Foreign firms hit by tax demands rethink Tanzanian expansion
Tanzanian President John Magufuli. Some of Tanzania's biggest foreign investors say they could scale back their operations or expansion plans because of tougher demands placed on companies, including higher tax bills, as part of the president's drive to overhaul the economy. PHOTO | AFP
By REUTERS
Posted Tuesday, November 29 2016 at 11:06
IN SUMMARY
President launched crackdown on tax evasion, corruption
Companies say unreasonable demands hurting business
Government says shake-up will create fairer economy
Economic growth has picked up, but from a low base
Dar es Salaam
Some of Tanzania's biggest foreign investors say they could scale back their operations or expansion plans because of tougher demands placed on companies, including higher tax bills, as part of the president's drive to overhaul the economy.
At least six companies are rethinking their business and investment plans, according to Reuters interviews with senior executives at a dozen of the biggest foreign firms operating in Tanzania, or their local arms, in sectors including mining, telecoms and shipping.
Three said they could scale back operations in the East African nation, two said they planned to expand in other countries on the continent instead, while one said it was in the process of withdrawing from Tanzania altogether.
The companies asked not to be named due to the sensitivity of the matter and because their plans have not been made public.
One firm had not yet made a decision on how to respond to the government reforms, while five companies said their plans were unaffected - including two involved in giant projects, a $30 billion LNG plant and a $3 billion fertiliser plant.
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.
Neighbouring Kenya - with a $61 billion economy - received slightly less than Tanzania, while South Africa - with a $313 billion economy - received $1.7 billion.
President John Magufuli, nicknamed "the Bulldozer" for his infrastructure projects and pugnacious leadership style, launched his reform drive after he was elected last year, promising to transform an economy hobbled by red-tape and corruption and carry out a major building programme.
A strict new tax regime tops the list of companies' complaints; Magufuli's government imposed tax hikes this year on mobile money transfers, banking, tourism services and cargo transit services. In some cases, businesses say they were warned by regulators not to pass the cost on to consumers.
Tax revenues for the 2014/2015 financial year totalled 9.8 trillion shillings ($4.5 billion). In 2016/2017, the target is 15.1 trillion - a jump of more than 50 percent.
'Level playing field'
Many of the executives interviewed by Reuters said they were frustrated by increased tax demands that they say do not properly correspond to their incomes.
A local franchisee for a global brand said it was in the process of leaving the country after a tax bill this year that topped its combined sales for the past five years. It said it had already sold one outlet and closed another.
An executive whose company has invested hundreds of millions of dollars in the country said he was now looking at expanding in Kenya or Mali, rather than Tanzania, partly due to the new tax demands.
Tanzanian President John Magufuli. Some of Tanzania's biggest foreign investors say they could scale back their operations or expansion plans because of tougher demands placed on companies, including higher tax bills, as part of the president's drive to overhaul the economy. PHOTO | AFP
By REUTERS
Posted Tuesday, November 29 2016 at 11:06
IN SUMMARY
President launched crackdown on tax evasion, corruption
Companies say unreasonable demands hurting business
Government says shake-up will create fairer economy
Economic growth has picked up, but from a low base
Dar es Salaam
Some of Tanzania's biggest foreign investors say they could scale back their operations or expansion plans because of tougher demands placed on companies, including higher tax bills, as part of the president's drive to overhaul the economy.
At least six companies are rethinking their business and investment plans, according to Reuters interviews with senior executives at a dozen of the biggest foreign firms operating in Tanzania, or their local arms, in sectors including mining, telecoms and shipping.
Three said they could scale back operations in the East African nation, two said they planned to expand in other countries on the continent instead, while one said it was in the process of withdrawing from Tanzania altogether.
The companies asked not to be named due to the sensitivity of the matter and because their plans have not been made public.
One firm had not yet made a decision on how to respond to the government reforms, while five companies said their plans were unaffected - including two involved in giant projects, a $30 billion LNG plant and a $3 billion fertiliser plant.
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.
Neighbouring Kenya - with a $61 billion economy - received slightly less than Tanzania, while South Africa - with a $313 billion economy - received $1.7 billion.
President John Magufuli, nicknamed "the Bulldozer" for his infrastructure projects and pugnacious leadership style, launched his reform drive after he was elected last year, promising to transform an economy hobbled by red-tape and corruption and carry out a major building programme.
A strict new tax regime tops the list of companies' complaints; Magufuli's government imposed tax hikes this year on mobile money transfers, banking, tourism services and cargo transit services. In some cases, businesses say they were warned by regulators not to pass the cost on to consumers.
Tax revenues for the 2014/2015 financial year totalled 9.8 trillion shillings ($4.5 billion). In 2016/2017, the target is 15.1 trillion - a jump of more than 50 percent.
'Level playing field'
Many of the executives interviewed by Reuters said they were frustrated by increased tax demands that they say do not properly correspond to their incomes.
A local franchisee for a global brand said it was in the process of leaving the country after a tax bill this year that topped its combined sales for the past five years. It said it had already sold one outlet and closed another.
An executive whose company has invested hundreds of millions of dollars in the country said he was now looking at expanding in Kenya or Mali, rather than Tanzania, partly due to the new tax demands.
