The government yesterday unveiled a Sh11.1 trillion tentative Budget for 2010/11.

However, members of the Parliamentary Committee on Finance and Economy said the government should scale back tax exemptions to reduce donor dependency.

Finance and Economic Affairs minister Mustafa Mkulo told the committee, however, that not all foreign support pumped into the Budget as some was in the form of loans, which the country was entitled to and had obligation to repay. The nation would forgo about Sh3 trillion in exempted taxes in the current financial year.

Mr Mkulo said Sh6 trillion of the estimates would be sourced internally, while foreign grants and loans would amount to Sh2.8 trillion, adding that the government would borrow Sh1 trillion from domestic sources Sh1 trillion and Sh983.7 billion commercially.

Local government authorities are expected to raise Sh172.6 billion, while proceeds from privatised firms would total Sh30 billion.

The percentage of domestic revenue in the proposed Budget is 30, down from 33, but Mr Mkulo told the committee that he would today come up with a clear dependency ratio.

Mr Mkulo also hinted on expenditure cuts in the forthcoming year which, however, would not affect the long overdue national identification project and the October General Election.

Other priority areas include social welfare, namely health, education and water, as well as infrastructure and agriculture.

Mr Mkulo concurred with committee members that tax exemptions were on the high side, but said a committee formed to assess the situation was close to finishing its work.

"But what I can tell you is that there are some mining companies that have advised their home countries to cut aid to Tanzania if the tax exemptions these firms enjoy are scrapped.

"Some of the MDAs (mining development agreements) signed between the government and mining companies are questionable, but the government has no choice but to respect the agreements."

Committee member Hamad Rashid Mohammed, who is also the Leader of Official Opposition in Parliament, was the first to criticise the proposed budget, saying: "If we reduce exemptions by 40 per cent, we will be in a better position not to rely on foreign aid."

The Wawi MP also queried increased expenditure by the government despite a decrease in domestic revenue and the aid cut by development partners.

Mr Anthony Diallo (Ilemela-CCM) also urged the government to address the issue of tax exemptions.

"We should think of abolishing these exemptions so that increase and reduce the donor dependency syndrome."

Committee chairman Abdallah Kigoda (Handeni-CCM) said it was time the government strengthened domestic revenue collection to do away with donor dependency.

"There is a report I read recently which says that shortcomings in tax collection are mostly in the areas of policy and administration... moreover, there is a need to cut public expenditure," said he said.

Dr Kigoda also wanted to know the contribution of pension funds to the Budget estimates, but Mr Mkulo could not give an immediate response, and promised to do so today.

Committee members also voiced their concern about the lack of capacity among local authorities to collect taxes.

Ms Devotha Likokola (Special Seats-CCM) urged the Tanzania Revenue Authority (TRA) to involve stakeholders in identifying new sources of domestic revenue.

"TRA should train local authority officials in areas of tax collection and administration to enable them to maximise efficiency in revenue collection," she said.

Mr Juma Siraju Kaboyonga (Tabora Urban-CCM) said current economic indicators did not point a very rosy picture as far as poverty eradication was concerned.

He called for more investment in infrastructure, particularly railways and ports, which he said would have a trickle-down effect in poverty eradication.

He cautioned the government against going on a borrowing spree, saying the private sector was likely to suffer in terms of having limited access to finance.

Dr Charles Kajege (Mwibara-CCM) suggested that tax exemptions should be focused on small and medium enterprises to enable them grow rather than large foreign corporations.

He also took issues with expenditure, noting that funds lost through corruption were about a third of the total budget.

"This means that if we could manage our resources better then we would have no reason to beg for foreign aid. The President has been making foreign trips frequently to solicit aid and yet resources are plundered," he said.