TANZANIA: 2021-22 NATIONAL BUDGET HIGHLIGHTS
The Finance Minister, Honourable Mwigulu Lameck Nchemba, delivered his highly anticipated National Budget speech on 10 June 2021 in Dodoma. This Budget is the first in the implementation of the Third Five Year National Development Plan (2021/22 - 2025/26) with the theme ‘Realising Competitiveness and Industrialisation for Human Development’.
2021-22 Budget Outline
The proposed tax measures aim to maintain a stable and predictable tax system for a conducive investment climate that is suitable for local and foreign direct investment.
The Tax Administration Act 2015 is proposed to be amended by:
- repealing section 70(2) to give the Commissioner General of the Tanzania Revenue Authority (TRA) power to implement remission of interest and penalties. It is unclear whether the Tax Administration (Remission of Interests and Penalties) Regulations, 2020 will also be repealed to align with this amendment; and
- repealing section 92A which gave powers to the Commissioner General of TRA to collect tax related fines and penalties imposed by the TRA or courts in criminal proceedings.
The Minister for Finance (Minister) has also proposed to amend Government Notice No.15 (Transfer Pricing Regulation) by deleting a penalty of 100 % of sales adjusted for failure to comply with the requirements of the law. This is a commendable measure as the penalty was considered punitive to taxpayers.
Nevertheless, there is a missed opportunity for the Government to amend other problematic provisions of the Tax Administration Act 2015, such as section 52(10) which deems an objected assessment/decision as confirmed and subject to appeal, if the Commissioner fails to determine it within six months of admission.
Employment - Pay As You Earn
The Minister has proposed a reduction of the minimum Pay As You Earn (PAYE) rate from 9% to 8%. This change reflects the proposal already made in H.E. President Samia Suluhu Hassan’s speech on Workers Day.
Employment – Skills and Development Levy (SDL)
The Vocational Education and Training Authority (VETA) Act is to be amended by:
- raising the minimum number of employees (a determinant for paying SDL) from 4 to 10 employees;
- exempting religious health institutions from paying SDL; and
- introducing a 4% skills development levy payable by individual small-scale miners upon sale of minerals.
Employment – Workers Compensation Fund (WCF)
Reduction of WCF rate applicable to private sector from 1% to 0.6% of total gross monthly salary.
Individual small-scale miners with annual turnover of less than TZS 100 00 000
Introduction of a special income tax regime as follows:
- income tax of 3% on the mineral sales value that is payable upon sale of minerals as opposed to the regular instalment payments requirement;
- introduction of deemed PAYE at the rate of 0.6% of mineral sales value, payable by small scale miners upon sale of minerals; and
- payment of royalty as established by the Mining Commission
Introduction of a non-final withholding tax of 2% by processing industries, millers and other Government Agencies on payments made to suppliers of agro-products, livestock and fisheries. However, this measure will not include small farmers and sales made to Agricultural Marketing Cooperative Societies.
Prior to this change, the 2% withholding requirement was only applicable to goods supplied to resident corporations whose budget is wholly or substantially financed by the Government.
Capital allowances – East African Crude Oil Pipeline (EACOP)
Amendment of the Income Tax Act 2004 to apply a 5% depreciation rate on the costs of assets for the EACOP project.
To extend the exemption from income tax, interest derived from all Government bonds.
To grant the Minister powers to exempt from income tax Government funded projects without approval by the Cabinet, provided that there is an agreement in place between the Government and donor/lender.
The following are the proposed amendments:
- reduce winning tax on all sports betting from 20 % to 15 %;
- increase Gross Gaming Revenue (GGR) on all sports betting from 25 % to 30 % - the additional 5% being for sports development;
- introduce Gaming Tax on virtual games at the rate of 10 % of GGR; and
- introduce Gaming Tax on gaming products licensed under pilot study at the rate of 10 % of Gross Gaming Revenue.
