BUDGET ANALYSIS
TAX VIEWPOINT
PROPOSED TAX CHANGES
Value Added Tax (VAT):-
"Madam Speaker, the Government has tabled in this House, a new Value Added Tax Bill for deliberation and approval". Hon.Saada Mkuya Salum- Minister for Finance.
The bill proposes the following major VAT changes for deliberation and approval by the Parliament.
. DÉJÀ VU :- exemptions are completely disheartened in this bill; Section 6 subsection (1) states that "Except as otherwise provided under this Act (a) a supply,class of supplies, import, or class of import shall not be exempt or zero-rated; and (b) a person or class of persons shall not be exempted from paying value added tax imposed under this Act Subsection (2) stipulates that "a promise or commitment made or understanding given, whether in writing or otherwise, by any person or any Government entity or employee shall not override the provision of subsection (1).
Mode and Manner of exemptions requires that every Organization will first have to pay VAT on local purchases then apply for a refund: Section 7 states that "Where, an agreement approved by the Minister is entered into between the Government of the United Republic and another Government or an international agency listed under the Diplomatic and Consular Immunities and Privileges Act, and such agreement entitles a person to an exemption from tax on the person's purchases or imports, the exemption shall be effected under this Act by-(a) exempting the import of goods imported by the person; or (b) refunding the value added tax payable on taxable supplies made to the person upon application by the person VAT Refunds (i) to diplomats, international bodies and non-profit organization will be made after Seven Months and (ii) other refunds will be made after Nine months.
Supplies and imports exempted from value added tax are as listed below:-
i) A supply of Agriculture implements.
ii) A supply of agriculture inputs
iii) A supply of livestock basic agricultural products and food for human
consumption:
iv) A supply of fisheries implements
v) A supply for bee-keeping implements
vi) A supply of the following medical equipment or appliances
vii) Articles designed for people with special needs
viii) A supply of the following medicine or pharmaceuticals products, not including
food supplements or vitamins
ix) Health care
x) Education
xi) Intermediary services
xii) Supply of Public and non- profit organisation
xiii) The supply of petroleum products
xiv) Immovable property
xv) Supply of water except, bottled or canned water or similarly presented water
xvi) The transportation of person, by any means of conveyance other than air charters,
taxi cabs, rental cars, boats or boat charters
xvii) Supplies of arms and ammunitions, parts and accessories thereof, to the armed forces of
Income Tax changes
. Board of Directors beware:-there is an introduction of 15% withholding Tax on board of directors' fees. The imposed withholding Tax will be final, Note that final withholding payments are excluded in calculating individual's gains from employment.
. PAYE: Additional TShs 1,900/= take home for every employee , as the minimum Tax rate have gone down to 12% from 13% of last year, that is Tax rate on taxable income that exceeds TShs 170,000 but does not exceed 360,000 is now 12% that is 1% of TShs 190,000. Note that, other tax bands and rate remained the same.
. All eyes on African Development Bank: to enhance the ADB's ability to offer low cost loans in investment, all gains and income derived from bonds issued domestically by ADB are now exempted from Income Tax. Definitely investors will fancy investing with ADB to benefit from this Tax exemption thus increase ADB's ability to give low cost loan for Big Projects.
. Exemption from Corporate Tax has been taken away from holders of the Gaming Licenses: Now have to pay gaming Tax and Corporate Tax, previously holders of the gaming licenses who have paid gaming tax were exempted from Corporate Tax.
. An end to withholding Tax exemption on Aircraft Lease to non residents, therefore withholding tax on aircraft lease to non resident will now be charged a normal 15%.
Only and Only If:-
Power of the Minister for Finance to Grant Tax exemption has been cut off: Minister for finance can now not grant further Tax exemption to holder of TIC certificate embarking on expansion and rehabilitation of their projects and On top of that, Minister can now not give excise duty exemption on fuel levy with exception of exemptions granted through Agreements signed between the Government and development partners to finance development projects.
Changes in the Excise Duty
. Sweeter- bitter victory for Banks and Telecommunication companies:
Excise duty of 0.15% on Money Transfer activities has been removed; however there is an introduction of 10% Withholding Tax on Money transfer fees, just fees charged by Banks and Telecommunication Companies on Money Transfer services.
. Smokers will have to dig deeper: While last year Excise duty on Cigarettes increased by 10% this year it has increased by 25% an extra increase of fifteen percent. The excise duty rate on "cigar" remains at 30 per cent. overall it will be very expensive to smoke.
