Dodoma — The Tanzanian government has reduced Value Added Tax (VAT) from 20%to 18%, the Finance and Economic Affairs Minister Mustapha Mkulo announced last week while tabling the 2009/10 budget in parliament in Dodoma.

Instead the 2009/10 budget has imposed VAT on leased buildings and apartments.

Reduction of VAT and abolition of several tax exemptions are among several steps taken by the Tanzanian government to harmonize its financial policies with East African Community partners.

Taxes abolished include those of customs duty on industrial parts and vehicles used by tourist agents and the 10% customs duty charged on human medicines and crude palm oil.

The government has abolished the 10% customs duty on crude palm oil which will now be zero-rated as is the case in Kenya and Uganda.

Mr Mkulo said exemptions on fuel for mining firms and Income tax on firms listed on Dar es Salaam Stock Exchange (DSE) was reduced to 25 per cent--also abolished was tax exemptions on deemed capital goods.

The other good news is the reduction of customs duty on second-hand clothes from 45% or 30 cents of a US dollar a kilogramme to 35% or 20 cents per kilogramme.

Also abolished is the customs duty on raw materials for production of paper while entry charge will be a flat rate of $50 dollars.

The finance minister said there were so many exemptions that are now negating Tanzania's goal of widening the tax base as almost 30% of the domestic revenue is lost through tax exemptions.

According to Mkullo, tax exemptions in the 2007/08 were equivalent to 3.5% of the Gross Domestic Product (GDP) while in Kenya it was 1% and 0.4% in Uganda.

He asked the House to approve an expenditure of TShs9.5 trillion (US$7.1 billion) for the 2009/10 financial year.

However, the 2009/10 budget proposed to increase the tariff on soft drinks from TShs54 to TShs58 a litre, beer brewed using local barley from TShs194 to TShs200 a litre and all other beers from TShs329 to TShs354 a litre.

Mr. Mkullo said mining firms would no longer be exempted from tax on petroleum products, but this would only apply to mining firms that would sign contract with the government after July 1, 2009.

In what he said was aimed at making human drugs cheaper to the people of East Africa, Mkulo said customs duty would be abolished on imported human medicine. Currently customs duty on imported human medicines is charged at 10%.

Meanwhile, Tanzania earned $3.037 billion from export of goods in 2008 which is up from $ 2.23 billion in 2007.