tz budget summary 2009

8/7/2019 TZ Budget Summary 2009

http://slidepdf.com/reader/full/tz-budget-summary-2009 1/16

Tanzania Budget Review: Commentary 1

Commentary

Overall review of the Finance Minister’s speech

The global financial crisis providedthe backdrop to this year’s Budgetspeech with the most affectedsectors identified as agriculture,mining and tourism, as well as

manufacturing.

Agriculture was a particular focuswith a Budget theme / motto of“Agriculture First” (or as spoken inKiswahili “Kilimo Kwanza” forbetter alliterative effect).Measures mentioned included thefollowing:

• A 30% increase in thebudgetary expenditure

allocation, to cover variousinitiatives including a drive toensure timely availability ofagricultural inputs,strengthening of the StrategicGrain Reserve, as well asimprovement of the rural roadnetwork, of irrigationinfrastructure and of storagefacilities.

• A number of measures toredress adverse impacts of

the global economic crisis, forexample compensation oflosses incurred by crop buyerssuch as in the cotton sector.

• A reduction of the cap / ceilingon cess (a local Governmenttax) to 3% from the current

5%, to take effect from2010/2011.

• A number of VAT and customsduty changes to promote the

dairy sector.

There was also explicit recognitionof the need to identify and surveyland for large scale food cropfarming to take advantage of theexisting opportunity in terms oflocal and world market demand.

Notwithstanding the dramaticdownturn in the global miningclimate, there was no good news

for the mining sector with anumber of adverse fiscal measuresannounced including:

• Removal of VAT special reliefgiven to the mining sector,which will now be limited tocover only prospecting andexploration activities only.This relief was never anexemption in the sense of theGovernment giving up tax thatit could use, but merely a

means of mitigating cash-flowcosts for mining companiesthat otherwise arise when VATis paid on inputs, and then hasto be refunded. The changesmade, which will increase theVAT refunds to the sector, will

Agriculture is the key focus – “Kilimo Kwanza”!

Adverse changes for the Mining sector in relation to taxes on fuel and VAT.

VAT rate reduced to 18%, but concern over treatment of leased residential buildings.

7.5%increase in specific excise tariffs on alcohol,tobacco,carbonated drinks.

Significant revenue shortfall projected in the year to June 2009.

Abolition of 405 Government Notices granting exemptions.




adversely affect the cash-flowposition of mining companies.

• Abolition of exemption of taxeson fuel for mining companies,other than fuel levyexemptions in existing MiningDevelopment Agreements (inthe case of which it is statedthat the Government intendsto enter into a dialogue withthe mining companies with theaim of amending theagreements to remove suchexemptions). The implicationfrom the speech appears to bethat excise duty (unlike fuellevy) is not protected by suchagreements – something thatmay be a matter for debate.The overall economic concern

with loading these additionaltax costs is that it willdiscourage the exploitation ofmore marginal ore bodies.Irrespective of this, one wouldhave thought that as aminimum an exemption wouldstill apply for fuel used togenerate power, a cost onlyincurred in the case of lack ofinfrastructure to connect to thegrid, something that is no faultof the relevant mine.

For tourism, there was mixednews. Adverse changes includethe removal of the VAT exemptionon air charters. This sector willalso be particularly affected by theremoval of the notion of “deemedcapital goods”, something that hadenabled the industry in the past toimport free of import duty and VATa significant amount of materialrequired for setting up tourismfacilities such as hotels. On the

plus side, there is the removal ofimport duty from 4 wheel drivevehicles specifically designed andbuilt for tourist purposes, andsome rationalisation in relation tovisa costs.

One of the major announcementsin this year’s Budget was thereduction of the standard VAT ratefrom 20% to 18%. This will beappreciated by manufacturersselling into the domestic market,who will also be relieved that theincrease in specific excise duties is

no higher than 7.5%, stated to bethe average inflation rate duringthe period. Certain sectors ofmanufacturing will benefit fromreductions in customs duties onvarious inputs.

Other sectors to benefit from theVAT rate reduction will bebusinesses that make VAT exemptsupplies - such as banks,insurance companies, and fuelretailers – as these businesses

can not recover VAT input costs.So any reduction in VAT is a realreduction in their costs.

