Tax exemptions removal to boost revenue by $500m

Tanzania plans to amend the law so as to reduce or remove tax and duty exemptions, which would enable it to collect Tsh800 billion ($500 million) in additional revenue in the next financial year.

The anticipated revenue is estimated to be 30 per cent of the current VAT collections, which are projected to total Tsh2.6 trillion ($1.62 billion) in the 201314 financial year, according to information from the Tanzania Revenue Authority (TRA).

International financial institutions and activists have been pushing for tax and duty reforms that could see savings of about Tsh1.8 trillion ($1.1 billion) to narrow the budget deficit.

READ: Tanzania starts review of all tax exemptions for past five years

The Value Added Tax Bill 2014 proposes that the government, which hitherto had unrestricted powers to grant or amend exemptions, must seek approval of the national assembly before it reviews, grants or abolishes a tax exemption and relevant exemptions must be included in the specific sector’s legislation.

The proposal to remove exemptions on imports for use in the mining, oil and gas exploration sectors could however elicit protests from mining and international oil and gas firms, who could cite violation of agreements with the government.

The Bill also targets tax and duty exemptions to elected officials and abolish powers to give flexible leeway in granting or modifying exemptions.

William Lukuvi, the Minister of State for Policy, Co-ordination and Parliamentary Affairs in the Prime Minister’s Office, confirmed without giving details that the Bill will be tabled during the ongoing budget session.

Zitto Kabwe, the chairman of the Parliamentary Public Accounts Committee (PAC), said the Bill does not seek to remove all exemptions but will lead to their review to inform a decision on what to retain or change.

“If you scrap exemptions for religious institutions, which comprise three per cent of the total exemptions, you are likely to distract attention from the Bill,” he said. “We are determined to keep such exemptions.”

Foreign investors and some major local businesses are the biggest beneficiaries of tax exemptions.

There are reports that some people within the ruling party, Chama Cha Mapinduzi (CCM), are unhappy with the timing of the Bill, fearing to disappoint business people, on whose support they are counting on in the 2015 General Election.

Sources privy to the drafting of the Bill said the government would seek support from other East African Community states and regional economic zones to adopt a “code of conduct for investment incentives” in order to prevent multinationals from moving between countries in search of better tax treatment.

Most of the incentives were established to attract foreign investment and there are widespread fears that the Bill will hamper Tanzania’s competitiveness in attracting foreign trade.

Dr Honest Ngowi, a senior economics lecturer at Mzumbe University, said scrapping unnecessary exemptions will not affect investment in the country because the government would improve the investment climate to compensate for it.

Kenya recently passed a new VAT Act while Rwanda and Uganda are also considering reviewing tax exemptions.

SOURCE: The East African