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BREAKTHROUGH ATTORNEYS’ OVERVIEW OF THE TANZANIA’S BUDGET FOR THE FINANCIAL YEAR 2018/2019.

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1.0         Introduction.


2.0         Fiscal Policies for 2018/19.


3.0         Policy and Strategies to Increase Revenue for the year 2018/19.


4.0         Expenditure Policies for the year 2018/19.


5.0         Priority Areas for 2018/2019.


6.0         Reforms of the Tax Structure, Fees, Levies and other Revenue Measures.


7.0         Budget Structure for the Year 2018/19.


8.0         Conclusion.


1.0   Introduction

On 26th June, 2018 the Parliament of the United Republic of Tanzania (“the Parliament”) passed the Government’s Revenue and Expenditure Estimates for the year 2018/19. This was presented by Hon. Dr. Philip Mpango, the Minister for Finance and Planning (“the Minister”) on 14th June, 2018 before the Parliament for consideration and approval. The budget was approved by the Parliament on 26th June 2018.

Our tax and investment department at Breakthrough Attorneys has prepared this summary of the Tanzania’s Budget for the year 2018/2019 for purposes of raising awareness to the public on the estimates of Government revenue and expenditure for 2018/19 and highlighting important issues.

2.0   Fiscal Policies for 2018/19

 The government’s macroeconomic targets for 2018/19 budget are as following:

  • To attain real GDP growth of 7.2% in 2018 up from the actual growth of 7.1% in 2017;
  • Continue to contain inflation at single digit;
  • Domestic revenue including LGA’s own sources is projected at 15.8% of GDP in 2018/19 up from the likely outturn of
    15.3% in 2017/18 and the actual outturn of 15.6 in 2016/17;
  • Tax revenue is estimated at 13.6% of GDP in 2018/19 up from the estimate of 13.0% in 2017/8 and the actual outturn
    of 13.3% in 2016/17;
  • Total Government expenditures are projected at 24.5% of GDP in 2018/19 from the estimate of 23.0% in 2017/18 and
    the actual performance of 22.2% in 2016/18;
  • Budget deficit to be 3.2% of GDP in 2018/19 compared to the likely outturn of 2.1% in 2017/18 and the actual deficit
    of 1.5% in 2016/17    ;


3.0   Policy and Strategies to Increase Revenue for the year 2018/19

The government has resolved to use the following strategies to bolster its revenue collections:-

  • Widening tax base; strengthen management of existing sources especially by intensifying the use of electronic collection systems and other administrative measures.
  • Widening the tax base, the Government will undertake to formalize the informal sector and improve investment environment in order to foster new sources of revenue from such investments.
  • Tax Administration Institutions: the Government will continue to connect Ministries, Departments, Agencies, Institutions and Parastatal Organization with the Government Electronic Payment Gateway System (GePG) in order to improve revenue collection and control of leakage Government revenues.
  • Further administrative measures to raise the Government revenue, the Minister directed the following:
  • That, TRA to harness and harmonize smooth relations with taxpayers to eradicate the notion that TRA uses coercive measures in its collection measures
  • That, the office of Treasury Registrar should strengthen administration and inspection to companies in which Government is a shareholder to ensure that the Government earns appropriate dividends from its investments; and
  • That, Local Government Authorities (LGAs) should focus on projects that can generate revenues in their localities especially industries, markets, modern abattoirs, bus stands, heavy trucks parking lots at the borders and warehousing facilities.

 

4.0   Expenditure Policies for the year 2018/19

The government has further devised ways to put reins into its expenditures and stay on track the approved budget. In doing so, the following has been resolved:-

  • Ensuring that the budget deficit does not exceed 3.2% of GDP; (Note: the GDP is currently at 3.8)
  • Allocation of funds to priority areas (See 5.0 below) and productivity in order to stimulate growth in agriculture and industries, widen job creation opportunities, construct and improve economic infrastructure, and strengthen the provision of quality social services;
  • Ensuring discipline in the use of public funds and continue to reduce unnecessary expenditure; and
  • Control accumulation of arrears for the Government service providers.


5.0   Priority Areas for 2018/2019

 The 2018/19 budget emphasized on implementation of flagship projects; interventions for fostering human development; and interventions to create a conducive environment for investment and business. Priority areas are thus:-

  • agriculture, [As a measure an additional Deputy Minister for Agriculture has been appointed effectively as of 1st July, 2018]
  • industries social services, [The Minister for Industries and Trade had, in May, 2018 unveiled a Trade and Investment bolstering plan namely Regulatory Reform Blueprint]
  • water, [As a measure a new Minister in the Ministry of Water and Irrigation was appointed on 1st July, 2018]
  • Construction and rehabilitation of supportive infrastructure especially increasing electricity generation from different sources, [ongoing projects such as Standard Gauge Railway and Stiegler’s Gorge power generation are key in this aspect] and
  • Other priority areas include ease of land acquisition and ownership [also covered in the Regulatory Reform Blueprint as well as Administrative Changes made in the Ministry of Lands and Human Settlement];
  • to improve communication services; finance and tourism [covered in the business blueprint] and
  • to improve defence and security, good governance and justice.