For most transactions, VAT is a taxonly on the ultimate consumer.So, consumers will be the primebeneficiaries of the reduction.However, for individuals theBudget is a mixed bag. Yes thereis a VAT rate reduction, and limitedexcise duty increases, as well as

the removal of import duty onpharmaceuticals. On the otherhand, there is no increase in thepersonal tax brackets. In addition,there will be some anxiety as tothe possible adverse impact ofchanges to the VAT treatment ofleased residential buildings as wellas in relation to the removal ofexemptions for charities andNGOs, particularly given the roleplayed by religious bodies inrelation to education and health.

An overriding concern forindividuals and businesses is thereliability of projections for macro-economic variables such asinflation, lending rates and theexchange rate – especially, giventhe experience this year of a




significant revenue shortfall,estimated to be 10% short oftarget, not to mention a generalelection on the horizon. Inaddition, the Minister hasconfirmed that the Government willborrow significant funds from thedomestic market, albeit that it is

stated that this will be done on abasis consistent with monetarypolicy requirements. One cushionfor the coming year is the supportcommitted by donors, which will be30% up on the level of loans andgrants in the previous budget.There is also a pledge from theEuropean Union and World Bankto provide additional financing tosupport agricultural foodproduction.

In terms of revenue shortfall, thegreatest deficit has been onCustoms and Excise collections(21% down on budget), and whilstthere is a commitment given to“continue strengtheningsupervision and operations in theCustoms and Excise department”there is no further articulation ofhow this objective will be achieved.This is a matter for concern asCustoms and Excise collections

were also below expectations inthe preceding year.

A significant contributor toGovernment revenues, but an areawhere there is anacknowledgement of significantevasion, is in relation to fuel.Again here there is a commitmentto “strengthen monitoring of fuelimport by ensuring flow metersoperate all the time” – which begsthe question, if the flow meter

system has not worked to date,why do we believe it will work now.One controversial initiative for thesector, already much debated, andrestated in the Budget speech isthe proposal to establish a fuelbonded warehouse using TIPERfacilities for bulk importation of

fuel, which is seen amongst otherthings as a means to curb evasion.Before commenting further on thisproposal, it would be interesting toknow what the practical costimplications are of the introductionof such a system.

In seeking to clamp down onloopholes, the speech announcesthe immediate abolition of 405Government notices issuedbetween 1964 and 2005. It is notyet clear what the process will befor publicising the revoked notices,but one suggestion would be tohave the relevant noticespublished on the internet so thattaxpayers can assess theimplications, if any, for them.

The speech rightly emphasises theimportance of infrastructure andmakes reference to the plannedfinalisation of a national policy onPublic Private Partnership in orderto enable the private sector toparticipate in infrastructureprojects. Hopefully, this willpresage a more positiveexperience and engagement withthe private sector on infrastructureprojects.

This Budget speech was givenagainst the very challengingbackground of the global economiccrisis. By definition thisbackground has made the wholeplanning process challenging.Whilst we have queried certainaspects of the proposals, theoverall thrust of “Kilimo Kwanza” isone to be supported.

This publication including the accompanying

newsletters are provided by PricewaterhouseCoopers Limited for information

only and do not constitute the provision of

professional advice of any kind. The

information provided herein should not be used

as a substitute for consultation with professional

advisers. Before making any decisions or

taking any action, you should consult a

professional adviser who has been provided




with all the pertinent facts relevant to your

particular situation. No responsibility for loss

occasioned to any person acting or refraining

from action as a result as a result of any

material in the publication including the

accompanying newsletters can be accepted by

the author, copyright owner or publisher.



Tanzania Budget Review: The Economy 1

The Economy

Highlights based on speeches by the Minister of

Finance and Economic Affairs on 11 June 2009.

Past Performance 2008/09

The economy of Tanzania isestimated to have attained real GDP

growth of 7.4% during year 2008compared with the growth rate of 7.1%attained in year 2007.

The increased growth rates isattributed to an increase in economicactivities in the following key sectors:Agriculture (4.6%), Fisheries (5.0%)and Services (8.5%). In addition,significant growth was also observedin communications (20.5%), financialintermediation (11.9%), construction(10.5%) and manufacturing (10%).

