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The Tanzania Tanners Association (TTA) has condemned the government’s plan to reduce export levy on raw skins and hides, saying the move will create more room for smuggling of the raw materials.
The government last year increased export tax on raw hides and skins from 40% to 90% to encourage local value addition. But the situation has not improved at all as a lot of raw materials are still being exported to foreign manufacturers.
The Ministry of Livestock Development and Fisheries has proposed a reduction of export levy from 90% to between 50-60%. The move is likely to be effected in the 2014-15 budget. It also plans to introduce a two percent tax on semi-processed hides (wet-blue).
A senior official at the ministry confirmed that there is need to reduce the levy, which may see the government earn some money unlike at present where the government gets virtually nothing from export of raw hides.
“The argument is that with higher export taxes, most traders just smuggle the goods, escaping paying fees. So if it is reduced, it will be easier for them to pay, thus the government get at least some revenue from it,” said the officer, who preferred anonymity.
The ministry says that the country’s efforts to attract investments into the leather sector are under serious threat due rampant smuggling of raw hides and skins, leaving prospective investors with insufficient raw materials.
Should a conducive business environment be created, Tanzania has huge potentials to become a giant exporter of leather products and ultimately boost the sector's contribution to the national economy, existing policy reviews indicate.
It is estimated that over 50,000 pieces of hides are informally exported through the country's porous borders, denying the government about Tsh427m (US$ 263,000) in export duties.
Despite raising levies by about 90% to discourage exports of raw hides and skins, the foreign market is still preferred to selling to local tanneries, making it hard for present and prospective investors to obtain sufficient raw materials. Speaking with The Guardian on Sunday in Tanzania, TTA chairman Onorato Garavaglia said the association has been saddened by the plan to reduce export levy.
He said the government also plans to introduce tax on semi-processed hides, commonly known as wet-blue, arguing that the decision will cripple infant local tanneries.
“The government’s aim to introduce taxes on wet-blue is like killing the industries and open the door for traders who have been smuggling raw hides to continue with the game,” he said, noting that there is plenty to be done before the situation improves.
Concerted efforts by a group of people to block local tanneries from the market continue, thus creating a situation that allows them to export raw hides and skins, he stated.
This was evident following suggestion made some people during a stakeholders’ meeting organised by the Ministry of Trade and Industry, he asserted, referring to minutes of a meeting held on January 31, with a proposal by stakeholders that the government should repossess all tanneries that were privatised.