Tanzania is losing nearly Shilling 690 billion ($300 million) in tax each year to international corporate tax abuse and private tax evasion, costing the country the equivalent of 135,577, which amounts to the nurses’ annual salaries every year.
It has been revealed that the tax loss is more than 38% of the country’s health budget. The Parliament has endorsed Shilling 900 billion budget for 2020/21. The government said it planned to collect Shilling 467.8 billion out of which 155 billion would come from domestic sources, which is an increment of 21% compared to the previous year, 2019.
According to the edition of the State of Tax Justice, an annual report by the tax justice network on the state of global tax abuse and governments’ efforts to tackle it, this is the first study to measure thoroughly how much every country loses to both corporate tax abuse and private tax evasion, marking a giant leap forward in tax transparency.
In the edition, it came to light that the tax loss is equivalent to 14.13% of education spending per year. Tanzania’s Parliament endorsed Shilling 1.3 trillion budget for the Ministry of Education, Science and Technology for the 2020/2021 fiscal year.
In Tanzania, the common fraudulent practices, according to investigations which were seconded by Planning, Policy and Research Unit at Tanzania Revenue Authority (TRA), include smuggling of goods into the country with the aim of evading tax.
SAUTI KUBWA has found out that most rampant fraudulent practices in the country are related to the misdeclaration of imports as well as to the concealment of goods and container cargo.
Some big companies, including foreign investors, in collaboration with the local tax experts and untrusted TRA officials, are ganging up to swindle funds using electronic billing machine invoices to claim the Value Added Tax inputs on fictitious sales.
Investigations have come out with multinational corporations being paid billions less in tax than they should have by shifting trillion worth of profit out of the countries where they were generated and into tax havens, where corporate tax rates are extremely low or non-existent. Private tax evaders have paid less tax than they should have by storing trillion in financial assets offshore.
While higher-income countries lose more tax to global tax abuse, the State of Tax Justice 2020 shows that tax losses bear much greater consequences in lower-income countries. Higher-income countries altogether lose over $382 billion every year whereas lower-income countries lose $45 billion.
However, lower-income countries’ tax losses are equivalent to nearly 52 per cent of their combined public health budgets, whereas higher-income countries’ tax losses are equivalent to 8 per cent of their combined public health budgets.
Similarly, lower-income countries lose the equivalent of 5.8 per cent of the total tax revenue they typically collect a year to global tax abuse whereas higher-income countries on average lose 2.5 per cent.
The same pattern of global inequality is also strongly visible when comparing regions in the global north and south. North America and Europe lose over $95 billion in tax and over $184 billion respectively, while Latin America and Africa lose over $43 billion and over $27 billion respectively.
However, North America and Europe’s tax losses are equivalent to 5.7 per cent and 12.6 per cent of the regions’ public health budgets respectively, while Latin America and Africa’s tax losses are equivalent to 20.4 per cent
and 52.5 per cent of the regions’ public health budgets respectively.
Assessing which countries are most responsible for global tax abuse, the State of Tax Justice 2020 provides the strongest evidence to date that the greatest enablers of global tax abuse are the rich countries at the heart of the global economy and their dependencies – not the countries that appear on the EU’s highly politicized tax haven blacklist or the small palm-fringed islands of popular belief.
Higher-income countries are responsible for 98 per cent of countries’ tax losses, costing countries around the world over $419 billion in lost tax every year while lower-income countries are responsible for just 2 per cent, costing countries over $8 billion in lost tax every year.
Dr Lenny Kasoga, a retired university don – economist, in most cases, leaders of poor countries; in Africa are hiding an ill-gotten huge amount of money overseas for their own benefits. And funny enough they are colluding with the rich to steal from their poor people, this is absurd.”
The former Tanzania’s University of Dar es Salaam lecturer said the purposely failed tax systems in many countries are there to safeguard those in power and their allies, including the political parties, which are the centre of Africa’s mega corruption.
Dr Dereje Alemayehu, the executive coordinator at the Global Alliance for Tax Justice, said: “The State of Tax Justice 2020 captures global inequality in soberingly stark numbers. Lower-income countries lose more than half what they spend on public health every year to tax havens – that’s enough to cover the annual salaries of nearly 18 million nurses every year.”
He said the world must establish a UN tax convention to usher in global tax reforms. “Only by moving the process for setting global tax standards to the UN can we make sure that international tax governance is transparent and democratic and our global tax system genuinely fair and equitable, respecting the taxing rights of developing countries,” he said.
The Tax Justice Network has long criticized the EU’s blacklist for ignoring major tax havens while focusing on jurisdictions that are secretive but play an insignificant role in the global economy. The State of Tax Justice 2020 reveals that two jurisdictions blacklisted by the EU, Palau and Trinidad and Tobago, while non-cooperative with international tax regulations, did not create any observable tax losses for other countries.
Three actions governments must take
The Tax Justice Network, Public Services International and the Global Alliance for Tax Justice, along with supporting NGOs, campaigners and experts around the world, are together calling on governments to take three actions to tackle global tax abuse:
Introduce an excess profit tax on multinational corporations making excess profits, such as telecoms and digital companies, in order to cut through profit shifting abuses. Multinational corporations’ excess profit would be identified at the global level, not the national level, to prevent corporations from underreporting their profits by shifting them into tax havens, and taxed using a unitary tax method.
Another thing is the introduction of a wealth tax to fund pandemic response and address the long-term inequalities the pandemic has exacerbated, with punitive rates for opaquely owned offshore assets and a commitment between governments to eliminate this opacity.
Also, to instill a global tax blanket that will ensure no loopholes of evaders and establish a UN tax convention to ensure a global and genuinely representative forum to set consistent, multilateral standards for corporate taxation, for the necessary tax cooperation between governments, and to deliver comprehensive, multilateral tax transparency.
