Democratisation in Tanzania: no elections without tax exemptions

ABSTRACT

Revenue losses from tax exemptions have become substantial in an increasing number of African countries. We argue that, under conditions of democratisation and economic liberalisation, the growing use of tax exemptions is central to the supply and demand of campaign financing. This argument is explored in relation to Tanzania, where the abolition of one-party rule in 1992 meant reduced state subsidies to parties and growing inter- and intra-party competition for political power through the ballot box. This increased the costs of election campaigns and of keeping together an increasingly fragmented ruling coalition. The subsequent rise in the demand for campaign funding was met in part by a supply of campaign donations from companies and rich individuals, who in exchange could receive tax exemptions and other rents helping them to succeed in business during economic liberalisation. Thus, we find that, around election years when demands for campaign funding are particularly high, tax levels decrease while tax exemptions to private companies and individuals increase. These indicative findings are supported by qualitative observations on the supply and demand of campaign financing in Tanzania.

KEYWORDS:

• Tax exemptions
• campaign financing
• political economy
• elections
• Tanzania
• Africa

Acknowledgements

We wish to thank Anne Mette Kjær and reviewers for their excellent comments. All remaining errors are our responsibility. This research was supported by the Political Settlement and Revenue Bargains in Africa Programme and funded by the Consultative Research Committee for Development Research.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Bryan & Baer, Money in Politics.

2 Pinto-Duschinsky, “Financing Politics,” 84.

3 Moore et al., Taxing Africa; Norris et al., Checkbook Elections; OECD, Financing Democracy.

4 Amsden, “Nationality of Firm Ownership in Developing Countries.”

5 Gauthier and Reinikka, “Shifting Tax Burdens through Exemptions and Evasion.”

6 Khan, “The Capitalist Transformation”; Whitfield et al., The Politics of African Industrial Policy.

7 Arriola, Multiethnic Coalitions in Africa; Mendilow, Money, Corruption, and Political Competition.

8 Bryan & Baer, Money in Politics; Falguera et al., Funding of Political Parties and Election Campaigns; Pinto-Duschinsky, “Introduction: Political Finance, Corruption and the Future of Democracy.”

9 Butler, Paying for Politics; Lodge, “How Political Parties Finance Electoral Campaigning in Southern Africa”; Pottie, “Party Finance and the Politics of Money in Southern Africa.”

10 Moore, Obstacles to Increasing Tax Revenues in Low Income Countries, 22.

11 Fuest and Riedel, Tax Evasion, Tax Avoidance and Tax Expenditures in Developing Countries, 49, Table 2.

12 OECD, Tax Expenditures in OECD Countries, 14.

13 Fuest and Riedel, Tax Evasion, Tax Avoidance and Tax Expenditures in Developing Countries, 46.

14 OECD, Analysis of Tax Expenditures in Ghana, 10, Table 6. The East Africa figures are from the World Bank, quoted in CRC Sogema (Tanzania: PER Tax Exemptions Study, 30, Table 7). They are based on the same methodology and therefore comparable. This is not the case for the OECD figures.

15 Khan, “Political Settlements and the Analysis of Institutions.”

16 For examples, see Kjær & Therkildsen, “Elections and Landmark Decisions in Tanzania and Uganda”; Prichard, “Electoral Competitiveness, Tax Bargaining and Political Incentives in Developing Countries.”

17 Khan, “Political Settlements and the Analysis of Institutions.”

18 Biezen & Kopecký, “The State and the Parties,” 244 Table 1; Pottie, “Party Finance and the Politics of Money in Southern Africa.”

19 Bryan & Baer, Money in Politics; Kulick and Nassmacher, “Do Parties Spend Too Much?”. In Kenya, for example, “particularly campaign financing, has increased […] largely due to intense intra- and inter-party political competition” (Mwangi, “Political Corruption, Party Financing and Democracy in Kenya,” 283).

20 Seeberg et al., “Candidate Nomination, Intra-Party Democracy, and Election Violence in Africa”; Kjær & Katusiimeh, “Nomination violence in Uganda's National Resistance Movement.”

