16 July BBG Budget Briefing 2015 PwC Insight and Analysis

Transcription

1 BBG Budget Briefing 2015 Insight and Analysis

2 Presenters Rishit Shah Partner Tax Joseph Lyimo Associate Diector Indirect Tax Michael Quinton Senior Manager Direct Tax BBG Budget Briefing 2015 Insight and Analysis

3 Budget 2015 Economic Review June 2015

4 Agenda Economy - recent performance and future Government projections Business environment challenges Revenue /15 revenue; 2015/16 target BBG Budget Briefing 2015 Insight and Analysis

5 Economic Review

6 A positive economic story over recent years GDP change, constant prices (%) GDP, current prices ($bn) GDP per capita, current prices ($) Inflation, end of period (%) General government gross debt (% of GDP) Current account balance (% of GDP) Exchange rate (US$/TZS) 1,089 1,129 1,252 1,245 1,197 1,320 1,410 1,571 1,572 1,598 Source: IMF: World Economic Outlook Database April 2015

7 Highlights of key recent economic developments 2014 : o GDP growth 7% ; GDP per capita $1,038 o Inflation - 6.1% average for year (4.5% April, 6.1% June) Exchange rate depreciation Some delays in budget financing Withholding of donor funding Substantial tax and non-tax revenue shortfall Accumulation of payment arrears in public sector BBG Budget Briefing 2015 Insight and Analysis

8 Immediate anxiety = currency depreciation/fluctuation BoT mean rate 1 Jul 2014: TZS 1,651: USD1 1 Jan 2015: TZS 1,723: USD1 19 June 2015: TZS 2,084: USD1 1 July 2015: TZS 1,974: USD1

9 Declining trajectory of mineral exports and traditional exports, but manufactured goods and other exports have been increasing 2500 Exports of goods by commodity type (in Millions of USD) Traditional Exports Minerals Manufactured Goods Other Exports Source: Bank of Tanzania Monthly Economic Review

10 Exports of goods peak in Exports of goods by commodity type (in Millions of USD) Other Exports Manufactured Goods Minerals Traditional Exports Source: Bank of Tanzania Monthly Economic Review

11 Best performing traditional exports: Tobacco and Cashewnuts Tobacco Coffee Cashewnuts Cotton Tea Cloves Sisal Source: Bank of Tanzania Monthly Economic Review

12 Traditional exports a downward recent trajectory Sisal Cloves Tea Cotton Cashewnuts Coffee Tobacco Source: Bank of Tanzania Monthly Economic Review

13 Tourism marginal increase in 2014, but indications of significant decline in 2015 Per Hotel & Tourism Association (HAT) : 13% of GDP, > 500,000 direct jobs Average annual growth of 12% since 2000, but only marginal increase in 2014 FX: $1.95 bn (2013 $1.88bn) Arrivals: 1.14m (2013: 1.09m) HAT Concerns: Inadequate vision / strategy; destruction of natural tourism assets; incoherent policies, institutions & regulations; skills gap & labour laws; crippling business environment (multiplicity & unpredictability of taxes, levies and fees); limited tourism infrastructure; inadequate marketing & branding. IMF The Elephant in the Room report (Jan 2015) highlighted the potential to leverage tourism for even greater benefits. BBG Budget Briefing 2015 Insight and Analysis

14 So where to with the currency.is this a case of déjà vu?

15 Currency movement: The before and after of the 2010 election USD Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 are we seeing something similar? Source: Bank of Tanzania Monthly Economic Review

16 2015/16 plans GDP growth of 7.2% in 2015 Maintain inflation in single digits Revenue (incl. LGAs) to be 14.8% of GDP (tax revenues 13.1%) Budget deficit (including grants) 4.2% of GDP FX reserves minimum of 4 months Ensure stability of the shilling Improve the investment environment BBG Budget Briefing 2015 Insight and Analysis

17 Doing Business Environment

18 World Economic Forum Global Competitiveness Report 2014 /

19 World Bank - Doing Business Report 2015 Overall ranking 131 out of 189

20 Big Results Now ( BRN ) Aim: o To accelerate implementation of national priority projects o Facilitate realisation of Tanzania Development Vision 2025 Foundations: o Prioritisation with clear performance targets o Rigorous implementation and detailed performance monitoring o Transparent performance management Initial 6 National Key Result Areas ( NKRAs ) Agriculture, Education, Energy, Resource Mobilisation, Transport & Water Additional NKRAs Access to Land & Security of Tenure; Contract Enforcement, Law & Order; Curbing Corruption; Labour Laws & Skillset; Alignment of Regulations & Institutions; Taxation, Multiplicity of Levies, Fees and Charges BBG Budget Briefing 2015 Insight and Analysis