The economy has experienced higherinflationary pressure as compared tolast year emanating primarily from therise in food prices. The annual rate ofinflation for 2008 was 10.3% ascompared to 7% for 2007. The rate ofinflation reached 13% by the end ofMarch 2009. Monthly headline foodinflation was 18.5% by the end March2009.

In 2008/09, the Government plannedto collect Tshs 4,728.6 billion indomestic revenue. However, due tothe global financial and economic

crisis, revenue collection by the end ofJune 2009 is expected to fall short ofthis target by 10 percent. Totaldomestic revenue collected to end ofMarch 2009 was Tshs 3,199.1 billion.For 2009/10 domestic revenuecollection has been projected at Tshs5,096 billion equivalent to 16.4% ofGDP.

Challenges ahead

Despite achievements in economicgrowth and revenue collection some

challenges remain. These include:

• The effects of the current financialcrisis have impacted agriculture,investment, infrastructure andfood security leading to a Tshs 1.7trillion stimulus package. This mayentail a reduction in resourcesavailable as funds are set aside tocushion the effects of the crisis. Inaddition to the stimulus package,the government is looking intoproviding exemptions from variousfees and levies. As a result this

will reduce the amount ofgovernment revenue collected.The impact of this on donordependency in the future is yet tobe determined.

• The present infrastructurechallenges leading to a lack ofpower availability to meet thedemands of the economy, which,even at a reduced growth rate, areunlikely to be met by the availablegeneration capacity. This is anissue that will require urgentintervention by Government.

• The execution of the budget facesrisks if prices of foodstuffs andoverall headline inflation continueto rise.




Budget Objectives 2009/10

The 2008/09 budget will continue toimplement national plans as stipulatedin the CCM Election Manifesto,National Development Vision 2025and MKUKUTA. Unlike other years,this year’s budget is beingimplemented during a time of

economic and financial crisis.Therefore, in order to mitigate theeffects of the crisis on the economy,the budget will focus on improving andsupporting the agriculture sector.

The 2009/10 BudgetFramework

The 2009/10 budget sets out thefollowing targets:

• GDP growth rate of 5% in 2009;

•

Control inflation at below 10% byend of June 2010;

• Contain the supply of M2 basedon GDP, inflation and foreignreserves levels;

• To increase domestic revenuefrom 15.9% (estimated) of GDP in2008/09 to 16.4% of GDP in2009/10;

• To base the rate of foreignexchange on the movements inthe Inter-Bank Foreign Exchange

Market (IFEM);

• To remove institutional barriers inthe financial sector particularlywith regards to availability of loansto the private sector.

Revenue

The budget policy measures onrevenue are focused on domesticrevenue collection. For 2009/10domestic revenue collection has beenprojected at Tshs 5,096 billion

representing an increase of 7% on the2008/09 target. The specific details ofthe revenue enhancing measures areset out in our highlights of taxchanges.

In total, the budget revenues will be asfollows:

Tshs bn

Domestic Revenue 5,096Grants and Loans 3,181Domestic loans 1,082LGA collections 138Privatisation Proceeds 15Total Revenue 9,513

Lowering donor dependence was akey theme in the 2008/09 budget. Itwas envisaged that recurrentexpenditure will be fully funded bydomestic revenue. However, due tothe economic crisis, the revenuetarget was not achieved. As a result,alternative financing sources wereexplored including borrowing from thedomestic financial markets. A total ofTshs 559.6 billion worth of bonds weresold in the domestic market.

Donor dependency is expected togrow for the upcoming year due to theeconomic crisis with an increase inbudgeted revenue from grants andloans to comprise of 45% of the totalannual budget of 2009/10.

Expenditure

The Government is proposing tospend Tshs 9,513.7 billion in 2010/11as follows:

Tshs bnRecurrent 6,688

Development 2,825Total Expenditure 9,513

Government expenditure in 2008/09will focus on:

• Mitigating the impacts of theglobal economic crisis on theeconomy;

• Improving productivity in theagriculture and livestock sectors;

• Increasing population with accessto clean and safe water;

• Improving water irrigation;

• Improving health and educationservices;

• Improving infrastructure;

• Developing industries;




• Research and development;

• Continuing decentralisation bydevolution;

• Preparations for general electionsin 2010.

