17 June 2019

Tanzania: Cleaning Up of the Current Tax Regime

The Minister for Finance and Planning, Dr Philip Mpango (MP), last Thursday tabled the 2019/2020 budget, the fourth budget of the fifth phase government.

Like in previous years, the budget proposes several changes with a view to increasing revenue and to widen the tax base.

The budget comes less than a week of a meeting held between the President and businessmen and women from across the country at the State House in Dar es Salaam, whose aim was to address challenges faced by the business community with respect to the ease of doing business in Tanzania.

This year's budget has introduced fiscal amendments and tax measures aimed at promoting economic growth and employment creation with a focus on local industries, increased productivity in agriculture and to attract foreign investment.

In addressing the challenges of doing business in Tanzania, which featured heavily at the State House meeting on June 7, 2019, the government aims at improving tax administration, better fiscal management and to have a simplified revenue collection system.

In a first of its kind to our country, the government plans to establish an office of an independent Tax Ombudsman at the Ministry of Finance and Planning to deal with complaints from taxpayers against the taxman.

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The abolishment of various "nuisance" fees levied by various government agencies is a welcome move especially those charged for various agricultural and livestock products. By their nature, the fees affected farmers and livestock keepers in the rural areas.

The fees were contradictory to the government's efforts to eradicate poverty through livestock keeping and trading in related products.

Other positive moves in the agriculture sector include proposals to exempt Value Added Tax (VAT) on imported refrigeration boxes to be used in horticultural farming, VAT exemption on grain drying equipment and removal of restriction to claim input VAT for exporters of raw agricultural products.

In a break to the long tradition of annual increases of excise duty on alcohol and cigarettes, this time around, the Minister is not proposing any changes to the so called "sin taxes". In the past few years, I have written several articles on this subject using figures collected from the TRA and concluded that increase in taxation doesn't always translate into increase in collections and that in most cases, it has negative results.

I further went on to argue that the psychology of drinkers is that when they cannot afford formal drinks such as beer, wine or spirits, they will resort to cheaper options such as traditional brews and illicit drinks, which are outside the tax net.

We are pleased that the budget includes many positive proposals, but there still remains areas needing improvement for the government to attain its goal of stimulating economic growth, employment creation and poverty eradication, for example, the reform on VAT on general insurance, which includes insurance services other than health and life insurance or reinsurance to enhance financial inclusion in that sector.

According to the VAT Regulations (2015) insurance companies must charge VAT on the net premium received by the companies in relation to general insurance.

Examples of general insurance include insurance on aviation, motor vehicles, marine and landed properties. In effect, it now costs 18 per cent more to insure property and as a result the insurance sector is seeing an undervaluing of properties leading to underinsurance as a way to compensate for the increase.

An exemption of general insurance from VAT would be in line with the practices in Kenya and Uganda.

It is my hope that during the Parliamentary debate on the budget, Members will raise news ideas and suggestions to improve on the 50 plus measures proposed.

From the mood of the meeting between businesspersons and the President on June 7, 2019 and the well known complaints by taxpayers generally, it is to be expected that the responsible government institutions will promptly walk the talk so as to renew the lost confidence building by taxpayers.

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