21 Revenue Performance 2014 / 2015 Target a recap 2014 / 2015 Performance 2015 / 2016 Target

22 A year ago we presented this slide and suggested that Budget was over-ambitious given 2013/14 actual collections for 10 months to April 2014 BUDGETS 2013/ / month 12 month Budget Budget TZS' bn TZS' bn Domestic Revenue: Tax Revenue - TRA Non Tax Revenue 10, ,154 Local Government Authorities (LGA) own source383 Domestic Revenue + LGA 11,537 General budget support 1,163 Foreign loans and grants (incl. MCA (T)) 2,692 Domestic borrowings 1,700 Non-concessional borrowings 1,156 Total revenue 18,248 11, , , ,019 2,955 1,320 19,852 Increase 9% 16% 9% 20% 10% -21% -25% 74% 14% 9% ACTUAL & EXTRAPOLATION 2013/ / / months 12 month 12 month Actual Extrapolation Extrapolation TZS' bn TZS' bn % of budget 7,772 9,326 90% % 8,197 9, % 8,450 10, ,200 1,804 $408m to date, to reach $700m by y/e

23 Collections to April % down on budget Collections by Departm ent 1 JULY 2014 T O 30 APRIL 2015 Tax es on fuel Other tax es on imports Custom s & Excise Large T axpay er Dept Dom estic Rev enue Dept Add: Treasury V ouchers Less: Transfers to refunds A/C Less: VETA T otal 2013/14 Actual T ZS' bn 1,200 1,828 3,027 3,7 32 1,422 8, (368) 7,832 T otal T otal Variance Variance 2014/ / / /15 Budget Actual Prior Y r Budget T ZS' bn T ZS' bn % % 1,337 1,1 50-4% -1 4% 2,295 2,222 22% -3% 3,632 3, % -7 % 4,449 3,7 47 0% -1 6% 1,7 00 1, % -6% 9,7 81 8, % -1 1 % (490) (439) (1 3) 9,327 8,27 9 6% -1 1 % Year end revenue projection - 91% of target: shortfall due to: Decline in oil & gas exploration activities (reduced withholding tax) Weak excise collections (soft drinks, beer) Traders resistance to use of EFDs

24 Indirect tax on local supplies: 13% up on prior year, 3% below budget VAT & Excise Duty on Local Supplies 1 JULY 2014 T O 30 APRIL 2015 Telecommunications Beer Cigarettes Spirits & kony agi Electricity Soft Drinks Sugar Cement Sub-T otal Other Total before refunds Transfers to refund a/c T otal after refunds T otal T otal T otal Variance Variance 2013/ / / /15 Actual Budget Actual Prior Y r T ZS' bn T ZS' bn T ZS' bn % % % % % % % % % 955 1,242 1,192 25% ,7 29 2,062 1, % (352) (451) (408) 1,37 8 1,611 1,556 13% 2014/15 Budget % -4% -1 4% -4% -1% 26% -1 4% 33% -21% -4% -5% -3%

25 Direct taxes: 3% down on prior year, 18% down on budget Direct T axes and SDL 1 JULY 2013 T O 30 JUNE 2014 T otal T otal T otal Variance Variance 2013/ / / /15 Actual Budget Actual Prior Y r T ZS' bn T ZS' bn T ZS' bn % PAY E 1,322 1,554 1,438 9% Skills & Dev.Lev y % T axes on Em ploy m ent 1,460 1,7 23 1,615 11% Less: 0% 0% 0% Income Tax Refunds (4) (7 ) (7 ) 1 48 Transfer to VETA & HESLB 0 0 (1 3) >1 00 1,455 1,7 16 1,596 Corporate T axes 1,226 1, % Indiv iduals % Rental Tax % Withholding Tax % Other % T otal - Direct & SDL 3,252 3,851 3,154-3% 2014/15 Budget % -7 % 4% -6% -1 0% #DIV /0! -35% -34% -1 6% -7 % -21 % -1 8%

26 Tax revenue budget 9% up on 2014/15 budget; significant projected increase in domestic borrowing BUDGETS 2014/ / month 12 month Budget Budget TZS' bn TZS' bn Domestic Revenue: Tax Revenue - TRA Non Tax Revenue 11, ,178 Local Government Authorities (LGA) own source458 Domestic Revenue + LGA 12,636 General budget support 922 Foreign loans and grants (incl. MCA (T)) 2,019 Domestic borrowings 2,955 Non-concessional borrowings 1,320 Total revenue 19,852 12,363 1,113 13, , ,662 4,033 2,142 22,495 Increase 9% 29% 11% 14% 11% -28% -18% 36% 62% 13%

