NEW PRIME MINISTER AND CABINET FOLLOWING REVELATIONS OF MASSIVE TAX AVOIDANCE

The week before this issue went to press was a period of high drama in Dar es Salaam. Tanzanians were reeling from revelations produced earlier which had indicated the massive scale of tax avoidance which had been occurring in the country – it apparently amounted last year to about a quarter of the whole estimated annual revenue of the nation.

There had been some indication of trouble ahead in January 1994 when the Minister of Finance had had to introduce a drastic mini-budget to cover a serious shortfall in revenue collection. But people had to wait until November to be told the true extent of the losses to the national exchequer. At the same time, Father of the Nation Julius Nyerere published a book, which rapidly became a best seller, in which he roundly criticised Prime Minister John Malecela and ruling CCM Party Secretary General Horace Kolimba and called for their resignation.

Within a very short time, and as further illustration of the influence still exercised by Mwalimu Nyerere long after he has given up executive power, the Prime Minister and Secretary General were removed.

“I AM ORDERING A FULL INVESTIGATTON” – MWINYI
“Effective today I am ordering a full investigation into the rampant tax evasion that is taking place in this country – It has been brought to my notice that import tax and duty collection reveal a major loss of tax revenue both through fraudulent illegal practices and administrative leakages” – so began the official statement from President Ali Hassan Mwinyi. He went on to explain that early in 1994 the government had contracted the services of two foreign pre-shipment agencies to assess and help collect import taxes in addition to their task of pre-shipment inspection. The information that the companies had provided indicated that the level of lost revenues for the past financial year was about TShs 70 billion which is almost a quarter of the total estimated tax revenue of TShs 292 billion.

The president went on: “I have ordered the Controller and Auditor General to immediately proceed with verifying the available data on importers and to carry out a complete audit of the bonded warehouses. The Attorney General will lead a full investigation into each case to determine whether a violation of the law has taken place and to prosecute offenders”.

“I want to make it absolutely clear that there will be no negotiation of the taxes to be paid he said. “Whatever the Controller and Auditor General verifies as the rightful tax will have to be paid in full. These actions will be conducted within the next three months. Government action will not stop there. There is evidence to suggest that there are illegal importers who completely evade the existing tax system. The channels used by these people are the transit routes, where goods declared to be heading to neighbouring countries are diverted en route and sold in the Tanzanian market without payment of taxes”.

The Societe General de Surveillance is understood to have handled 2,000 tax exemptions between January and October and in a 56-page report to the President had named prominent businessmen, companies, public institutions and civil servants who had not paid the required taxes.

The confusing signals earlier this year from Finance Minister Kighoma Malima on discretionary tax exemptions for new investors, which had damaged investor confidence and had had to be corrected later by the President, were also referred to in President Mwinyi’s latest statement. “There is evidence to suggest that there is significant abuse of the Investment Promotion Centre exemptions. Treasury discretionary exemptions need to be sharply curtailed. The abuses hurt the legitimate business community which is investing in this country and the abusers must be caught and prosecuted. No exemption will be effective in future unless it is gazetted and published in a newspaper”.

A few days later the first actions were reported. 18 containers destined for a company building three safari lodges were seized pending clarification from the company of the amount of tax exempt goods it had imported under investment promotion concessions. The containers were said to include enough carpets to cover ten football pitches – far more than needed for the three lodges.

Some businessmen claimed that it was necessary to evade tax because the rates were so high – up to 170% in some cases. The local press began to publish details of some of the other transactions likely to be investigated. Some companies had imported tax exempt oil for soap manufacture (under provisions for tax exemption for raw materials) but the quantities were so large that much of it had been tinned and sold as edible cooking oil. Another company had been allowed to import 20 tax exempt vehicles but instead of doing so it had imported thousands of new tyres which represented its main business. A vessel was said to be plying between Hong Kong and Zanzibar, offloading goods in Zanzibar which then found their way to the mainland.

To add to the general concern, on November 17th the Controller and Auditor General presented his 511-page report for 1992/93 which contained more bad news. TShs 418 million in cash and property had been embezzled and TShs 11.6 million of payments suspected to be dubious had been made. This compared with total losses of TShs 226 million in 1991/92.

DONORS EXPRESS SERIOUS CONCERN
Within days of President Mwinyi’s announcement the Deputy Treasury Principal Secretary, who had been responsible for signing tax exemption certificates, was removed from office but many observers wondered why responsibility was not being accepted at a higher level.

Donor agencies began to express alarm. An official of the Belgian Agency for Development Cooperation said that tax exemption and revenue collection problems were not caused by one individual. The problem was both institutional and political.

Norwegian Minister for Development Cooperation Kari Nordheim-Larsen said that she viewed the matter extremely seriously and immediately withheld TShs 8.1bn (US$ 15 million) balance of payments support.

The Swedish Ambassador announced the next day (November 17) that Sweden had suspended the release of TShs 7.3bn ($13.5 million) due to the country’s mismanagement of revenue collection.

The following day President Mwinyi called representatives of 14 foreign and international donor agencies to State House (Ikulu) and made an appeal to them to continue to disburse approved funds “short of which Tanzanians would suffer and measures taken to adjust the budget would prove futile”.

At this meeting, according to the Daily News, the Canadian representative asked why the Minister of Finance did not resign.

Replying to allegations by the representative of Denmark that Tanzania had corrupt leaders, President Mwinyi said that anyone caught evading tax would be dealt with according to the law.

Tanzania faces a budget deficit of TShs 221 billion this year of which the government had hoped that some TShs 168 billion would come from foreign donors.

The Minister of Finance had had a difficult time during the 1994/95 budget debate in Parliament in August. Professor Mbawala (National MP) had said that the Treasury had been weak in collecting taxes because it had concentrated on small traders while leaving big-time businessmen to go scot-free. He accused the Minister of amassing powers and ignoring directives from the cabinet and the President.

At the meeting of the National Assembly in August a private member’s motion to re-introduce a leadership code and declaration by leaders of their personal property had received the support of the government and had been passed unanimously.

NYERERE’S BOOK
A new book ‘Uongozi Wetu na Hatima Ya Tanzania’ (Our Leaders and the Destiny of Tanzania) by Mwalimu Nyerere was launched on November 2nd before 100 local and foreign journalists and rapidly became a best seller.

At the launch the former President called for the resignation of Prime Minister and First Vice-President John Malecela and CCM Secretary General Horace Kolimba because they had failed to advise President Mwinyi on various important issues. Mwalimu referred to Zanzibar’s abortive entry into the Organisation of Islamic Conference (OIC) in late 1992, demands by some members of Parliament for a government for Tanganyika and the issue of the Vice-presidency. “I am surprised” he said “that the President has not yet acted on the Prime Minister. A Premier is not his cook…he is a national leader; if he were his cook nobody would have cared…. since his master will dictate the taste of food he wants. The situation is totally different with leaders whose acts have far reaching consequences for the destiny of our nation” he said. He had advised them to resign last year in Dodoma but they did not. He would never keep quiet if things went wrong with the leadership. The Dar es Salaam Express quoted him as adding: “It would be fine if these crooks (the current leadership) were to go”.

Nyerere advised the people to put up with President Mwinyi until he finished his second term because calling for him to step down now would shake the nation which was already passing through hardships and bad leadership.

Asked to comment on his past attitude towards criticism and the fact that he detained his political opponents, Nyerere said he did not recall detaining anyone who stood on a podium to criticise him – Daily News and Business Times.

RSS feed for comments on this post · TrackBack URL

Leave a Comment

You must be logged in to post a comment.