STIMULUS FOR ECONOMIC DEVELOPMENT AND THE QUESTION WHY TANZANIA SHOULD JOIN THE ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD)
- An introduction and brief history of OECD
- The manner in which OECD operates and how can one become a member
- Benefits of OECD to its members.
- Why Tanzania should join OECD.
- Application of OECD with regard to tax issues in Tanzania.
Organization for Economic Cooperation and Development also known as “OECD” is an international intergovernmental economic organization which was established for the first time on 30th September 1961 aiming at stimulating economic progress and world trade. It is a forum of countries describing themselves as committed to democracy and the market economy, providing a platform to compare policy experiences, seeking answers to common problems, identifying good practices and coordinating domestic and international policies of its members. Most OECD members are high-income economies with a very high Human Development Index (HDI) and are regarded as developed countries.
OECD resulted from the impact of the Second World War. European leaders learned that, encouraging cooperation and development would be the best way to ensure global lasting peace rather than punishing weak states.
Currently OECD has thirty five (35) member states, most of them being European Countries such as Great Britain, Netherlands, Norway, France, Germany, Spain, Italy and Norway that come together and devise ways and policies in which different problems facing the globe, can be analyzed and determine ways to solve them. Tanzania is not amongst member states to OECD. The tax department in collaboration with our investment experts at Breakthrough Attorneys has prepared this article to highlight the legal framework of the OECD and its related benefits to member states.
- Objectives of OECD
Article (1) of the Convention on the Organization for Cooperation and Development (Paris, 14th December, 1960) provides for three (3) major aims of the OECD as mentioned below:-
- to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy;
- to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development; and
- to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations.
- How does OECD work?
The major mission of OECD is to promote economic and social development around the globe. In order to achieve its mission OECD does the following:-
- collects data (probably on a particular problem that hinders social economic development);
- make critical analysis of the collected data;
- discuss proper policies that will help to solve the problem;
- the council (which involves representatives from member states and a representative from European Commission) will make decision and recommend; and
- last, governments will implement the recommendation.
A decision or recommendation is binding to all member states. Each member state has one vote to a decision or recommendation where a decision or recommendation has passed it will bind member states that voted and abstain member states that did not vote.
A decision or recommendation shall bind a member state if it complies with the requirements of the constitutional provisions of such member state. However, a member state may agree for such decision or recommendation to apply provisionally to them.
- Procedures of becoming a member of OECD
Considerations to open an application process can be made on the initiative of the Council or upon receipt of a written request by a prospective Member. Upon receipt of a formal request, the Secretary-General shares the request with the Council.Using the Framework, the Secretary-General will provide Council with comprehensive information on a prospective Member covering the elements listed in Annex I of the Framework.
Based on this comprehensive information provided by the Secretary-General, and on Council’s judgment, the Council may decide whether or not to open accession discussions, or to engage with the prospective Member through other means, using one or more of the available OECD global relations tools.
The Secretary-General will communicate the Council’s decision to the prospective Member. Should Council agree to open accession discussions with a prospective Member, the Secretary-General will proceed to prepare the Accession Roadmap for adoption by the Council.
- Advantages of being an OECD member:
- OECD provides a forum where governments can compare and exchange policy experiences, identify good practices and promote decisions and recommendations through peer pressure in all areas of policy making.
- OECD has a longstanding tradition as a source of policy solutions to common problems, derived from the shared experience of 30 democracies, in the almost 50 years in which it has served its member states. This has made OECD members become benchmark countries that set quality standards in different areas of trade and investment.
- Becoming an OECD member leads to a greater variety of statistics being available on the country in question. OECD publishes information regarding its members on a broad spectrum of topics, including agriculture and food, development, education, gender studies, and macroeconomic data.
- The international recognition that comes with membership, in particular the possibility of attracting foreign direct investment (FDI). For some organizations, OECD membership is one of the necessary conditions for investing in a given country. Regardless, it is clear that OECD membership is an important factor for increasing FDI, although it is not the only one.
- Should Tanzania join OECD?
