2014/2015 BUDGET: No more tax exemptions

Finance minister Saada Nkuya displays the briefcase containing the government’s 2014/15 Budget before tabling it in Parliament in Dodoma yesterday

For those who have benefited from expensive tax exemptions, the 2014/15 budget will be a thorn in the flesh as the state drops that benefit

Dar es Salaam. Finance minister Saada Mkuya yesterday tabled a budget that seeks to rein in lavish spending as it abolishes expensive tax exemptions. But even though the government promised to reduce the cost of living, the budget presented yesterday did not demonstrate clearly how the man on the street would get relief when it comes to daily household expenses.

For those who have benefited from expensive tax exemptions, the 2014/15 budget will be a thorn in the flesh as the state drops that benefit.

For future home owners, a housing and mortgage financing scheme will be most welcome. Notorious loan defaulters will find the going rough, though. The government announced that a functioning Credit Reference Bureau will now carry out due diligence before loans are granted.

But the budget fell short of stopping the use of the expensive fuel guzzlers that have cost the taxpayer dearly. And this is despite the fact that the State promised a few years ago to stop buying expensive four wheel drive vehicles.

But, faced with dwindling revenue collections in the 2013/2014 financial year and a rising demand for investment in infrastructure projects, Tanzania has come up with measures to boost income mobilisation and cut public expenditure. The country planned to collect revenue to the tune of Sh18.2 trillion in the 2013/2014 fiscal year but major sources failed to live up to expectations. The end result: An estimated seven per cent shortfall.

According to Ms Mkuya, the government will reduce tax exemptions and cut public expenditure in a number of areas as it seeks a total of Sh19.8 trillion from both domestic and foreign sources to finance its 2014/2015 budget.

Under cover of the recently issued Value Added Tax Bill, 2013, the government seeks to reduce tax exemptions and remain only with those that will help the country attain its development goals.

Those beneficiaries of the tax exemption that will be left standing, according to Ms Mkuya, will be publicly announced on a quarterly basis. The names of the institutions/companies or organisations will be published on the website for the ministry of Finance alongside the exempted amount. “This exercise will involve exemptions offered since 2010…Parliament will also find time to discuss tax exemption reports at least once in a year,” she told the National Assembly.

With this move, Ms Mkuya seeks to detach the powers of approving tax exemptions from the Finance ministry. In the proposed arrangement, the Finance minister will no longer have powers to grant tax exemptions to investors willing to undertake expansion and rehabilitation activities. Similarly, the Finance minister will no longer grant import duty exemptions on petroleum products except when the fuel has been imported by development partners and it is meant to help in construction of infrastructure.

Telecommunication operators will also feel the pinch of the maiden budget speech of Tanzania’s second woman to head the finance docket--after Zakhia Meghji, who was dropped in the 2008 cabinet reshuffle--as they have not been spared in the plan to reduce tax exemptions. “Madam Speaker, I propose to abolish the tax exemptions enjoyed by telecommunication operators when they import deemed capital goods,” she said.

The exemptions in question include those on goods such as vehicles and communication towers. In the same vein, not every Tom, Dick and Harry will be regarded as a strategic investor under Ms Mkuya’s proposed arrangement. “I propose to redefine the term strategic investor in such a way that only foreign investors who bring in at least $50 million can be regarded as so--up from the current $20 million,” she added.