The expenditure budget has beenallocated in the following manner for

key areas:

• 18.3% on the education sector;

• 7% on the agriculture sector;

• 11.5% on infrastructure;

• 10.1% on the health sector;

• 3.7% on the water sector;

• 3% on energy and minerals

sector.

Global economic crisis

Broadly, the strategy adopted by theGovernment to address the effects ofthe crisis includes daily surveillanceand supervision of banks conductedby the Bank of Tanzania to detectproblems in the banking system andimplement prompt remedial actions.Other measures include mobilisationof domestic resources; improvingproductivity in the agriculture sector toincrease food supply and therefore

decreased food inflation; andpromoting tourism (especiallydomestic).

Credit and Money Supply

For the year ending December 2008,broad money supply grew at a rate of29.7% compared to 27% in December2007. The growth rate of extendedbroad money supply (M3) was 24% inDecember 2008 compared to 21.4% inDecember 2007. In March 2009, M2growth rate was at 14.4% compared to25.4 % in March 2008. This slowdownin the expansion of monetaryaggregates is mainly attributed toslower growth of banks’ credit to theprivate sector and net foreign assetsof the banking system. During March2009, the growth rate of credit was35.9% compared to 40.2% in theprevious year.

The interest rate on governmentsecurities declined from 11.4% inDecember 2007 to 10.99% inDecember 2008. The lending interestrates offered by commercial banksincreased to 16.05% in December2008 from 15.15% in December 2007.

Balance of Trade

The performance of the externalsector was disappointing due to acontinued increase in the currentaccount deficit, from US$ 2,041.6million in 2007 to US$ 2,333.6 millionin 2008 representing an increase of14.3%. The increased deficit wasprimarily driven by increases in thevalue of imports of goods and servicescompared to the value of exports.

The value of merchandise importsincreased from US$ 4,860.9 million in2007 to US$6,439.9 million in 2008following an increase in importation ofmanufacturing, communication,transport and construction equipmentin line with the growth of economicactivities in the communication,transport and manufacturing sectors.

In addition, there was considerableincrease (15%) in service receipts in2008 mainly driven by tourism,transportation and other services.Travel (tourism) and gold receiptscontinued to dominate the exportsector accounting for 27 percent and

18 percent, respectively1

.

Despite the deficit, foreign reservesincreased by 3.9 % to US$ 2,869.7million in 2008, from US$ 2,761.million in 2007. The reserves positionin December 2008 was enough tocover 5 months of imports of goodsand services.

As at 31 December 2008, the nationaldebt had increased by 7% fromUS$5,891.1 million in December 2007to US$ 6,329 million. This isequivalent to 32.6% of total GDPcompared to 31.8% in 2007.

1Bank of Tanzania, Monthly Economic

Review, April 2009




Sector policies andprogrammes to supportbudget initiatives

Agriculture, Livestock,Forestry and Hunting

Economic activities in the above areasgrew by 4.6% in 2008 compared to4% in the previous year, boosted bygrowth in crops; favourable weatherconditions in 2007/08; improvement inirrigation and rural road infrastructure;and the fertiliser subsidy scheme.

However, there are general concernsabout the slow growth rate of theagriculture sector and the impendingdrought condition. This willsignificantly affect the extent to whichpoverty reduction and food securitytargets can be met.

The Government proposes a numberof measures for 2009/10 to increaseproductivity and growth in theagricultural sector. These includeimprovement in irrigation infrastructureand rural roads; implementation of theAgriculture Sector DevelopmentProgramme (which includes increaseduse of fertiliser and improved seeds,and the development of crop markets);and containing the adverse effects ofthe global economic crisis on thesector. Other areas include increasingthe quality of products; improving

access to credit; increasing availabilityof farm inputs and reduction ofunsustainable forest harvesting.

Fishing

Fishing activities grew by 5% in 2007compared to 4.5% the previous year.This was attributed to increasedcontrol over illegal fishing in ExclusiveEconomic Zones. However, overallcontribution of fishing to total GDPdecreased to 1.2% in 2008 comparedto 1.3% in 2007

Industry and construction

Mining and quarrying

Mining activities continued adownward trend. In 2008, the sectorregistered a significant fall in growthfrom 10.7% in 2007 to an all t ime lowof 2.5% in 2008. Furthermore, the

prices of major metals (with theexception of gold) have continued todecline. There have also been casesof postponement of major investmentprojects for, e.g. a US$3.5 billionaluminium smelting project in Mtwara.This situation is mainly attributed tothe global financial crisis. TheGovernment will continue to undertake

a number of reforms including areform of the tax structure.

