2.0 Fiscal Policies for 2020/21- Macroeconomic Policy Targets
3.0 Policy and Strategies to Increase Revenue for the year 2020/21
4.0 Expenditure Policies for the year 2020/21
5.0 Priority Areas for 2020/21
6.0 Reforms of the Tax Structure, Fees, Levies and other Revenue Measures
7.0 Budget Structure for the Year 2020/21
9.0 Summary of law reforms based on the 2020/21 Finance Act
On 11th June 2020, the Minister for Finance and Planning (“the Minister”) Hon. Dr. Philip Mipango, presented the Government’s Revenue and expenditure Estimates for the year 2020/21 for deliberation by the National Assembly. The budget was presented in line with Article 137 of the Constitution of the United Republic of Tanzania of 1977, together with Section 26 of the Budget Act, CAP 439.
2020/21 budget is the final year of the implementation of the National five year development plan with the theme “nurturing industrialization for economic transformation and human development.” Hence the budget has been prepared in the consideration of the plan, which compels the government to ensure enabling environment for industrialized investment and businesses.
The main theme of the budget, as agreed by East African Community Partner States, will be “Stimulating the economy to safeguard livelihoods, jobs, businesses and industrial recovery”
Due to the outbreak of COVID 19 pandemic, the 2020/21 budget has taken into consideration effects of COVID-19 on various sectors of our economy. Also due to heavy rainfall there was destruction of transport and transportation infrastructures in rural and urban areas as well as crops such as grapes, maize and paddy due to heavy rainfall across the country.
Furthermore, the 2020/2021 budget has focused on allocating adequate resources for election expenditure with a view to strengthening democracy and good governance. Also, the budget is expected to foster great development achieved in the field of social services and economic infrastructure particularly ensuring that national strategic projects continue to be implemented as envisaged.
The 2020/21 budget has focused on compelling the Government to ensure enabling environment for investment and business. In particular, it includes the following:
- Improvement in economic infrastructure, friendly tax and financial policies, better regulatory framework, availability of land, work permits and skilled labour force.
- Emphasizing the importance of agriculture, in an industrial led economy, regulatory reforms to improve the business environment.
- Enhancing mobilization of domestic revenue to facilitate construction and rehabilitation of infrastructure and financing of other priority expenditure and Government operations.
Our tax and investment department at Breakthrough Attorneys has prepared this summary of the Tanzania’s Budget for the year 2020/2021 for purposes of raising awareness to the public on the estimates of Government revenue and expenditure for 2020/21 and highlighting important issues after the budget was approved on the 15th June, 2020.
The government’s macroeconomic targets for 2020/21 budget are as follows:
- Real GDP growth to slow down to 5.5 percent from the initial projection of 6.9 percent in 2020 compared to the actual growth of 7.0 percent in 2019. This decline is due to heavy rainfall, which destroyed transport infrastructure and impact of COVID-19 pandemic to our trading partners.
- Containing inflation at a single digit between 3.0 to 5.0 percent in 2020/21.
- Domestic revenue is projected at 14.7 percent of GDP in 2020/21 from the likely outturn of 14.0 percent in 2019/20. This means that the economy is expected to begin recovering during the second half of 2020 as concerns about the pandemic diminish and as state and local governments ease restrictions. The labor market is projected to materially improve after the third quarter—hiring will rebound and furloughs will drop significantly as the degree of social distancing diminishes.
- Tax revenue is estimated at 12.9 percent of GDP in 2020/21 from the likely outturn of 12.1 percent in 2019/20. This is because, taking into account the importance of improving domestic revenue mobilization of finance, infrastructure development and other priority expenditure and government operations.
- The Government expenditure is projected at 22.1 percent of GDP in 2020/21.
