THE 1996/97 BUDGET

Tanzania’s Finance Minister, Professor Simon Mbilinyi, said in his budget speech on June 20 that government would spend Shs 758,896 million in 1996/97 compared with estimates of Shs 631,906 million in the previous year – an increase of 20.8%. Government would collect Shs 550,192 million domestic revenue; the balance of Shs 208,704 million would be raised through a series of sources which included foreign loans and grants (Shs 187,537 million – an optimistic figure, non-bank borrowing (Shs 24,256 million), additional revenue from taxes and nontax revenue (Shs 13,563 million). There are no plans for ‘bank borrowing’ which is really equivalent to printing money. He said that he had two main aims in his 1996/97 budget – to broaden the tax base and to protect local industries. Shs 40 out of every Shs 100 of expenditure was to service foreign debt amounting to seven billion dollars. This would mean shedding 200 out of 1,500 development projects.

Earlier, Planning Minister of State Daniel Yona had stated that he was optimistic about restoring macro-economic stability by lowering the rate of inflation from 23.5% to below 10% within two years; exports had gone up from $519 million to $683 million last year but the government had had to borrow Shs 86.4 billion compared with Shs 56.8 billion the previous year to finance the budget deficit.

HIGHLIGHTS OF THE BUDGET

– increase in the minimum wage for the civil service from Shs 17,000 to Shs 30,000 but present allowances are consolidated in the new rates and income tax will be charged;

– higher taxes on imported beer; local beer tax remains at Shs 280; beer from the Common Market for Eastern and Southern Africa (COMESA) countries Shs 345 per litre; from other countries Shs 745; Konyagi up from Shs 300 to Shs 400 per litre; imported spirits from Shs 300 to Shs 500; soft drinks from Shs 32/80 to Shs 34; cigarettes up by 20%;

– to protect the domestic textile industry higher taxes on imported woven fabrics and garments;

– increase of 20% on registration and transfer of motor vehicles;

– to help education substantial reduction in duty on packaging materials; abolition of duty and sales tax on newsprint used for printing newspapers, books and exercise books used for educational purposes – increases in duty on completely built buses, lorries and bicycles; sales tax on local tyres and on computers reduced from 25% and 30% respectively to 10%;

– reintroduction of tax on traditional exports including minerals:

– 15% income tax on landlords charging more than Shs 500,000 per month

– new taxes on security services, car rentals, air charters, quantity surveying, private valuers, driving schools, reworked jewellery;

– tax abolished on goods imported by religious institutions for educational, health and water supply projects;

REACTIONS

The budget was criticised by many in the business community which had itself prepared detailed budget proposals for the Minister’s consideration. They had proposed doing away with a myriad of taxes which cost more to administer than the benefit they brought; to introduce punitive measures for those breaking the law; give an amnesty for earlier defaulters because their cases could clog up the courts for years and cause yet more corruption; and encourage by tax incentive new investment in priority areas. The Business Times expressed the disappointment of the business community – ‘the difference between this budget and past budgets is that the business community was interested in what the Minister of Finance was going to say. This was the first time that there was a government which actually meant it when it said that it wanted to fight corruption, encourage the free market and the private sector. In the past Ministers of Finance had pretended that they were administering a budget and businessmen had pretended to pay their dues. But this budget was too conservative, designed primarily to appease the IMF and World Bank and lacked incentive for investors.

THE DONOR CONFERENCE IN PARIS

At the Consultative Group meeting in Paris in late July donor nations pledged about $1.2 billion in aid ($200 million more than originally planned) of which about $560 million could be made available during 19976/77. Delegates welcomed the progress that had been made during the second half of the 1996 financial year with structural reforms and the start made in restoring fiscal stability. But there was some ambiguity in the statement made at the end of the meeting. Specific conditions were laid down before the aid could start being disbursed. These included sustaining macro-economic and fiscal stability, further progress in reform and measurable improvements in governance (presumably in Zanzibar). A particularly contentious issue was the liberalisation and privatisation of the utility companies.

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