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Significant
revenue shortfall Overall review of the Finance Ministers speech
for 2009/2010 and
ambitious revenue As a pre-election Budget speech, it Identified priority areas of
forecast for was no surprise to hear the infrastructure, agriculture,
2010/2011 Minister start by listing the education, health, water, and
Governments achievements in the energy have all been allocated
past five years - including the more significantly increased expenditure
Expenditure than doubling (in shilling terms) of budgets. Also listed as a priority
control and domestic revenue collections, area (and mentioned twice during
commercial which over the period have the speech) was a commitment to
borrowing to
balance the books increased from 12.5% to 16.4% of the accelerated implementation of
GDP. For 2010/11 the the national identity card project
Government plans to collect 17.3% something to be welcomed given
of GDP. that the additional financial
Agriculture is once transparency it should bring is
again a key focus
Kilimo Kwanza! However, the Government is faced likely to encourage greater tax
with challenges in relation to compliance. In the interim, one
revenue generation as collections move to expand the collection
this year are about 8% below base is to reintroduce the 2%
Introduction of budget in addition, General withholding tax on goods and
ring fencing of
mines
Budget Support from donors will services to apply to any payments
be significantly lower next year. made to a person not holding a
Indeed, when set against the taxpayer identification number
forecast Tshs 4,688bn revenue businesses making such payments
8% increase in collection for 2009/10, the question will however be concerned that this
specific excise
tariffs on alcohol,
arises as to whether forecast will simply increase their
tobacco, 2010/11 revenues of Tshs 6,003bn administrative load.
carbonated drinks are not too ambitious.
In the absence of any immediate
2009/10 2010/11 Increase significant expansion of the tax
No change on fuel Tshs'bn Tshs'bn base, the books are to be
taxes but rise in balanced by greater control of
motor vehicle expenditure and by resorting to
registration and Budget 5,096.02 6,003.59 18%
Anticipated
commercial borrowing.
annual licence
fees shortfall
(8%) (407.68) Measures to improve control of
Revised public expenditure include the
forecast 4,688.34 6,003.59 28%
planned adoption of prepaid
service delivery systems for
Tanzania Budget Review: Commentary 1
telephones and electricity, reduced base implying a trend to
and better coordinated increased local taxes.
procurement of Government
vehicles, fixed housing allowance For industry there are a number of
amounts (instead of a percentage positive measures including: a
of salary), substantial reduction reduction in excise duty on heavy
and better control of expenditure fuel oil (HFO) with the intention to
on allowances, and better control eliminate this duty over three
in relation to issuance of years; the reduction of customs
Government guarantees for loans duty on various industrial inputs;
to public institutions. increased duty to protect
manufacturers of certain cables
Although the Minister stated that and conductors; and measures to
commercial loans will only be encourage local processing of
raised to finance priority cashew nuts, edible oil, fruits and
infrastructure projects rather than milk. The local cement industry
recurrent expenditures, the sums has argued that its viability is
involved (Tshs 1,331bn new under threat from unfair
borrowing to be raised from both competition from subsidized and
domestic and external financial untaxed or under-taxed imports
markets) are significant (80% of which apparently enter
especially bearing in mind that Tanzania through Zanzibar).
significant amounts (Tshs 797bn) Against this background, the
also need to be mobilized to Minister announced a one year
finance maturing government extension of the 25% customs duty
securities. The private sector will on imported cement and in the
be concerned as to the extent to meantime a study is to be carried
which this will crowd them out of out on production capacity,
access to finance either due to demand and price.
consequent reduced availability or
affordability and are likely to For employers, especially in
argue that this will work against the sectors with large numbers of
Ministers commitment to improve employees (such as agriculture
the business environment to and industry), there will be
support private sector growth. disappointment that there is no
reduction in the 6% tax on jobs,
For agriculture, several additional namely skills and development
VAT and customs duty reliefs were levy.
introduced. However, of significant
concern for the sector is the To encourage investment there is
Ministers statement that produce reinstatement of VAT relief on
cess is "to be charged between 3% deemed capital goods but with
and 5% of farm gate price [to new controls (including a list of
allow] the Local Government such goods that is to be agreed by
Authorities to impose rates based a technical committee) to avoid
on the available resources abuse of the facility. The supply of
representing an apparent reversal building materials and construction
of the commitment given last year services to EPZ developers will
to reduce produce cess with effect also be eligible for relief from VAT.
from this year to 3% (from 5%).
