Economic Review June 2012

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1 Budget 2012 Economic Review Perceptions of different countries Who Works Hardest, Who s Views in Britain France Spain Italy Poland Czech Rep. Greece Most Hard Source: Pew Research Centre Least Hard Most Least 2 1

2 Perceptions of different countries Who Works Hardest, Who s Views in Britain France Spain Italy Poland Czech Rep. Greece Most Hard Source: Pew Research Centre Least Hard Most Least 3 Perceptions of different countries Who Works Hardest, Who s Views in Britain France Spain Italy Poland Czech Rep. Greece Most Hard Greece Source: Pew Research Centre Least Hard Most Least 4 2

3 Perceptions of different countries Who Works Hardest, Who s Views in Most Hard Least Hard Britain Greece France Italy Greece Spain Greece Italy Greece Poland Greece Czech Rep. Greece Greece Greece Italy Source: Pew Research Centre Most Least 5 Perceptions of different countries Who Works Hardest, Who s Views in Most Hard Least Hard Most Britain Greece Italy France Italy Italy Greece Italy Spain Greece Spain/Italy Italy Romania Italy Poland Greece Poland Czech Rep. Greece Czech Rep. Greece Greece Italy Greece Least Source: Pew Research Centre 6 3

4 Perceptions of different countries Who Works Hardest, Who s Views in Most Hard Least Hard Most Least Britain Greece Italy France Italy Italy Greece Italy Spain Greece Spain/Italy Italy Romania Italy Poland Greece Poland Czech Rep. Greece Czech Rep. Greece Greece Italy Greece Source: Pew Research Centre 7 Perceptions of different countries Who Works Hardest, Who s Views in Most Hard Least Hard Most Least Britain Greece Italy France Italy Italy Greece Italy Spain Greece Spain/Italy Italy Romania Italy Poland Greece Poland Czech Rep. Greece Czech Rep. Greece Greece Italy Greece Tanzania Source: Pew Research Centre 8 4

5 Tanzania s Perceptions Who Works Hardest, Who s Views in Most Hard Least Hard Most Least Britain Greece Italy France Italy Italy Greece Italy Spain Greece Spain/Italy Italy Romania Italy Poland Greece Poland Czech Rep. Greece Czech Rep. Greece Greece Italy Greece Tanzania When employed: Tanzania 9 Tanzania s Perceptions Who Works Hardest, Who s Views in Most Hard Least Hard Most Least Britain Greece Italy France Italy Italy Greece Italy Spain Greece Spain/Italy Italy Romania Italy Poland Greece Poland Czech Rep. Greece Czech Rep. Greece Greece Italy Greece Tanzania When employed: Tanzania When not employed: Tanzania 10 5

6 Tanzania s Perceptions Who Works Hardest, Who s Views in Most Hard Least Hard Most Least Britain Greece Italy France Italy Italy Greece Italy Spain Greece Spain/Italy Italy Romania Italy Poland Greece Poland Czech Rep. Greece Czech Rep. Greece Greece Italy Greece Tanzania When employed: Tanzania When not employed: Tanzania GoT: Estimated 30% of budget lost through corruption in Hours Worked in different countries Average hours worked per country Tanzania France United Kingdom Spain Italy Czech Republic Poland Greece ,000 1,500 2,000 2,500 Hours per year Source: OECD 12 6

7 Tanzania s performance Performance measure target GDP growth 7% 6.4% 6.8% 13 Tanzania s performance Performance measure target GDP growth 7% 6.4% 6.8% Inflation rate 5.5% 12.7% >single digit medium term 14 7

8 Tanzania s performance Performance measure target GDP growth 7% 6.4% 6.8% Inflation rate 5.5% 12.7% >single digit medium term Tanzanian shilling to US$ exchange rate TShs 1,432 (average) TShs 1,579 (average) Market determined 15 Tanzania s performance Performance measure target GDP growth 7% 6.4% 6.8% Inflation rate 5.5% 12.7% >single digit medium term Tanzanian shilling to US$ exchange rate Per capita income TShs 1,432 (average) TShs 770,464 or US$538 TShs 1,579 (average) TShs 869,436 or US$551 Market determined