27 Budget 2015 Tax Changes

28 Payroll Taxes Skills and Development Levy ( SDL ) No further rate reduction remains at 5%, reduced from 6% in 2013 Reinstatement of exemption on agricultural employment Workers Compensation Fund announced separately Charged at 1% (0.5% for public sector) Same tax base as SDL cash payments to employees Income Tax Individuals - tax rate on lowest band reduced to 11% (from 12%) No increase in thresholds - top rate threshold last increased in 2008! BBG Budget Briefing 2015 Insight and Analysis

29 ..and what about fuel taxes?... BBG Budget Briefing 2015 Insight and Analysis

30 Fuel Taxes have increased Before After Excise - Petrol Excise - Diesel Excise - Kerosene Petroleum Levy - Petrol Petroleum Levy - Diesel Petroleum Levy - Kerosene Road Toll - Petrol Road Toll - Diesel Road Toll - Kerosene Total taxes - Petrol Total taxes - Diesel Total taxes - Kerosene BBG Budget Briefing 2015 Insight and Analysis Change Increase but this the only increase since 2007 other than 2013 TZS 113 / litre increase (road toll and petroleum levy) 15% 19% 98%

31 Customs Duty CET and other amendments Railway Development Levy (Infrastructure levy) Introduced at 1.5% of CIF value of goods arriving at the port. Excludes goods already relieved under EACCMA 2004 Changes to protect domestic sugar and rice production Special rates: Significant increase in import duty on: Sugar (US$ 200 to US$ 460 per tonne) Rice (US$ 200 to US$ 345 per tonne) Sugar for Industrial use: Special procedure introduced (pay 50% ID and refund of 40% following provision of proof of proper use) Various other changes aimed at protecting local industries BBG Budget Briefing 2015 Insight and Analysis

32 Tanzania Investment Centre Reliefs New Special Strategic Investor status Threshold of US$300m for foreign investors Capital used should pass through local financial institutions Should create employment for at least 1,500 Tanzanians including satisfactory number in Managerial roles Be able to generate foreign exchange or produce alternative products to those imported BBG Budget Briefing 2015 Insight and Analysis

33 Other amendments Hotel Levy Introduction of a new hotel levy 10% of charge to customer Reintroduced - previously abolished when 1998 VAT Act was introduced Applies to Guest houses excluding accommodation for less than 6 persons, dormitory facilities or registered tourist facilities. Change in Control Change in control provisions (section 56 ITA 2004) amended Look back 2 years rather than 3 when determining a change in control. BBG Budget Briefing 2015 Insight and Analysis

34 Budget 2015 Transfer pricing Update

35 Summary of the Transfer Pricing Regulations 7 February Documentation requirement Filing deadline Applies from 7 February Require contemporaneous transfer pricing documentation to be in place before income tax return is submitted. Documentation to be provided to the TRA within 30 days when requested. Transfer pricing applies to both domestic and cross-border transactions between associate entities. 100% of the underpaid tax and non-compliance with the documentation requirement may lead to imprisonment of a maximum of 6 Months and/or fine of not less than TZS 50m. Scope Penalties BBG Budget Briefing 2015 Insight and Analysis

36 Recent TRA activity TRA usually has tended to focus on: Management fees Royalties Franchise fees Interest free loans Now seeing TRA adopting a more holistic approach to transfer pricing audit which comprises of: Reviewing taxpayer transfer pricing documentation Seeking to understand the business, operations and industry factors Verifying the functional analysis and pertinent facts Challenging benchmarking results and conducting their own search In summary, transfer pricing audits are becoming more thorough and technical. BBG Budget Briefing 2015 Insight and Analysis

37 Next steps for entities with related party transactions Ensure that have transfer pricing documentation (many companies are not compliant). Ensure that documentation is up to date and reflects the business activities. If using centrally prepared/group documentation, ensure that it covers the Tanzanian operations adequately. Ensure that benchmarking is updated regularly. Expect the TRA to request for the documentation and be prepared to defend the policy and methodology adopted. More pressure on taxpayers to review their intercompany transactions to ensure that they are conducted at arm s length and are defensible. BBG Budget Briefing 2015 Insight and Analysis

38 Budget 2015 New VAT Act 2014 Highlights and Impact Analysis

39 Agenda 1 Background 1 2 Highlight of some key changes 3 3 Detailed look at some selected key changes 6 4 Industry observations 17 BBG Budget Briefing 2015 Insight and Analysis

