TANZANIA: 2022/23 NATIONAL BUDGET HIGHLIGHTS
The Minister for Finance and Planning Hon. Mwigulu Lameck Nchemba delivered his National Budget Speech on 14 June 2022 with the theme ‘Accelerating Economic Recovery and Enhancing Productive Sectors for Improved Livelihoods’.
The Budget has been prepared based on the following macroeconomic assumptions and targets: attaining a real GDP growth rate of 4.7% in 2022 and 5.3% by 2023, containing inflation at a single digit rate of between 3% and 7% in the medium term, achieving domestic revenue collection of 14.9% of the GDP in 2022/23, attaining tax revenue collection of 11.7% of the GDP in 2022/23 and maintaining foreign reserves sufficient to cover at least four months of imports of goods and services.
The key measures in this year’s national budget speech include:
- Digital services - Introduction of Digital Service Tax of 2% for non-resident service providers and improving the VAT registration process for non-resident suppliers of ‘electronic services’;
- reinstating the powers of the Minister responsible for Finance and Planning to remit interest and penalties;
- reduction of money transfer levy, albeit widening its tax base to cover all electronic transactions;
- waiver of income tax and granting of VAT exemption for Special Strategic Investors under the Tanzania Investment Act;
- recognising alternative financing arrangements such as Islamic Banking products for Income Tax and Value Added Tax purposes;
- introduction of a fee of between TZS 1 000 and TZS 3 000 on pay to view subscriptions; and
- reduction of Workers Compensation Fund (WCF) from 0.6% to 0.5% for the private sector;
In our view, there is an opportunity for the Government to amend problematic provisions of the Tax Administration Act 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 6 months of admission and lack of clarity on matters involving rejection of waiver of tax deposit for admission of objections by the Commissioner.
1. Tax measures
- To introduce a Digital Service Tax (DST) of 2% on turnover generated by non-resident service providers. We believe that the Government will issue further guidance on the scope of services captured under this regime and alignment with withholding tax provisions under section 69(i)(i) read together with section 83(1)(c)(i) of the Income Tax Act.
- The Minister has proposed to introduce a simplified registration process to accommodate the taxation of digital services. Currently, the registration of non-resident suppliers of electronic services (as defined) requires them to first obtain a Tax Identification Number (TIN) which would result in unintended obligations such as filing of income tax returns from a Tanzanian income tax perspective.
Alternative financing arrangements
The Minister has proposed to amend the Income Tax Act to provide a similar tax treatment between alternative financing arrangements and conventional borrowing (we understand that the reference to alternative financing includes asset transactions under Islamic Banking arrangements such as Murabaha). The objective of the proposed income tax change is unclear, and we believe that the Finance Bill will provide more insights on the intended alignment between the two financing models.
However, the Minister’s proposal also intends to treat transactions under alternative financing such as the supply of assets as ordinary disposals of assets where gain realised on the sale will be subject to income tax.
From a VAT perspective, the Minister has proposed to recognise such arrangements as being equivalent to conventional borrowing in which case we assume VAT will not apply because financial services are generally exempt from VAT.
Special Strategic Investors under the Tanzania Investment Act
To grant powers to the Minister for Finance and Planning to waive the income tax obligation for Tanzania Investment Centre (TIC) Special Strategic Investors (that is investors with a minimum capital investment of USD 300,000,000), subject to approvals by the National Investment Steering Committee and the Cabinet.
The Minister has also proposed to grant powers to the Minister for Finance and Planning to exempt these investors from payment of VAT, subject to similar approvals.
Mobile money transactions
The Minister has proposed to amend the National Payment System Act to reduce money transfer levy from a maximum of TZS 7 000 to TZS 4 000 per transaction. However, the tax base will be widened to include all electronic transactions - currently, this levy is only applicable on money transfer and withdrawal charges and not on transactions involving merchants, businesses or government payments.
Mining sector – Royalty payments
The Minister proposed to amend the Mining Act by reducing the rate of royalty on the following:
- coal used as energy raw materials in factories, from 3% to 1%; and
- gold minerals sold to refinery centres, from 6% to 4%.