9 Tanzania s performance Performance measure target GDP growth 7% 6.4% 6.8% Inflation rate 5.5% 12.7% >single digit medium term Tanzanian shilling to US$ exchange rate Per capita income Average lending rate on short term loans TShs 1,432 (average) TShs 770,464 or US$ % (December 10) TShs 1,579 (average) TShs 869,436 or US$ % (December 11) Market determined Tanzania s performance Performance measure target GDP growth 7% 6.4% 6.8% Inflation rate 5.5% 12.7% >single digit medium term Tanzanian shilling to US$ exchange rate Per capita income Average lending rate on short term loans Foreign currency reserves months cover for imports of goods and services TShs 1,432 (average) TShs 770,464 or US$ % (December 10) TShs 1,579 (average) TShs 869,436 or US$ % (December 11) Market determined 5.3 months 3.8 months 4.5 months minimum

10 Last year s predictions and results Performance parameters Prediction Results High GDP growth rates can be met, or even exceeded Equal to or above the 7% achieved in % in 2011 Inflation will continue to be high 10% % in 2011 The Tanzanian shilling will continue to decline (by end of 2012) Tshs 1,600-1,700/US$ Tshs 1,588 / US$ at March There are some positives in 2012 and beyond Large infrastructure projects getting underway (Chinese, total planned infrastructure of nearly $19bn) June Budget

11 There are some positives in 2012 and beyond Large infrastructure projects getting underway (Chinese, total planned infrastructure of nearly $19bn) Soon we won t talk about the BRICS, we will talk about the CARBS (gold, diamonds, gemstones, coal, tin, gypsum, phosphate) June Budget There are some positives in 2012 and beyond Large infrastructure projects getting underway (Chinese, total planned infrastructure of nearly $19bn) Soon we won t talk about the BRICS, we will talk about the CARBS (gold, diamonds, gemstones, coal, tin, gypsum, phosphate) Tanzania is stable and relatively peaceful June Budget

12 But the outlook for 2012 is gloomier than before given a number of economic factors High inflation (food prices, oil prices, electricity tariff up by 40%); June Budget But the outlook for 2012 is gloomier than before given a number of economic factors High inflation (food prices, oil prices, electricity tariff up by 40%); Budget deficit (Current account over $3bn [oil - a quarter of imports prices rose by 38% in 2011, European tourism down, donors less willing to spend]) June Budget

13 But the outlook for 2012 is gloomier than before given a number of economic factors High inflation (food prices, oil prices, electricity tariff up by 40%); Budget deficit (Current account over $3bn [oil - a quarter of imports prices rose by 38% in 2011, European tourism down, donors less willing to spend]) Dependence on rains (food prices, lack of hydro electricity) June Budget But the outlook for 2012 is gloomier than before given a number of economic factors High inflation (food prices, oil prices, electricity tariff up by 40%); Budget deficit (Current account over $3bn [oil - a quarter of imports prices rose by 38% in 2011, European tourism down, donors less willing to spend]) Dependence on rains (food prices, lack of hydro electricity) Power in a dire state (nearly 90% without electricity access, hydro delivers between 20-90% of needs depending on weather, slow privatisation process) June Budget

14 But the outlook for 2012 is gloomier than before given a number of economic factors High inflation (food prices, oil prices, electricity tariff up by 40%); Budget deficit (Current account over $3bn [oil - a quarter of imports prices rose by 38% in 2011, European tourism down, donors less willing to spend]) Dependence on rains (food prices, lack of hydro electricity) Power in a dire state (nearly 90% without electricity access, hydro delivers between 20-90% of needs depending on weather, slow privatisation process) Experienced, skilled human resources scarce June Budget But the outlook for 2012 is gloomier than before given a number of economic factors High inflation (food prices, oil prices, electricity tariff up by 40%); Budget deficit (Current account over $3bn [oil - a quarter of imports prices rose by 38% in 2011, European tourism down, donors less willing to spend]) Dependence on rains (food prices, lack of hydro electricity) Power in a dire state (nearly 90% without electricity access, hydro delivers between 20-90% of needs depending on weather, slow privatisation process) Experienced, skilled human resources scarce The World June Budget

