20 June 2014

Tanzania Cuts Lavish Spending to Bridge Budget Gap, Face Down Pressure From Foreign Donors Over Graft

Faced with a sharp decline in foreign aid, Tanzania has proposed drastic measures to curb lavish public spending, increase tax collection and improve budgetary oversight.

The measures target government agencies known for their wasteful spending and would slash tax exemptions that have benefited mining companies and other foreign investors.

"I have proposed various amendments in tax laws with the view to minimize tax exemptions and remain with those that are economically productive to spur development and ensure fairness," said Saada Mkuya, Tanzania's Finance Minister, in his budget speech last week.

As part of the plan, the government will use bulk procurement of goods and services directly from manufacturers and suppliers to reduce graft, and all public agencies that collect revenue will have their budgets approved by the government exchequer. The austerity measures, according to the minister are likely to boost government revenues by as much as 10 percent, or 3.15 trillion shillings (US $2 million).

Foreign donors have often criticized the government for its sluggish pace in fighting graft and threatened to withhold funds unless they see better results.

Commitments in donor aid and loans have dwindled from 21 percent of Tanzania's budget or 3.85 trillion shillings (US $2.24 million) last fiscal year to 14.8 percent or 2.94 trillion shillings (US $1.7 million) in 2014/15, according to the budget estimate.

In 2013, the Controller and Auditor General (CAG) revealed massive embezzlement of public funds from dishonest officials siphoning off billions in dubious transactions.

The Ministry of Industries, Trade and Marketing, for instance, bought dozens of luxury vehicles in 2012 for one of its agencies, but the ownership and the whereabouts of those cars remains shrouded in secrecy, according to the CAG report.

Opposition politicians have repeatedly urged the government to cut unnecessary expenditures such as purchasing fuel-guzzling cars that are expensive to maintain.

"These vehicles are too costly, they are draining our resources," said James Mbatia, the opposition leader in the parliament.

Tax exemptions targeted

In a bid to plug a budget hole, the government plans to slash tax exemptions and only keep what it called "economically productive" ones, a move that it estimates will bring in 4.37 trillion shillings (US $2.54 million) in revenue, enough to bridge the existing 4.27 trillion deficit (US $2.49 million).

Analysts, however, doubt whether the proposed changes will take effect given that previous attempts to revoke tax exemptions have failed. In 2009, the government came under strong criticism as it tried to remove tax relief to charities, religious organizations and NGO's.

"The best way for Tanzania to stem the amount in tax exemptions is by being extremely careful in granting them in the first place, and where granted the exemptions should be time bound without option for extension," said Haji Semboja, an economics professor at the University of Dar es Salaam.

The finance minister also said the government will start publishing quarterly tax exemption reports, naming the beneficiaries and the applicable laws that granting the tax breaks in a move to enhance transparency.

Tax exemptions amounted to 4.3 percent of the country's GDP in 2012, when the government granted exemptions worth 1.8 trillion shillings (US $1.05 million) to various institutions, according to Finance Ministry data.

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