TRANSNATIONAL APOLOGISTS SAY 'TAX RISE IN TANZANIA THREATENS FOREIGN DIRECT INVESTMENT'

Ventures

After the 2015 general elections, Tanzania elected President John Magufuli. He promised to transform an economy hobbled by bureaucracy and corruption and carry out a major building program. To drive this economic growth, higher tax bills have been imposed on companies, therefore, big foreign investors plan to relocate to neighbouring countries.

Adolf Mkenda, Permanent Secretary of trade and investment, said, Mr Magufuli is optimistic about eradicating poverty and wiping out corruption to improve the standard of living. He said his strict tax laws top the list of companies’ complaints; Magufuli’s government imposed tax hikes this year on mobile money transfers, banking, tourism services and cargo transit services. He also warned that the burden should not be passed to consumers.

Magufuli’s administration plans to shake-up the economy because Tanzania is lagging behind its east African neighbours. Recent years saw strong annual growth of about 7 percent but this was attributed to a low base and Kenya still has a bigger economy despite having a small land area and fewer people.

Multinational companies operating in Tanzania include energy firms Statoil, Royal Dutch Shell, Exxon Mobil and Ophir Energy; engineering firms Ferrostaal Industrial Projects and Haldor Topspe; telecoms companies Millicom, Airtel, and Vodacom; mining firms Anglo Gold Ashanti and Acacia Mining and shipping firms such as Maersk.

At most seven companies are rethinking their business and investment plans, according to Reuters interviews with senior executives at a dozen of the biggest foreign firms. Three companies said they could scale back operations in the East Africa nation, two said they planned to set up in other countries on the continent, while one said it was in the process of withdrawing from Tanzania. The companies requested for privacy before the proceeding is concluded.

At the moment, five among seven companies are unaffected. Meanwhile, two of this five are involved in giant projects, a $30 billion LNG plant and a $3 billion fertilizer plant, of which one firm has not responded to the government reforms.

Company executives say the Tanzanian Government risks disrupting its economic plans by turning away key investment and jobs from the developing nation.

Economically, telecoms and mining sectors account for 4 percent of the Gross Domestic Product (GDP). Tanzania is more reliant on foreign direct investment than many other regional countries, given the size of its economy. It received just over $1.5 billion last year, into an economy valued at under $45 billion, according to figures from the UN Conference on Trade and Investment and the World Bank.

This year, the tax revenue is expected to rise above 50 percent (15.1 trillion shillings) from last years’ 9.8 trillion shillings ($4.5billion). Richard Kayombo, director of the Tanzania Revenue Authority (TRA), said increased tax income was needed to pay for new infrastructure in the country. In the past TRA won nine out of 10 recent tax cases in court, which revealed that their bills were fair.