- Budget deficit (including grants) is estimated at 2.6 percent of GDP in 2020/21 which is below the target of 3.0 percent of macroeconomic convergence criteria as agreed in the East Africa Community (EAC), because Macroeconomic framework and monetary policy stance for 2020/21 takes into consideration spillover effects of COVID-19 on the global economy and its implications to the domestic economy. In addition, the framework and policy stance are based on domestic environment, which includes implementation of policies and strategies consistent with Governments’ development plans.
- Maintain foreign reserve sufficient to cover at least four months of imports of goods and services.
In 2020/21, the Government intends to continue emphasizing on domestic revenue collection. Therefore in strengthening revenue administration the following implementation measures will be undertaken:
- To continue improving business and investment environment including rationalizing and reducing tax rates, fees and levies, by Tanzanians to improve tax collections and tax evasion.
- Tanzania Revenue Authority (TRA) to widen tax base and create friendly environment with taxpayers by giving the taxpayer 30 days to prepare and submit their documents. Which helps the taxpayer to get some room to breathe.
- Strengthening the Office of Treasury Registrar to collect more dividends and contributions from public institutions to the Consolidated Fund Services, Treasury Registrar’s office to collect 70% of the excess revenue from Government Parastatals, Institutions and Agencies, including those financed by Government Budgets. The operating expenditure ceiling is as defined in Section 10 (A) (1) and (2) in the Finance Act, 2015.Strengthening and capacitate Tax Revenue Appeals Tribunal (TRAT) and Tax Revenue Appeals Board (TRAB), to fast-track tax objections and appeals, this will push enforcement of tax laws in order to address tax evasion challenges and minimize revenue leakages.
- Emphasizing the use of ICT systems so as to strengthen domestic revenue collection including Local Government Authorities’ own source.
- The Government will continue to allocate and develop supportive infrastructure in investment areas
In addition to measures taken to improve domestic revenue collection, the Government has planned to do the following to achieve its goal:
- To continue facilitating public awareness programs across the country to sensitize investment in Government securities;
- To continue listing treasury bonds in the Dar es Salaam Stock Exchange;
- To continue implementing the Development Cooperation Framework (DCF) to facilitate accessibility of grants and concessional loans; and borrowing from Export Credit Agencies (ECAs) which offer relatively reasonable terms.
In 2020/21 budget, the Government plans to continue maintaining discipline and increase efficiency in the use of public funds. Furthermore, ensuring fiscal deficit does not exceed 3 percent of the GDP in line with East African Community macroeconomic convergence criteria, allocating funds to priority areas which stimulate economic growth, ensuring ongoing projects are given priority prior to committing to new ones, controlling accumulation of arrears and enhancing the use of ICT in transactions and in the Government operations.
Since the budget for 2020/21 is the last in the implementation of the National five-year development plan, the budget has put its focus on areas, which stimulate economic transformation and human development as follows;
- Rehabilitation of Infrastructure Damaged by Heavy Rainfall and Fight against COVID-19:
Due to occurrence of these unforeseen situations the Government has compelled to allocate more resources to rehabilitate roads, bridges, railways and other infrastructure damaged by floods. Likewise, the Government plans to allocate more resources to the health sector in order to fight against the COVID-19 pandemic and the aftermath, as well as support other most affected sectors.
- Flagship Projects:
In this budget the Government aims at continuing to finance the implementation of various strategic projects such as construction of central railway line to standard gauge; construction of Julius Nyerere Hydropower Project (2,115 MW), strengthening Air Tanzania Company Ltd, facilitate construction of Crude Oil Pipeline Project from Hoima (Uganda) to Chongoleani, Tanga (Tanzania), continue with the construction and rehabilitation of railways, roads, bridges, airports, ports, ships in major lakes and ferries; and strengthening of electricity and gas production, transmission and distribution infrastructure including expediting rural electrification.
- Social Services:
This budget aiming in enhancing accessibility of services in health, education and skills, clean water and sanitation. On education, the Government plans to stay on course with the implementation of fee free basic education, improvement of teaching facilities and learning environment in primary and secondary schools, teachers and vocational colleges and universities which comprises of ICT systems, strengthening the vocational education and training, provision of loans to students of higher learning institutions and improving water services, health and sanitation education in schools.
