Basil & Alred Tanzania s 2018/2019 Budget Highlights

Transcription

1 Basil & Alred Tanzania s 2018/2019 Budget Highlights Highlights based on speeches made by the Minister for Finance and Planning On June 14th, 2018 Dodoma, Tanzania

2 Economic Overview Where We Are Regional Update - GDP and Inflation The East African economy grew by an average of 1.9% and Tanzania s economy was the highest at an average rate of 7.1% followed by Rwanda 6.1%, Kenya 4.8%, Uganda 4.5% and Burundi 0%. Inflation on the other hand, remained at a single digit with Uganda recording the lowest inflation rate of 5.0%, Tanzania 5.1%, Rwanda 6.6%, Kenya 7.3% and Burundi 13.1%. National Update The GDP growth rate was 7.1% in 2017 as compared to 7.0% in 2016 while the population growth rate was 3.1%. The rapidly growing economic activities include: Mining & Quarrying (17.5%), water supply (16.7%), Transportation and storage (16.6%), ICT (14.7%) and construction (14.1%). This growth is attributed to the government s efforts in implementing infrastructure projects, increased production of some minerals and improvements in agricultural sector. Others: Shilling stable Credit to Private Sector down 5.5% Current account deficit narrowed by 44% due to decline in importation, payments of services and decrease in receipts from development partners Page No : 2

3 Budget Highlights Sailing Into The Wind The Minister for Finance and Planning, Dr. Philip Mpango tabled the 2018/2019 budget on 14 th June, 2018 in the National Assembly in Dodoma. Similar to last year, all East Africa Community member states have themed their budgets around building an industrial economy for job creation and sustained social welfare. It is the third budget of the Fifth Phase Government under His Excellency Dr. John Magufuli. The budget describes the current regime s ambition of an industrial economy with the main goals being poverty eradication and transforming Tanzania to a middle income country by The registered priority areas for the fiscal year 2018/2019 include putting more emphasis on implementation of flagship projects such as the Standard Gauge Railway, the Stigler s Gorge Power Plant and the Tanga - Hoima oil pipeline. Much has been said about the country s poor ranking on ease of doing business index. The World Bank Doing Business 2018 report ranks Tanzania number 137 out of 190 countries Rankings on Doing Business Topics Rank Starting a Business Dealing with Construction Permits Gettng Electricity Registering Property Getting Credit Protecting Minority Investors Paying Taxes Trading Across Borders Enforcing Contracts Resolving Insolvency Source: World Bank Group Page No : 3

4 Budget Highlights (Cont d...) Sailing Into The Wind Domestic Revenue collection from July 2017 to April 2018 (including Local Government Authority (LGAs) own sources) was TZS trillion which is 74.3% of annual target. Tax revenue was TZS trillion. Challenges: The underperformance in domestic revenue was due to the following: Tax evasion Difficulties in taxing the informal sector Unfriendly environment for tax payment and multiplicity of taxes in some sectors especially those under regulatory authorities i.e. TBS, TFDA, EWURA, TCRA, OSHA Underutilization of Electronic Fiscal Devices (EFDs) Weakness in management of natural resources Dependency of public entities to the government budget Page No : 4

5 Tax Measures Income Tax The proposed tax measures are:- To reduce corporate income tax rate to 20% for new investors (manufacturing) in the pharmaceutical and leather industries for five (5) years starting 2018 to To amend the Income Tax Act to extend Ministerial powers to grant exemption to government projects financed by non-concessional loans. To introduce withholding tax exemption on loan interest payments to financial institutions by government aimed at financing projects. Value Added Tax Proposed measures are as follows:- To exempt VAT on packaging materials produced for use by the local manufacturers of pharmaceutical products. To exempt VAT on imported animal and poultry feeds additives. To amend the Act to extend Ministerial powers to grant exemption on government projects financed by non-concessional loans. To amend the Act to extend Ministerial powers to grant VAT exemption where an agreement exists between the government and a financial institution or Bank that is representing another Government and has been given powers of Attorney by the said Government to execute the Agreement. To exempt VAT on sanitary pads. Page No : 5

6 Customs Duties To provide a reduced duty rate on: Wheat grain under HS Codes and from 35% to 10% for one year Papers used to manufacture exercise books and text books from 25% to 15% Papers used as raw materials for the manufacturing of Gypsum Board to 0% for one year Self-Adhesive Label from 25% to 10% for one year Polyvinyl Alcohol (HS Code to 0% from 10% Inputs to manufacture pesticides, fungicides, insecticides and caricides to 0% subject to approvals from relevant authorities. RBD palm stearin (HS Code ) to 0% for one year from 10% Printed Aluminium Barrier Laminates (ABL) to 0% for one year from 25% To increase duty rate: To 35% on sugar (consumption sugar) imported to cover shortage in domestic market To Grant Stay of application of East Africa Community- Common External Tariffs (EAC-CET) rate on the following: 0% duty on Electronic Fiscal Devices for another year Gypsum powder under HS Code at 10% duty for one year Crude palm oil (HS Code ) at 25% duty for one year Crude edible oils e.g. sunflower oil, palm oil, groundnuts oil, olive oil, maize corn oil etc. at 25% duty for one year Semi refined and refined or double refined edible oils at 25% duty for one year Safety matches at the higher of 25% duty or US$ 1.35 per kg for one year Potatoes and apply duty at 35% for one year Chewing gum at duty of 35% for one year Page No : 6