This reversal is however consistent For mining, there is yet a further
with the Ministers reference this reversal to the 1997 mining regime
year to plans to enable local this time by way of the
authorities to broaden their tax introduction of ring fencing of
Tanzania Budget Review: Commentary 2
mines, so that losses from one Excise duties on non-petroleum
mine cannot be offset for tax products (alcohol, tobacco and
purposes against profits from carbonated drinks) have been
another mine. However, of greater increased by 8% - something that
concern to the sector will be the was expected as the consistent
lack of any specific mention of the practice in recent years has been
reinstatement of VAT special relief to adjust these fixed Tshs amounts
for the sector. Anecdotal evidence for inflation.
indicates that following the
abolition of this relief last year, and In real (inflationary adjusted)
the consequent need for mining terms, there is an effective income
companies to pay VAT on inputs tax increase for most individuals as
and then reclaim refunds, unpaid there has been no adjustment to
refunds from Government have income tax thresholds, which were
ballooned threatening the viability last increased in July 2008.
of this key sector. Instead, in a change that is more
political than practical, there is a
Long suffering commuters in Dar reduction of the lowest tax rate to
es Salaam will have been happy to 14% from 15%. If there was a real
hear the Minister state that the intention to reduce the tax burden
Government is currently in any meaningful manner, then it
undertaking rehabilitation and would have been more appropriate
expansion of roads and related to reduce the rate to 10% (an
infrastructure in the city in order to easier percentage to calculate, and
ensure that the Dar es Salaam consistent with the lowest rate
Rapid Bus Transport project starts applicable in Kenya and Uganda),
as soon as possible. Against this especially given the lack of
background, a customs duty adjustment to the tax thresholds.
exemption is introduced for buses As it is, the 1% reduction looks
to be imported for the project. more like a gimmick.
Further good news on the
transport side is that there was no Overall, this Budget sees little
increase in the fixed Tshs taxes on dramatic change unsurprising
fuel - in effect meaning that in hard with an election round the corner.
currency terms these taxes have
decreased. Given the revenue This publication including the accompanying
shortfall and the significance of newsletters are provided by
PricewaterhouseCoopers Limited for information
fuel taxes to the overall revenue
only and do not constitute the provision of
pot, as well as bearing in mind that professional advice of any kind. The
the last increase in fuel taxes was information provided herein should not be used
in July 2007, this lack of as a substitute for consultation with professional
adjustment is perhaps surprising. advisers. Before making any decisions or
taking any action, you should consult a
On the other hand, against the
professional adviser who has been provided
background of an impending with all the pertinent facts relevant to your
election, perhaps it is no surprise. particular situation. No responsibility for loss
However, it is not all good news for occasioned to any person acting or refraining
vehicle owners, as vehicle from action as a result as a result of any
registration and vehicle licence material in the publication including the
accompanying newsletters can be accepted by
fees are being increased, and
the author, copyright owner or publisher.
vehicles over 10 years old will no
longer be eligible for tax
exemptions.
2% withholding
Highlights based on the Finance Ministers speech
tax on all
payments to Income Tax Ring fencing of mining tax
non-TIN holders
losses
Withholding tax on goods
and services It will now not be possible to utilise
Marginal tax rate mining losses from one mine
for lowest Withholding tax at a rate of 2% against taxable income of another
income band for which is currently applicable to mine of the same company. The
individuals payments for goods and services intention is to have each mine
reduced to 14% by the Government to suppliers taxed separately. This change is
without a (business) Taxpayer likely to trigger a number of
Mining ring-
Identification Number (TIN) has complications, for example how
fencing
now been extended to cover will shared deductible expenses be
payments by all taxpayers. This allocated? In addition, what
change intends to encourage exactly is a mine as mining
Several VAT voluntary registration for TIN and companies may have several pits
exemptions, capture income that currently falls within one mining area or which in
zero-rating and outside the tax net. However, it isolation are not economic to run.
special reliefs for will also increase the
the agricultural administrative burden for Value Added Tax
sector
taxpayers.
From an economic efficiency
Changes in Personal Tax perspective, a moderate VAT rate
Produce cess rates with a broad consumption base
cap not reduced and few exemptions is always
The marginal tax rate for preferred to a high rate with many
individuals has been reduced from exemptions.
