TANZANIA: 2023/24 NATIONAL BUDGET HIGHLIGHTS
The Tanzanian Minister for Finance and Planning, Hon. Mwigulu Lameck Nchemba, delivered the highly anticipated National Budget Speech on 15 June 2023 with the theme ‘Accelerating Economic Recovery, Climate Change Adaptation & Mitigation and Enhancing Productive Sectors for Improved Livelihood’.
The Budget has been prepared based on the following macroeconomic policy targets: an estimated real GDP growth of 5.2% by 2023; containing inflation at a single-digit range of between 3% and 7% in the medium term; achieving domestic revenue collection of 14.9% of the GDP in 2023/24; attaining tax revenue collection of 12% of the GDP in 2023/24; an estimated budget deficit of below 3% of the GDP; and maintaining foreign reserves sufficient to cover at least four months of imports of goods and services.
The key proposed measures include:
- Amendment of EFD penalty to the higher of TZS 3 000 000 or 20% of the tax in the event of failure to issue fiscalised invoices/receipts;
- Exclusion of transactions involving issuance or transfer of shares taking place locally from the scope of section 56 of the Income Tax Act;
- Income tax exemption for internal restructuring of mining companies pursuant to Framework Agreements;
- Reduction of tax on Gross Gaming Revenue (GGR) from 25% to 18% for forty machines site operations.
- Reduction of Skills Development Levy (SDL) from 4% to 3.5%; and
- Increase of annual VAT threshold from TZS 100 million to TZS 200 million.
Our detailed analysis is as follows.
The Minister has proposed amendments to the following:
- Electronic Fiscal Device (EFD) penalties – Amending the penalty imposed on failure to use EFDs to be 20% of the tax evaded or TZS 3 000 000, whichever is higher (currently, the penalty is between TZS 3 000 000 and TZS 4 500 000). In addition, the Minister has proposed to amend the penalty for failure to demand an EFD receipt to the higher of 20% of the tax evaded or TZS 30 000. While we are yet to see how this amendment will be worded in the Tax Administration Act, CAP 438 (TAA), using the term ‘evasion’ may pause challenges in applying these provisions in the event of inadvertent failure to issue EFD receipts.
- Requirement to maintain a primary data server – Providing clarity on the definition of a primary data server to include a physical server in the country, virtual or any other server which stores data created or collected by a taxable or liable person in the ordinary course of business. This measure will be effective on 1 January 2024.
The Minister has proposed the following amendments:
- Change in control – Excluding transactions involving issuance or transfer of shares taking place locally from the scope of section 56 of the Income Tax Act, CAP 332 (ITA). We believe that this amendment intends to exclude direct transfers of shares in a local company as these are already taxed under section 90 of the ITA. However, we expect that the wording in the Finance Bill will confirm the intended scope of this amendment.
- Internal restructuring of mining companies – Exempting internal restructuring of mining companies pursuant to Framework Agreements entered with the Government.
- Disposal of land without evidence of costs incurred – Changing the tax base for persons disposing land without evidence of costs incurred in respect of the land from 10% of gain realised to 3% of the consideration or appraised land value.
- Income earned from Verified Emission Reduction (VER) – Introducing a 10% income tax on this income to broaden the tax base.
- Individuals’ withholding obligation – To exempt individuals from the requirement to withhold tax on rental income for non-commercial properties (e.g. residential properties). The requirement for individuals to withhold tax was introduced in July 2022.
- Transportation – Amending section 65 and the Second Schedule to the ITA to introduce a simplified manner of estimating income tax liability for individuals engaged in the transportation business whose turnover is less than TZS 100 million.
- Artisanal and Small Miners (ASMs) – Introducing income tax of 2% on payments made to ASMs. It appears that this tax will be by way of withholding.
- NHIF investment returns – Exempting from income tax, investment returns such as dividends and interest earned by the National Health Investment Insurance Fund (NHIF).
The Minister has proposed the following amendments:
- Gaming levy – To increase gaming levy from TZS 10 000 to TZS 30 000 per slot machine in bar sites (clubs/places selling liquor).
- Gross Gaming Revenue (GGR) – To reduce the tax rate from 25% to 18% on GGR for forty machines site operations.
- Application fee and principal licence fee on slot machines – To introduce these fees as follows:
- Application fee of TZS 500 000 for slot machines in shops, bar sites and forty machine sites; and
- Principal licence fee of USD 10 000 for slot machines in shops and bar sites and USD 5 000 for forty machines sites.
