TANZANIA BUDGET ANALYSIS 2019/2020

TANZANIA BUDGET ANALYSIS 2019/2020

The Minister of Finance unveiled the 2019/20 Budget on 13 June 2019. Below are some of the major tax reforms proposed by the Minister in the Budget Speech.

Tax Amnesty Extension:

For taxpayers who have been granted tax amnesty, they now have up to 31st December 2019 (instead of 30th June 2019) to settle their principal tax liabilities for which interest and penalty have been waived

  • This is a very commendable move given some delays in processing some of the tax amnesty applications.

 

Tax Dispute Resolution improved:

Two measures have been proposed

(a) Office of Tax Ombudsman at the Ministry of Finance, and

(b) Tax Objection Desk for disputes/complaints related to valuation or classification of imports

  • The success of these two measures will much depend on the extent of independence of those units, their expertise and resources.

 

Imports by individuals made simple:

The requirement to use clearing agents will no longer be mandatory for individual importers. The clearing process will also be simplified.

  • This may reduce the cost of importation to individuals but may also increase administrative costs to TRA in a short term.

 

Relief on female pads?:

(a) Corporate tax of 25% (instead of 30%) to apply for the first 2 years of operation to new investors in manufacturing of pads. Subject to a performance agreement with the government

(b) VAT exemption removed on supply of pads

  • Exemption or reduced income tax rate in the early years of production may not be an effective incentive. Most business will make losses in the first few years and may not be in a tax paying position anyway. VAT exemption does not always reduce prices to final consumers. Could there be some better non-tax incentives?

 

No immediate tax at TIN registration:

New taxpayers will now have up to six months before income tax on their business becomes due. No tax will be demanded when taxpayer applies for TIN.

  • What a great move! This will certainly give new taxpayers relief and focus their attention on building their new businesses at least for six months. But some anti-avoidance measures will also need to be in place to prevent abuse.

 

Excise duty:

No major changes on excisable goods and services. Duty reduced on wines made from local fruits from TZS200/L to TZS61/L. No duty on aircraft lubricants used by the national carrier and others per international agreements. Locally made artificial hair now to attract 10% duty and those imported 25%.

  • Some good news to aviation industry. Beauty will now be more expensive.

 

Stricter regulations on betting:

New system to be used to regulate both operators and players to mitigate negative social economic implications and also curb the revenue leakages.

  • Given the apparent boom in this sub-sector, this is a good move. Both economically and socially.

 

Customs :

A number of changes to protect local industries.

  • Protecting local industries is important and commendable. But that should go hand in hand with tangible controls to ensure efficiency. Otherwise we may be protecting inefficiencies and ultimately penalize consumers.

 

Nuisance levies scrapped:

In implementing the Blueprint for regulatory reforms, several levies and fees (e.g. imposed TFDA, Government Chemist, and TBS) are going to be scrapped.

  • This is a good start in implementation of the spirit of the Blueprint. Multiple fees, levies and taxes are not conducive to business.

 

Presumptive tax :

Several changes on sole proprietors with less than TZS 100 Million annual turnover.Presumptive tax at a maximum rate of 3.5% will now apply on individuals with turnovers of up to TZS100 Million (up from TZS20 Million). No requirement to submit audited accounts. Mandatory use of EFD to start from TZS14 million turnover. No tax if turnover is TZS 4million or less.

  • This is the boldest move. It will reduce both compliance and administrative costs. For lower bands, the tax rates have been reduced.

 

5 Years Driving Licence :

Drivers will now use their driving licences for 5 years (instead of 3 years) before renewing.This however comes with additional cost. Drivers will pay TZS 70, 000 to get their licences renewed (up from TZS 40, 000). Owners of cars and motorcycles will also pay more fee to register their vehicles from the current flat rate of TZS 10, 000. Motorcars (TZS 50, 000), Tricycles (TZS 30, 000) and Motorcycles (TZS 20, 000).

  • These reforms may not be palatable to the motorists.

 Conclusion:

The proposed reforms as presented in the Budget speech clearly show the intention to create an industrial economy and also implement the spirit of the Blueprint for regulatory reforms. We await to see how these and other tax reforms will be reflected in the tax laws (through the Finance Act, 2019 and the GNs).  

Tanzania Budget Analysis 2018-2019

TANZANIA BUDGET ANALYSIS 2018/2019

The Minister of Finance unveiled the 2018/19 Budget on 14th June 2018.
Below are the 10 Key reform areas:

1. Tax Administration

A six months Tax Amnesty to start from 1st July 2018. 100% Interest and penalty to be waived if conditions are met.

  • This is a very commendable move in the tax system. There are a lot of preparations that tax payers will need to make to be able to fully take advantage of the amnesty. The tax health checks services provided by tax consultants will, more than ever, be very useful tool for taxpayers.

 

2. VAT Exemptions - packaging materials for pharmaceuticals, animal and poultry feeds additives, and sanitary pads.

  • Will this measure really lower the prices of medicines, and pads? The effectiveness of this measure is difficult to predict. Exemptions in the VAT system are generally not a good thing because of cascading effect.

 

3. VAT (Ministerial Powers) - extend the powers of the Minister of Finance to exempt materials procured for government projects or projects financed by non-concessional loans.