Manufacturing

The manufacturing sector grew by9.9% in 2008 compared to 8.7% in2007. The increase was attributed tosustainability in industrial productionparticularly for food and dairyproducts; industrial chemicals;printing; and an overall increase inmanufactured exports. Going forwardthe areas that will receive priority willinclude enhancement of localmanufacturing capacity; valueaddition; and decrease of export ofraw materials.

Construction

In 2008, the construction sector grewat a rate of 10.5% compared to 9.5%in 2007. This was driven by theconstruction of roads and bridges,residential and non-residentialbuildings and improvement in waterinfrastructure.

Recognising the importance ofinfrastructure for economic growth, theGovernment has continued to placeconsiderable focus on construction inthe upcoming year. As part of thiscommitment the Government hasallocated 11.5% of the 2009/2010expenditure budget to infrastructure.

Services

Communications

The communication sector grew by

20.5% in 2008 compared to 20.1% in2007, outpacing all other economicactivities. This was due to an overallincrease in subscription ratesparticularly with respect to mobilephones.

Transport




Transport services grew by 6.9%compared to 6.5% the previous year.The increased growth rate wasattributed to increase in the volume ofroad transport cargo and internationalair passengers. Increased priority willbe placed on improving transportinfrastructure in addition to creatingincentives to attract private sector

investment.

Electricity and gas

In 2008, the total contribution by theenergy and gas sector to GDPreduced significantly to 5.4% in 2008compared with 10.9% in 2007. Thiswas attributed to a decline in electricityand gas generation; and the expirationof key contracts such as Dowans,APR and Aggreko.

The medium term strategies includeincreasing power generation

particularly with regards to distributionand increased access in rural areas.In addition, the Government willintensify efforts to establish national oilreserves facilities and expansion ofgas production facilities at SongoSongo and Mnazi Bay.

Education

The growth rate in the educationsector was 6.9% in 2008 compared to5.5% in 2007. This increase wasmainly a result of the continued

implementation of primary andsecondary education developmentprogrammes, and increasedrecruitment of teachers.

In the 2009/100 budget education isallocated more funds than any othersector (18.3%) reflecting theGovernment’s understanding thateducation is the key to economicdevelopment.

Health

Health services grew at 9.0% in 2008

compared to 8.8% in 2007. Thegrowth was based on theimplementation of vaccination,malaria, tuberculosis, and HIV/AIDSprogrammes.

In 2009/10 the Government’s strategicfocus on the health sector will includecontinued implementation of variouspublic and primary health

programmes; strengthening motherand child health services (MCH); andcontinuing to implement of nationalHIV/AIDS programmes.

Cross-cutting issues

Aside from the sectoral activities, theGovernment also plans to undertake

significant steps to address severalcross-cutting issues that impact on theeconomy. These include:

• Raising awareness of the 2006National Population policy(particularly in light of the current2.9% population growth rate);

• Continuing support of theemployment bureau established in2009 as part of the National Policyfor Employment and its Strategy;

• Intensifying democracy bycreating linkages betweenEmployment Act CAP 343 andLocal Government Act CAP 292.In addition, the Government willintensify efforts to improve thequality of the voter’s register;

• Publishing the results of theNational Governance andCorruption Survey by the end ofJune 2009;

• Improving the efficiency of the judiciary sector;

• Implementing the Second Strategyfor Preventing HIV/AIDS Infectionsin 2008 – 2012;

• Developing programmes forempowering women economically,and strengthening gender focalpoints at all levels;

• Continuing to implement theNational EnvironmentConservation Policy and itsstrategies.

Conclusion

The budget for 2009/10 will beexecuted in a period where the globaleconomic crisis has started to takeroot in developing countries,specifically in Tanzania. TheGovernment is considering severalsteps to mitigate some of the risks




posed by the above challengesincluding:

• An economic bailout plan;

• Mobilisation of domestic resourcesand providing guarantees forloans in the agriculture and SMEsectors;

• Enhanced focus on the agriculturesector in general particularly withregards to improved irrigationinfrastructure; input supply; marketlinkages and access to credit;

• Instituting measures to increasethe country’s attraction toinvestment and reducing the costof doing business, for example viainfrastructure improvements in keysectors such as power andtransportation;

•

Increasing overall productivity andcompetitiveness of the economy.