- Number of table games to forty machines site operations to be limited to not less than two.
Skills Development Levy (SDL)
The Minister has proposed to amend the Vocational Education and Training Act, CAP 82, as follows:
- Reduction of SDL from 4% to 3.5%. This is a commendable change as it will reduce the cost of employment.
- Exemption Certificate to be issued by the Minister of Finance in consultation with the Minister of Education if the exemption is for the public interest.
- To allocate SDL collections equally between the Ministry responsible for Employment, the Higher Education Students' Loans Board and the VETA Fund.
Value Added Tax
The Minister has proposed to amend the Value Added Tax Act, CAP 148 (VAT Act) as follows:
- VAT registration threshold – To increase the VAT registration threshold to TZS 200 million (approximately USD 87 000) with a gradual increase to TZS 500 million (USD 218 000). Given the current VAT registration threshold of TZS 100 million, this is a welcome move towards achieving efficiency in tax administration.
- VAT deferment on capital goods – To include locally manufactured capital goods within the scope of VAT deferment, this relief is currently available on imported capital goods. In addition, the Minister has proposed for the deferment of imported capital goods to cease to have effect in three years. This proposal indicates a removal of this relief on imported capital goods, in which case we anticipate increased upfront importation costs for capital goods that cannot be sourced locally.
- Zero rating – To apply VAT at 0% for one year on textile products manufactured using domestically produced cotton and fertiliser manufactured locally.
- Exemptions – Granting exemption on various products such as inputs used in the manufacture of insecticides and acaricides, imported prefabricated structures under HS Code 9406.20.90 used in poultry farming, sale and lease of aircraft, aircraft engines or parts by local air transport operators, supply of precious metals, gemstones, and other precious stones at buying centres, mineral markets and gem houses designated by the Mining Commission or refinery situated in Mainland Tanzania, certain inputs used in manufacture of packaging materials, moulds used in manufacture of pharmaceuticals, gaming odds and gaming software.
Pursuant to section 124(2) of the Excise (Management and Tariff) Act, CAP 147, the Minister has proposed the following amendments:
- ‘Three-year excise duty freeze calendar’ – The Minster has proposed introducing a three-year period for excise duty rates to apply without being amended. While this may promote stability in terms of tax policy, it is unclear how amendments will be made on duty rates requiring immediate changes.
- Beer and tobacco – Increasing the specific (non-ad valorem) rates by 20%.
- Other non-petroleum products – Generally increasing the specific (non-ad valorem) duty rates by 10% except for domestically manufactured wines, spirits and confectionery products.
- Exemption – Proposed exemption on engine capacity on electric non-utility vehicles with only electric motor for propulsion with HS Code 8702.40.11; 8702.40.19; 8703.80.10; and 8703.80.90 along with Compressed Natural Gas (CNG) vehicles.
- Decrease of duty – Domestically manufactured ready-to-drink products (HS Code 2208.60.00) from TZS 4 386.6 per litre to TZS 2 466.45 per litre.
- Increase in duty – The Minister has proposed the introduction and increase of duty on various products such as imported and domestically manufactured cement (TZS 20 per kilogram), certain vehicles falling under Tariff heading 8702 and 8703 (5%), motor vehicles older than five years (10%), certain petroleum and bituminous oils other than waste oils under HS Code 2710.20.00 (TZS 80 per litre), various tobacco products, electronic cigarettes, vape products and shisha (30%), imported and domestically manufactured gambling machines under HS Code 9504.30.00 (20%) and imported energy drinks under HS Code 2202.99.00 (from TZS 589.05 to TZS 600 per litre).
In line with the EAC Pre-Budget Consultative Meeting of the Ministers for Finance held on 12 May 2023, the Minister has proposed the following changes:
- The East African Community Customs Management Act, 2004 (EACCMA) – To amend item 27 of part B of the Fifth Schedule to the EACCMA to read ‘Biogas Digesters’ instead of ‘Plastic Bag Bio Digesters’.
- Stay of application of lower import duty rates in the Common External Tariff (CET) and instead apply higher rates for imported goods such as goods under HS Code 4811.90.00, polyester/ nylon twine and ceramic tiles.
- Stay of application of higher import duty rates in the CET and instead apply lower rates for imported vitenge, smart cards and buses for transportation of more than 25 persons.
