Tanzania households and businesses are bracing themselves for higher taxes, as the Treasury seeks funds to finance an expanded budget to be unveiled on Thursday.

The government has raised the budget ceiling, from Tsh18.2 trillion ($11.3 billion) to Tsh19.4 trillion ($12.2 billion) for the next financial year as it seeks to offset dependence on donors to finance its economic plans.

Out of the total budget, Tsh14.2 trillion ($8.8 billion) is to finance recurrent expenditure while Tsh5.4 trillion ($3.3 billion) will be allocated for development projects, according to Finance Minister Saada Mkuya.

An increase in taxes and introduction of new ones will increase the burden on the already overtaxed taxpayers, unless the government moves to widen the tax base.
The government will also have to borrow heavily to meet its recurrent and development obligations.

During budget sessions, a number of ministers reported that they did not receive all the money allocated for their dockets for 2013/14.

But Ms Mkuya said the government would ensure all the monies allocated for the ending budget would be disbursed before the end of the month.

She said the government was optimistic that the gap in 2013/14 budget would be filled through the availability of foreign loans and capital gain tax revenue from Ophir, Shoprite and Vodacom.

Priority expenditure areas for 2014/15 financial year will fall in line with sectors outlined in the Big Results Now (BRN) initiative, which are water, education, agriculture, health, infrastructure and energy.

The minister announced that the state would use private learning institutions to provide education to students in Form Five and Six.

The State Minister in the President’s Office, Stephen Wassira, told a pre-budget session last month that the government would also bank on contributions from the private sector for execution of some plans.

Following pressure from the MPs, the government has also agreed to reduce tax exemptions to at least 1 per cent of GDP. Last week, the government tabled a Bill seeking to amend some financial laws, notably on the area of tax exemptions.

READ: Tax breaks: Dar losing over $20bn

Tax exemptions

In East Africa, Tanzania has the highest rate of tax exemptions, above 2.5 per cent of its GDP.

Ms Mkuya said the law on VAT that is presently pegged at 18 per cent of the product value will also be amended to contribute more to the state coffers. Plans are also underway to introduce a Budget Act as a way of instilling a sense of financial accountability and boosting revenue collections.

Budget figures given by the government earlier show that it plans to collect Tsh19.9 trillion ($12.4 billion) out of which Tsh11.7 trillion ($7.3 billion) will be local revenues. Tax revenue will account for Tsh10.9 trillion ($6.8 billion).

Non-tax revenue will account for Tsh722.7 billion ($451.2 million) and Tsh377.9 billion ($236.2 million) will be raised by Local Government Authorities from their own sources. Some Tsh3.7 trillion ($2.3 billion) is expected from development partners in form of grants and concessional loans.

To fill the gap, the government plans to borrow Tsh4 trillion ($2.5 billion).

READ: Dar admits facing financial woes, seeks to spend $12.3bn

Commenting on the budget outlook, Dr Lunogela Bohelo of the Economic and Social Research Foundation (ESRF) noted that the government would succeed in its budget proposals if it focused on long term plans to improve infrastructure.

“Improvement of water, electricity and roads will attract many investors and this will, in turn, spur economic growth,” he said.

He gave the government a thumbs-up for its rural electrification as well as improvement of rural roads initiatives noting that will enable the majority of Tanzanians to participate in economic activities.

But a professor of economics from the University of Dar es Salaam, Haji Semboja, noted that the budget has been drafted like many others that have come a year before election.

“In the recent past we have seen a tendency of expenditure outpacing revenue collections. This was mooted as a way of stimulating economic activities but the problem is that we don’t collect more as we spend,” he said.

On whether the budget would enable the private sector to play its role as the engine of the economy, Prof Semboja noted that it depends on which sectors receive the government money.

“About 70 per cent of the budget will go to procurement, and government procures from the private sector. But it depends on, first, which private sector receives the money and second, how that private sector is organised to reinvest that money,” he said.

He said people should not expect any tangible changes through this budget because the government’s priorities have remained virtually the same and new initiatives such as much touted BRN, would not introduce any drastic changes if the government continues doing things the same way.