21 Whitfield et al., The Politics of African Industrial Policy.

22 Erdmann, “Political Party Assistance and Political Party Research,” 1291.

23 Khan, “Governance and Growth Challenges in Africa.”

24 Gray and Whitfield, Reframing African Political Economy; Khan, “The Capitalist Transformation.”

25 Page and Söderbom, “Is Small Beautiful?”

26 Khan, “Markets, States and Democracy,” 718.

27 Noman and Stiglitz, “Strategies for African Development”; Whitfield et al., The Politics of African Industrial Policy.

28 Simpser, Making Votes not Count.

29 Arriola, “Capital and Opposition in Africa.”

30 Amsden, “Nationality of Firm Ownership in Developing Countries.”

31 IDEA, Funding of Political Parties and Election Campaigns; Mendilow, Money, Corruption, and Political Competition.

32 Arriola, Multiethnic Coalitions in Africa; Sarakinsky, “Political Party Finance in South Africa.”

33 Mendilow, Money, Corruption, and Political Competition.

34 CAG’s annual reports for 2002–2008 are no longer available online. Data from that period are from Rutasitara et al., Domestic Resource Mobilization in Tanzania. Exemption data around 2000 are problematic (Levin, Taxation in Tanzania). Hence, only data since 2002 are analysed.

35 The data differ by up to 10% from figures from other sources (see CRC Sogema, Tanzania: PER Tax Exemptions Study, 26, Figure 5), but only the CAG provides long-term annual data.

36 Twaweza, Tanzania’s Tax Exemptions.

37 A complete set of up-to-date Government Notices is not publicly available. In “what seems to be an old version of the Government Notices … more than 500 exemptions were granted to various beneficiaries, including individual corporations and people” (CRC Sogema, Tanzania: PER Tax Exemptions Study, 52–53).

38 CRC Sogema, Tanzania: PER Tax Exemptions Study.

39 See e.g., Fjeldstad et al., “Shaping the Tax Agenda.”

40 CRC Sogema, Tanzania: PER Tax Exemptions Study, 31.

41 Moreover, according to CAG-reports, the volume of tax exemptions were limited until the duty-free shops for the security forces were closed in 2016 (Msami et al. Bargaining strategies in recent tax reforms in Tanzania).

42 Cooksey and Kelsall, The Political Economy of the Investment Climate in Tanzania; Gray, “The Political Economy of Grand Corruption in Tanzania.”

43 Prichard, “Electoral Competitiveness, Tax Bargaining and Political Incentives in Developing Countries”; Khisa et al., Campaign Financing in Tanzania and Uganda.

44 Pinto-Duschinsky, “Financing Politics: A Global View,” 70.

45 Khisa et al., Campaign Financing in Tanzania and Uganda.

46 In 1984/85, the figure was nearly 93% (Whitehead, “Single-Party Rule in a Multiparty Age,” 199).

47 TEMCO, The 2010 Tanzania General Elections; TEMCO/REDET, Report on the 2015 election in Tanzania, 96.

48 Sokomani, “Money in Southern African Politics,” 87.

49 United Republic of Tanzania, Executive Budget Proposal 2015–2016 as passed by National Assembly, Vote 27.

50 Eriksen, Tanzania: A Political Economy Analysis, 7.

51 Confidential interview with second author, September 2018.

52 Quoted from Eriksen (Tanzania: A Political Economy Analysis, 7).

53 Cooksey and Kelsall, The political economy of the investment climate in Tanzania.

54 Confidential interview with second author, September 2018. See also The Citizen, May 26, 2018.

55 REDET, The Practicability of Separating Business from Politics in Tanzania, Mimeo, 24–26.

56 Heilman and John, Countries at the Crossroads 2012.

57 Khisa et al., Campaign Financing in Tanzania and Uganda.

58 Bryan and Baer, Money in Politics, 129.

59 TEMCO, The 2005 elections in Tanzania Mainland, 24.

60 Khisa et al., Campaign Financing in Tanzania and Uganda.

61 The ruling coalition refers to the ruling elites and the groups and individuals supporting ruling elites’ rise to and maintenance of power, typically in exchange for benefits.

62 Therkildsen and Bourgouin, Continuity and Change in Tanzania's ruling coalition.

63 Collord, “A Political Economy Analysis of Dominant Party Rule,” 30 Figures 1 and 2.

64 As Mukandala et al. (The Political Economy of Tanzania, 5) explained, “over 90% of the talented and experienced politicians decided to remain in the CCM under multi-partyism.”