- Duty remission for items such as inputs/raw materials used to manufacture capital goods/equipment for various sectors, manufactured wire products and on inputs (base oil) used to manufacture lubricants.
- Increase import duty on footwear, grains and vegetables like almonds, hazelnuts, macadamia nuts, cucumbers and gherkins, live animals like cows, goats and sheep, coffins, fish, cassava and natural honey.
Other tax measures
The National Payment System Act and The Electronic and Postal Communications Act
The Minister has proposed the following amendments:
- Mobile money transactions – Removing mobile money transaction levy on sending and receiving money electronically. Also, increasing mobile money transaction levy on withdrawals by 50%.
- Daily SIM Card levy – Abolishing the daily levy imposed on each SIM card based on users' ability to recharge the balance.
The Local Government Finance Act, CAP 290
The Minister has proposed the following changes:
- Reduction in billboard fees – To reduce the rate charged for billboard fees from TZS 10 000 to TZS 7 000 per square foot for non-illuminated billboards and from TZS 13 000 to TZS 10 000 per square foot for illuminated billboards. However, billboards displaying business names placed within commercial areas will not be subject to billboard fees.
- Collection of billboard fees is to be done by the President’s Office Regional Administration and Local Government instead of the Commissioner General of TRA.
- Collection of service levy from Electronic Money Issuance Licensees (EMI) to be done by the Minster responsible for Local Governments on behalf of Local Government Authorities.
Local Government Authorities (Rating) Act, CAP 289
The following changes have been proposed:
- Increase property tax – from TZS 12 000 to TZS 18 000 for normal buildings and TZS 60 000 to TZS 90 000 for each storey building.
- Tax base - The Government intends to commence a property valuation exercise in the year 2023/2024, after which properties will be taxed based on the property's value commencing from the year 2026/2027.
- Scope of rateable areas – To include all the district councils’ areas as rateable areas to collect property tax. However, properties that are not rateable as per section 7 of the Act shall not be included.
- The Roads and Fuel Tolls Act, CAP 220 – The Minister has proposed to increase the road and fuel tolls by TZS100 per litre of petrol and diesel.
- Export Levy Act, CAP 196 – The Minister has proposed waiving the 80% export levy currently imposed on exporting raw or semi-processed (wet blue) hides and skin for investors in the export processing zones.
The Mining Act
The Minister has proposed to exempt refineries from paying the inspection fee of 1%.
Immigration Act, CAP 54
The Minister has proposed to allow non-residents who have invested a minimum of USD 150 000 in purchasing a house within the country to obtain a Residency Permit Class B.
Land Rent Act, CAP 113
The Plot Development Fund will be revived in order to strengthen the implementation of land sector plans, including planning, surveying and titling. The Minister has proposed the following amendments:
- reduce the premium charge from 0.5 % of the land value to 0.25%;
- reduce Certificate of Occupancy fees from TZS 50 000 per certificate to TZS 25 000 per certificate;
- reduce registration fees from 20% to 10% of land rent;
- reduce the application fee from TZS 20 000 to TZS 5 000;
- abolish the fee for the Deed Plan, which was charged at TZS 20 000; and
- amend the Land Act (Cap. 113) to designate the Director of the Council as the authority responsible for collecting land rent on behalf of the Ministry of Land, Housing, and Human Settlements Development. As part of this amendment, it is suggested that 20% of the collected land rent should be allocated back to the Councils. This allocation is intended to support the Councils in their collection activities and in monitoring and follow-up efforts related to land rent collection.
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:
- Ministry of Investment, Industry and Trade – Abolish the 15% penalty on the product charged by the Tanzania Bureau of Standards on products imported without a quality inspection certificate. The imported product without the quality assurance certificate will be subjected to an inspection upon arrival and will be charged the inspection fee without penalty.
- Ministry of Works and Transport – Reduce right of way fees for the use of roads reserve corridor for installation of fibre optic cables from the initial management charge of USD 1 000 per kilometre to USD 200 per kilometre; and annual management charge from USD 1 000 per kilometre to USD 200 per kilometre.
- Ministry of Tourism and Natural Resources – Reduce tourism business fees for accommodation establishments:
- owned by Tanzanians from USD 2 500 to USD 1 500 for five-star hotels;
- from USD 2 000 to USD 1 000 for four-star hotels;
- from USD 1 500 to USD 500 for three-star hotels;
- from USD 1 300 to USD 300 for two-star hotels; and
- from USD 1 000 to USD 200 for one-star hotels.