 

6.0   Reforms of the Tax Structure, Fees, Levies and other Revenue Measures

In achieving the targets on revenue collections as well as solidifying chances of curbing challenges in the highlighted priority areas, the Government has thus enacted and amended taxing laws through the Finance Act, 2018 thus changing various laws as summarized below and enumerated in the table appended to this analysis:

NOTE: Reforms are summarized in the table appended

 

7.0   Budget Structure for the Year 2018/19

Consistent with macroeconomic and fiscal policy objectives, the budget frame for 2018/19 is as shown below:

  • The budget frame for 2018/19 shows that shillings 32.48 trillion will be mobilized and executed in the period.
  • The Government plans to collect domestic revenue including LGAs own sources amounting to shillings 20.89 trillion, equivalent to 64.3 percent of the total budget. Out of this amount, tax revenue is estimated at shillings 18.0 trillion, equivalent to 13.6 percent of GDP.
  • In addition, non-tax revenue is estimated at shillings 2.16 trillion and revenue from LGAs own sources estimated is shillings 735.6 billion.
  • Development Partners are expected to contribute shillings 2.68 trillion which is 8.2 percent of the total budget. These grants and concessional loans includes shillings 2.0 trillion as grants and concessional loans for projects; shillings 125.9 billion is Sector Basket Funds and shillings 545.8 billion is General Budget Support (GBS).
  • The Government plans to borrow shillings 8.90 trillion non-concessional loans from domestic and external sources. Domestic borrowing is expected to be shillings 5.79 trillion, whereas shillings 4.60 trillion is for financing rolling over of maturing Treasury bills and bonds and shillings 1.19 trillion are new loans for financing development projects. In order to speed up on implantation of projects infrastructure, the Government expects to borrow shillings 3.11 trillion from external source.
  • In 2018/19, the Government plans to spend shillings 32.48 trillion. Out of this amount, shillings 20.47 trillion is set aside for recurrent expenditure including shillings 7.41 trillion for wages and salaries and shillings 10.00 trillion for servicing Government debt, Government contributions to Pension Funds and other services. In addition, development expenditure is estimated at shillings 12.01 trillion, equivalent to 37 percent of the total budget whereas shillings 9.88 trillion is locally financed and shillings 2.13 trillion is foreign financed. Funds allocated to development expenditure is consistency with Five year Development Plan (2016/17 – 2020/21) of allocating development expenditure in the range of 30 to 40 percent of the total budget.

 

8.0   Conclusion

The above overview of the Tanzania’s budget for the financial year 2018/19 has been prepared by the tax department at Breakthrough Attorneys for purposes of raising awareness to the public on the estimates of Government revenues and expenditures for 2018/19 and an understanding on the fiscal policies and strategies by the Government.

If fully implemented, it is expected that – there will be an increase of more economic activities in the country and thus rise of economy.  This is for fact that the reforms in the tax system and various levies, will enhance the government to collect revenues in efficient manner and be able to control the funds.

As to the businesses, more compliance is now required to the businesses (including their managers). That means, for the existing businesses – the managers of the said entities need to take note of these amendments. Non–compliance especially to non-payment of taxes will lead to their liability, jointly and severally with their entities. New entities need also to be aware of these changes as well, for their prosperity and for them to be able to compete in the market.


SUMMARY OF LAW REFORMS BASED ON THE BUDGET 2018/2019

S/N Legislation Extent of Amendment(s) and our Commentary
1. Cashew-nut Industry Act, Cap. 203

 
  •  Removal of subsection (2) of section 17A which provides for the distribution of the export levy collected on cashew-nut to the Cashew-nut Industry Development Trust Fund (65%) and the Consolidated Fund (35%).

Our Commentary:

  • The removed provision was introduced by Finance Act 2010 to ensure reversion of the crop’s funds to the cashew-nuts growing communities for better crop management and capacity building. The removal has sparked quite a stir and opposition from Members of Parliament from growing areas as well as from business community.
2. Excise (Management and Tariff) Act, Cap 147

 
  • Amendments made to adjust some of the rates in accordance with the prevailing inflation rate. The measure does not include excisable goods produced locally.
  • Amendment to introduce excise duty on locally produced wine by using locally produced fruits other than grapes i.e. banana rosella, etc. at a rate of 200 per litre.