Value Added Tax
The following are the proposed VAT exemptions:
- cold rooms under HS Codes 9406.10.10 and 9406.90.10
- imported precious metals and raw minerals to encourage local refining and smelting
- insurance on livestock farming
- supply of goods and services for the EACOP
- crude oil under HS Code 2709.00.00
- artificial grass under HS Codes 5703.30.00 and 5703.20.00 subject to approval by the Tanzania Football Federation (TFF)
- contactless smart cards (HS Code 3921.11.90) and Card Consumables (HS Code 3921.11.90) for National Identification Authority (NIDA)
- supply of goods and services to Non-Governmental Organisations (NGO’s), if an agreement with the Government providing exemption is in place
- smart phones (HS Code 8517.12.00), Tablets (HS Code 8471.30.00 or 8517.12.00) and Modems (HS Code 8517.62.00 or 8517.69.00)
- aluminum and Stainless-steel milk cans under HS Codes 7310.29.90, 7310.10.00 and 7612.90.90 to reduce production costs and promote modern dairy milk industries.
VAT ‘exemption’ on Government or donor funded projects to be granted by the Commissioner General of the TRA instead of the Minister in order to enhance administrative efficiency.
The following exemptions have been proposed for removal:
- cans used for milk preservation; and
- solar lights under HS Codes 85.13 and 94.05
Zero rated supplies
Application of VAT at 0% on transportation services of crude oil and all other related services attached in transportation of crude oil through the pipeline which will be constructed under an intergovernmental agreement between the Government of the United Republic of Tanzania and Government of Uganda (EACOP).
Currently, section 48 of the VAT Act 2014 deems, among others, a supply of oil through a pipeline to Mainland Tanzania or from Mainland Tanzania to a place outside the United Republic as a supply made in Mainland Tanzania.
VAT deferment on capital goods
Limiting the deferment to capital goods falling under Chapters 84, 85 and 90 of the EAC CET. Currently, section 11 of the VAT Act 2014 defines capital goods for VAT deferment purposes as goods not imported for resale, with a useful economic life of at least one year and are not consumables or raw materials.
Supply of goods between Tanzania Mainland and Zanzibar
The Minister has proposed a refund mechanism for all goods (whether manufactured in Mainland Tanzania or not) purchased in Mainland Tanzania and transferred for consumption in Zanzibar by VAT registered persons.
Previously, goods manufactured in Mainland Tanzania and transferred to Zanzibar were subject to VAT at 0% and goods imported in Mainland Tanzania for subsequent transfer to Zanzibar were subject to VAT at 18%.
The proposed measure means all goods sold to Zanzibar VAT registered persons will now be subject to VAT at 18% in Mainland Tanzania, but a refund from the Zanzibar Revenue Board (ZRB) will be available subject to set criteria.
No amendments have been proposed on non-petroleum products due to the impact of COVID-19 except for the following:
- reduction of excise duty rate on beer made from locally grown and malted barley from TZS 765 per litre to TZS 620 per litre;
- introduction of excise duty of 10% on imported and locally produced synthetic (plastic) fibres (Heading 55.11 and 56.07) except fishing twine (HS Code 5607.50.00); and
- introduction of excise duty rate of 10% on imported used Motorcycles aged more than three years (HS Code 8711).
The Pre-Budget Consultative Meeting of the Ministers of Finance from the EAC-Partner States which was held on 7 May 2021 proposed to effect changes in the Common External Tariff (CET) rates and the East African Community Customs Management Act (EAC-CMA), 2004 for year 2021-22.
Import duty rates
The following are proposed changes which aim to achieve ‘Economic Recovery through Industrialization and Inclusive Growth’:
- stay of application of higher import duty rates provided in the EAC CET and instead apply lower rates for buses for transportation of more than 25 persons, milk cans, Electronic Fiscal Devices and Point of Sale Machines and various other goods;
- stay of application of lower import duty rates provided in the EAC CET and instead apply higher rates for cotton yarns, pneumatic tyres of rubber used in motorcycles, peanut butter, ceramic tiles, tea and various other goods; and
- remission of import duty on raw materials used in leather processing, aluminium alloy circles, CKD for three-wheel motorcycles excluding chassis and its components, certain packing containers used by milk manufacturers, packaging materials for processed coffee and various other products.
Amendments in the East African Community Customs Management Act 2004 (EACCMA 2004)
The EACCMA 2004 is to be amended as follows:
- removal of the requirement of 15% refundable additional import duty deposit on sugar for industrial use. Instead, the use of Electronic Tax Stamps (ETS) will be a mechanism to track a company’s production and verify the use of industrial sugar;
- adopting USD 50 as de minimis value where customs duties shall not be collected; and
- valuation of imported printed fabrics (Vitenge) to be re-vested in the Commissioner General so that the Valuation Principles stipulated in the EACCMA, 2004 are adhered to. Where declared value cannot be justified, valuation to range between USD 0.55 to 1 for a meter of Polyester Kitenge and USD 0.60 to 1 for a meter of Cotton Kitenge.