- Agriculture and Industry:
In ensuring industrial based economy, the budget focuses on projects that are expected to utilize significant amount of local raw materials including agriculture, mining and natural gas in order to promote value chains. The projects include building of a Natural Gas Processing Factory, establishment and development of Special Economic Zones and industrial clusters, processing industries in agriculture, livestock and fisheries, minerals beneficiation, strengthening mining markets and sustainable management of forest resources.Also, the government seems geared to implement the Agricultural Sector Development Program Phase II (ASDP II) including improving irrigation and market infrastructures and access to agricultural inputs and extension services; strengthening market competition in line with Fair Competition Laws and Regulations; and enforce the Natural Wealth and Resources Contracts without forgetting promotion of the use of ICT for agricultural services.
- Other priority areas:
The government expect to continue to improve the livelihood of poor households through implementation of Productive Social Safety Net Program through TASAF, whereby during the second term of the third phase (2020 – 2023) a total of 2.03 trillion shillings is set to be spent. Also in terms of improving business and investment environment, the Government will continue to allocate and develop supportive infrastructure in investment areas.
Policy and Administrative measures to improve the collection of government revenue
- Exemption of value added tax on agricultural crop insurance, which will reduce cost on agricultural crop insurance and enable farmers to insure their agricultural crops from unforeseen tragedies such as droughts and floods.
- Enabling exporters of raw products to recover input tax, which will enhance competitiveness of the products in the international markets as well as abide to the VAT destination principle.
- The increase of the minimum threshold of Primary Cooperatives Societies liable to income tax from Tshs. 50,000,000/= to Tshs. 100,000,000/= per annum, hence providing tax relief to Primary Cooperatives Societies including SACCOS since they have small capital.
- Exclusion of income derived by Special Economic Zone operators who produce 100% for local supply from the list of exempt amounts on the basis of equity principle of taxation to all producers, both in special economic zone and those outside the zone.
- Giving power to the Minister responsible for Finance to exempt income tax on strategic projects with total Income Tax not exceeding 1 billion shilling during the implementation period without seeking Cabinet approval hence fast tracking the implementation of such projects
In achieving the targets on revenue collections as well as solidifying chances of curbing challenges in the highlighted priority areas, the Government has thus enacted and amended various laws as summarized below and enumerated in the table appended to this analysis:
NOTE: Reforms are summarized in the table appended
Consistent with macroeconomic and fiscal policy objectives, the budget frame for 2020/21 is as shown below:
- The budget frame for 2019/20 shows that total of 34.88 trillion shillings is projected to be mobilized and spent within the financial period.
- Total domestic revenue (including LGAs own sources) is estimated at 23.05 trillion shillings, equivalent to 69.6 percent of the total budget. Out of the amount, the Government plans to collect tax revenue amounting to 19.10 trillion shillings, equivalent to 12.9 % of GDP. Total domestic revenue (including LGAs own sources) is estimated at 24.07 trillion shillings, equivalent to 69.0% of the total budget. Out of that amount, the Government plans to collect tax revenue amounting to 20.33 trillion shillings,
- Non-tax revenue is estimated at 2.92 trillion shillings and revenue from LGAs own sources 815.0 billion shillings.
- The Government plans to borrow 4.90 trillion shillings from the domestic market. Out of that amount, 3.32 trillion shillings is for rolling over of maturing treasury bills and bonds and 1.59 trillion shillings equivalent to 1.0% of GDP.
- The Government is expected to borrow 3.04 trillion shillings from external non-concessional sources in order to speed up the implementation of infrastructure projects
- Development Partners are expected to contribute grants and concession loans amounting to 2.87 trillion shillings, equivalent to 8.2% of the Government budget. Out of the amount, 2.46 trillion shillings will be channeled through Projects financing; 138.3 billion shillings through Basket financing; and 275.5 billion shillings through General Budget Support (GBS).
