MASSIVE tax evasion through false declaration of fabrics imported into Tanzania is denying the Government billions of shillings in revenue and threatening to drive scores of textile industries in the country out of business, it has been revealed.
At least four importers of textile products into the country are reported to be involved in the tax evasion scam on imported fabrics through under-invoicing and false classification of the goods.
Well-placed sources say the four importers alone (names withheld for now) have gypped the Government out of more than 13bn/- in tax-based revenue in the past two years alone.
The imported fabrics are said to originate mostly from China, India and Pakistan.
According to the industry sources, TISCAN Limited - a firm contracted by the Tanzania Revenue Authority (TRA) to inspect imported fabrics and other items is to blame for failing to curb the ongoing tax evasion.
The problem is said to have become almost chronic despite persistent complaints from local textile industries, and has been formally raised by the Confederation of Tanzania Industries (CTI) to the Government.
Many of these local textile factories have found themselves laying off hundreds of workers and others shutting down completely because they can’t compete with cheaper imported fabrics, thanks to tax evasion.
Officials close to CTI told THISDAY that some prominent importers have been deliberately under- invoicing their imports, while others classify finished products such as khanga, kitenge, and kikoi as printed ladies dress material, which attracts much lower import duty.
TISCAN, on the other hand, is alleged to be neglecting proper inspections of the imported fabrics to ensure proper taxes are paid.
’’The rampant under-declaration of prices at customs level, false classification, and reneging on requisite tax payments - while depriving the Government of precious revenue - has also badly affected the country’s whole textile industry sector,’’ said a well-placed industry source who declined to be named.
’’The availability of cheaper textile products in the market due to low tax payment on imports is denying a level playing ground for fair competition within the sector. This is driving the entire textile industry in the country to the verge of total collapse,’’ the source added.
Industry watchers say TISCAN, which has been hired by TRA to classify and evaluate prices for all imports coming into the country to ensure maximum tax is realised, has been highly negligent in allowing this practice of under-declaration of imported goods prices to flourish at such a grand scale.
’’It can be easily checked and verified, as of June last year, the average price of fabric declared and assessed by TISCAN was around 20 US cents per metre. But after a strong protest from CTI, the average price per metre is now being assessed at around 31 to 33 US cents per metre,’’ an official close to CTI told THISDAY.
The official added: ’’TISCAN has very conveniently attempted to absolve itself from the negligence in valuation of textile fabric prices by saying that it is difficult to value such textile fabrics precisely due to different structures and compositions.’’
The prices of around 20 US cents per metre endorsed by TISCAN up to mid-last year are said to have been less than the cost of the cotton and/or polyester that the fabrics were actually made of.
Following various correspondences (seen by THISDAY) between CTI, TRA and TISCAN, it is understood that the umbrella organisation of local industries has now written directly to TISCAN seeking an audience to further discuss the matter of tax evasion.
’’We don’t fear competition, all we want is a level playing ground. Quite a number of local textile industries have already been driven out of business because of the prevailing state of affairs...In general, the local textile industry is in a pathetic state,’’ the official remarked, noting further:
’’The price of cotton in the world market is around 5 US cents per metre, but some dubious importers would declare the price of imported fabrics at 2 US cents. This doesn’t make sense because the price of finished fabric can never be lower than the raw material (cotton).’’
TISCAN General Manager Fred Tranchart was not immediately available for comment, and although officials at the company promised to get back to THISDAY with clarifications on the reasons for the alleged tax evasion on imported textiles, they had not responded by late yesterday as we went to press.
When contacted for his own comment, the Minister for Finance and Economic Affairs, Mustafa Mkulo, said he has not officially received any complaints on the matter.
’’However, if there is a problem, the Government will surely address it,’’ he added.
Historical records show that back in the 1980s, the textile industry was the third contributor to Government revenue through various taxes, and was also the country’s largest exporter of manufactured goods.
There were at least 35 working local textile mills; total investment in the sector exceeded $500m; and it was regarded as the largest employing sector in the country’s still fledgling economy at the time.
But with the advent of economic liberalisation in the 1990s, the textile sub-sector collapsed, leading to massive labour redundancies and unprecedented idle capacities.
By 1996, only two textile industries out of the original 35 were still operating; Friendship Textile Mills and Sunflag Tanzania Limited. There are reports that the Sunflag plant in Arusha last year also folded and laid off all its 2,000-strong workforce.
Source : .thisday.co.tz