15 This year s predictions Performance parameters GDP growth rates will slow 5-6% Prediction 29 This year s predictions Performance parameters Prediction GDP growth rates will slow 5-6% Inflation will continue to be high 12%

16 This year s predictions Performance parameters GDP growth rates will slow 5-6% Prediction Inflation will continue to be high 12%++ The Tanzanian shilling will continue to decline ( by end of 2012) Tshs 1,650-1,750/US$ 31 Revenue Performance, Tax Changes 16

17 Agenda Revenue: 2011/2012 Performance 2012/2013 Target Budget Tax Changes: Income Tax Customs Duty Excise duty VAT Other June Budget Tanzania 33 Revenue Performance 2011/2012 Performance 2012/2013 Target 34 17

18 Collections on target but in an inflationary environment, and imports still underperforming Ten months to 30 April / / /12 Variance Variance Actual Budget Actual Prior Yr Budget TZS'bn TZS'bn TZS'bn % % Taxes on fuel % 5% Other taxes on imports 1,207 1,546 1,369 13% -11% Customs & Excise 1,922 2,285 2,144 12% -6% Large Taxpayer Dept 1,723 2,097 2,264 31% 8% Domestic Revenue Dept % 4% 4,441 5,311 5,373 Add: Treasury Vouchers Less: Transfers to refunds A/C (9) (13) (9) Less: VETA (33) (42) (38) 4,421 5,286 5,352 21% 1% 35 VAT and excise duty on local supplies telecoms and alcohol the major contributors Ten months to 30 April / / /12 Variance Variance Actual Budget Actual Prior Yr Budget TZS'bn TZS'bn TZS'bn % % Telecoms - excise duty & VAT % 1% Beer - excise duty & VAT % -5% Cigarettes - excise duty & VAT % -10% Soft Drinks - excise duty & VAT % -13% Spirits - excise duty & VAT % 55% Sugar - VAT % 6% Cement - VAT % 2% Electricity - VAT % -38% Sub-Total % -3% Other Total before refunds 667 1,169 1,083 62% -7% Transfers to refund a/c (102) (133) (98) Total after refunds 566 1, % -5% 36 18

19 Direct Taxes and SDL Corporate and withholding taxes significantly higher Ten months to 30 April / / /12 Variance Variance Actual Budget Actual Prior Yr Budget TZS'bn TZS'bn TZS'bn % % PAYE % 7% Skills & Dev.Levy % 5% Taxes on Employment ,029 22% 7% Less:Transfers to VETA (33) (42) (38) Corporate Taxes % 25% Individuals % 6% Rental Tax % 17% Withholding Tax % 52% Other % -23% Total - Direct & SDL 1,416 1,617 1,880 33% 16% /13 Target domestic revenues of 18% of GDP (compared to projected 16.9% in 2011/12) appears to assume a significant revenue increase 2011/ / /2013 Variance 9 month 12 month 12 month 2012/2013 Actual Extrapolated Budget Prior Yr TZS' bn TZS' bn TZS' bn %ge Domestic Revenue: Tax Revenue - TRA 4,766 6,354 8,070 27% Non Tax Revenue % 5,038 6,717 8,715 30% Local Government Authorities (LGA) own source % Domestic Revenue + LGA 5,181 6,907 9,077 31% General budget support % Foreign loans and Grants (including MCA (T)) 2,314 Domestic borrowings 1,632 Non-concessional borrowings 1,254 Total revenue 15,120 Note: extrapolation assumes results for 12 months are 12/9 of the 9 month results 38 19