In response to technological advancement, there has been a rapid growth of industrial sector in Tanzania, and as such, Tanzania needs to formulate policies which support growth and competitiveness of industries. It goes without saying that the 5th phase government has made “Industrial Tanzania” its priority agenda and it follows therefore that there is a need for Tanzania to formulate and implement policies that strategize creation of industries at small size and medium size, development of the existing industries; financing issues, regulatory issues, productivity and business dynamics and statistics.
Good reciprocity policies will allow Tanzanian local industries to maximize their opportunities at global level, promote sustainable development and social inclusion. This being the case, Tanzania needs OECD to achieve the highest level of development not only in industrial sector but also in agricultural sector which is the pillar of Tanzanian economy.
By being an active member to OECD Tanzania will be exposed to the wide range of policies and experiences from different governments that are members to OECD. It will be able to share its policy making experience with other member states and learn from them. The same goes for global markets expansion and outreach that the membership can unfold for Tanzania.
- Application of OECD with regard to tax issues in Tanzania:
There are two major categories of taxes in Tanzania namely direct taxes such as individual income tax and indirect taxes such as import duty and the Value Added Tax (VAT). Both direct and indirect taxes are charged on a residence basis and administered by the Tanzania Revenue Authority (TRA).
Tanzania has acknowledged “the OECD Model of Tax Convention on Income and Capital” and “the approved OECD Transfer Pricing Guideline for Multi-National Enterprises and Tax administration” by domesticating it under Regulation 9 of the Income Tax Transfer Pricing Regulations, 2014.
Basically domesticating an international law for a dualist country like Tanzania (that is, a country that separates international law from domestic law and the former needs to be specifically included in the local laws to be applicable and enforceable) implies that a country has agreed for such international law to be locally applicable and enforceable. This may be regarded as a positive alert that Tanzania views OECD positively because there is a greater chance of not only widening policies but also laws.
For many years OECD’s membership has been comprised of developed countries. However, its benefits are crucial to developing economies for sustainable economic growth resulting from policies formulated by OECD members. Tanzania’s membership to this forum is imperative given the current industrialization policy adopted by the fifth phase Government. OECD policies will promote growth of development sectors in both industrial and agricultural sector. Therefore, it is high time for Tanzania to consider joining OECD in order to harness the advantages of this forum for economic growth.
According to the OECD procedures for recruiting new members there is no doubt that Tanzania has qualifications to make a formal request and become an OECD member in accordance with the proper procedures. The fact that Tanzania is one among the few emerging resource rich countries in Africa gives her more credit to bargain for a seat on the table in the OECD.
Currently, there is a rapid economic growth, industrialization and technological changes in most of African countries. Despite of challenges such as poverty, unemployment and environmental issues developed countries look at them in a positive manner which implies that African industrialization is beneficial not only to African countries but also developed countries.
OECD has been convening several international economic forums on Africa where OECD officials gather with African policy makers, private sector, academicians and civil society leaders to discuss approaches to face the existing challenges. The need of having quality public policies by African Government has always been emphasized. For example in the most recent “Africa Forum” held on the 4th October, 2017 in Paris, the OECD members spoke of many issues but most notably were the issues on the “industrialization policies and entrepreneurship” regarding Africa. To quote the words of the OECD Secretary General, Angel Gurria on that agenda it was remarked:-
“Supporting Africa’s agenda for industrialization and entrepreneurship
Moving up global value chains is key to overcoming these challenges. And this is precisely why industrialization is at the heart of the African Union’s Agenda 2063, the theme of the 2017 African Economic Outlook and the focus of this year’s Forum. Yet, Africa will need to avoid the pitfalls of “dirty industrialization” and, instead, leapfrog over obsolete technology and catapult itself into the new industrial age.”
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It goes without saying that Tanzania, as a country is undergoing a massive policy reform and program which centers on industrialization. We believe that Tanzania’s strides towards becoming an industrial powerhouse in Africa and in prospect, globally, are well aligned with what OECD has to offer.
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