- The Government plans to spend 34.88 trillion shillings for recurrent and development expenditure. Out of that amount, 22.10 trillion shillings is allocated for recurrent expenditure, equivalent to 63.0% of the total budget and 12.78 trillion shillings for development expenditure. Recurrent expenditure includes 10.48 trillion shillings for servicing Government debt, 7.76 trillion shillings for wages and salaries and 3.74 trillion shillings for other Charges (OC), including 481.9 billion shillings as LGAs expenditure from own sources.
- Development expenditure is estimated at 12.78 trillion shillings, equivalent to 37% of the total budget, comprising 10.04 trillion shillings from internal sources and 2.74 trillion shillings from external sources. Out of that amount, 2.10 trillion shillings has been allocated for Standard Gauge Railway project, 1.60 trillion shillings for Julius Nyerere Hydropower Project at Rufiji River, 823.7 billion shillings for Railway, Water and REA Funds, 490 billion shillings for Higher Education Students’ Loans and 298.1 billion shillings for Fee Free Basic Education.
- The Government has set aside 600.0 billion shillings for payment of verified arrears for employees, service providers, suppliers and contractors in roads, water and energy.
The above overview of the Tanzania’s budget for the financial year 2020/21 has been prepared by the Tax department at Breakthrough Attorneys for purposes of raising awareness to the public on the estimates of Government revenues and expenditures for 2020/21 and an understanding on the fiscal policies and strategies by the Government.
SUMMARY OF LAW REFORMS BASED ON THE 2020/2021 BUDGET
|S/N||Legislation||Extent of Amendment(s) and our Commentary|
|INCOME TAX ACT (CAP 332)||
· Increase in the minimum threshold of employment income (PAYE) not liable to tax from Tshs. 170,000/= per month to Tshs. 270,000/= per month.
· Increase in the minimum threshold of Primary Cooperatives Societies liable to income tax from Tshs. 50,000,000/= to Tshs. 100,000,000/= per annum.
· Exclusion of income derived by Special Economic Zone operators who produce 100% for local supply from the list of exempt amounts on the basis of equity principle of taxation to all producers, both in special economic zone and those outside the zone.
· Allowing 100% deduction of the contributions made to AIDS Trust Fund and fight against COVID-19 pandemic until the Government announces the end of the Pandemic.
· Giving powers to the Minister responsible for Finance to exempt income tax on strategic projects with total Income Tax not exceeding 1 billion shillings (1,000,000,000/=) during the implementation period without seeking Cabinet approval.
· Charge of Capital Gain Tax on net gains from realization of license or concessional right on reserved.
· Charge of Withholding Tax at a rate of 10% on commission paid to Bank and digital payment agents.
· Amendment of sections 3, 4, 6 and 69 of the Income Tax Act in order to provide clear definition of the words “beneficial owner”, “representative assesses” and “business connection”.
· We commend the raise of minimum amount liable for PAYE deduction since it will provide relief to low income earners in the extended bracket from paying tax
· Encourage fast implementations of projects
· The power of the Minister to exempt tax in excess of Tshs. 1 billion on strategic projects is commendable, as it will attract investors to the country. Further, giving the Minister carte blanche to do so, is also commendable as it does away with the usual bureaucratic processes which ends in protracted delays.
· This will bring equal treatment across all digital payment and mobile money agents
· Reductions and exemptions of the taxes will definitely help in the fight against COVID-19’s aftermath and the reeling economy. Again, due to the pandemic many people have lost their employment and taxes are still there, therefore the approved reduction and exemptions of the taxes will encourage to re-build the economy and improve infrastructure, imports, agriculture and so forth.
|2.||THE EXCISE (MANAGEMENT AND TARIFF) ACT, (CAP. 147)||· Charge of excise duty rate of 844 shillings per kilogram of imported powdered beer with HS Code 2106.90.90
· Charge of excise duty rate of 232 shillings per kilogram of imported powdered juice with HS Code 2106.90.90 to widen tax base as well.