Our Commentary:

  • There has not been the usual hikes in excise tax rates in cold drinks and tobacco products as has been the norm. The move has been backed up with a statement that the government is supporting the industries as they look to stabilize in the current economy.
3. Gaming Act, Cap.41

 
  • Amendments to increasing the rate of gaming tax for land based casino operation from 15% to 18% of the gross gaming revenue, as a measure to increase Government revenue;
  • Amendments to increase the rates of gaming tax from 13% to 20% of the gross gaming revenue on Forty Machines Site.

Our Commentary:

  • The Changes in the Gaming Act seeks to increase more revenues to the Government. This is for the fact, there is a drastic increase in the gaming activities in the country – electronically, mechanically and other means i.e. using cards, dice etc. That means more revenues to the Government.
4. Income Tax Act, Cap. 332 (ITA)

 
  • Repeal of Section 10A – removing limitations put to the Minister from providing income tax exemption to Government projects financed by non-concessional loans.
  • Amendment of Section 129 – to give powers to the Minister to make Regulations for the better carrying into effect of the principles, purposes and provisions of the Income Tax Act.
  • Amendment of the First schedule – to reduce corporate tax rate of 30% to 20% for initial five (5) years to a newly established entity engaged in the manufacture of pharmaceuticals and leather products.
  • Amendment of the schedule – to increase the rate of corporate tax payable by an entity having tax losses for three consecutive years from 3 percent to 1 percent.
  • Amendment of the Second Schedule – to reinstate obligation to withhold tax on payments of rent, interest or dividends made by person registered under the Export Processing Zone Act or Special Economic Zones Act.
  • Amendment of the Second Schedule – to provide for tax exemption on interest payable by the Government to a non-resident bank, financial institution, other government or representative of other government as a result of a loan agreement signed by the Government for purposes of finance Government projects.

Our Commentary:

  • The changes in the Income Tax Act are calculated towards achieving advantages for both the government as well as the private sector taxpayers. The government looks at collecting more while also trying to better the business environment by smoothing the tax burden and its administration for the business community.
  • Looking at the new changes, it is inevitable that the government is focusing on income from businesses and is trying to kick-start new manufacturing businesses, while looking at removing tax avoidance loopholes.
5. Land Act Cap. 113 (the Land Act)

 
  • Introducing new section 33A (which is placed immediately after Section 33) – to exempt Ministries, Government agencies and institutions, other than those making profit or doing commercial undertaking, from paying land rent.
6. Local Government Finance Act, Cap. 290

 
  • Removal of paragraph (r) on Section 7(1) – to include fees on advertisement on billboards, posters, or hoarding as a source of revenue to the local government authority. Section 31A of the Finance Act, 2017 was amended to enable the Tanzania Revenue Authority (TRA) to collect these fees.
  • Additional of a new Section 37A – to facilitate loans without interest to registered groups of women and youth in local government authorities.
  •  Amendment of Section 42 – to enable the Minister responsible for local government to consult the Accountant General before opening a bank account, so as to align such procedure with the Public Finance Act.

Our Commentary:

  • The Finance Act, 2017 made changes to enable the TRA to collect fees on advertisement on billboards, posters, or hoarding. The Finance Act, 2016 also granted TRA power to collect property tax. That raised a concern – whether the TRA has manpower and ability to handle all these revenue sources.
  • Provision of loan without interests to registered groups of women and youth in local government authorities – means the government wishes to empower women and youth in local government to engage themselves in economic activities. Therefore, women and youth are called upon to register themselves in groups – to the local government authorities – so as to benefit from these loans.
  • Consultations by the Minister responsible for local government to the Accountant General before opening a bank account – is to make alignment to the procedures under the Public Finance Act.
7. Mining Act, Cap. 123

 
  • Amendment of section 90A – adding a new subsection (5) for excluding salt producers from payment of inspection and clearance fee. These changes became applicable when the Finance Act, 2018 became operational – which is from the 1st day of July, 2018.
8. Port Service Charge Act, Cap. 264

 
  • Amendment of Section 3 – to increase port service charge (to every passenger on each occasion on which he embarks on a ship or a ferry, at a port in Mainland Tanzania) from TZS 500/- to TZS 1000/- for residents and from 5 USD to 10 USD for non-residents.
  • Repeal of Section 5(2) – for ensuring that the powers of granting remission of port service charge is not vested on the Permanent Secretary who is principally charged with operational function.
9. Public Finance Act, Cap 348

 
  • Amendment of Section 11 – by adding new sections 11A, 11B, 11C and 11D that establishes Treasury Single Account at the Bank of Tanzania. Also to empower the Minister to make regulations for proper implementation of the Treasury Single Account.
  • Amendment of Section 12 – to exclude funds which have not originated from the Consolidated Fund or moneys referred to under Article 135(2) of the Constitution from forming part of the Treasury single Account.

