TANZANIA BUDGET ANALYSIS 2019/2020

The Minister of Finance unveiled the 2019/20 Budget on 13 June 2019. Below are some of the major tax reforms proposed by the Minister in the Budget Speech.

Tax Amnesty Extension:

For taxpayers who have been granted tax amnesty, they now have up to 31st December 2019 (instead of 30th June 2019) to settle their principal tax liabilities for which interest and penalty have been waived

  • This is a very commendable move given some delays in processing some of the tax amnesty applications.

Tax Dispute Resolution improved:

Two measures have been proposed

(a) Office of Tax Ombudsman at the Ministry of Finance, and

(b) Tax Objection Desk for disputes/complaints related to valuation or classification of imports

  • The success of these two measures will much depend on the extent of independence of those units, their expertise and resources.

Imports by individuals made simple:

The requirement to use clearing agents will no longer be mandatory for individual importers. The clearing process will also be simplified.

  • This may reduce the cost of importation to individuals but may also increase administrative costs to TRA in a short term.

Relief on female pads?:

(a) Corporate tax of 25% (instead of 30%) to apply for the first 2 years of operation to new investors in manufacturing of pads. Subject to a performance agreement with the government

(b) VAT exemption removed on supply of pads

  • Exemption or reduced income tax rate in the early years of production may not be an effective incentive. Most business will make losses in the first few years and may not be in a tax paying position anyway. VAT exemption does not always reduce prices to final consumers. Could there be some better non-tax incentives?

No immediate tax at TIN registration:

New taxpayers will now have up to six months before income tax on their business becomes due. No tax will be demanded when taxpayer applies for TIN.

  • What a great move! This will certainly give new taxpayers relief and focus their attention on building their new businesses at least for six months. But some anti-avoidance measures will also need to be in place to prevent abuse.

Excise duty:

No major changes on excisable goods and services. Duty reduced on wines made from local fruits from TZS200/L to TZS61/L. No duty on aircraft lubricants used by the national carrier and others per international agreements. Locally made artificial hair now to attract 10% duty and those imported 25%.

  • Some good news to aviation industry. Beauty will now be more expensive.

Stricter regulations on betting:

New system to be used to regulate both operators and players to mitigate negative social economic implications and also curb the revenue leakages.

  • Given the apparent boom in this sub-sector, this is a good move. Both economically and socially.

Customs:

A number of changes to protect local industries.

  • Protecting local industries is important and commendable. But that should go hand in hand with tangible controls to ensure efficiency. Otherwise we may be protecting inefficiencies and ultimately penalize consumers.

Nuisance levies scrapped:

In implementing the Blueprint for regulatory reforms, several levies and fees (e.g. imposed TFDA, Government Chemist, and TBS) are going to be scrapped.

  • This is a good start in implementation of the spirit of the Blueprint. Multiple fees, levies and taxes are not conducive to business.

Presumptive tax:

Several changes on sole proprietors with less than TZS 100 Million annual turnover.Presumptive tax at a maximum rate of 3.5% will now apply on individuals with turnovers of up to TZS100 Million (up from TZS20 Million). No requirement to submit audited accounts. Mandatory use of EFD to start from TZS14 million turnover. No tax if turnover is TZS 4million or less.

  • This is the boldest move. It will reduce both compliance and administrative costs. For lower bands, the tax rates have been reduced.

5 Years Driving Licence :

Drivers will now use their driving licences for 5 years (instead of 3 years) before renewing.This however comes with additional cost. Drivers will pay TZS 70, 000 to get their licences renewed (up from TZS 40, 000). Owners of cars and motorcycles will also pay more fee to register their vehicles from the current flat rate of TZS 10, 000. Motorcars (TZS 50, 000), Tricycles (TZS 30, 000) and Motorcycles (TZS 20, 000).

  • These reforms may not be palatable to the motorists.

 Conclusion:

The proposed reforms as presented in the Budget speech clearly show the intention to create an industrial economy and also implement the spirit of the Blueprint for regulatory reforms. We await to see how these and other tax reforms will be reflected in the tax laws (through the Finance Act, 2019 and the GNs).