…East African Co-operation inputs bring in relief in some areas traditionally the focus of high taxes… (Download Entire English Version Speech at the Bottom)
The Tanzania Finance Minister, Saada Salum Mkuya read the Tanzania Government budget for fiscal year 2014/15 at Parliament in Dodoma, Central Tanzania on Thursday, June 12, to announce huge tax increases on alcoholic drinks and a reduction of taxes on buses and tractors.
The Minister told Parliement the Government intends to collect Tsh 19.853tr/- from both internal and external sources of revenue, and that out of this amount 13.408 tr/- will be used as recurrent expenditure while 6.445 tr/- will be spent as development expenditure.
Performance during the previous year 2013/14 shows the economy is stable, she said, adding that the planned budget is achievable if the country remains peaceful. Major highlights of the budget speech are presented below, translated from Kiswahili to English in unofficial language as we understood the speech:
56.5% OF TANZANIANS ‘UNBANKED’
The government conducted research in 2013 and learned 13.9% of Tanzanians use banking services, compared to 9.2% using the services in 2009. The Government also learned 43.5% of Tanzanians use non-bank financial institutions for their financial services compared to 6.7% in 2009.
The non-bank financial institutions include insurance firms, SACCOS, small [private] financial institutions, and mobile phone money transfers. Another 15.8% use informal sector organizations such as VICOBA, ROSCA (Rotating Saving and Credit Associations), VSLA (Village Saving and Lending Associations), showing a decline from 28.9% depending on these services in 2009. But over-all, the research shows 57.4% of Tanzanians have access to financial services.
The nation’s foreign exchange reserves were at a satisfactory level at the end of April 2014, when the country had $ 4.65 billion in foreign exchange reserves, compared to $ 4.4 billion at the same period in 2013. This amount is sufficient to meet the country’s import needs for goods and services for more than 4.6 months, which is above the planned capacity to maintain reserves capable of imports for 4.0 months. This financial year’s budget guidelines include the following:
i) The country’s annual Gross Domestic Product (GDP) is expected to grow by 7.2% during fiscal year 2014/15, and that this growth will increase to 7.7% in the medium term. ii) It is envisaged that inflation will be tamed to single digit levels, with hopes that it will be tamed at 6.0 % during the period that ends June 2014, and at 5.0% by June 2015. iii) To increase Government revenue from internal sources to the ratio of 18.9% of GDP during fiscal year 2014/15. iv) To bring the budget deficit to 4.9% of GDP when both internal and external sources of revenue are considered. v) To limit the increase of broad money supply (M3) to around 15.5% during the year that ends June, 2015 in order to be in harmony with the projected economic growth and the inflation levels forecast. vi) To maintain foreign exchange reserves for imports of goods and services to last for four months during the year that ends June 2015. vii) To strengthen the foreign exchange value of the Tanzania shilling on the foreign exchange market.
In order to achieve these broad objectives of the budget, the government has made the following asumptions: i) That the country remains peaceful, tranquil, and that the peaceful atmosphere is obtained locally, regionally, and throughout the world. ii) That social- economic activities are vibrant, the people are focused on foreign trade and financial services. iii) That internal revenue is increased by strengthening existing sources of revenue, and identifying new sources of revenue, and that tax exemptions are reduced in number and their supervision is intensified. iv) To strengthen financial management and discipline in the use of public funds….
REVENUE, TAX EXEMPTIONS AND PROCEDURAL CHANGES
During financial year 2014/14, the government will continue to take policy and administrative measures that aim at increasing the tax base, to identify new sources of revenue, to strengthen tax administration, to reduce tax exemptions given through various laws which include the Value Added Tax law (VAT).
Policy measures which aim at increasing revenue will include the following measures: i) To strengthen joint activities, as well as to control and reduce tax exemptions by the review of various laws which provide tax exemptions, which will be done through the control and reduction of tax exemptions. ii) To increase the registration of new tax payers and to raise the efficiency and effectiveness of tax collection. iii) Tanzania Revenue Authority (TRA) will increase its days on duty in order to increase the time available to service tax payers at the sea ports and at certain order posts.
iv) To complete writing the new VAT law. v) To complete writing the new Tax Administration Law. vi) To strengthen and maintain use of Electronic Fiscal Devices-EFDs in the issuance of business transaction receipts. vii) The government will harmonize the collection of various non-tax revenues in the wake of completion of research in this area. viii) The government will continue effort to formalize the informal sector, so that it is made taxable. ix) All government departments will now submit all their revenue to the main consolidated government fund through the retention scheme. x) To curb tax evasion, the ministry of finance will now issue a special hot-line telephone number and e-mail address to enable good citizens to give information about tax evasion, and;
xi) Government ministries, independent government departments, regional administrations, City councils, Municipalities, Government agencies and institutions and various institutions that collect any kinds of revenue will be directed to use Electronic Fiscal Devices-EFDs in order to easy revenue collection and to control losses.
The policy stance of the 2014/15 financial year aims to enable the collection of revenue and non-tax revenue to the tune of Tsh. 12.178 tr, equivalent to 19.2% of GDP. Out of this amount, Tsh. 11.318 tr will be sources from taxes while Tsh. 859.8 billion will be from non-tax revenue. Revenue from regional administrations (Halmashauri) will be Tsh. 458.5 billion, equivalent to 0.7% of GDP.