Overall, the Government is moving inthe right direction by investing in areasthat will pave the way to sustainabledevelopment. However, the successdepends on our capacity to implementvarious initiatives in driving thesepolicies at implementation level. Inaddition, the increase in dependencyon grants and loans as demonstratedin the current budget may furtherexacerbate our inability to adequatelymaintain the effects of the globalcrisis.

.



Tanzania Budget Review: Tax Changes 1

Tax Changes

Highlights based on the Finance Minister’s speech

Income Tax

Surprisingly there is only onechange to the Income Tax Act.

This is the proposal to reduce thecorporate tax rate for companieslisted on the Dar es Salaam StockExchange (DSE) from 30% to25%. To qualify, at least 30% ofthe company’s shares must beissued to the public. This changewas actually introduced in 2006but limited to the first three yearsfollowing listing and applicable tocompanies having at least 35%shares issued to the public.

This is intended to encouragecompanies to list on the DSE andbroaden their public ownership.However, it is not clear whetherthis change will apply to newlylisted companies only or will alsocover the existing companieswhose shares are already floatedon the DSE. In addition, it is notclear whether the intention is forthe new rate of 25% to apply forthe first three years as it is at themoment or to apply in perpetuity.

Value Added Tax

Change of rate to 18%

Finally we will see the VAT ratebeing reduced. The VAT rate has

been reduced from 20% to 18%.The reason given for this reductionis to minimise the impact of theglobal economic crisis on the local

economy. Though a lower ratewould have been preferred (say15%), the 18% rate is at least inline with one other EAC country(Uganda). In any case there wasconsiderable pressure on theMinister to reduce the VAT rate asTanzania had the highest rate inthe region and one of the highestin Africa (only Cameroon’s washigher!).

The Minister did not elaborate on

transitional provisions to achieve asmooth move to the 18% rate.Experience from other jurisdictionsshows that there will be a need fordetailed transitional provisions (ontax points, credit notes, treatmentof continuous supplies of services,deposits, etc) to go hand in handwith the change in rate therebyensuring that disputes do not arisewith the TRA. We therefore hopethat such transitional provisionsare included in the final legislation.

In a real sense the prices of allVATable goods and servicesshould go down by just under 2%so in theory people should payless. In the UK, a recent 2.5%VAT rate reduction boosted retailturnover by £2.1bn in the first three

25% income tax

rate for

companies listed

on DSE with at

least 30% of shares publicly

issued

VAT rate reduced to 18%

Fuel taxes exemption/VAT special relief for mining companies abolished

Lease of

residential houses now subject to VAT

Inflationary adjustment to excise duty on alcohol, beer and cigarettes




months according to AlistairDarling. However it is unlikely thatprices will go down in the shortterm for several reasons.Firstly, the change in rate willresult in a not insignificantadministrative burden for retailbusinesses having to change theirprice labels and computersystems, and this will entail someadditional cost.

Secondly, the change will have arelatively small impact on pricesand many businesses may simplynot bother to change their prices.For example on an item currentlyselling for Tshs 1,200, the VATrate reduction will theoreticallyresult in the price being reduced toTshs 1,180 i.e. a change of onlyTshs 20.

Thirdly, many businesses are notVAT registered, even whenperhaps they should be. So if theyare not charging VAT at all thenthe rate change becomesacademic. At the same timehowever, a lower rate mayencourage more businesses tocomply and become registered.

Finally, on excisable goods, there

is an increase in excise duty sosome of the VAT savings will beoffset by an increase in exciseduty.

Other general changes

Another change is the proposal tostart charging VAT on mobilephone services on the face valueof the vouchers at source and noton the discounted value at which

the vouchers are sold towholesalers. This proposal is inline with the treatment in Kenyawhich came in 2006. It remains tobe seen whether a similarapproach will be taken by the TRA.

The key reason is to ensure thatthere is no VAT leakage on thevalue added by super dealers.