Other tax measures
Levy on telecommunication
The Minister has proposed to amend the Electronic and Postal Communications Act (Cap. 172) by:
- imposing a levy of between TZS 10 to TZS 10 000 on each mobile money transaction (sending and withdrawal); and
- imposing a levy of between TZS 10 to TZS 200 per day per SIM card.
The mobile money transactions levy may interfere with the rapid growth in mobile financial services in the country and may result in double taxation given that there is already excise duty of 10% on mobile money transfer and withdrawal.
On the other hand, the sim card levy is similar to the TZS 1 000 excise duty that was introduced in the Finance Act 2013 but later on removed due to various challenges such as the additional tax burden on consumers and impracticability on its collection.
Stamp duty shall increase as follows:
- nominal stamp duty will increase from TZS 500 to TZS 2 000;
- stamp duty on a Memorandum and Articles of Association will increase from TZS 5 000 to
TZS 10 000;
- stamp duty on Partnership Instruments whose capital exceeds TZS 100 000 but does not exceed TZS 1 000 000 will increase from TZS 2 000 to TZS 5 000;
- stamp duty on Partnerships whose capital exceeds TZS 1 000 000 shall increase from TZS 5 000 to TZS 10 000; and
- stamp duty on Instruments of dissolution of Partnerships shall increase from TZS 1 000 to
TZS 10 000.
The Local Government Finances Act
The Minister has proposed the following changes:
- providing clarity on circumstances in which a corporate entity liable for service levy may not be liable to pay produce cess along the value chain of a product;
- reducing Outdoor Advertising fees charged per square foot as follows:
- illuminated advertisement from TZS 18 000 to TZS 13 000
- non-illuminated advertisement from TZS 15 000 to TZS 10 000;
- wall sign advertisement from TZS 15 000 to TZS 10 000;
- electronic sign advertisement from TZS 20 000 to TZS 15 000;
- vehicular advertisement from TZS 15 000 to TZS 10 000 for those advertising products of other manufacturers/traders;
- short-term advertisement/promotion per day from TZS 55 000 to TZS 50 000; and
- every poster promotion for first 100 posters for every other bunch of 100 of posters or part thereof from TZS 100 000 to TZS 50 000.
Property tax (rate)
Property rate to be embedded in electricity bills or prepaid meters with a rate of TZS 1 000 per month for ordinary buildings with one meter and TZS 5 000 per month for every storey building or apartment with one meter.
Roads and Fuel Tolls
To increase road and fuel tolls by TZS 100 per litre of petrol and diesel which will be directed towards road maintenance in rural areas through the Tanzania Rural and Urban Roads Agency (TARURA).
To amend the Petroleum Act by increasing fuel levy from TZS 150 to TZS 250 per litre aimed at reducing adulterations of fuels due to the proposed increase of road and fuel tolls on petrol and diesel.
Minor tax amendments
These will be effected through the Finance Bill 2021 and Government Notices. We expect these to be more administrative rather than technical.
Non-Citizens (Employment Regulations) Act
To enhance voluntary compliance in respect of submission of monthly returns to the Labour Commissioner, the following are the proposed amendments:
- applying a penalty of TZS 500 000 per month for an employer with foreign employees who fails to submit monthly returns containing information of these foreign nationals including their salary information; and
- in addition, implementing a 12-month prison sentence or a fine of TZS 10 000,000 on the same failure.
Motor Vehicle (Tax Registration and Transfer)
Reducing personalized plate number registration fee from TZS 10 000 000 to TZS 5 000 000 every three years.
Reduction of premium rate under the Land Act
To amend the Land Act and its Regulations to reduce premium as follows:
- reducing the premium rate from 2.5% to 0.5% for new land occupancy; and
- reducing the premium rate from 1% to 0.5% on Regularising Land.
Road Traffic Act
To reduce road fines for three-wheelers motorcycles and motorcycle offences from TZS 30 000 to
TZS 10 000 for each offence committed.