Our Commentary:

  • These amendments to Public Finance Act were made to ensure that all unspent moneys originating from the Consolidated Fund are returned to the Consolidated Fund at the end of the relevant year. The amendment is important to ensure management of Government funds.
10. Fuel Tolls Act, Cap 220

 
  • Amendment of Section 3 – deleting the definitions of the terms “road agency” and “TANROADS” and substituting with new definitions. For purposes of recognizing any other agencies which may be established for development, maintenance and management of classified roads.
  • Amendment of Section 4(3) – to ensure that the money deposited in the Roads Fund is properly used and managed by the road agency.
  • Amendment of Section 5(5) – to require collectors of toll to submit monthly reports to the Roads Fund Board to enhance accountability in the collection of toll.
  • Amendment of Section 14 – adding new offences starting from paragraph (e) – (h) which are:
    (e) fraudulently or forcibly drive a vehicle through a toll station without paying the toll;
    (f) fraudulently discharge imported fuel out of a toll station without paying the toll;
    (g) having collected any toll, fail or refuse to remit the toll to the Commissioner or to any other authorized person;
    (h) use exempted fuel for purposes other than the intended purposes.
  • Addition of a new section I4A – to provide for penalty in relation to the misuse of money deposed in the Roads Fund. The penalty is fine equivalent to the amount misused or for imprisonment for a term of not less than five (5) years or to both.

Our Commentary:

  • The amendments in the Fuel Tolls Act were made to insure safety of all road users and enhance accountability in the collection of toll.
  • The new penalties were introduced to compel compliance of the law. However, it is argued by scholars that – these penalties were introduced to widen up source of revenues to the Government through penalties. 
11. Tanzania Revenue Authority Act, Cap. 399 (the TRA Act)

 
  • Removal of subsection (2) of Section 33 – to remove a procedure which required the Minister responsible for Finance to amend any revenue law with the prior approval of the National Assembly for purposes of conformity with the Act.
  • Repeal of Section 35 – its contents are covered under the Tax Administration Act, Cap.438.

Our Commentary:

  • The amendments under the Tanzania Revenue Authority Act grants the Minister responsible for Finance power to amend any revenue law without the prior approval of the National Assembly. It is argued that – this amendment defeats the purpose of ‘checks and balances’ placed between the Minister and the National Assembly. Checks and balance is crucial, as the same prevent a government agency to act ultra vires (beyond the powers).
12. Tax Administration Act, Cap. 438 (the TAA)

 
  • Addition of subsection (6) at Section 24 – to enhance tax administration in relation to tax-payers registration.  This is to the effect that, the particulars to be furnished in respect of an application for a Taxpayer Identification Number (TIN) not to be a basis for assessment of tax;
  •  Amendment of Section 65 – to provide for liability and accountability on managers of entities during the time of occurrence of the tax offence.  This when an entity fails to pay tax on time. Previously, the liability to the managers (or a person who was the manager) of that entity was extended to a period of within twelve months prior to the entity default.
  •   Amendment of Section 70 – to provide remission on payment of part or whole of interest and penalties and to enable the Minister to make regulations in that respect.

Our Commentary:

  • These amendments to the Tax Administration Act was made to ensure compliance by the managers, principal officers of the company and the company itself.
  • The above is for a fact that the law compels compliance of tax laws especially when it comes to timely payment of taxes. Now, when an entity fails to pay tax on time, that entity’s manager (or a person who was the manager) and an entity – will be jointly and severally liable for non-payment – during the occurrence of such entity’s default.
13. Value Added Tax Act, Cap. 148 (VAT Act)

 
  • Amendment of Section 6(2)(a)(ii) – to enable the Minister for Finance to exempt VAT on Government projects financed through non-concessional loans.
  • Amendment of Section 11(10) –to exclude motor vehicles from value added tax deferment.
  • Amendment of Item 7 of Part I of the Schedule –to provide for tax exemption on medicines, pharmaceutical equipment, packaging materials specifically printed with names of manufacturers of local pharmaceuticals.
  • Additional of item 8 of Part I of the Schedule – to provide tax exemption on sanitary pads.
  • Amendment of Item 3 of the Schedule – to provide tax exemption on soya cakes for animal feeds in order to promote animal husbandry.

Our Commentary:

The amendments to the Value Added Tax Act are to the below effect:

  • VAT exemption on Government projects financed through non-concessional loans were made to enable smooth implementation of Government projects;
  • Exclusion of VAT deferment are to control abuse by excluding motor vehicles as part of goods endued to VAT deferment;
  • The VAT exemption to local manufacturers of human and veterinary medicines.
  • VAT exemption on sanitary pads will make them available and affordable.


 


Important Notice:

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional
advice. You should not act upon the information contained in this publication without obtaining specific professional advice.
No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained
in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not
accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining
to act, in reliance on the information contained in this publication or for any decision based on it.

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