BREAKTHROUGH ATTORNEYS’ OVERVIEW OF THE TANZANIA’S BUDGET FOR THE FINANCIAL YEAR 2019/2020.

1.0  Introduction
2.0  Fiscal Policies for 2019/20
3.0   Policy and Strategies to Increase Revenue for the year 2019/20
4.0  Expenditure Policies for the year 2019/20
5.0  Priority Areas for 2019/2020
6.0  Reforms of the Tax Structure, Fees, Levies and other Revenue Measures
7.0  Budget Structure for the Year 2019/20
8.0  Conclusion
9.0  Summary of law reforms based on the 2019/20 budget

1.0   Introduction

On 12^th June 2019, Hon. Dr. Philip Mpango, the Minister for Finance and Planning (“the Minister”) tabled the Government’s Revenue and expenditure Estimates for the year 2019/20 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. The budget was approved by the Parliament and the Finance Act of 2019 came into force on 1^st July 2019.

The main theme of the budget, as agreed by East African Community Partner States, will continue to be “Building Industrial Economy for Stimulating Employment and Sustainable Social Welfare”. The budget continues to attempt an integration of the efforts of strengthening the industrial sector with promotion of the agricultural sector, which employs majority of Tanzanians, especially those living in rural areas.

The emphasis in the budget has been put on increasing efficiency and productivity; building economic infrastructure; searching for markets; reducing pitfalls faced by farmers, pastoralists, fishermen, businessmen and investors; as well as improving social services. The Act includes measures to: i) exempt financial institutions from withholding tax on service fees for loans to the government; ii) update income tax rates and brackets; iii) reduce the corporate income tax rate to 25 percent from 30 percent for new investors in sanitary pad production for tax years beginning between July 1, 2019, and June 30, 2021; and iv) reduce the excise tax rate.

The 2019/20 budget has focused on continued efforts to build foundation for industrial economy in order to create more employment opportunities to stimulate economic growth and sustainable social welfare and ultimately to eradicate poverty, ignorance and diseases. In particular, the budget focuses on:

1. Strengthening and constructing of modern infrastructure in order to enhance the national productive capacity in industries, particularly which utilize locally available raw materials and provide quality services (health, education and water) to the citizens. Those infrastructure will contribute to the increase of domestic, regional and international trade;
2. Improving environment for doing business by addressing challenges stipulated in the Blueprint for the Regulatory Reforms to Improve the Business Environment;
3. Strengthening agriculture (productivity and markets for crops, livestock, fisheries and forestry) given the importance of the sector in national economy (food, employment, individual income, contribution to the forex earnings and the linkage of this sector with industrial development); and
4. Maintaining national peace and security; and building foundation for economic self-reliance.

Our tax and investment department at Breakthrough Attorneys has prepared this summary of the Tanzania’s Budget for the year 2019/2020 for purposes of raising awareness to the public on the estimates of Government revenue and expenditure for 2019/20 and highlighting important issues.

2.0 Fiscal Policies for 2019/20- Macroeconomic Policy Targets

The government’s macroeconomic targets for 2019/20 budget are as follows:

1. To attain real GDP growth of 7.1 percent in 2019 up from the actual growth of 7.0 percent in 2018;
2. Contain inflation to a single digit between 3.0 to 4.5 percent over the medium term;
3. Domestic revenue is projected at 15.8 percent of GDP in 2019/20 from the likely outturn of 14.3 percent in 2018/19;
4. Tax revenue is estimated at 13.1 percent of GDP in 2019/20 from the likely outturn 12.1 percent in 2018/19;
5. The Government expenditure is projected at 22.7 percent of GDP in 2019/20 from the likely outturn of 21.6 percent in 2018/19; and
6. Budget deficit is estimated at 2.3 percent of GDP in 2019/20 from the likely outturn of 2.0 percent of 2018/19.

3.0 Policy and Strategies to Increase Revenue for the year 2019/20

In 2019/20, the Government intends to increase and strengthen domestic resource mobilization aiming at financing Government operations, including infrastructure projects and social services. In achieving this aspiration, the Government has undertaken the following policy and administrative measures:

1. Improving business environment with a view of attracting investments, promote growth of 22 small and medium size enterprises in order to widen the tax base and increase other Government revenues;
2. Reviewing tax rates with a view of promoting production and protecting local industries against unfair external competition; 
3. Imparting the culture of voluntary tax payment, widening tax base and use of ICT in tax administration;
4. Strengthening administration of tax laws to address challenges of tax evasion and reduce revenue leakages, as well as emphasizing on provision of education to tax payers;
5. Strengthening collection of non-tax revenue through ensuring effective use of ICT systems;
6. Continue to harmonize and adjust various levies and fees being charged by Government Agencies, Institutions and Local Government Authorities; and
7. Strengthening the capacity of TRA to detect and control tax evasion practices, especially through increasing manpower, modern working tools and training.