. Not all old is gold: importation of non-utility vehicles aged 8 years or more will now be charged excise duty of 25%. Previously 25% Excise duty was charged to Non-utility vehicles aged 10 years or more, Utility Vehicles and passenger vehicle will still be charged Excise duty at 5% but age limit has also come down to 8 years from 10 years, however tractors and unassembled vehicles, however old will still remain excise duty free.
. To protect local furniture industry; excise duty rate of 15 percent on imported furniture was introduced in last year's budget, in this year additional furniture of HS Code 94.03 has been included basically adding metal furniture, plastic furniture, rubber furniture, Bamboo and other wooden furniture.
. Non-Petroleum products:-Excise duty on non petroleum products including softdrinks, beers, and fruits Juices have increased by 10%.
Skills Development Levy (SDL)
Last year the following institutions, from minister's speech were erroneous not included in the list of institution exempted from Skills and development Levy (SDL) including :-
. The Diplomatic Missions;
. The United Nations and its organizations, international and other foreign Institutions dealing
with technical assistance but which do not undertake any business activities;
. Religious Institutions whose employees are solely employed to administer places of worship, to
give instructions or administer religious activities only;
. Charitable organizations which do not perform any business activities;
. Local Government Authorities; and
. Education and training institutions that offer free services. However, this does not apply for institutions that provide business oriented services.
Export of raw hide and skin are now made cheaper:- Export levy has been reduced from 90 percent or Shs 900 per kilogram to 60 percent or Shs 600 per kilogram whichever is higher between 60% or Shs 600 per kilogram.
Tanzania Investment Act
. Champagne tossing for Twiga Cement, Tanga Cement and Mbeya Cement:- Cement has been strip off the list of deemed capital goods, what does that entail, 75% import duty exemption previously accorded on importation of cement has been removed, consequently the cost of importing cement will increase significantly thus domestic cement producer have a huge competitive advantage.
. Not a good day for Vodacom, Airtel, Tigo, Zantel, TTCL and the like:- telecommunication towers and their accessories, generators, tower fences, vehicles, base station accessories, earthing, surge, and lightening protection system have been removed from the list of deemed capital goods therefore importation of these items will now cost more than they used to.
. Strategic foreign investors threshold capital has been raised: from US$ 20 million to US$ 50 million, meaning the foreign investors in Agriculture, Infrastructure and Tourism will now enjoy Tax exemptions accorded to strategic investors, have to invest at least US$50 million.
Changes in the East African Community Customs Management Act, 2004
(i) Import duty exemption on machinery spares and inputs used for the development and generation of wind and solar energy.
(ii) Buses carrying more than 25 people: there is an imposition of a duty rate of 10 percent instead of 25 percent.
(iii) Mufindi Papers Protected:-All papers produced by Southern Paper Mills Ltd (Mufindi) Common External Tariff of 25% will be maintained, all other papers duty rate has been reduced from 25% to 10 % because they are not produced in East Africa.
(iv) Import duty exemption for EFD Machines.
(v) Import duty exemption for splints used in the manufacturing of matches has been removed. (vi) Import duty exemption on inputs used for manufacturing of gas cylinders
(vii) Extended application of Common External Tariffs rate of 35 percent on wheat grain under HS Code 1001.90.20 and HS Code 1001.90.90 and apply the CET rate of 10 per cent for the period of one year. This measure is intended to reduce cost of relating to the importation of wheat grain in the country as local production capacity does not satisfy the demand.
(viii) Continue granting duty remission to soap manufacturers using LABSA as raw materials from 10 percent to 0 percent under HS Code 3402.11.00; HS Code 3402.12.00; and HS Code 3402.19.00 for the period of one year. The measure is intended to encouraged growth and production of soap manufacturing especially to small industries producing soaps in the country
(ix) To increase duty rate from 10 percent to 25 percent on chemical based (petroleum) aerosol spray.
(x) Continued import duty exemption for Armed forces and intelligence services
Administration of taxes on imported petroleum products;
Payment of taxes will now be effected immediately after assessment, no more 45 days grace period.
Nota Bene these proposed tax changes when approved shall become effective on 1st July, 2014, unless stated otherwise.
This Brief Budget Analysis has been prepared by:
Innocent Wilfred Makundi-Consultant- Tax and Corporate Services
About him:
Innocent is an experienced Tax Consultant registered with Tanzania Revenue Authority (TRA), he is also a Certified Public Accountant (CPA). Innocent holds MBA in Corporate Management and possesses Diploma in French Language from French Ministry of Culture and Education via Alliance
Francaise.
CONTACTS :
Mob: +255 755 497 655/+255-713-670126.
Facebook: www.facebook.com/innocent wilfred
Email: Innocentmakundi@gmail.com
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