15% to 14% on the lowest tax
Inflationary To all intents and purposes,
band (monthly income from TShs
adjustment to exempting an item will only be
excise duty on 100,000 to TShs 360,000).
Assuming this lowest tax band advantageous to a purchaser if no
alcohol, beer
and cigarettes remains unchanged, the change VAT costs were incurred in the
will result in a maximum tax saving production of that item. Where
of Tshs 2,600 per month for the VAT has been incurred then it can
individual. not be recovered and is often
Increase in passed to the consumer making
motor vehicle the item more expensive.
registration and
annual licence
fees 1
Tanzania Budget Review: Tax Changes
Unfortunately we seem to keep on applicable on importation. This
increasing the number of kind of listing is novel and is
exemptions and this year is no probably aimed at reducing
exception. abuse.
Supply of goods and services The registration fee for new motor
to organised farms and farms vehicles has increased as follows:
under registered cooperative
unions for the purpose of Tshs 45,000 for motor cycles
building of farm infrastructure. (currently Tshs 35,000)
We foresee some difficulties in
relation to controlling this relief
Abolition of exemption on
motor vehicles aged more
than 10 years
Produce Cess to be
chargeable between 3 and
5 percent of farm gate
price. The Local
Government Authorities will
be allowed to impose rates
based on the available
Tanzania Budget Review: Tax Changes 6
The Economy
Economic growth
of 6% compared Highlights based on speeches by the Minister of
7.4% in 2008.
Finance and Economic Affairs on 10 June 2010.
Past Performance 2009/10 collection some challenges remain.
These include:
The economy of Tanzania is
estimated to have attained real GDP Inadequate domestic revenue to
Headline inflation
growth of 6% during year 2009 finance Government programmes,
rate was 9.4%.
compared with the growth rate of 7.4% particularly infrastructure projects
attained in year 2008. The rate of social services; and agriculture;
growth has gone down significantly
compared to recent levels. However, Existence of a large informal
the actual growth is slightly above the sector which is not adequately
By March 2010, revised growth figure of 5.5%. Per integrated in the formal economy,
domestic revenue capita income increased by 10% to hence contributing minimally to
collection for Tshs 628,258. domestic revenue;
2009/10 was
Tshs3,490.3 billion The growth momentum is based on
Slow pace of implementation of
out of Tshs 4688.3 increased economic activities in
billion, implying a development projects due to
communication, gas and electricity,
deficit of Tshs insufficient knowledge of public
manufacturing, construction and
331.1 billion. procurement procedures and
transportation.
delays in disbursement of funds;
The average annual headline inflation
was 9.4%. In 2009/10, the The use of Integrated Financial
Government planned to collect Tshs Management System (IFMS) has
5,096 billion in domestic revenue, not yet been rolled out to all Local
Per capita income equal to 16.1% of GDP. However, due Government Councils in the
increased to Tshs to the global financial crisis, revenue country.
628,258 in 2009
collection by the end of June 2010 is
from Tshs 628,259
in 2008, equivalent expected to fall short of this target. Budget Objectives 2009/10
to an increase of Total domestic revenue collected to
10%. end of March 2010 was Tshs 3,490.3 The 2010/11 budget takes into
billion, which represents a shortfall of account the objectives of the National
Tshs 331.1 billion, compared to the Development Vision 2025, MKUKUTA
target for the period. For 2010/11 II, the Millennium Development Goals
domestic revenue collection has been (MDGs), the National Debt Strategy,
projected at Tshs 6,003.6 billion and priorities outlined in the budget
equivalent to 17.3% of GDP. guidelines 2010/11 2012/13. The
budget also takes due account of the
Challenges ahead objectives of the Joint Assistance
Strategy for Tanzania (JAST).
Despite some achievements in
economic growth and revenue
Implementing the Second Strategy The current budget deficit and inability
for Preventing HIV/AIDS Infections to meet revenue collection targets,
in 2008 2012; coupled with a significant reduction in
donor funding for budget support,
To improve management and implies that the Government will have
control of public expenditure. This to increase their efforts in sustainable
will be done through putting internal revenue mobilisation.
different controls in different areas
such as control of procurement
and use of government vehicles
etc;