New exemptions

From an economic efficiencyperspective, a moderate VAT ratewith a broad consumption baseand few exemptions is alwayspreferred to a high rate with manyexemptions. Unfortunately weseem to be doing a mixture of thetwo i.e. we have decreased theVAT rate but keep on increasingthe number of exemptions.

The following exemptions havebeen introduced:• Heat insulated milk cooling

tanks and aluminium jerrycans used for storage andcollection of milk in the dairyindustry. The aim is topromote their use for hygieniccollection of milk thusimproving the quality of milk.This also is in line with theimport duty exemption and thetreatment across EACcountries.

• Farm services of landpreparation, cultivation,planting and harvesting. Theaim is to reduce productioncosts in agriculture.

• Stevedoring services forimported cargo in relation tolocal vessels where VAT hasbeen applied to thestevedoring on initialdisembarkment. The statedaim is to encourage importersto use Tanga and Mtwaraports in substitution for Dar esSalaam, but the practicalapplication is a little unclear.

Removal of exemptions

The following exemptions havebeen abolished:




• Exemption for air charterservices (though it is not clearwhether this will extend totourist charters).

• Exemption for processedlocally grown tea and coffee.This is a surprise change as itwas only introduced in 2004

and 2006 respectively.Although the suppliers willnow be able to claim the VATon their inputs, the prices ofthese products arenevertheless likely to go upsignificantly.

• Exemption on electronic cashregisters.

• Exemption on leased buildingsand serviced apartments

(except for lease of residentialbuildings by the NationalHousing Corporation andRegistrar of Buildings)

Although the Minister hasstated that most residentialhouses will not be captured asthe landlords will not be VATregistered, it only takessomeone to lease tworesidential houses at US$1,500 per month each to

trigger the need for VATregistration (based on theregistration threshold of Tshs40 million).

Potentially a number ofpractical problems might arise:

There may be a need toregister many new taxablepersons before the end ofJune. This will increaseTRA’s administration

costs, and presumablycompliance costs also as itis likely that there will be adegree of evasion in thisarea.

More importantly, thechange could easily resultin increased rent costs formany people, even where

their rent is relativelymodest. The keydeterminant will bewhether the landlord isabove the VAT threshold,rather than the value of theindividual tenant’s rent.

From a practical

perspective, Tanzaniacurrently is the mostexpensive country in theEast African region interms of leased residentialproperty and this changewould appear to only makethe situation worse.

It is notable that we have beenunable to identify any other countryin the world that imposes VAT onresidential accommodation.

New special relief

The special relief granted toTanzania Defence Forces dutyfree shops has been extended toinclude all Armed Forces. This willnow include police and prisonforces.

Removal/Amendment of

special relief

The minister has proposed theabolishment or restriction ofexisting VAT special relief asfollows:

• Limiting the special reliefprovided to water andsewerage authorities to onlycover goods and servicesused for water and sewerageinfrastructure development

(currently this applies to allgoods and services used inthe performance of theauthority’s statutory functions)

• Limiting the special relief givento mining companies toprospecting and explorationactivities only. Although this




has no impact on theGovernment’s VAT revenue,the main effect will be toincrease the size of VATrefund claims. Given thelengthy delays alreadyexperienced in receivingrefunds from the TRA, thedelays are only likely to getworse.

Bearing in mind that mostmining projects relysignificantly on bank lending,any delay in receipt of fundswill effectively result in extrainterest costs. Notwithstandingthe law on this matter, TRAare not in the habit of payinginterest on late refunds.

The following special reliefs have

been abolished:

• Supply of inputs, raw andpackaging materials formanufacture of humanmedicines. This will have aneffective operational date of 1January 2010 and will putpharmaceutical manufacturesin a VAT refund position astheir products are zero-rated.

• On charitable community-

based; or other non-profitdriven organisations orinstitutions and religiousorganisations. This is likely toimpact negatively on theseorganisations as they arenormally not registered forVAT and therefore will not beable to claim the VAT chargedon their inputs.

• On deemed capital goods. Inthe past, goods imported by

investors registered under theTanzania Investment Act for aspecific investment projectcould be deemed as capitalgoods and therefore entitled toVAT special relief.

Removal of Excise Duty andRoad and Fuel Toll (FuelLevy) Exemptions to Miningcompanies

The excise duty and road and fueltoll exemptions granted to miningcompanies have been abolished.