Tanzania will also get funds from development partners who appear on the following list: Canada, China, Denmark, Finland, Hispania, India, Ireland, Italy, Japan, South Korea, USA, Norway, Sweden, Belgium, France, Holland, United Kingdom, Germany, Sweden, as well as a number of international organizations.
The international organizations include the African Development Bank (ADB), World Bank, BADEA, Global Fund, OPEC Fund, Saudi Fund, European Union, International Monetary Fund (IMF), and the United Nations organizations from which the government receives invaluable counsel and advice. “We thank you and value your contribution.”
The government will also take soft loans that carry low interest to finance infrastructural development projects. The loans will be taken locally and from external lenders. The government will borrow Tsh. 2.955 tr from the local sources, out of which Tsh 689.56 billion, equivalent to 1.1% of GDP, will be used to finance development projects while Tsh. 2.266 tr will be used to pay maturing government bonds. The government will also borrow Tsh. 1.320 tr from external sources to finance development projects.
THE NEW TAX STRUCTURE:
In order to increase revenue and achieve economic growth target in 2014/15; I propose to make amendments of the tax structure, including reforms of fees and levies imposed under various laws as follows: -a. The income Tax Act, CAP. 332; b. The Excise (Management & Tariff) Act, CAP 147; c. The Road and Fuel Tolls Act, CAP. 220; d.The Motor Vehicle Registration and Transfer Tax Act, CAP 124; e. The Export Levy Act, CAP 196; f. The Tanzania Investment Act, CAP 38; g. The Vocational Education and Training Act, CAP 82; h. The Business Licensing Act, No. 25 of 1972; i. The East African Community Customs Management Act, 2004; j. Amendments of the Fees and Levies charged by
[Amendments in Laws that concern] Ministries, Regions and Independent Departments; k. Administration of Taxes on import of petroleum; l. Minor Amendments in various Tax Laws and other Laws; and m. [to] amend the Public Finance Act, CAP 348, the Treasury Registry Act, CAP 418 and Executive Agencies Act, CAP 245 with a view to consolidate public finances under the Consolidated Fund which is managed by the Pay Master General.
A. The income Tax Act, CAP 332;
Madam Speaker, I propose to make amendments to the Income Tax Act, CAP 332 as follows: (i) To exempt from taxes all incomes and gains to the holders of the bonds that will be issued by the African Development Bank in Tanzania domestic capital market. This measure is intended to enhance the Bank‟s ability to offer low cost loans in investment of various development projects such as infrastructure projects etc; (ii) Impose 15 percent final withholding tax on Board of Directors‟ fees;
(iii) Remove corporate tax exemption to companies for income derived from gaming; (iv) Remove exemption of withholding taxes on Rental charges on aircraft lease paid to a non-resident by a person engaged in air transportation business. The measure is intended to scale down level of exemptions and increase Government revenue; (v) Remove powers of the Minister for Finance to grant exemptions for projects relating to expansion and rehabilitation undertaken by investors. This exemption is currently granted to investors who own TIC Certificates; (vi) Adjust PAYE threshold from 13 percent to 12 percent. This measure is intended to provide relief of tax burden to employees; and (vii) To increase the rate of presumptive tax from 2 percent to 4 percent for annual turnover which exceeds Shs. 4,000,000 but not exceeding Shs. 7,500,000 for record keeping businesses; and increase the current flat rate from Shs. 100,000 to 200,000 for non record keeping businesses. These measures together are expected to increase Government revenue by shillings 31,504 million.
B. The Excise (Management & Tariff) Act, CAP 147.
I propose to make amendments to the Excise (Management & Tariff) Act, CAP 147 as follows:- (i) Remove the excise duty rate of 0.15 on money transfers in order to provide a re lief to a person who transfers money through banks and telecommunication. Instead,
I propose to introduce excise duty of 10 percent to be paid by banks and telecommunication companies and various agencies for the fees and levy they collect on money transfer services; (ii) Remove powers of the Minister for Finance to grant exemption on excise duty on petroleum products. However, this measure will not involve exemptions granted through Agreements signed between the Government and development partners to finance development projects such as roads and water supply infrastructures.
The measure is intended to rationalize and harmonize Government policies on fuel exemption and limit the abuse. It is further intended to harmonize with TIC Act, CAP 38 as amended by Finance Act, 2013 which removed exemption on petroleum products; (iii) To change the threshold on the age of non-utility motor vehicles that are currently being charged an excise duty of 25 percent from the current 10 years to 8 years.
The measure is intended to protect environment and discourage importation of aged (obsolete) vehicles that are prone to accidents, deaths as well as draining foreign currencies from import of spare parts; (iv) Continue to impose an excise duty of 5 percent on non- passenger utility motor vehicles but adjust the limit from 10 years to 8 years. Also, I propose to adjust the threshold of the passenger carrying vehicles that are currently being charged 5 percent from the limit of 10 years to 8 years and above.