Government to guarantee public company or institution
To amend the Government Loans, Grants and Guarantees Act (Act No. 30 of 1974, laws of Tanzania) so that the Government may guarantee public companies or institutions to the extent of the value of the Government’s shareholding in that entity, subject to Cabinet approval.
Public Audit Act
The following are the proposed amendments:
- the Controller and Auditor General (CAG) to audit all Parastatals established under the Companies Act; and
- the Minister’s response to the Controller and Auditor General Report to be issued in a subsequent parliamentary session and not the same parliamentary session.
Amendment of various fees and levies imposed by Ministries, Regions and Independent Departments
In order for these rates to reflect the current values taking into account the inflation and value for money, the Minister has proposed the following amendments:
Ministry of Agriculture – to introduce a registration fee of TZS 60 000 for Irrigation Communities and an irrigation service fee of 5% of seasonal harvest for Irrigation Communities areas.
Ministry of Home Affairs – the proposed amendments are directed towards introducing several new fees payable under the Society Act including but not limited to, increasing the registration fee for the registration of a society from TZS 10 000 to TZS 50 000 and an increase in the annual fees payable by religious and non-religious society both local and foreign.
Tanzania Bureau of Standards (TBS) – the Minister proposed amendments to the Standard (Fees and Charges) Regulations, 2021 in a bid to revise and reduce the fees that were previously payable to the Tanzania Food and Drugs Authority (TFDA) before the role to regulate foods was shifted to TBS (i.e. fees now payable to TBS in its mandate to regulate the food industry in Tanzania).
The Marine Parks and Reserves Unit – the changes proposed are to amend the Marine Parks and Reserves (User Fees) Regulations, 2009 to review fees and levies imposed on Marine parks and reserves. The amended fees include the entrance fee for each person per day in the marine parks and protected marine areas, boat fees and sport fishing fees in marine parks and protected marine areas, concession/investment fees in marine parks and protected marine areas and business photography fees.
Implementation of the Blueprint for Regulatory Reforms
The Minister noted that the Government continues to implement the blueprint aimed at regulatory reform to improve the business environment in the country. In doing so, the Minister proposed the following changes:
- reduction of tourism business license from USD 2 000 to USD 500;
- introducing Inspection Fee at the rate of TZS 40 000 per Certificate regardless of nature of the meat instead of the existing rate of TZS 100 per kilogram of beef and TZS 50 per kilogram of mutton/chevon;
- amending the Atomic Energy (Fees and Charges) Regulations to abolish radioactivity analysis fee which is currently charged at the rate of 0.2 % of FOB (Free On Board) for food crops exported to countries with no requirement for radioactivity analysis;
- to abolish student visa/pass fee for the higher learning institution students in the Tanzania - Mozambique students exchange programme (TAMOSE). The objective of this measure is to promote and facilitate exchange programs;
- to allow one part of the Union (either Zanzibar or Mainland) to retain the VISA fees collected from non-citizen visitors;
- to amend the Fire and Rescue Act to abolish the requirement for horticultural farms to pay fire levy, to abolish the fire compliance certificate fee for urban and rural petrol stations (if the proposal is accepted, the certificate will be issued freely after inspection) and to remove the fire inspection fee on farms/plantations including farmhouse(s), among others;
- to amend the Environmental Management (Fees and Charges) Regulation, 2019 by reducing the fees for destroying expired medicines from TZS 1 000 000 to TZS 100 000 and annual environmental fee from TZS 200 000 to TZS 100 000;
- to introduce a clearance fee of TZS 70 000 per consignment of exported meat instead of 1% of FOB value;
- to reduce the general inspection fee payable to the Occupational Safety and Health Authority (OSHA) before and after starting a business from TZS 590 000 to TZS 150 000;
- to alter the current arrangement that requires insurance companies to apply for annual licenses and instead, companies with good records of conduct be granted permanent licences and companies with repeated irregularities to be granted a three years’ licence while still under close monitoring by the Tanzania Insurance Regulatory Authority (TIRA); and
- the Government to introduce an electronic single window which will provide access to investors to process all the permits and licences required for their businesses electronically. The object of this measure is to relieve investors from lengthy licensing procedures and improve the business environment.
Article by Fabiola Ssebuyoya, Kelvin Mosha and Zameen Nazarali.