Economists have hailed Tanzania’s move to reduce tax exemptions in its 2014 Budget, but said the test will be in its implementation.

Some believe that the move by Finance Minister Saada Mkuya to reduce tax exemptions will frustrate investors in the country since the government has used the measures for years to attract investment.

Tax measures that Ms Mkuya announced include removing tax exemptions on revenue generated by companies conducting lotteries as well as scrapping withholding tax on airplane hire by non residents.

Honest Ngowi, an economist, said there will no major repercussions.

“Reducing tax exemptions is the right move given the prevailing economic conditions,” he said.

An analysis of the budget done by audit firm EY noted that the government may have introduced more tax measures to net additional revenue.

READ: Tax exemptions removal to boost revenue by $500m

Dr Ngowi said that, in the 1980s, when the country adopted economic transformation policies, business and investment climate in the country was poor and tax exemptions were important to lure investors.

“The tabled budget is satisfying, taking into consideration its timeliness. It has come at a time when the government is facing two big events. One is the constitution review and the other is the coming election,” said EY country managing partner Joseph Sheffu.

“The tax base is narrow, with the government circumventing on the same sources every year,” he added.

EY said the government should have considered taxing Members of Parliament, who earn hefty salaries and allowances.

READ: Tanzanian households to fork out more for $12b budget

“MPs are our highly respected leaders, so they must lead the way to increasing the tax base,” said Mr Sheffu.

SMEs would be good sources of revenue if the government could come up with measures to encourage their formalisation.

“The agriculture sector also has not been touched. The government has not told us to what extent it contributed to the economy and what measures will be used to improve agriculture. If stiff measures are taken I am sure we can be able to collect a good sum of revenue from the sector,” said FSDT Technical Manager Jonathan Kasembe.

Speaking at the EY budget breakfast, TIB Investment Bank financial manager Bernard Mono said the budget brought some relief.

“I wished to see more on development expenditure. The government must allocate more funds for its recurrent expenditure, but concentrate on investments so as to create more sources of revenue,” said Mr Mono.

The Confederation of Tanzania Industries (CTI) Director of policy and research, Hussein Kamote, welcomed the decision by the government to increase budget allocations on infrastructure development. He said rehabilitation of railways and roads would help the private sector reduce cargo transport costs.

Mr Kamote said removal of tax exemptions on investments coming through the Tanzanian Investment Centre would allow the local manufacturing industries, especially cement producers, to compete fairly in the market, help create jobs for locals and increase government revenues.

Reported by Peter Nyanje, Rosemary Mirondo and Veneranda Sumila