This measure is intended to promote employment, protect environment and discourage importation of aged vehicles that increase demand for foreign exchange and are prone to accidents. However, this measure will not affect tractors that will continue to be imported without any tax; (v) Impose excise duty rate of 15 percent on imported furniture under HS Code 94.01. During the financial year 2013/14 the Government introduced an excise duty of 15 percent on furniture under HS Code 94.03. All these measures are intended to promote local production of furniture using locally available timber. It is also aimed at promoting employment, technology development and increase Government revenue; (vi) I propose to adjust by 10 percent the specific rates of excise duty on non-petroleum products; these products include soft drinks, alcohol, spirits etc.
Also, excise duty of 25 percent will be charged on cigarettes as part of implementation of Framework Convention on Tobacco Control by World Health Organisation (WHO) of which Tanzania is a signatory; (a) Excise duty on soft drinks from shillings 91 per litre to shillings 100 per litre; being an increase of shillings 9 per litre. (b) Excise duty on locally produced fruit juices from shillings 9 per litre to shillings 10 per litre, being an increase of shillings 1 per litre. (c) Excise duty on imported fruit juices from shillings 110 per litre to shillings 121 per litre; being an increase of shillings 11 per (d) Beers made from local un-malted cereals from shillings 341 per litre to shillings 375 per litre, being an increase of shillings 34 per (e) Other beers from shillings 578 per litre to shillings 635 per litre; being an increase of shillings 57 per litre.
(f) Wine produced with domestic grapes content exceeding 75 percent, from shillings 160 per litre to shillings 176 per litre, being an increase of shillings 16 per litre. (g) Wine produced with more than 25 percent imported grapes from shillings 1,775 per litre to shillings 1,953 per litre; being an increase of shillings 178 per litre. (h) Spirits from shillings 2,631 per litre to shillings 2,894 per litre; being an increase of shillings 263 per litre.
(i) Excise duty on bottled water will not be affected by these adjustments; (vii) To amend excise duty rates on cigarettes as follows: (j) Cigarettes without filter tip and containing domestic tobacco more than 75 percent from shillings 9,031 to shillings 11,289 per thousand cigarettes; being an increase of shillings 2.25 per (k) Cigarettes with filter tip and containing tobacco more than 75 percent from shillings 21,351 to shillings 26,689 per thousand cigarettes; being an increase of shillings 5.30 per cigarette.
(l) Other cigarettes not mentioned in (j) and (k) from shillings 38,628 to shillings 48,285 per thousand cigarettes; being an increase of 48 shillings 9,657 per thousand cigarettes or shillings 9.65 per one cigarette. (m) Cut rag or cut filler from shillings 19,510 per kilogram to shillings 24,388 per kilogram; being an increase of shillings 4,878 per kilogram; and, (n) The excise duty rate on “cigar” remains at 30 per The excise duty measures together are expected to increase Government revenue by shs. 124,292.0 million. C. Road and Fuel Tolls Act, CAP 220 90. Madam Speaker, I propose to amend the Road and Fuel Tolls Act, CAP 220 to remove powers of the Minister for Finance in granting fuel levy exemption, except for exemptions granted through Agreements signed between the Government and development partners to finance development projects such as roads and water supply infrastructures etc.
D. The Motor Vehicle Registration and Transfer Tax Act, CAP 124
I propose to make amendments to the Motor Vehicle Registration and Transfer Tax Act, CAP 124 with a view to differentiate the registration system of motor cycles from motor vehicles by changing the prefix from T to TZ. The aim of this is to fight crime practices which are associated with the use of motor vehicles prefix in motor cycles. This measure is not expected to contribute any revenue to the Government.
E. The Export Levy Act, CAP 196
Madam Speaker, I propose to reduce the export levy on raw hides and skins from 90 percent or Shs 900 per kilogram to 60 percent or Shs 600 per kilogram whichever is higher. The measure is intended to curb illegal exportation of raw hides. Investigation indicates that there has been no raw hides that have been exported through recognized border posts, in stead most of it is smuggled out. This measure is also intended to promote domestic processing value addition and employment creation. This measure is expected to increase Government revenue by Tshs. 5,778.7 million.
F. The Tanzania Investment Act, CAP 38;
I propose to make amendments to the Tanzania Investment Act, CAP,38 as follows:-i. Remove cement from the list of deemed capital goods which enjoys tax exemptions under the Tanzania Investment Centre. This measure is intended to promote the production of cement in the country and protect local industries from competition with imported cement; ii. Remove all tax exemptions on investments granted to telecommunication operators under the Tanzania Investment Center for deemed capital goods such as telecommunication towers and their accessories, generators, tower fences, vehicles, base station accessories, earthing, surge, and lightening protection system etc;
NEW DEFINITION OF INVESTOR
I propose to introduce a new definition for strategic investor by changing the lower threshold capital that an investor is required to invest in order to qualify as strategic investor. Therefore, I propose to increase the threshold of capital for foreign investors from US Dollars 20 Million to US Dollars 50 millions. The objective of this measure is to direct investment incentives to large capital investments. However, I propose to maintain the threshold of US Dollars 20 Million for Tanzanian Citizens in order to promote local investors.
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