Monday, June 11, 2012

Tanzania: From tax avoidance to tax evasion

Thursday, June 14 this year is Budget Day in the East African Community countries of Kenya, Uganda, Rwanda, Burundi and Tanzania. Not too distant in the past, Tanzanians generally looked forward to Budget Day with considerable excitement.

They were much like numbers game players who anxiously looked forward to ‘Draw Day’ when the raffle results would be announced. In the event, holders of the winning tickets would be awarded cash prizes, going laughing all the way to the bank (if they were ‘bankable!’).

The losers, resigned to their fate, would do their crying in the rain (crooners Everly Brothers, Don Williams pardon!) – till the next lottery and Draw Day!

Ditto Budget Day, when Tanzanians waited with bated breath the announcement in Parliament of government budget proposals for the next 12 months beginning on July 1. It was a foregone conclusion that Finance ministers would invariably hike extant tax rates, or introduce new taxes, on beverages and tobacco goods. Bettors to the contrary have always lost!

Imbibers nonetheless said ‘cheers!’ – and swallowed the new, bitter ‘tax pill’ with the first pint of the best brew in the house, happy in the knowledge that they were contributing in their own small way to public revenue coffers for national development.

But, when tax rates became inordinately high, and the number of taxes multiplied across the board – thanks to bottomless government coffers and itchy-fingered unprincipled filching officials – taxpayers started to feel the pinch. The imaginative ones turned to tax avoidance, while their impatient, reckless ones resorted to bad old tax evasion!

The difference between the two...? Well; ‘tax evasion’ includes smuggling; cheating on values and volumes/quantities of taxable consignments; bribing customs and other tax officials to look the other way at the psychological moment, and other illegitimate presentation of one’s finances, etc...

‘Tax avoidance’ is a different ballgame all together – and it isn’t a crime! Tax avoidance is when potential taxpayers legally take advantage of the extant tax regime, thereby reducing the tax burden they’d have otherwise carried, doing so by simply exploiting loopholes in the law.

I remember a very successful lawyer-friend in Mombasa in the 1960s and ‘70s whom I’ll identify here by his car (latest ‘Mercedes’ saloon model then), registration No. KAZ-1!

‘Bwana Kazi’ – as he was popularly known – avoided paying further income tax by simply stopping to practise when his taxable income approached the surtax threshold. He went on vacation abroad till the next taxation year. Sheesh!

If nothing else, the foregoing suggests that rampant tax evasion in Tanzania is fuelled by a multiplicity of taxes, compounded by too high tax rates. In countries where taxes are few, are universally applicable across the population – and rates are virtually nominal – tax evasion is unusual, with voluntary tax compliance the norm.

Can/will our finance minister heed this in the next Budget – or is it too late now? Think about it!

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