· This will first protect domestic products and then expect to enhance competitiveness of products and to widen the tax base.
|3.||THE VALUE ADDED TAX, CAP 148||· Exemption of Value Added Tax on Agricultural Crop Insurance.
· Amendment of the Value Added Tax Act to enable exporters of raw products to recover input tax.
· This exemption will assist farmers to access insurance products for their crops and protect them from unforeseen losses.
· As regards to allowing exporters of raw products to recover input tax, we are of the opinion that this will encourage growth in exports and in essence GDP. The move to allow recovery of input tax will assist such exporters to recapitalize and reinvest more.
|4.||THE TAX ADMINISTRATION ACT, 438||· Amendment of section 27, 44, 50, 51, and 52 of the Tax Administration Act, CAP 438 in order to set certain time limits:-
– 30 days for the taxpayer to submit documents to the Commissioner General,
– 6 months for the Commissioner General to determine the objection. Note that, the amendment proposes that where the Commissioner General fails to determine the objection within 6 months, the tax assessment or tax decision shall be treated as confirmed (despite not having been responded to) and the objector shall have the right to appeal to the Tax Revenue Appeals Board (Board) in accordance with the Tax Revenue Appeals Act.
· The amendment in section 27 of the Act, which addresses right of taxpayer to representation, and has now clarified on, who can be the taxpayer’s representative. The amendment states that such a representative can be a practicing advocate, tax consultant or any other person who is authorized by the taxpayer by way of power of attorney. This amendment removes ambiguities and will ensure that the TRA are dealing with a duly appointed representative, and will ensure a constructive and streamlined relationship between the TRA and taxpayer. Taxpayers are reminded to formally notify the TRA about appointment of such a representative. We commend this amendment since in the past; only registered tax consultants were allowed to interact with TRA on behalf of the taxpayer.
· Under section 44 of the Act, TRA has the right to obtain information from a person who is not liable for tax, for example third parties doing business with the taxpayer.
· The amendment further states that a person who fails to submit information or documents within the time prescribed under the law shall be precluded from using such document or information as evidence at the stage of objection or appeal. We think this amendment is geared to increase transparency and outreach by TRA over the taxpayer and in search of widening the dimensions of the taxable sources.
· The Finance Act amends section 51 that addresses objections by making it mandatory for taxpayers now to ensure that their objections are accompanied by relevant documents or information, which the taxpayer intends to rely upon. This is to ensure that the TRA has all information from the taxpayer before it makes an objection decision. Taxpayers will now be limited on what ‘new evidence’ they can bring at the stage of appealing.
– The Amendment to restrict the Commissioner General to make a decision on a tax objection within 6 months is verily commendable. However we are of the view that the extended amendment to the fact that the indecision of the Commissioner General after 6 months will be deemed that the objection is refused is improper and wrongful. We are of the said reason because first, the intention of these amendments is to end protracted tax disputes and ensure quick collections; and secondly, that the amendment is counterproductive to the set limit since the Commissioner General may elect not to do his job within the time knowing it will not change anything; thirdly, the implication of this implied refusal is overwhelming the tax disputes resolution system at the Tax Revenue Appeals Board (TRAB) stage which is already overwhelmed to begin with; and fourthly, the amendment is a derailing of the underlying tax interpretation principle and position that silence of the authority implies that the taxpayer’s position will apply. This can be seen under the East African Community Customs Management Act where a review decision must be made within 30 days and if no decision is made then the application is deemed to have been granted.
|5.||THE LOCAL GOVERNMENT FINANCE ACT, CAP 290||· Amendment of section 6, 7 and 9A of Local Government Finance Act, CAP 290 to empower the Minister responsible for Local Government to collect Service Levy (0.3 percent of turnover) from the telecommunication companies on behalf of the Local Government Authorities and distribute the collected amount to the respective Councils within fourteen days from the date of collection.