The Tax Administration Act is proposed to be amended by reinstating the powers of the Minister responsible for Finance and Planning to remit interest and penalties subject to consultation with the Commissioner General – a similar amendment was passed in the Finance Act 2016 and was subsequently removed.
While regulations setting out the procedures of accessing this remission will be issued by the Minister for Finance, in our view, the remission of interest and waiver by the Minister after consulting with the Commissioner General is likely to cause delays in processing of applications made by taxpayers.
Further, the Minister has proposed to issue Tax Identification Numbers for all Tanzanians aged 18 years and above to pave the way to assess their income for tax.
Capital Gains Tax (CGT)
- to exempt from CGT, transactions involving entry into or transfer of rights to Joint Ventures (JVs) formed between the Government and investors in the mining sector as well as the distribution of Free Carried Interest from these JVs to the Government.
- To exempt from CGT, shares freely transferred to the Government through the Treasury Registrar.
- To exempt form withholding tax, corporate and municipal bonds to increase investment products in the market – this is a positive measure which is likely to promote financial inclusion;
- Introduction of withholding obligation on rental of residential and commercial premises by individuals – while we await to see the mode of implementation of this amendment, it is likely that its administration will come with challenges in terms of ensuring payments of the tax withheld are duly made by these individuals;
- To reduce withholding tax from 15% to 10% on payments made by persons in the film industry to non-resident service providers; and
- To introduce a final withholding tax of 2% on payments made to small scale miners.
Presumptive tax regime
To apply the income tax rate of 3.5% of turnover for taxpayers with turnover between TZS 11 000 000 and TZS 100 000 000. Currently, the 3.5% rate is applicable for taxpayers with turnover between TZS 14 000 000 and TZS 100 000 000 and therefore this measure means an increase in tax for taxpayers with turnover of between TZS 11 000 000 and TZS 14 000 000.
Further, the Minister has proposed to upgrade the Tanzania Revenue Authority systems to accommodate payment of taxes through mobile money.
Employment: Workers Compensation Fund (WCF)
Reduction of WCF rate applicable to private sector from 0.6% to 0.5% to match the contribution rate applicable to public sector.
To introduce a requirement to make an advance payment of income tax of TZS 20 per litre for retailers of petroleum products, which will be collected by importers of respective products on behalf of the Government. We understand that this advance payment will be offset against the final tax liability.
To introduce a fixed income tax amount of TZS 3 500 000 per annum for each truck or passenger bus.
Value Added Tax
Widening the scope of VAT deferment for capital goods
The Minister has proposed to include goods falling under HS Code 87.16 and HS Code 8701.20.90 in the definition of capital goods for VAT deferment purposes.
Introduction of VAT
The Minister has proposed to remove VAT exemption on the following:
- smart phones of HS Code 8517.12.00, tablets under HS Code 8471.30.00 or 8517.12.00 and modems under HS Code 8517.62.00 or 8517.69.00; and
- air charter services – currently, VAT is applicable on taxi cabs, rental cars and boat charters.
The following are the proposed VAT exemptions:
- standing trees to promote the growth of the forest sector;
- inputs for local manufacture of gas cylinders with HS Code 7229.90.00, 3810.90.00, 3401.19.00, 7904.00.00, 4016.93.00, 8481.10.00, and 8309.90.90. The exemption is subject to signing of a Performance Agreement with the Government;
- sensor arrays and chameleon sensor reader HS Code 9026.10.00; Wetting Front Detectors HS Code 9031.80.00, electronic conductivity meter HS Code 9027.80.00, and Nitrate test strips HS Code 9027.90.00, upon approval by the Ministry responsible for Agriculture;
- agro-net under HS Code 56.08;
- moisture meters under HS Code 9003.18.00; rain gauge for weather stations HS Code 9023.00.90; pH meter HS Code 38220090; tissue culture equipment HS Code 8419.89.60; and tensiometers HS Code 9031.80.00, upon approval of the Ministry responsible for Agriculture.
