by Ben Taylor

Standard Bank case
Late in 2015, a landmark judgement in the UK courts saw Standard Bank fined US$25m and ordered to pay the Tanzanian government US$7m in compensation. The “deferred prosecution agreement” (DPA) suspended a case against Standard Bank for its alleged failure to prevent bribery. It relates to a $6m payment made in 2013 by Stanbic Bank Tanzania, then a sister company of Standard Bank, to a local agent, Enterprise Growth Market Advisors (EGMA), associated with Tanzania’s US$600m private bond placement.

The judge in the case, Lord Justice Leveson, concluded that Standard Bank “did not have adequate measures in place” to guard against corruption, and did not conduct sufficient due diligence in relation to EGMA.

EGMA was paid $6m for assistance in arranging the bond issue, though there was no evidence that the firm actually provided any services. One of EGMA’s directors was Harry Kitilya, then Commissioner General of the Tanzania Revenue Authority, a potential conflict of interest. The payment to EGMA was financed by raising the cost of the service provided by Standard Bank to the Tanzanian Government from 1.4% to 2.4% ($8.4m to $14.4m) of the total bond issue.

This is the first use of a DPA in UK courts. It allows for criminal proceedings against a company to be suspended provided that the company meets certain conditions. A prosecution may follow if the conditions are not met within three years, otherwise the Serious Fraud Office (SFO) will discontinue proceedings.

The case was initiated by Standard Bank itself reporting concerns to the UK authorities, when close to $6m in cash was withdrawn from EGMA’s account over nine days in March 2013. Observers are speculating whether the firm really decided of its own accord to self-report in this way, or whether they did so under pressure. Tanzanian opposition MP, Zitto Kabwe, argued that Standard Bank could have falsified information given to the SFO in order to reduce the fine.

The case raises difficult questions for the Magufuli administration, which has in other cases acted swiftly and decisively against corruption. The DPA does not prevent Tanzanian authorities from investigating further or from bringing a case against Standard Bank, Stanbic, EGMA or government officials involved in the bond issue.

In January, Valentino Mlowola, Director General of the Prevention and Combatting of Corruption Bureau (PCCB), said investigations into the Standard Bank case were at “final stages,” and promised that “soon you will see grand corruption suspects taken to court.” This has not yet happened.

Meanwhile, Tanzania has a debt of $600m, which may not have been negotiated on favourable terms. Standard Bank and Stanbic Bank were appointed to manage the bond placement following a closed bidding process, and the placement attracted a 6% interest rate – substantially higher than the 4% achieved by Zambia and Ghana. Corruption Watch UK estimate that the potential cost to Tanzania could be as much as $80m over the life of the bond.

Tax cut
On Workers Day, May 1, just as Tanzanian Affairs was going to press, President Magufuli announced a reduction in the basic rate of income tax. The rate for monthly salaries between TSh 170,000 and 360,000 has been cut from 11% to 9%. The higher rates for incomes above TSh 360,000 are unchanged. As a result, a worker on a monthly salary of TSh 360,000 or above will be better off by TSh 3,800 each month, or TSh 45,600 over the course of a year.

Announcing the change, President Magufuli stated that the move aims at alleviating the burden of tax on workers. “I promised during my campaign to reduce pay as you earn tax to single digits. Now I declare to reduce it from 11% to 9%. I know this percentage will create a gap in our revenue, but we shall see how to fill it,” said President Magufuli.

Professor Haji Semboja of the University of Dar es Salaam said that the amount returned to workers as tax reduction and its impact on economy was minimal. “The government has increased workers’ purchasing power by 2% … it’s something … but not that much.” Professor Honest Ngowi of Mzumbe University, said the 2% tax-cut on s alaries at the end of day was likely to be chopped off by inflation, exchange rate and consumable tax increase in the 2016/17 budget.

The Daily News newspaper, however, in an editorial, stated that they “warmly welcome the PAYE relief not necessarily because of the impact they will bring on the workers’ earnings, but as a concrete message that the future of the workers in the country is bright.”