  • This needs a careful relook. The recent trend has been to reduce/remove ministerial (political) discretionary powers from the tax systems. Exemptions generally create opportunities for tax planning/avoidance. An ideal VAT system is in rem, tax on things.

 

4. Income Tax- reduce corporate tax rate of 20% to apply for the first 5 years of operation to new investors in leather and pharmaceuticals industries. Subject to a performance agreement with the government.

  • Exemption or reduced tax rate in the early years of production may not be an effective incentive. Most business will make losses in the first few years and may not be in a tax paying position anyway. Could there be better non-tax incentives?

 

5. Income Tax- no withholding tax to apply on interest paid by the government on non-concessional loans.

  • It may be difficult to discern the rationale of this measure. Is this intended to reduce the borrowing cost to the government? Or reduce the compliance costs that come with withholding obligations?

 

6. Excise duty- no major changes on local excisable goods and services. Duty has increased for imports.

  • This was unexpected move. A big relief to local producers and consumers of local beverages.

 

7. Gaming tax – sports betting now taxed at 10% of gross sales, each slot machine cost a tax of TZS 100,000 per month, casinos taxed at 18% of gross revenue, forty (40) machines sites now taxed at 20% of gross revenue.

  • Given the apparent boom in this sub-sector, this is a good move, both economically and socially.

 

8. Customs - a number of changes to protect the local industries.

  • Protecting local industries is important. But that should go hand in hand with tangible controls to ensure efficiency. Otherwise we may be protecting inefficiencies and penalize consumers.

9. Nuisance taxes – several levies and fees imposed by Ministries, Departments and Regions are going to be scrapped. Several fees/levies imposed by OSHA are being scrapped. Also scrapped are several levies and fees imposed on salt production.

  • This is a good start in implementation of the spirit of the Blueprint. Multiple fees, levies and taxes are not conducive to business.

 

10. Blueprint

This move to reform regulatory framework to create a business enabling environment.

  • The Blueprint has several reform proposals. The reforms  proposed in the Budget speech partly reflect recommendations in the Blueprint. But there are still many more reform areas. The big question is to what extent the Blueprint proposals will be implemented?

 

Conclusion:

The proposed reforms as presented in the Budget speech clearly show the intention to create an industrial economy. We await to see how these reforms will be reflected in the tax laws (through the Finance Act, 2018 and the GNs).

We will share with you more insights and analysis in our website (www.auditaxinternational.co.tz)

 

 

 

Income Tax changes in the Tanzania Budget 2016/2017

Income Tax Changes in Tanzania Budget 2016/2017

Reduction of the lowest PAYE marginal tax rate to 9%

The employment income taxable bands remain unchanged but the tax rate has been reduced from 11% to 9% on the lowest taxable band (monthly income from TZS 170,000 to TZS 360,000). The new PAYE rates are as shown below:

Taxable Income (TZS)

Tax

Up to 170,000

NIL

170,001 to 360,000

9% of the amount in excess of TZS170,000

360,001 to 540,000

TZS 17,100 + 20% on excess of TZS 360,000

540,001 to 720,000

TZS 53,100 + 25% on excess of TZS 540,000

Over 720,000

TZS 98,100 + 30% on excess of TZS 720,000

The Minister also stated that this measure is aiming at reducing the tax burden. With this change, however, employees will only achieve a maximum tax saving of TZS 3,800 per month.

Remove Exemption on Non-investment Assets (shares)

The Minister has also proposed  in the Tanzania Budget 2016/2017 to remove exemptions on gains from non-investment assets (shares) to remove the 5% reduced tax rate on dividend. This advantage is currently applying to shares or securities listed in the Dar es Salaam Stock Exchange (DSE) . The shares are those owned by resident or non-resident who (alone or with associates). They control less than 25% of the controlling shares issued by the company.

Given the small size of DSE, this measure is step backward in terms of ensuring a strong stock market for a robust financial sector.

Impose Withholding Tax on Payments to Approved Retirement Funds

The Minister has proposed to impose withholding tax on payments to approved retirement funds. These are  from investment incomes (from leasing and lending) . It is line with the equity and fairness taxation principle. Thus rent, dividend and interest payments to approved retirement funds will now be subjected to withholding tax.

Remove Income Tax Exemptions on Final Gratuity to members of Parliament

The Minister proposes also in the Tanzania Budget 2016/2017 to remove the income tax exemptions. This is on the final gratuity to members of parliament in line with the equity and fairness taxation principles.

Grant Power to the TRA Commissioner General on Rental Income

The TRA Commissioner General has been granted powers to determine rental income on the basis of the minimum market value. He shall use the value to charge withholding tax on rental income. They may be administrative challenges on this measure. These include for instance the mechanisms to be used. Also the legality of the adjustments of the rental income (if any) by the Commissioner General. Other income tax administrative measures proposed by the Minister are:

  • Developing a comprehensive compliance programme to improve  revenue collection;
  • Establish various units in Dar es Salaam Tax Regions. Also new tax payer’s service centers for registration of more new tax payers.

Overall there were few changes on Income Tax in the Tanzania Budget 2016/2017