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Badilisha Lugha KISWAHILI

Need to diversify utilisation of skills development levy

19th March 2012

Investing in education is inevitable endeavor due to its importance in supporting improvement in human life standard as well as poverty reduction. Education creates appropriate skills and knowledge which facilitate higher levels of productivity among those who possess them in comparison with hose who do not have…

A number of studies demonstrate that private sector participation can encourage the public sector to improve the effectiveness, quality and efficiency of education provision.

In order to encourage private sector participation in development of various skills in Tanzania, the government introduced Skills Development Levy (SDL) through the Vocational Education and Training Act (1994). The Skills Development Levy is a tax on payroll, which is paid by employers who employ more than four employees. It is levied at 6 percent of the payroll emoluments.

Information obtained in the website of the Ministry of Finance Tanzania, out of 6 percent of SDL, 2 percent goes directly to the Vocational Education and Training Authority (VETA) for the purposes of providing the skills to the workforce that employers require. Agricultural employment is exempted from Skills Development Levy. SDL is collected by the Tanzania Revenue Authority.

According to the information from VETA, the rationalisation for introduction of SDL is: First, vocational skills are needed for any economy to function properly. Production will be weakened or the country will fall behind economically and technologically if there are no skilled people with such as carpenters, welders, electricians, motor vehicles mechanics, plumbers, tailors and others.

Secondly, vocational education and training is very costly compared to general education. This is due to the fact that the trainee groups are smaller (normally 16 for each class) while training materials are very expensive. Therefore, individuals and their household cannot afford to pay such costs.

Thirdly, the costs of buildings, tools and long-term equipment are much higher than the in general education. In addition there are rapid changes in technology as such it is very costly to become up to date.

As a result of high costs involved in the vocational training, the government has intervened by introducing SDL to make up for perceived shortfalls in investments by individuals and enterprises.

SDL has provided a steady and stable source if revenue for vocational training. It has accessed a source of financing for training that probably would not otherwise have been available.

VETA has been able to expand its services across Tanzania, and utilized the revenue for subsidizing training fees, ensuring equity in vocational training, provision of tools and equipment, capacity building, labour market surveys, curricula development, examinations and certifications as well as supporting other providers.

Individuals and firms invest in training mainly for profits and higher productivity. They do not take into account any broader spill over benefits that may accrue to society from a better trained workforce. Availability of a skilled workforce can be considered as a magnet to new investment. Provision of skilled manpower can strengthen export related industries, which could in turn help earn foreign exchange and lessen the balance of payments problem.

We have observed commendable works which have been dome by VETA after obtaining a steady and stable revenue through SDL, including ensuring that vocational education is accessed by all especially underprivileged.

However, for a number of years there have been issues of concern about SDL from the private sector. In June 2009, the Chamber of Trade and Industries (CTI) issued a statement on the 2009/2010 Government Budget. CTI had concerns on various taxes including retention of 6 percent as SDL. It has been a plea of the private sector for many years that the levy to be reduced to 2 percent, which in reality was going to VETA, so as to reduce the cost of employment in Tanzania.

On the other hand, early last year, Tanzania Private Sector Foundation (TSPF) held a Forum for discussing about SDL. The private sector were questing the Government to reveal where and how is the remaining 4 percent being used?

For many years the government has not been able to justify the utilization of the remaining 4 percent. The private sector has been arguing that either the government reduces the SDL to 2percent, which has actually been used to develop skills or ensure that the remaining 4percent is utilized for education purposes as per its objective.

The same request has been provided to the government by some of the government bodies such as Tanzania Education Authority (TEA) to be allocated a portion of remaining 4percent of SDL in order to ensure that TEA has stable and steady revenue to support education projects.

However, the puzzle has not been answered until last year during the government budget session whereby the Minister for Finance, Honorable Mustafa Mkullo (MP), presented 2011/2012 government budget.

Among other issues, the minister presented a request for amendment of the Vocational Education and Training Act, CAP.82, in order to change the allocation of revenue collected from the Skills Development Levy (SDL) of 6percent so that 4percent is allocated to Higher Education Students Loan Board (HESLB), and 2percent to VETA. This amendment aimed at ensuring availability of resources for provision of student loans in higher education institutions.

Following this request from the minister of finance, I have two opinions, first, I am now happy to see that the advocacy from the private sector has bear some fruit as the government has come out and take some action on the controversial utilization of 4percent of SDL. I am sure even the private sector now will give a sigh of relief.

The second, I commend the minister’s request, however, it could have been a worthy effort if the government had seen the importance of distributing the 4percent to various at least two of its bodies which have been supporting education development in Tanzania under difficult resource and revenue bases.

I would recommend that Higher Education Students Loan Board (HESLB) and Tanzania Education Authority (TEA) to equally share 2percent each in order to enhance resource base and increase their capacity to provide more support to the needy. My justification is that, there has been growing challenges in primary, secondary, as well tertiary education in terms of demand for access as well as provision of quality education.

However, we have observed that many primary and secondary schools lack teaching and learning facilities and materials as well as infrastructure. This has led into poor performance; a good example is 2010 and 2011 Secondary Form Four examinations results.

Most of the failures come from the ward secondary schools which are characterised by lack of teaching facilities and materials. This situation can perpetuate if no effective intervention are done. Through TEA such schools can be provided with appropriate facilities to ensure that mass failure of students is curbed.

Secondly, during the 2005/2006 government budget speech, the then Minister for Finance, Hon. Basil Mramba, in item 38 (viii) of his speech, he said that “The Government has decided to allocate 1/3 of the Skills Development Levy to the Tanzania Education Fund so as to speed up the widening of the education infrastructure in the country”.

However, this was done just one time and it stopped. Following the request for amendment of the VETA Act, CAP 82 on SDL this year, it could be wise as it was in 2005 to consider providing a portion of SDL to TEA in order to support it to meet pressing needs in various levels of education.

Thirdly, in August, 2008, TEA held a workshop on Management of Education Funds in Africa, which took place in Dodoma, and was attended by members of Tanzania parliament and officials from Ghana and Nigeria Education Funds. The workshop was officiated by the Prime Minister, Hon. Mizengo Pinda. At the end of the workshop TEA issued a communiqué which they requested that a portion of SDL be remitted directly in order to increase its revenue capacity.

Fourth, in order for the higher education to obtain highly skilled students, we need to start investing well at the lower level of education. We know, there are many primary and secondary school students who do not obtain opportunity to go for other levels of education, but if we have invested well in lower levels of education, these students will have adequate skills and knowledge which can support them to be enrolled in VETA to obtain skills and increase their employability or self employment.

There are research evidences that investment in lower levels of education has more possibility in contributing toward poverty reduction comparing to higher education.

It is my hope that this article will be a catalyst for the government and members of parliament to analyse in wider context the request for amendment of VETA Act, CAP82, and pass the amendments which can have far reaching benefits for majority of Tanzanians they represent.

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