- refrigerated trucks HS Code 8704.21.90, 8704.22.90, 8704.23.90, 8704.31.90, 8704.32.90, 8704.90.90 and Cold rooms for perishable agricultural products under HS Code 9406.10.10 and 9406.9010. The exemption will be granted on non-convertible refrigerated trucks and cold rooms subject to approval of the Ministry responsible for Agriculture or livestock and fisheries;
- raw materials under HS Code 2528.00.00; 2710.99.00; and 3505.20.00 and machineries under Chapter 84 and 85 of the East African Community Common External Tariff solely and directly used in the manufacturing of fertilisers by an approved manufacturer. The exemption will be granted subject to approval of the Minister responsible for Agriculture.
- unprocessed green vanilla pods under HS Code 0905.10.00;
- locally manufactured Sisal twine;
- ultra-High Temperature (UHT) milk and yoghurt;
- dairy packaging materials HS Code 3923.30.00, 4819.10.00, 4819.20.00, 4819.20.90 (Boxes, bottles and plastic packaging satchels);
- Automatic Turning Table for the Lessor Machines (Ear tag supporting table) HS Code 8207.30.00; Ear tag HS Code 3926.90.90 (Male and Female); Ear tag Applicators HS Code 8456.90.00; and Lessor beam Machines HS Code 9402.90.90;
- stunning box under HS Code 8438.50.00 and Skinning & dehiding pulling machine under HS Code 8453.10.00. The exemption will be granted upon approval of the Minister responsible for livestock and fisheries to minimise abuse of the exemption;
- Pasture Seeds (pasture grass seeds) under HS Code 1209.25.00; pasture legumes seeds pasture cuttings, and rhizomes and stolons 1209.29.00;
- machines and tools solely and directly used by the military and armed forces. The exemption will be granted upon approval of the goods by the Minister responsible for defence and security.
- meteorological equipment and instruments imported by Tanzania Meteorological Agency (TMA);
- float for fishing net under HS Code 3926.09.10, fishing hooks under HS Code 9507.20.00 and fishing lines under HS Code 9507.90.00 and 9507.30.00.
Proposed zero-rated supplies
The Minister has proposed to zero rate the following supplies for a period of one year:
- double refined edible oil manufactured locally; and
- ex-factory sales of fertilizer manufactured locally.
No amendments have been proposed on non-petroleum products due to various economic conditions except for the following:
- reduction of licence fee for manufacturers and importers of excise goods from TZS 500 000 to TZS 300 000;
- to exempt plastic sleeves puneet, plastic cryovac bags, modified atmosphere packaging – MAP bags, plastic sleeves, perforated bags, and poly packaging bags HS Reduced licence fee 3923.29.00, Cling film HS 3921.12.90, Plastic liners HS 3902.90.00 for Horticultural export.
- imposing excise duty at the rate of shilling 500 per kilogram on locally manufactured sugar confectionery and shilling 700 per KG on imported sugar confectionery with HS Code HS Code 1806.31, 1806.31,1806.31 (chocolate); 1905.31 (biscuits) and 1704 (chewing gum); and
- imposing excise duty at the rate of five percent on Lead-acid, of a kind used for starting piston engines HS 8507.10.
- introduction of a maximum rate of 35% in the EAC Common External Tariff (CET) which will apply to animal products, horticultural products, cosmetics, paints, wood products, leather products and other goods.
- Introduction of 35% import duty on electronic cigarettes. The objective of this measure is to create a level playing field for local manufacturers of tobacco against importers of electronic cigarettes.
- Stay of application of lower import duty rates provided in the EAC Common External Tariff (CET) and instead apply higher rates for ceramic tiles, crude vegetable oils, baby diapers, windows and doors made of aluminium and steel, wigs, false beards and various other goods.
- Stay of application of higher import duty rates provided in the EAC CET and instead apply lower rates for cane sugar, semi refined and refined vegetable oils, prefabricated buildings, petroleum oil and various other goods.
- Remission of import duty on raw materials used in the manufacturing of food flavours, corrugated boxes, toughened glass, electrical cables and various other goods.
