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Magufuli’s maiden budget

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Tanzania outlines austerity measures to fund deficit

By Tullah Stephen

Just like his colleagues in the other East African states, Tanzania’s Finance Minister Phillip Mpango presented before the national assembly the country’s 2016/17 budget in Parliament on June 8.

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This was the first budget speech presented to parliament under his Excellency, Dr John Pombe Magufuli’s administration.

In the last few months, President Magufuli has endeavoured to control the country’s expenditure, leakage and misappropriation of public funds. His mission has been to channel these savings to development and infrastructural projects.

Dr Mpango said the US$13.2 billion budget had two main purposes. First, to alleviate challenges Tanzanians especially those in the low-income group, face. And second, to transform the nation into a middle-income country by the year 2025.

Dr Mpango revealed that the country plans to achieve these goals through macroeconomic sustainability, developing industries which will create jobs as well as enhancing agriculture. To achieve these goals, the government intends to attract the private sector to invest in the country’s industries and other sectors, especially through public private partnerships (PPPs).

Tanzania plans to borrow US$9.5 billion from foreign commercial sources to fund its infrastructure which includes construction of a standard gauge railway.  An additional US$8.9 billion will be acquired from domestic sources while US$1.8 billion will be sourced from foreign aid and development grants.

Increased duty

Other ways to fund its plans include increasing import duty on products such as cement, fishing nets, oil and petrol filters, paper and sugar.  Beverages, cigarettes and lubricants also saw an increased excise duty by 5 per cent. The rate on natural gas was also increased from 43 per cubic feet to 45 cent per cubic feet.

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The telecom sector also saw the introduction of excise duty of 10 per cent on fees payable on money transfers via telecom providers. Previously, excise duty was only charged on sending mobile money. According to Dr Mpango, the plan was put in place to ensure that the government curbs tax evasion that was rife in the mobile money business.

The financial sector also saw the introduction of VAT on fee-based financial services except for interests on loans. These services include stock broking services, portfolio management services, merger and acquisition services, among others.

The government also announced a doubling of tax on second hand clothes from US$0.4 from US$0.2 per kilogramme.

Motor vehicle and motorcycle owners will also have to dig deeper into their pockets when registering their vehicles. The motor vehicle registration fee has increased from US$68.4 to US$114.0 per unit.  Motor cycle owners will now pay US$43.3, up from US$20.  Personalised registration has been doubled to US$4,562 for every three years.

Individuals earning between 170,000 to 360,000 will now fork out less in PAYE as the government has reduced the rate to 9 per cent, that is 2 per cent of US$86. Other tax bands however remained unchanged.

Members of Parliament will be required to pay tax on their golden handshake packages that was previously untouched.  Previously, the MPs received US$73,000 each.

In a bid to protect the local market, imported furniture will now attract excise duty of 20 per cent from the current 15 per cent.

Tourism, the country’s leading foreign exchange earner, was previously VAT exempt but the government has introduced a statutory rate of 18 per cent for services such as guiding, park fees, game drives among others.

Exemptions

Generally, the insurance services sector attracts VAT but as from July 2016, the aviation industry will be exempt. Analysts have lauded this, saying it will have a major effect on airline companies such Air Tanzania, Fastjet and Precision Air as well as the tourism sector.

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