· This is expected to increase the tax base but also will benefit diverse councils timely rather than waiting for budget approvals. This change is very commendable and it is our call that in the future the speed of distribution to councils should apply to more levies rather than few ones.
|6.||THE PUBLIC FINANCE ACT, CAP 348||· Amendment of section 11 of the Public Finance Act, CAP 348 in order to include Tanzania Investment Centre (TIC), Tanzania Fertilizer Regulatory Authority (TFRA), Government Procurement Services Agency (GPSA) and National Identification Authority (NIDA) on the list of the Agencies/Institutions that contribute dividends or 15 percent of their gross turnover to Consolidated Fund.|
|7.||THE TREASURY REGISTER ACT, CAP 370||· Amendment of section 10A(1) of the Treasury Register Act, CAP 370 by removing the words “not financed through Government Budget” in order to allow Treasury Register Office to collect 70% of the excess revenue from the Government Parastatals, Institutions and Agencies which have surplus revenue.
· This is geared in enhancing controls in the management of public funds and parastatals, the government has proposed to amend the Treasury Register Act to allow the Treasury Register Office to collect 70 percent of the excess revenue from the Government Parastatals, Institutions and Agencies with surplus revenue. While the focus may be revenue collection, we are wary of the independence of operations of such parastatals and their performance once this amendment is being enforced.
|8.||THE MOTOR VEHICLE (TAX REGISTRATION AND TRANSFER) ACT, CAP 124||· Introduction of Special Registration Number for Motor Vehicle (e.g. T. 777 DDD) fee at the rate of Tshs. 500,000/=. This is because there is a trend now a days that many people want their own customized number or names in their cars hence this law came in place.
|9.||THE MINING ACT, CAP 123||· Amendment of section 49(2); 54(2)(b); 56(2); 73(1); 80(1) and 82(1) of the Mining Act, CAP 168 in order to introduce new section which requires the applicant for new or renewal of mining license to have Taxpayer Identification Number (TIN) and Tax Clearance from Tanzania Revenue Authority.
· We are of the opinion that this may promote voluntary tax compliance, this amendment introduces requirements for applicants for new or renewal of mining licenses to provide their Taxpayer Identification Number (TIN) and Tax Clearance certificate from the Tanzania Revenue Authority. As has been in other sectors, the government is, through this move, keen to increase transparency and inter-authority network in licensing and taxing taxable persons and transactions.
|10.||THE ELECTRONIC AND POSTAL COMMUNICATION ACT, CAP 306||· Amendment of section 26 of the Electronic and Postal Communication Act, CAP 306 in order to exclude Companies owned by Government by 100% or 25% or more from being listed in stock exchange.
· Exclusion of the telecommunication tower leasing companies from compulsory listing in the stock exchange as they are not telecommunication operators.
· We believe this move is employed so as to protect Government shares from dilution, the Government amends the Electronic and Postal Communication Act, to exempt companies owned by government with shareholding of 25% or more from being listed at the stock exchange.
· Further, the law excludes telecommunication tower leasing companies from compulsory listing in the stock exchange, as they are not considered telecommunication operators. We commend this move as it was absurdly interpreted that “telecommunication companies” including such, must all list in the stock market. With the stock market being thin and undercapitalized, the effort would have been over-listing of companies, which have no chance of selling the shares.
|12||THE LAND ACT, CAP 4||· Adding of section 29A immediately after section 29 which will set mandatory requirement to any person with a surveyed land and a plan approved by Ministry responsible for Land, to apply to the Commissioner for Lands for a right of occupancy within 90 days from the date of approval.
· We support this amendment since it is aligned with the long due plans of survey and formalization of housing settlements, but also will discourage land occupancy without Certificate of Occupancy which in itself, will assist in curing ownership disputes at large.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.