Other tax measures
The Local Government Finance Act
The Minister has proposed the following changes:
- reduction of hotel levy from 10% to 5%;
- to exempt seeds from payment of crop cess to provide relief to farmers and enhance productivity;
- to reduce forest produce cess from 5% to 3%;
- to amend section 16(7) of the Local Government Finance Act to introduce a requirement for corporate entities to pay produce cess in the Councils from which they source agricultural or other produce – currently, section 16(7) exempts corporate entities paying service levy from payment of produce cess;
- granting the Minister responsible for Local Government power to issue regulations on sharing of service levy collections among Local Government Authorities; and
- distribution of revenue collected by the local government in the following portions; 10% to improvement of local entrepreneur’s infrastructure; 2% to youth loans, 2% to women and 1% to people with disabilities.
Introduction of export levy of 30% or USD 150 per metric tonne, whichever is higher, on copper waste and scrap metals of HS Code 7204 and 7404.
Minor tax amendments
These will be effected through the Finance Bill 2022 and Government Notices. We expect these to be more administrative rather than technical.
2. Other measures
The Insurance Act
To include public markets, commercial buildings, imported goods, marine vessels, ferries and pontoons within the scope of properties requiring mandatory insurance.
The Bank of Tanzania Act
Setting a ceiling on Government borrowing to 18% of the respective fiscal year’s approved domestic revenue – currently the limit is one-eighth of domestic revenue collected in the preceding fiscal year.
The Foreign Vehicle Transit Charges Act
To reduce transit charges for vehicles exceeding 3 axles from USD 16/100 kms to USD 10/100 kms to align with COMESA charges and resolving existing tariff challenges on trucks entering Tanzania from EAC member states.
Cashew Nut Industry Act
An equal split of export levy charged on raw cashew nuts between the Ministry of Agriculture and to the Consolidated Fund.
Implementation of the Blueprint for Regulatory Reforms (‘Blueprint’)
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 to amend various fees and levies, some of which are set out below:
- Pay to view television - proposed introduction of a fee of between TZS 1 000 and TZS 3 000 on decoder subscriptions depending on usage by the customers - whilst it remains to be seen on how the government will implement this amendment, it is likely that it may impact the growth of the entertainment industry in Tanzania;
- Occupational Safety and Health Authority (OSHA) - abolishing peak expiratory of TZS 10 000 and flow test fee of TZS 25 000;
- Ministry of Livestock and Fisheries - abolish various import fees such as those applicable on animal products, incubators and ear tags;
- Ministry of Agriculture - abolish impoundment fee of TSH 200 per square meter of surface area for water stored in irrigation dams and increasing export permit application fee from USD 0.2 to USD 0.5 per tonne of manufactured fertiliser;
- Ministry of Culture, Arts and Sports - introduction of a 1.5% levy on equipment used to produce, distribute, duplicate and preserve works of art, writing, and other creative works such as music, films, books, photography and other forms of creative works - while the move may increase government revenue, a fine balance needs to be struck between the artistic development of the population against the revenue received. In this case, it is important that the costs of informative and educative material do not rise to the extent of limiting its accessibility to the majority of the population;
- Tanzania Bureau of Standards – reducing batch certification fee on imported sugar from TSH 6/= per kilogram to TSH 2.5/= per kilogram;
- Tanzania Atomic Energy Commission - reducing radiation test fee from 0.2% of FOB to 0.1% of FOB on exports of food chain materials including fertilizers, tobacco and tobacco products, and imported relief food and amendment of various fees and levies charged by the Commission;
- The Gaming Board of Tanzania - reintroduction of the national lottery through the private sector and amendment to various licence fees and levies;
- Agencies such as the Land Transport Regulatory Authority (LATRA), Tanzania Communications Regulatory Authority (TCRA) and Energy and Water Utilities Regulatory Authority (EWURA) will have to relinquish their responsibility for regulating standards to the Tanzanian Bureau of Standards (TBS). This appears to be a positive measure given that regulating standards are within the specialist expertise of TBS however, it remains to be seen how the consumer will be affected by the transition and potential overlap of the authorities regulatory functions; and
- Urban and rural authorities to establish joint centres for coordination, mobilization and improvements of the business environment. This will increase efficiency in the delivery of government services however, adequate communication channels will be required between the various authorities.