For road and fuel toll, the removalwill only affect companies enteringinto a Mining DevelopmentAgreement (MDA) with effect from1 July 2009. The intention howeveris to also apply the abolition tocompanies with existing MDAs bymeans of MDA renegotiation. It isunderstood that this move isconsistent with therecommendations of the BomaniCommittee and so may not comeas a great surprise to those in the

sector. However we have somemisgivings about the impact onTanzania’s ability to attract newinvestment in this sector.

Excise Duty

Mobile phone airtime

The excise duty on mobile phoneservices will now be charged at thepoint of sale of scratch cards(vouchers) at their face valueunlike currently where it is chargedat the point where the actual use ofair time occurs.

While this change will strengthenthe Government’s cashflowposition, it is also likely to cause alot of practical problems andconfusion to the mobile phoneoperators. With the advancementof technology, mobile phoneoperators now provide manyservices in addition to airtime(such as data, internet servicesand money transfers). Many ofthese services require the use of acommon scratch card. Thelegislation only imposes exciseduty on “mobile phone air time”and this raises serious questionssuch as how the mobile company




is meant to allocate the scratchcard value between airtime andother non-excisable services.

Beverages

Excise duty on beverages hasbeen increased in line with

average inflation (7.5%).

Goods OldRateTshs

Per ltr

NewRateTshsper ltr

Carbonatedsoft drinks

54.00 58.00

Clear beer(unmaltedbarley)

194.00 209.00

Malt Beer 329.00 354.00

Wine withmore than25% importedgrapes

1,053.00 1,132.00

Spirits 1,561.00 1,678.00

Cigarettes

Similar to beverages, the rates forcigarettes have also beenincreased by 7.5%.

Goods Old RateTshs

New RateTshs

Cigaretteswithout filter,containingmore than75%domestictobacco

5,348 permil

5,749 permil

Cigaretteswith filter,containingmore than

75%domestictobacco

12,618per mil

13,564per mil

Othercigarettes notmentionedabove

22,915per mil

24,633per mil

Cut rag/filler 11,573per kg

12,441per kg

Excise duty on cigars remains at30%.

Customs Duty

The list below summarisesproducts which will now attract 0%import duty.• Heat insulated milk cooling

tanks for dairy industry

• Industrial spare parts

• Four wheel drive vehiclesspecially designed and builtfor tourist purposes

• Equipment and inputs(excluding motor vehicles)imported by a licensedcompany for direct and

exclusive use in oil, gas orgeothermal exploration anddevelopment

• Raw materials used in themanufacture of sanitarytowels and tampons

• Heavy trucks of more than 20tons under HS code8704.23.90

• Synthetic yarn

• Pharmaceuticals

• Crude palm oil

• Asbestos fibers of HS codes6812.8.00 and 8812.99.00used in manufacture of brakelinings and pads

• Television cameras, digitalcameras and video camerarecorders of HS code8525.80.00




Other amendments of import duty rates

The Minister has proposedchanges to the import duty rateson the following products.

Goods Old

Rate %

New

Rate %

Worn clothing 45% or30 US

cents/kg

35% or20 US

cents/kg

Yoghurt andother butter milkof HS codes0403.10.00 and0403.90.00

25 60

Light trucks of atleast 5 tonsunder HS code

8704.22.90

25 10

• Import duty remission hasbeen granted on raw materialsfor use by paper andpaperboard mills.

• Tanzania to continue to applyCET rate of 10% instead of35% applied by other partnerstates in EAC on wheat grainof HS codes 1001.90.20 and1001.90.90

Local Government FinanceAct

The cap for charging produce cesshas been reduced from 5% to 3%.

This change will be welcomed byfarmers but will only beimplemented in the 2010/2011fiscal year to enable local

governments to look for alternativesources of revenue.

Cancellation of GovernmentNotice tax exemptions

The Minister announced plans torevoke 405 existing GovernmentNotices providing specific taxexemptions to various companiesand organisations. Although not

explicitly stated, this may onlyapply to GN’s issued prior to 2006.Where a revoked GN is stillrequired, the beneficiary will berequired to apply for a new GN inaccordance with current laws andprocedures. We anticipate thatthis may not be an easy exercisein practice.

tz budget summary 2009

Documents