20 Tax Changes Income Tax 39 Income tax - individuals PAYE monthly tax free threshold increase: TZS 170k (from TZS 135k) Change to presumptive tax rates for traders: Turnover Previous rates Turnover Revised rates From To Incomplete records Complete records From To Incomplete records Complete records TZS'm TZS'm TZS TZS TZS'm TZS'm TZS TZS , % % ,000 TZS 33, % of amount over TZS 3m ,000 2% of amount over TZS 3m ,000 TZS 85, % of amount over TZS 7m ,000 TZS 260, % of amount over TZS 14m ,000 TZS 90, % of amount over TZS 7.5m ,000 TZS 190,000+ 3% of amount over TZS 11.5m ,000 TZS 325, % of amount over TZS 16m 40 20

21 Withholding Tax Removal of exemption for: Interest paid on deposits of non-residents (now subject to normal 10% rate) Dividends paid by local company to local parent company with holding of 25% + (now subject to 5% rate) New exemption: Interest paid to foreign banks by strategic investors 41 Income Tax - Business Sale of shares of foreign company with underlying interest in Tanzanian company to trigger deemed realisation in Tanzania Exemption of: Dar es Salaam Stock Exchange Gaming licencees, but turnover tax on gaming to increase 42 21

22 Tax Changes Indirect Taxes 43 Customs Duty Wheat grain 35% CET rate stayed 0% rate for further year Set top boxes (digital technology), Software 0% (from 25%) Electricity 0% (from 10%) Mining exemption for machinery and spare parts used in mining Deemed capital goods exemption 90% of duty rather than 100% Cement continue with 25% rate for further year (not 35%) 44 22

23 Customs Duty (continued) Other sundry changes relevant to: Galvanised wire Infant food supplements Thermos assembly Soap industry Cathodes Castor oil for lubricant producers Road guards rails Refrigerated trailers Medical diagnostic kit inputs Beekeeping Armed Forces Canteen Organisation exemption to continue 45 Excise Duty Airtime ad valorem rate increase to 12% (from 10%) Fixed rate duty changes: Increases: 25% (beer), 20% (spirits, imported wine, tobacco, carbonated soft drinks) Reduction: local wine Removal: Heavy Fuel Oil (HFO) Extension to: Natural gas for industrial use: TZS 0.35 / cubic feet Fruit juice: TZS 83/litre (imports), TZS 8/litre (local) Music and film products 46 23

24 Motor vehicles Non-utility motor vehicles: Excise duty exemptions abolished (in most cases) 3,000cc +: Customs duty exemption abolished (in most cases) 20% excise duty on vehicles > 8 years old (previously if >10 years) Personalised number plate: TZS 5m for 3 years 47 VAT 10% rate for selected persons entitled to special relief (including TIC certificate holders, most NGOs) Exemption: Certain equipment for storage, transportation and distribution of natural gas Electronic Fiscal Devices Reference to planned measures... to review the Value Added Tax (VAT) with the view to changing it to conform to international best practices 48 24

25 Other matters Reference to planned measures... to review the rationale and applicable rates of Skills Development Levy and Motor Vehicle Licenses, and to improve revenue from property tax (including Integrated Property Rating Information Management System) Airport service charge increase: International $40 (from $30) Local TZS 10k (from TZS 5k) Increase in export levy on raw hides and in gaming tax rates 49 Panel Discussion - Any Questions? WARNING: The following disclaimer and copyright notices must be customised for your local territory - if you need assistance with appropriate wording, contact your local Risk Management or Office of General Counsel. Thispublicationhas been prepared for general guidance on mattersof interest only, and does not constituteprofessional advice. You should not act upon the informationcontained in this publicationwithout obtainingspecific professionaladvice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the informationcontained in thispublication,and, to the extent permittedby law, PricewaterhouseCoopers Tanzania, its members, employees and agents do not accept or assumeany liability, responsibilityor duty of carefor any consequences of you or anyone else acting, or refrainingto act, in relianceon the informationcontained in this publicationor for any decision based on it Tanzania. All rights reserved. In this document, refers to PricewaterhouseCoopersTanzania which is a member firm of PricewaterhouseCoopers InternationalLimited, each member firm of which is a separate legal entity. 25

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