Tanzania bets on infrastructure, cracking down on tax cheats to drive growth

Saturday June 10 2017

Clothes on sale at the Kariokor market in Dar es Salaam, Tanzania.

Clothes on sale at the Kariokor market in Dar es Salaam, Tanzania. The 2017/18 budget has been seen as progressive and pro-business. It was lauded for introducing reforms that removed or reduced taxes in several sectors. FILE PHOTO | AFP 

By ALLAN OLINGO

Tanzania plans to increase spending by 7.3 per cent to $14.21 billion in the coming financial year, with infrastructure and industrialisation to be prioritised.

The country intends to collect more revenue by sealing tax loopholes.

“We plan to increase revenue, curb leakages of government resources, control expenditure and enforce public procurement legislation,” Finance Minister Dr Philip Mpango said on Thursday, while presenting the 2017/18 budget in parliament.

Tax revenue is estimated at 14.2 per cent of gross domestic product in 2017/18, up from an estimated 13.3 per cent in 2016/17. Development spending will increase marginally to $5.8 billion, accounting for 40 per cent of the budget.

Dr Mpango also said the country would borrow $2.76 billion from domestic sources and expects $712 million in external loans and grants.

“We are in the final stage of negotiations with lenders and expect to receive $500 million later this month. We also plan to narrow the budget deficit to 3.8 per cent of GDP in 2017/18 from 4.5 per cent in 2016/17,” Dr Mpango said.

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Tanzania expects its economy to grow at 7.1 per cent in 2017, up from 7.0 per cent in 2016. It aims to contain inflation at 5 to 8 per cent range, he added.

Pro-business budget

The 2017/18 budget has been seen as progressive and pro-business. It was lauded for introducing reforms that removed or reduced taxes in several sectors.

Some of the beneficiaries are farmers, motorists, local manufacturers of drinks and first time investors in vehicle assembly where corporate tax has been reduced from 30 to 10 per cent in first five years of operation.

Dr Mpango also introduced a clearing fee of one per cent of the value of minerals that will be paid in clearing houses before export. The clearing houses are based at international airports, mining areas and other areas where the minerals will be verified and issued export permits. He also introduced withholding tax of 5 per cent of the total market value of minerals to all small miners.

“The government would not allow direct exportation of minerals from the mines and would instead establish clearing houses. The objective of a withholding tax is to ensure better collection of revenue from the mineral sector,” he said.

Edible oils, textiles, leather and pharmaceutical businesses were also winners as they got a Value Added Tax exemption on capital goods so as to reduce procurement and importation costs on machines and plants used in production.

“This is to promote investments in small, medium and large scale industries by providing relief of taxes in the purchase of machines and plants,” Dr Mpango said.

Budget losers

Transporters also had a reason to smile as the government zero rated the tax on goods on transit as a means to reduce their operational costs. This is seen as way to make the country’s port more competitive especially to landlocked countries like Uganda, Rwanda, Burundi and Democratic Republic of Congo, who have long preferred the Kenyan route.

Budget day: Tanzania’s Finance Minister Dr Philip Mpango on June 8, 2017. PHOTO | MWANANCHI | NMG

Budget day: Tanzania’s Finance Minister Dr Philip Mpango on June 8, 2017. PHOTO | MWANANCHI | NMG

Some of the losers in the budget were manufactures of soft drinks, cigarettes, fruit juices, dealers in imported bottled water, fruit juices, local beers, wines and spirits, who all saw a rise in their excise duties.

Anti-dumping measures

Tanzania also removed the application of EAC CET rate in some of its steel, aluminium and iron products from the region, instead introducing a duty rate of 25 per cent or $250 per metric ton whichever is higher on steel and $125 per tonne on flat rolled iron products.

Industrial sugar, accounting devices, light emitting bulbs, paper products and gypsum will also now attracts a 10 per cent duty, having previously been zero-rated.

“The anti-dumping measure on imports of this nature is aimed at protecting the domestic industries against cheap products from outside the region,” Dr Mpango said.

The finance minister also said they will be amending their Finance Act to give power to restore seized items to the Commissioner of Customs instead of EAC Council of Ministers.

There is also an amendment to replace the $10,000 fine with $20,000 or 50 per cent of the dutiable value of the goods for falsification of import and tax documents, declarations and evading taxes.

To boost its joint pipeline project with Uganda, Tanzania also amended the 5th Schedule to the EAC-CMA, 2004 to include distribution of oil and gas.

“This measure is intended to provide import duty exemption on projects of Heated Crude Oil Pipeline implemented by partner states governments,” Dr Mpango told Parliament.

However, there are also doubts whether all the development projects planned for 2017/18 will be funded on time.

Prof Honest Ngowi, an economics lecturer at Mzumbe University, told The EastAfrican that it was not clear how to ensure the new budget is implemented.

“The issue now is how we will fund this budget,” Prof Ngowi said.

In its last budget, Tanzania raised $9.25 billion, equivalent to 70.1 per cent of the annual target of $13.19 billion. The country received $1.03 billion in grants and external concessional loans amounting to 65 per cent of the $1.7 billion commitment made by development partners.

Additional reporting by Asterius Banzi

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