A STUDY on Tanzania's tax policies has pointed an accusing finger at multi-national companies that operate in the country for using tax havens - a situation that increases the possibility of tax avoidance and illegal capital flight.
The findings in a 68-page report titled: "The one billion dollar question: How can Tanzania stop losing so much tax revenue?," revealed that many multi-national companies that operate in the country use tax havens in their corporate transactions.
"The use of tax havens, which is not necessarily illegal, generally increases the possibility of tax avoidance and illicit capital flight," reads part of the study which was launched in Dar es Salaam recently.
In general, the study showed that one billion US Dollars (about 1.2trl/-) is lost each year through tax evasions, capital flight and incentives offered to investors. A tax haven is a state, country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate.
Individuals and corporate entities can find it attractive to move to areas with reduced or no taxation. This creates a situation of tax competition among governments.
The report has been commissioned by the Interfaith Standing Committee on Economic Justice and Integrity of Creation (ISCJIC), comprising religious leaders from the Christian Council of Tanzania (CCT), Tanzania Episcopal Conference (TEC) and the National Muslim of Tanzania (Bakwata).
It pointed an accusing finger mainly at large and rich companies in the mining, telecommunication and brewing industries. The companies include Vodacom, Tigo and Zantel in the telecommunication category while in the mining sector five companies have been mentioned. These are African Barrick Gold, AngloGold Ashanti, Tanzanite One as well as Resolute Mining and Williamson Diamonds.
Tanzania Breweries Limited (TBL), a subsidiary of SABMiller is the only brewing company that has been mentioned in the report.
"We are making no accusations against specific companies. However, the list illustrates simply the extensive use of tax havens by some companies that operate in Tanzania.
It also observed that the absence of a legal framework that would ensure easy access to information from tax havens makes it almost impossible for national authorities to confidently identify all income that is taxable in its jurisdiction.
The use of tax havens is not illegal but the secrecy afforded to transactions in the jurisdictions and entities allows vast amounts of money to be hidden from public scrutiny and enables wealthy companies and individuals to avoid or evade paying taxes.
Many transnational corporations have complex corporate structures involving several subsidiaries and holding companies, including tax havens, according to the report.
A recent analysis surveyed 95 largest quoted companies in the UK, Netherlands and France and found that all but one had subsidiaries in tax havens, the most popular being the Cayman Islands.