In order to attain the estimated domestic revenue targets, the Government has prepared specific administrative strategies that will be implemented in the medium term. The strategies include:

1. To increase efficiency in administration and collection of domestic revenue through implementation of Integrated Domestic Revenue Administrative System (IDRAS);
2. To widen the tax base through identification and registration of new tax payers as well as continue with the exercise of informal sector formalization;
3. To invest in areas that have potential of generating more revenues to the Government, particularly in deep sea fishing through construction of fishing port and procurement of fishing ships;
4. To strengthen capacity for monitoring and controlling of transfer pricing commonly practiced by international companies;
5. To enhance administration of tax exemptions by ensuring that they are directed to the intended projects;
6. To ensure that non-tax revenues are collected through Government Electronic Payment Gateway System (GePG) in order to improve efficiency in domestic revenue collection; and
7. To strengthen monitoring systems in the Government institutions in order to ensure that contributions from public institutions are timely remitted to the Government Coffers.

4.0  Expenditure Policies for the year 2019/20

In 2019/20, the Government will continue to maintain discipline in the use of public funds and conduct monitoring and evaluation, especially on development projects. The main objective is to increase efficiency in the use of public funds in the implementation of development projects to ensure value for money. Further, the Government will continue to verify, clear and control further accumulation of arrears. In addition, the Government will continue to allocate funds in priority areas which stimulate economic growth.

5.0  Priority Areas for 2019/20

In its presentation of the Economic Survey for 2018 and the Annual Development Plan for 2019/20, the government highlighted that the priorities for 2019/20 will be implemented with an emphasis on environmental protection. The budget focuses on implementation of the following priorities:

1. Industries and Agriculture: in fostering the Government aspiration of building industrial economy, in 2019/20 the Government will continue to focus more on industries that utilize locally available raw materials such as agricultural produce, livestock, fishery, forestry and minerals, produce goods for domestic market and for export, as well as increasing employment opportunities.
2. Economic growth and human development: despite focusing more on increasing growth on major sectors of the economy, which employ majority of Tanzanians, the budget for 2019/20 will be directed towards improving availability of quality health services, education and skills, food and nutrition as well as clean and safe water. In addition, the budget shall put more emphasis on increasing the quality of labour force to meet the labour market demands.
3. Improvement of enabling business environment and investment climate: the budget puts more emphasize on construction and rehabilitation of infrastructure, especially railway, ports, energy, roads, bridges and airports. The Government will continue reviewing and strengthening the policy, legal and institutional frameworks coupled with strengthening peace and security in order to attract both domestic and foreign investors.
4. Monitoring and Evaluation: the budget also intends to strengthen monitoring and evaluation of the implementation of development projects at all levels. Moreover, the Government will strengthen administration of tax and non-tax revenue collections in order to increase efficiency in budget implementation, but also ensuring that the collection of taxes do not affect businesses.

6.0  Reforms of the Tax Structure, Fees, Levies and other Revenue Measures

Policy and Administrative measures to improve the collection of government revenue

1. Individuals will now be allowed to clear their goods without the assistance of clearing and forwarding agents however, this will not be applicable to goods on transit.
2. Establishment of “The Office of the Tax Ombudsman” within the Ministry of Finance which will be responsible for receiving and working on unbiased information and complaints from taxpayers with respect to tax administration, including corruption and unfair closures of businesses by tax officials.
3. Improvement of the utilization of an electronic system in the collection of tax and non-tax revenues.
4. Finalization of integrating the domestic revenue collection systems through Electronic Fiscal Device Management System (EFDMS) for curbing revenue leakages in the processing of tax refunds, issuance of fake receipts and others.
5. Introduction of a system for regulating the gaming activities to ensure responsible gaming and that the government gets a fair share from the gaming industry.
6. Proposed establishment of a dedicated desk in the TRA offices for dealing with all complaints and disputes by taxpayers. It is anticipated that the complaints will be dealt within 24 hours.
7. A proposed six-month relief from tax payments for investors and businessmen after obtaining the Tax Identification Number (TIN) to enable the businesses to undertake the necessary preparations.

