by Dr Hildebrand Shayo
Highlights on President Samia’s FY 2022/23 and what could be budget’s effect on business and investment
The total budgeted expenditure in the 2022/23 budget is TSh 41.5 trillion (USD $18bn). What does this budget mean? How is this budget going to be financed, and is this budget likely to speed up business’ growth, maintain or attract new investment to Tanzania ?
This FY2022/23 budget was tabled at a time the Tanzanian economy is growing at 4.9% compared to a growth of 4.8% in 2020. The increase was attributed to diverse efforts taken by the Government, including the execution of the Tanzania Covid Socio-Economic Response Plan and strategic investment, especially in energy, water, health, education, roads, railway, and airports infrastructure.
The economic activities with the highest growth rate at the time the FY2022/23 budget was tabled were arts and entertainment (19.4%); electricity supply (10.0%); mining and quarrying (9.6%); and information and communication (9.1%).
In 2021, the GDP at the current prices was TSh 161.5 trillion compared to TSh 151.2 trillion in 2020. Tanzania’s mainland population was estimated to be 57.7 million people in 2021 compared to 55.9 million people in 2020. Per capita GDP was TSh 2.79 million in 2021, compared to TSh 2.7 million in 2020. Further, the inflation rate increased to 3.8% in April 2022 compared to 3.3% in April 2021.
The rise in inflation was an outcome of reasons beyond the Government’s control including disruptions in the production and distribution chains of goods and services in the world market because of the Russian invasion of Ukraine.
The total proposed expenditure in the 2022/23 budget is TSh 41.5 trillion (USD $18bn) for recurrent and development expenditure. Out of that amount, TSh 26.5 trillion (USD $11.5bn) is allocated for recurring expenditure, equivalent to 63.8% of the total budget and TSh 15.0 trillion (USD $6.5bn) for development expenditure. The sources of funds are government domestic revenue (including LGAs own sources) estimated at TSh 28.0 trillion (USD 12.1bn), equivalent to 67.5% of the total; external grants and concessional loans estimated at TSh 4.65 trillion (USD $2.0bn) equivalent to 11.2% of the total; and domestic and external non-concessional loans TSh 8.8 trillion (USD $3.8bn) equivalent to 21% of the total.
The theme for the 2022/23 budget is Realising Competitiveness and Industrialization for Human Development. Priority sectors include agriculture, livestock, fisheries, energy, investment, and trade. Tanzania theme is very well in line with the EAC Partner States’ budget theme for 2022/23, which is Accelerating Economic Recovery and Enhancing Productive Sectors for Improved Livelihoods.
The budget however for FY 2022/23 aims to achieve macroeconomic policy targets of real GDP growth rate of 4.7% in 2022 and 5.3% by 2023; holding inflation between an average of 3.0% to 7.0% in the medium term; domestic revenue collection of 14.9% of GDP in 2022/23; tax revenue collection is projected at 11.7% of GDP in 2022/23; and maintaining foreign reserves sufficient to cover at least four months of imports of goods and services.
In FY 2022/23, the Minister for Finance and Planning further proposed several changes in tax laws including the Income Tax Act, the Value Added Tax Act, the Tax Administration Act, the Excise (Management and Tariff) Act. The Minister proposed amendments to existing provisions as well as new provisions in tax laws.
Tax and related changes
The Minister proposed the following amendments to the Income Tax Act, 2004:
• Introduction of a tax rate of 3.5% for taxpayers with turnover exceeding shillings 11 million but not exceeding shillings 100 million in a year.
• Improvement of the Tanzania Revenue Authority payment systems, to enable payments of taxes through mobile wallets.
• Recognition of alternative financing as approved by the Bank of Tanzania to be the same as conventional borrowing to enhance financial inclusion and access to finance.
• Granting the Minister for Finance powers to waive income tax for strategic investors after approval by the National Investment Steering Committee, as indicated under the Tanzania Investment Act, and as subsequently approved by the Cabinet.
• Abolishment of withholding tax exemption on rent paid by individuals for residential houses, apartments, and commercial premises. The Commissioner General for Tanzania Revenue Authority will enter an Agency Memorandum of Understanding with the President’s Office Regional Administration and Local Government on the administration and collection of this tax.
• Capital gain tax exemption on any transaction involved on the entry into force and implementation of agreements involving the transfer or surrender to a joint venture company of any project; or the authorisation, issue, distribution, or transfer to the Government of the free carried interest shares.
• Capital gain tax exemption on equity shares freely surrendered to the Government through the Treasury Registrar.
• Withholding tax exemption on coupon for corporate and municipal bond.
• Reduction of the withholding tax on service fees paid to nonresidents in the film industry from 15% to 10%.
• Introduction of 2% digital service tax on the turnover of non-resident service providers.
• Introduction of 2% final withholding tax on payments made to small scale miners.
• Introduction of an annual income tax of TSh 3.5 million per truck and passenger bus and
• Introduction of an advance income tax of TSh 20 per litre for retailers of petroleum products.
In relation to VAT, the Minister proposed exemptions on various items including the following:
• Raw materials and Machinery under Chapter 84 and 85 of the East African Community Common External Tariff solely and directly used in the manufacturing of fertilizers by an approved manufacturer. Exemption will be granted upon approval by the Minister for Agriculture.
• Unprocessed green vanilla pods for equity purpose as treatment of other unprocessed agricultural products that are exempted from VAT.
• Locally manufactured sisal twine.
• Ultra-High Temperature (UHT) milk and yoghurt, and dairy packaging materials.
• Pasture seeds (grass seeds) and pasture legumes seeds.
• 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. VAT exemption is proposed to be abolished on the supply of air charter services, as well as on smartphones, tablets and modems.
Other proposed VAT amendments:
• Treatment of alternative financing arrangement as conventional borrowing to enhance financial inclusion and accessibility of financial services.
• Zero rate for one year, locally manufactured double refined edible oil.
• Zero rate for one year, locally manufactured fertilizer.
• Grant power to the Minister for Finance to grant VAT exemption on strategic investments after approval by the National Investment Steering Committee (NISC).
• Expand the list of capital goods that qualify for VAT deferment to include tractors, trailers and semi-trailers, and other vehicles not mechanically propelled.
Changes proposed to the Local Government Finance Act include exempting crop cess on seeds to provide relief to farmers and enhance productivity, and reducing forest produce cess from 5% to 3% to provide relief to forestry traders and support growth of forestry sector.
Further, the Minister proposed to reduce the Workers’ Compensation Fund contribution rate from 0.6% to 0.5%, to align the rate payable for private and public sector employees; to reduce the rate of royalty from 3% to 1% on coal used as energy raw material in factories, to encourage investment; to introduce an export levy of 30% or USD$150 per metric tonne (whichever is higher) on copper waste and scrap metals, to protect local manufacturers.
On the Insurance Act, the Minister, expanded the scope for mandatory insurance to include public markets, commercial buildings, imported goods, marine vessels, ferries, and pontoons. On the Foreign Vehicle Transit Charges Act, he reduced transit charges for vehicles exceeding 3 axles from USD 16/100 km to USD 10 or its equivalent in convertible currency for every 100 km. On the Bank of Tanzania Act, he increased the limit on Government borrowing to not exceed 18% of approved domestic revenue in the current fiscal year instead of the current rate of one eighth of the domestic revenue collected in the preceding fiscal year.
Sources: MOFP budget speech for FY2022/23- presented at parliament-Dodoma, Tanzania. Effectiveness of the 2022/23 budget start 1st July 2022