65 Gray, “The Political Economy of Grand Corruption in Tanzania.”

66 Mmuya, Tanzania: Political reform in eclipse, ix; Tucker et al., Democracy and governance assessment of Tanzania.

67 Cooksey and Kelsall, The Political Economy of the Investment Climate in Tanzania.

68 Andreoni, Anti-Corruption in Tanzania, 16.

69 Whitfield et al., The Politics of African Industrial Policy, chapter 8.

70 Collord, “The Legislature,” 293.

71 Collord, M. “Tanzania – An Historic Election.”

72 Gray, “The Political Economy of Grand Corruption in Tanzania,” 395.

73 Confidential interview with second author, CCM insider, Dar es Salaam, August 2012.

74 Cooksey and Kelsall, The political economy of the investment climate in Tanzania; Gray, “The Political Economy of Grand Corruption in Tanzania”; Policy Forum, Tanzania Governance Review 2015/16.

75 Tucker et al., Democracy and governance assessment of Tanzania, 3.

76 Andreoni, Anti-Corruption in Tanzania.

77 Cooksey, Public Goods, Rents and Business in Tanzania, 27.

78 United Republic of Tanzania, Tax Statistics report, 16.

79 United Republic of Tanzania, Tax Statistics report, 17.

80 African Development Bank Group, Domestic Resource Mobilisation, 247.

81 Temu, Factors undermining tax reforms in Tanzania, table 4.5

82 Gray, “Industrial Policy and the Political Settlement in Tanzania”; Whitfield et al., The Politics of African Industrial Policy.

83 Hoffman, Political Economy Considerations for Transport on Lake Tanganyika and Lake Victoria, 3.

84 TEMCO, The 2010 Tanzania General Elections, 78.

85 Stefaans Brümmer, “Vodacom's elite network,” Mail and Guardian, 13 April 2007.

86 Therkildsen and Bourgouin, Continuity and Change in Tanzania's Ruling Coalition, 17.

87 Whitfield et al., The Politics of African Industrial Policy.

88 Repeated confidential interviews with the second author in 2010 and in 2018.

89 Wangwe, The Political Economy of Tanzania.

90 Fjeldstad & Rakner, Lobbying and the Shaping of Tax Policies in Tanzania; Collord, “The Political Economy of Institutions in Africa.”

91 Collord, The Political Economy of Institutions in Africa, 218.

92 Ibid., 177; Fjeldstad & Rakner, Lobbying and the Shaping of Tax Policies in Tanzania.

93 Sutton & Olomi, An enterprise Map of Tanzania.

94 Andreoni, Anti-Corruption in Tanzania, 18; Gray “Politics and business in Tanzania – a response.”

95 Kjær et al. “When ‘Pockets of Effectiveness’ Matter Politically.”

96 This is the case for Mining Development Agreements, Oil and Gas Production Sharing Agreements, and agreements between the government and strategic investors (CRC Sogema, Tanzania: PER Tax Exemptions Study, 1).

97 CRC Sogema, Tanzania: PER Tax Exemptions Study, 4–5, 53–54.

98 United Republic of Tanzania, Public financial management reform programme strategy phase IV, 55.

99 See the Budget Speeches for 2009/10 and 2014/15, presented in Parliament by the Minister of Finance. The CAG has made requests for this information since the 2012/13 report and, from 2013/14, the CAG has raised questions about exemptions to specific named companies.

100 The International Monetary Fund, IMF Staff Country Report. Tanzania 11/105, 17.

101 African Development Bank, Domestic Resource Mobilisation, 240.

102 See note 49.

103 Levin and Widell, “Tax Evasion in Kenya and Tanzania.”

104 Andreoni and Tasciotti, Lost in Trade.

105 See Prichard, “Electoral Competitiveness, Tax Bargaining and Political Incentives in Developing Countries.”

106 Data on beneficiary categories are not included in CAG reports after the 2015 election.

107 Whitfield et al, The Politics of African Industrial Policy.

108 Khan, “Markets, States and Democracy.”

109 Crook and Booth, “Conclusion: Rethinking African Governance and Development.”

110 Moore, How Does Taxation Affect the Quality of Governance?