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 taxing laws through the Finance Act, 2019 thus changing various laws as summarized below and enumerated in the table appended to this analysis:

NOTE: Reforms are summarized in the table appended

7.0 Budget Structure for the Year 2019/20

Consistent with macroeconomic and fiscal policy objectives, the budget frame for 2019/20 is as shown below:

1. The budget frame for 2019/20 shows that shillings 33.11 trillion will be mobilized and executed in the period.
2. 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 percent of GDP.
3. Non-tax revenue is estimated at 3.18 trillion shillings, and revenue from LGAs own sources is estimated at 735.6 billion shillings.
4. The Government plans to borrow 4.96 trillion shillings from the domestic market. Out of the amount, 3.46 trillion shillings is for rolling over of maturing treasury bills and bonds and 1.50 trillion shillings equivalent to 1.0 percent of GDP comprise new loans for financing development projects.
5. In order to speed up the implementation of infrastructure projects, the Government plans to borrow 2.32 trillion shillings from external non concessional loans sources.
6. Development Partners are expected to contribute 2.78 trillion shillings, which is 8 percent of the total budget. Out of the amount, 2.31 trillion shillings are grants and concessional loans for development projects, 199.5 billion shillings are Sector Basket Funds and 272.8 billion shillings are General Budget Support (GBS).
7. In 2019/20, the Government plans to spend 33.11 trillion shillings for recurrent and development expenditure. Out of this amount, 20.86 trillion shillings is set aside for recurrent expenditure, equivalent to 63.0 percent of the total budget. The recurrent expenditure include 9.72 trillion shillings for servicing Government debt and 7.56 trillion shillings for wages and salaries.
8. In additional, 3.58 trillion shillings is for Other Charges (OC) including 460.5 billion shillings as LGAs expenditure from own sources. Further, in 2019/20, the Government has set aside funds for Local Government Elections in 2019 and the preparation of the General Elections in 2020.
9. Development expenditure is estimated at 12.25 trillion shillings equivalent to 37.0 percent of the total budget, of which 9.74 trillion shillings are from internal sources and 2.51 trillion shillings are from external sources. Out of the estimated development funds: 2.48 trillion shillings for construction of Standard Gauge Railway; 1.44 trillion shillings for construction of Hydroelectric Power Project at Rufiji River; 788.80 billion shillings is for Railway, Water and REA Funds; 450.0 billion shillings for Higher Education Students’ Loans; and 288.50 billion shillings for Fee Free Basic Education.
10.  In addition, the Government has set aside 600.0 billion shillings for payment of verified arrears for public servants, service providers and contractors for roads, water, electricity projects.

8.0 Conclusion

The above overview of the Tanzania’s budget for the financial year 2019/20 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 2019/20 and an understanding on the fiscal policies and strategies by the Government.

The government’s expenditure increasing signalizes increase in demand and calls for production expansion and exploring new investment opportunities. The proposed expenditure in 2019/20 is estimated at Tsh. 33.1 trillion which is expected to be financed by domestic revenue collection by 70%. This is comprised of tax revenue of 19,101 billion and non-tax revenue of TZS 3,944 billion which is 18% higher than the 2018/19 target. Domestic and external borrowing Account for 22%, while grants and cheap loans from development partners are at 8%. Given that over the years a large portion (sometimes more than 50%) of the budget was based on donors funds and loans, Breakthrough Attorneys commends the government for its efforts in ensuring that majority of the budget is self-funded. This way, it is easier and much more realistic for the government to be in charge of its economic agenda as well as in control of its development programs narrative.

If fully implemented, it is expected that – there will be reduced and streamlined Regulatory charges, boosting of local production, investment attraction, development of SMEs, stimulation of local consumption, commercialization of agriculture and facilitation of exportation. Overall the budget performed fairly well thus providing credibility of the commitments set by the government and forms basis on future targets. It is worthy to note that the ratios of distribution of the budget indicate that the government has placed more emphasis on strengthening infrastructure and the business environment. Though this move is commendable, directing major focus on building infrastructure should not be implemented at the expense of the living conditions and welfare of the citizens. In essence, the government should ensure that the expenditure plan seeks to involve more and more aspects of the private sector so that the monetary circulation is dispersed to more people in the economy.

