues equivalent to 7.4 per cent of its GDP. Ms McCluskey was sharing few highlights of ongoing study on constructing Capacity to Confront Complex Tax Evasion in Africa with case studies from Tanzania and Sierra Leone in a just ended three-day Annual Meeting of the International Centre for Tax and Development (ICTD) in Arusha. A living example of the practice, she said, way back in 2010, Tanzania Mineral Audit Agency (TMAA) unearthed $705.8 million worth of over-declared capital allowances and operating expenditures when it audited 12 mining firms. Ms McCluskey says taking advantage of incentive of deducting their accumulated losses from their profits, the mining firms had deprived the Tanzania coffers of nearly $176 million by declaring losses for many years before they were liable to pay corporate tax. “Its high time for Tanzania Revenue Authority to be vigilant in order to ensure companies are not over-declaring their costs and losses with a view of delaying to pay taxes,” she stressed. However, one of the mining firm’s official who preferred anonymity told The East African that there was no such a thing called "Mis-Invoicing", particularly in extractive industry in Tanzania. Why, the source argues, mining corporations in Tanzania purchases fuel locally from established oil marketing companies which are the same dealers who supply fuel to all members of the public. “The researcher has fallen short on this point because fuel business in Tanzania is highly regulated and prices are managed and controlled by the government through Energy and Water Regulatory Authority (EWURA). I don’t see how can mining firms inflate the fuel import costs” the source argues. Indeed, all fuel imports into Tanzania are done through Bulk Procurement System (BPS), which is done through tendering process administered by EWURA and Petroleum Importation Corporation (PIC). “The researcher suggestion that mining companies import fuel themselves and inflate prices for the purpose of shifting profits overseas and load cost in Tanzania as a deliberate strategy to avoid taxes is unfounded and baseless” the official stressed. The source further says, besides fuel, the researcher should have made a research to understand Tanzania customs procedures applicable on importation of any goods when it comes to customs valuation and would appreciate that it is almost impossible to miss declare value of the goods for any reasons. “This would have been more prudent other than just making such blatant accusations,” the official concluded. However in 2012 there were reported discrepancies in import duties declared between the Tanzania Revenue Authority and Geita Gold Mine reports. Mark Bomani, chairman of the Tanzania Extractive Industries Transparency Initiative Multi-Stakeholders Working Group (MSG) is on record as saying that the difference is in favour of the companies, meaning that they reported as having paid more than what the government reports as having received. Mr Bomani said that the extractive firms have reported paying Tsh44 billion ($27 million) to the government while the government reports having received Tsh39.1 billion ($24 million). Out of the Tsh44.1 billion ($27 million), Tsh35 billion ($22 million) related to Geita Gold Mine. The remaining Tsh9 billion ($5 million) was from other companies including Tanga Cement Company and Mbeya Cement Company and others related to various tax categories. The TRA commissioner general, Mr Rished Bade, says that tax personnel would, as a result of the report, be trained in filling in the gaps to be identified, with a view of improving taxation systems, particularly on mining industry. The ICTD chief executive officer, Prof Mick Moore, said his global research network devoted to improving the quality of tax policy and administration in developing countries with a special focus on sub-Saharan Africa.



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