7 Customs Duties (Cont d...) To grant stay of application of EAC- CET rate on the following (Continued) Other sugar confectionary at 35% for one year Chocolates at 35% for one year Biscuits at 35% for one year Nails, tacks, drawing pins, corrugated nails staples at rate 25% or USD 350 per metric ton whichever is higher for one year. Tomato sauce from 25% to 35% for one year Mineral water from 25% to 60% for one year Meat and edible offal from 25% to 35% for one year Sausages and similar products from 25% to 35% for one year The proposed amendments in the EAC Customs Management Act, 2004 as follows: To amend the Fifth Schedule to extend exemptions to motorcycles for rally To amend the Act and split HS Code to extend CET remission of 0% to motor boat ambulance under HS Code To amend the Fifth schedule to provide import duty exemption on various types of specific motor vehicles for transportation of tourists by licensed tour operators To grant duty remission on a selected list of raw materials and industrial inputs for the manufacture of textiles and foot wear. Page No : 7

8 Miscellaneous Amendments Use of modern technology by adopting: Electronic tax stamp instead of paper tax stamp to obtain production data in real time The Government Electronic Gateway System (GePG) in various public institutions to curb revenue leakage Amending The Local Government Finance Act: To give powers to the Minister for Local Government to direct the Local Government Authorities to retain 10% of monies collected from their own source to fund women and youth groups on basis within their jurisdiction. To provide exemption on produce cess only to companies that produces and processes agricultural crops for value addition. Amending the Tax Administration Act to provide tax amnesty for the first six (6) months from 1st July, 2018 on accumulated interest and penalties. Emphasize usage of treasury single account for collection and payment of Government funds. Crop Boards now required to deposit 100% of fees and levies from sales of crops in the Paymaster General Account. Page No : 8

9 Miscellaneous Amendments (Cont d...) Increase Gaming tax rate charged by Tanzania Revenue Authority: Item Current Proposed Sports betting operations 6% 10% Slot machine (monthly per machine) 32, ,000 Land based Casino operator 15% 18% Forty Machines 15% 20% Amendments of various fees and levies imposed by ministries, regions and independent departments Exempting government agencies and institutions from land rent. The following are to be abolished in the salt sub-sector: Produce cess imposed on salt producers by local government Inspection and clearance fees of 1% of gross value of minerals imposed on the salt industry Mangrove levy charged on salt producers fee on project concept paper review charged by National Environmental Management Council (NEMC) Fee charged on solar salt panel Supervision fee imposed on salt mines charged by Tanzania Forest Services Agency Registration fee for salt mining center Fee on Environmental Impact Assessment charged on salt producers by NEMC Page No : 9

10 Miscellaneous Amendments (Cont d...) Reduction of the following in salt sub-sector: OSHA Levy from TZS 2,000,000 to TZS 1,000,000 charged on salt producers Export permit fee from USD 100 to TZS 20,000 per annum imposed on salt producers The following fees and levies charged by OSHA are to be abolished: Fee charged on application forms for work places registration Levy imposed on registration of working places Fines charged on fire and rescue equipment s Compliance license TZS 500,000 Consultancy fee TZS 450,000 Increase excise duty rates on imported products as follows:- Mineral waters containing added sugar or other matter of flavour from TZS 61 to TZS per litre Fruit juices from TZS 221 per litre to TZS 232 per litre Beers from TZS 765 per litre to TZS per litre Non-alcoholic beers (including energy drinks and non-alcoholic beverages) from TZS 561 to TZS per litre Wine produced with more than 25% imported grapes from TZS 2,349 per litre to TZS 2,466 per litre Spirits from TZS 3,481 per litre to TZS 3, per litre Other cigarettes from TZS 53,235 to TZS 55, per thousand cigarettes Cut rag or cut filler from TZS 26,888 to TZS 28,232.4 per kg Page No : 10