Additionally, the 2019/20 budget has furthered the government’s efforts towards widening the tax base. Its commitment is evidenced in the policy and administrative measures geared towards strengthening administration of tax laws; to address challenges of tax evasion and reduce revenue leakages, as well as emphasizing on provision of education to tax payers

Lastly, implementation of the Blueprint was a positive signal from the government towards facilitating and building a vibrant private sector Streamlining functions of regulators and abolishing 54 fees and levies is expected to have an impact through increased compliance and a reduction in the cost of doing business This compliments the country’s effort to widen the tax base through formalization of businesses

SUMMARY OF LAW REFORMS BASED ON THE 2019/2020 BUDGET

S/N	Legislation	Extent of Amendment(s) and our Commentary
1.	AIRPORT SERVICE CHARGE ACT, (CAP. 365)	· Amendment of section 7 by adding subsection (3) and (4)  which provide that; –  (3) An agent required to collect and remit charge under this section shall, on or before the last working day of the month following the month to which the charge relates, file a monthly return to the Commissioner General in the prescribed form. – (4) Upon filing the monthly return under subsection (3), the agent shall disclose the amount collected and other particulars as the Commissioner General may require. Our Commentary: · The addition of the said sections increases accountability and transparency in the collection of revenue and proper record collection.
2.	THE EXCISE (MANAGEMENT AND TARIFF) ACT, (CAP. 147)	· Addition of section 135A which provides for exemption from duty on aircraft lubricants by domestic operators, National Air Force, or airlines corporations recognized in Bilateral Air Services Agreements. · The imposition of duty at 10% on locally made artificial hair whereas imported artificial hair will be charged at 25%; ·  Consumption sugar imported under specific arrangements (to cover the shortage in the domestic market) at the duty rate of 35%; · The imposition of duty at 10% on imported pipes and plastic materials. Our Commentary: · The Government has provided incentives in local production of sanitary pads, baby diapers and wine produced with domestic fruits. This is an opportunity for expansion and increasing investments in these sub sectors. · There is also a relief in inputs used to polish gemstones.  This is an investment opportunity for local mineral beneficiation. · The reduction of excise duty on locally produced wine by using locally grown fruits other than grapes from the current excise duty rate shall encourage local production of wine and enhance voluntary tax compliance. · Despite the intention being the promotion of local products, the increase of import duty on imported artificial hair was frowned upon by the consumers considering the quality gap between local and imported artificial hair.
3.	INCOME TAX ACT, (CAP. 332)	· The turnover threshold for individuals and businesses to prepare and file audited financial statements is now increased from TZS 20 Million to TZS 100 Million. · Amendment to introduce a presumptive tax regime for taxpayers with an annual turnover of TZS 4 Million to TZS 100 Million who will not be required to submit financial statements to the Tanzania Revenue Authority for determining income tax with a view of lessening the tax compliance burden · The presumptive tax rates in the first schedule of the Income Tax Act have also been reduced.   · Exemption from withholding tax on various fees charged to Government on loans received from non-residential banks and other international financial institutions with the view of lowering the costs of the government accessing external finance. · Reduction of corporate income tax for new investors involved in the production of sanitary pads from 30% to 25% for two years from 2019/2020 to 2020/2021. This is subject to the investor signing a performance agreement with the government. Our Commentary: ·  The exemption from withholding tax on various fees charged on Government on loans shall reduce the cost of funding of various government projects and boost re-allocation of funds to other economic needs. · The changes in the Income Tax Act to reduce corporate tax rate for newly established entities dealing in the manufacture of sanitary pads from 30% to 25% for two five consecutive years from the 1stJuly 2019 shall attract investment and promote employment. · The power granted to the Minister for Finance the authority to exempt Government projects financed by non-concessional loans ought to be exercised judiciously and not be abused.
4.	PORT SERVICE CHARGE ACT, (CAP. 264)	· Amendment of section 7 by adding subsection (3) and (4)  which provide that; (3) An agent required to collect and remit charge under this section shall, on or before the last working day of the month following the month to which the charge relates, file a monthly return to the Commissioner General in the prescribed form. (4) Upon filing the monthly return under subsection (3), the agent shall disclose the amount collected and other particulars as the Commissioner General may require. Our Commentary: The addition of the said sections increases accountability and transparency in the collection of revenue and promotes proper record collection.