40 Section 1 Background BBG Budget Briefing 2015 Insight and Analysis 1

41 Section 1 Background Current status Commencement date : 1 July 2015 Replaces the Value Added Tax Cap 148 of 1997 To operate in conjunction with the new Tax Administration Act (TAA) New Regulations - still not available. BBG Budget Briefing 2015 Insight and Analysis 2

42 Section 1 Background Highlight of key changes Reduced exemptions (and few additional exemptions) Special Relief Schedule removed but new Capital Goods provisions Cross border services changes relating to : o Export of services o Imported services o Registration of non resident suppliers. Input tax: wider restrictions to claiming BBG Budget Briefing 2015 Insight and Analysis 3

43 Section 1 Background Highlight of key changes cont d New provision on bad debts adjustments Correction of errors New De Minimis rules. Registration of non- resident providers of electronic services New Registration threshold expected: TZS 100m BBG Budget Briefing 2015 Insight and Analysis 4

44 Section 2 Detailed look on selected key changes BBG Budget Briefing 2015 Insight and Analysis 5

45 Section 2 Detailed look on selected key changes Capital goods Deferral of VAT on Imports Capital goods = o Goods for use in person s economic activity with useful life over one year o Excludes (i) consumables or raw materials, and (ii) goods imported for principal purpose of resale Requirements: o Application for approval by TRA, and o Provision of security VAT Accounting: o Account for both output tax and input tax in the same VAT return BBG Budget Briefing 2015 Insight and Analysis 6

46 Section 2 Detailed look on selected key changes Capital goods Deferral of VAT on Imports (s11) Conditions for approval: o Carrying on an economic activity o Turnover - at least 90% taxable supplies o Keep proper records and file VAT returns o Complies with obligations under this Act and any other tax law o Provision of security required Grounds for refusal : o If there is any outstanding tax liability or outstanding tax return o Convicted of tax evasion offence (including connected person) BBG Budget Briefing 2015 Insight and Analysis 7

47 Section 2 Detailed look on selected key changes Bad debts adjustments Supplier right to a decreasing adjustment if: o Payment overdue for more than 12 months and have written debt off o Payment overdue for more than 18 months Customer obligation to make an increasing adjustment if payment overdue for more than 18 months If payment made subsequent to adjustments above, then make further adjustments as appropriate BBG Budget Briefing 2015 Insight and Analysis 8

48 Section 2 Detailed look on selected key changes Correction of errors Application now required (other than for minor errors) Introduction of three year time limit No provision for exclusion of penalties and interest for voluntary disclosure. Instead, it is explicitly provided that where there is a correction of an error, then interest will be payable. BBG Budget Briefing 2015 Insight and Analysis 9

49 Section 2 Detailed look on selected key changes New De Minimis rules Imported services- 90:10 rule Partial exemption- 90:10 rule Payment of Refund by Commissioner- Regulations BBG Budget Briefing 2015 Insight and Analysis 10

50 Section 2 Detailed look on selected key changes Some notable changes on Exemptions Petroleum products o Exemption remains other than HFO & IDO Property o Residential premises - now exempt Technology o Computers - now taxable BBG Budget Briefing 2015 Insight and Analysis 11

51 Section 5 Industry and other observations BBG Budget Briefing 2015 Insight and Analysis 11

52 Section 5 Industry and other observations Industries Agriculture Extractive Industries Exemptions - agricultural implements, agricultural inputs, fisheries implements, dairy equipment, beekeeping implements Imported goods exemption limited to goods for exploration or prospecting which qualify for relief under Customs laws Unprocessed supplies VAT deferral on capital goods Exemptions limited to unprocessed important for those at production supplies (so processed tea and coffee stage will be standard rated). Transitional provisions - imply recognition of rights under MDAs / PSAs (but only in relation to exploration / prospecting) BBG Budget Briefing 2015 Insight and Analysis 12

53 Section 5 Industry and other observations Industries Finance and Insurance Definition of financial services more restrictive than VAT Act,1997 Life and health insurance: exempt; other insurance: now taxable Telecommunications Provisions specific to sector Tourism Tourism services (as defined) remain exempt Government o Non commercial activities now taxable International Transport Zero-rating (but exclusion of ancillary transport services ) BBG Budget Briefing 2015 Insight and Analysis 13

54 Budget 2015 Current Hot Topics

55 Section 5 Industry and other observations Hot topics/discussion points International Tax Transfer pricing VAT Imported services Transactions (TOGC) Change in control rules New Act Withholding tax Other a) source rules Payroll taxes - quantum b) net of tax contracts 5% residents withholding tax Customs post clearance audits BBG Budget Briefing 2015 Insight and Analysis 15

56 For tax and other updates follow us or visit This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Limited, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers Limited. All rights reserved. In this document, refers to PricewaterhouseCoopers Limited which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.