11 Excise Duties Introduce excise duty of TZS 200 per litre on wine produced with domestic fruits (such as banana, rozella, tomato) other than grapes with contents of at least 75% To maintain excise duty rates on: Soft drinks at TZS 61 per litre Locally produced water at TZS 58 per litre Locally produced fruit juices at TZS 9 per litre Beers made from local unmalted cereals at TZS 450 per litre Locally produced non alcoholic beverages at TZS 561 per litre Wine produced with domestic grapes with content exceeding 75% at TZS 200 per litre. Locally produced spirits at TZS 3,315 per litre Cigarettes containing domestic tobacco more than 75% at TZS 12,447 per 1000 cigarettes Cigarettes without filter tip containing domestic tobacco more than 75% at TZS 12,447 per 1000 cigarettes Cigarettes with filter tip containing domestic tobacco more than 75% at TZS 29,427 per 1000 cigarettes Cigar at 30% Page No : 11

12 Sectorial Analysis Agricultural Sector This is one of the priority sector of the 5th phase government. It includes: crops, livestock and fisheries. The sector employs 66% of the population and contributes 30% of the GDP. It has continued to record a slow growth averaging 3.7% annually over the last 10 years. This is mainly due to low level of investment, low productivity and dependency on rainfall as well as low contribution of manufacturing sector to GDP. The government, in the 2018/2019 budget, will continue to improve irrigation infrastructure, research, warehousing and markets. The government recently launched phase two of the Sh13.8 trillion Agricultural Sector Development Programme (ASDP II). According to the experts it is expected that the programme will facilitate the annual growth of agriculture from 3.7 to six per cent, and boost food security in the country to at least 130 per cent from the current 123 per cent. Financial Sector During the 2017/2018, the Bank of Tanzania (BOT) reduced the discount rate from 12% to 9% to stimulate borrowing and reduce interest rates levied by commercial banks. The aim was to generally decrease bank lending rates and stimulate public borrowing. However, commercial banks preferred to invest in treasury bills due to increasing non-performing loans. This resulted to scarcity of liquidity in the economy. The shilling has stabilized against the dollar as a result of improvement in management, implementation of prudent fiscal and monetary policies. Infrastructure The government will continue to give special attention to its flagship projects including standard gauge railway, Rufiji hydropower, reviving Air Tanzania Corporation Limited, constructing the crude oil pipeline from Uganda (Hoima) to Tanzania (Tanga). The government will continue to borrow heavily from both domestic and external sources to finance its massive infrastructure projects. Page No : 12

13 Sectorial Analysis (Cont d...) Public Sector The government has continued to insist on low dependency of public corporation on the government budget. It has also been revealed that the public sector is challenged with conflicting laws, regulations and procedures administered by different authorities; overlapping of responsibilities and multiplicity of regulatory authorities in approving, licensing, granting permits and certificates in business and investments; multiplicity of taxes, fees and levies accompanied by complex and unproductive bureaucratic procedures. What to expect? There will be increased reforms in the public sector to reduce/eliminate these repetitive duties, taxes, fees and levies. To relieve public institutions and government agencies, the minister proposes to exempt them from paying land rent due to their non-profit nature. So as to improve revenue collection and control leakage all government agencies will be connected with the Government Electronic Payment Gateway System (GePG). Manufacturing Sector This was another key area but currently it contributes only 5.5% of the GDP. The government aims to improve this by refining the business environment in order to attract private sector investments particularly in textile, leather and meat, fish, edible oils, medicine and medical equipment, food and animal feeds. To achieve this, the government has taken measures to increase import duty on importation of various raw materials as discussed under the customs section. Further, the minister has exempted from VAT imported animal and poultry feeds additives so as to increase the contribution of the sector to the economy. It is expected that these measures collectively will protect local industries and promote processing of finished goods from locally sourced raw materials. Page No : 13

14 Sectorial Analysis (Cont d...) Energy & Resources Revenue from the mining sector has been boosted by the construction of the 24.5 km perimeter wall at Mererani to reach billion up from million in In addition, the government has increased control of exports of mineral concentrate and enactment of new mining laws. These laws include: The Natural Wealth and Resources (Permanent Sovereignty) Act 2017; The natural Wealth & Resources Contracts Act 2017 and The Written Laws (Miscellaneous Amendments) Act Finally government has embarked on the construction of a huge hydroelectric power at Rufiji to produce 2100MW while suspending the implementation of the Independent Power Producers (IPP s). Apart from increasing government revenue, the improved energy supply will support government s agenda of attaining medium income economy status. Page No : 14

15 Disclaimer This publication contains general information only and does not constitute professional advice. This publication is not a substitute for professional advice or services nor should it be used as a basis for decision or action that may affect your finances or your business. No representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this publication. Basil & Alred shall not be responsible for any loss whatsoever caused by reliance on the information in this publication or for any decision based on it. Page No : 15

16 Contacts Godfrey Mramba Managing Partner Tel: Mob: Alais Mwasha Tax Partner Tel: Mob: Amani Michael Senior Tax Manager Tel: Mob: Copyright 2018 Page No : 16