5.	ROAD TRAFFIC ACT, (CAP. 168)	· Proposed amendment is to extend the validity of driving license period from 3 years to 5 years as well as increasing the fees from TZS 40,000 to TZS 70,000. · Increase of the registration card fee for all forms of motor vehicles from TZS 10,000 to TZS 50,000; for a motorcycle from TZS 10,000 to TZS 30,000; and tricycle from TZS 10,000 to TZS 20,000. Our Commentary: Despite the relief associated with the extension of license validity, which is commended, the increase of registration fees for motorcycles and tricycles may impose a financial burden on low-income earners who form a majority of the population who operate motorcycles and tricycles business.
6.	STANDARDS ACT, (CAP. 130)	· Amendments to provide for inspection, registration of food and cosmetics premises, premises for slaughter of animals and sale of meat, registration and composition of food, importation of food, milk products and milk substitutes, and food hygiene, prohibition of manufacture and sale of certain cosmetics and penalties against the manufacture, import, sale or distribution of cosmetics contrary to the requirements under the Act with the view to control safety and quality of foods and cosmetics. Our Commentary: · The amendments shall promote food safety and increase regulation of food products.  It shall also strengthen compliance requirements in a move to protect consumers. ·  In order to ensure swift processes on the aspect of certifying such products, the government needs to enact specific regulations promptly to provide guidance on procedures and requirements for certification.
7.	TANZANIA FOOD, DRUGS AND COSMETICS ACT, (CAP. 219)	· Repeal of all provisions relating to control of standard of safety and quality of food and cosmetics. In so doing, the Tanzania Food and Drugs Authority will continue to regulate drugs, medical devices and diagnostics. · Amendments to provide for Registration of Vaccines and Biologicals, Medical Devices, Diagnostics, Food, Antiseptics and Diagnostics, Veterinary Pharmacy. · Other Fees abolished through the amendments are Duplicate certificates, Inspection fees new food outlets), Inspection fees fish industries), Inspection fees new fish outlets), Annual Business License (Fish outlets). Our Commentary: · The cost of compliance and doing business in sectors regulated by TFDA shall reduce. Therefore, this signals for formalization of businesses fees. · Removal of foods and cosmetics will affect the infrastructural ability to attend to these products. Harmonization of competence of the Bureau of Standards, which is the destination regulator (as per No. 6 above) for the products, is key. · It is expected to have an expansion and investment opportunities in food and fish outlets. Similarly, in milk collection and processing. · We commend the implementation of the blueprint on regulatory reforms through the harmonization of regulatory authorities and compliance requirements.
8.	THE TAX ADMINISTRATION ACT, (CAP. 438)	· Inclusion of definitions of fiscal device and fiscal receipt · Amendment of the Schedule to provide for Airport Service Charges and Port Service Charges.
9.	THE VALUE ADDED TAX ACT, (CAP. 148)	· Tax exemptions on importation of agricultural inputs to persons engaged in horticulture. Further, it has exempted grain drying equipment for purposes of minimizing storage costs and promoting grain production. · Furthermore, the proposed amendments intend to zero-rate the supply of electricity from Mainland Tanzania to Tanzania Zanzibar. · Elimination of restriction on input tax credit in respect of exportation of raw agricultural products. · VAT exemption on sanitary pads has been abolished. · The Minister proposed that the following items which currently are standard-rated supplies, to be exempt from VAT: – Imported refrigeration boxes used in horticultural farming; – Grain drying equipment for agricultural products; – Aircraft lubricants imported by domestic operators, National Air Force, or Airlines Corporations recognized in Bilateral Air Service Agreement; and –  Airline tickets, flyers, calendars, diaries, labels and employee uniforms with the names of the Airline operator imported by airlines recognized under a Bilateral Air Service Agreements. Our Commentary: · Sanitary pads were exempted for purposes of ensuring ease access and subsidized prices on retail stage for young girls and poor women. The move has seen massive protests from many parties regarding the possible effects to impoverished girls and women. · The exemptions will enhance the competitiveness of raw products in international markets. · Exemption of the grain drying equipment and refrigeration boxes is geared towards reducing post-harvest losses and will thus boost productivity. · Despite there being a provision on Value added tax representatives of non-residents (section 64 of the VAT Act), the current practice restricts the same by requiring registration of the foreign entity locally thereby defeating the spirit and essence of VAT representation.  We therefore call for either; – Repeal of the current provision on VAT representation altogether – Passing new regulations to provide for the procedure on VAT representation · With respect to “limitation on VAT Representative” applicability, the government should create further regulations (other than the one existing – please cite it) to ensure that the same is practicable.

Important Notice:

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.