Finance Minister, Dr William Mgimwa

Finance Minister Dr William Mgimwa yesterday revealed the National Budget which shows that the government expects to raise 15.1trn /- in the 2012/13 fiscal year compared to 13.5trn /- in the previous financial year.

Tabling his maiden budget estimates for the 2012/13 fiscal year in Parliament in Dodoma, the minister said of the total amount, 8.7trn /- would come from tax and non-tax revenues, equivalent to 18 per cent of Gross Domestic Product (GDP) and 3.6trn/-, equivalent to 0.7 per cent of the GDP, would be sourced from local governments.

Mgimwa explained that, 3.1trn /- would come from Development Partners in form of grants and concessional loans, 842.5bn/- from General Budget Support (GBS) and 2.3trn /- from grants and loans meant for development projects, both Basket Fund and Millennium Challenge Account funds integrated.

The minister, who was appointed just over a month ago in a cabinet shuffle in which his predecessor Mustafa Mkulo was left out, said in order to bridge the financing gap, the government would borrow 2.8trn/-, from both domestic and external sources.

Out of the borrowed amount, 1.1trn /- will be for rolling over of maturing Government Securities, 483.9bn /-, equivalent to 1 per cent of the GDP, and the remaining 1.2trn /-, will be sourced from non-concessional loans.

According to him, non-concessional loans will be spent on various development projects, as identified in the 2012/13 Annual Development Plan, which include Government Counterpart Fund for the installation of a gas pipeline from Mtwara to Dar es Salaam, installation of a water pipeline from Lower Ruvu to Dar es salaam and construction of road projects.

Regarding recurrent and development expenditures, Mgimwa said 10.6trn/- would go to recurrent expendicture, which includes paying salaries [3.8trn/-] and Consolidated Funds Service (CFS) [2.7trn/-]; and 4.5trn/- on financing development projects.

The Finance Minister said, of the 4.5trn/- allocated for development, 2.2trn/- would be obtained from domestic sources and 2.3trn/- (USD 746 million) will be obtained from external sources.

The minister said that the recurrent expenditure policies for the year 2012/13 are aimed at financing payments of salaries, domestic and external debt services, improvement of economic and social services such as higher education students’ loans, primary and secondary schools examinations, procurement and distribution of medicines.

Others are requirement of Constitution Review Commission, maintenance of Government assets, purchase of food for the National Reserve, recurrent expenditure component for completed projects, as well as settling various claims raised by employees and suppliers.

In order to address the challenges of accessing long-term loans, low agricultural productivity and unemployment, the government has set aside funds, as follows: 30bn /- for the Tanzania Investment Bank, and 40bn /- for the Agricultural Development Bank, which will raise its capital to 100bn/-.

Additionally, Mgimwa said, 7.5bn/- has been allocated to revive the National Service, whereby 5,000 youths will be recruited in the first phase and 70.7bn/- for recurrent and development expenditure of newly established regions, districts and councils.

According to him, emphasis in this year’s budget will be put on the availability of electricity by increasing generation, transmission and distribution capacities. A total of 498.9bn/- has been allocated for the purpose.

He also informed the House that the government would implement the gas pipeline construction project from Mtwara to Dar es Salaam through a loan, amounting to USD 1,225.3 million, from the Exim Bank of China which will be managed by the Tanzania Petroleum Development Corporation.

A total of 1.3trn/- has been allocated for strengthening the central railway line, which involves renovation of the train engines and wagons, rehabilitation of airports, development of the Lake Tanganyika port, construction of roads, especially those opening economic opportunities, and improving air and water transportation.

Mgimwa proposed amendments in order to protect local industries producing fruit juices against unfair competition from imported fruit juices by introducing excise duty of 83/- per litre on imported fruit juices while locally produced ones will attract excise duty of only 8/- per litre.

He also said that there would be adjustments in duty structure charged on soft drinks, beers, spirits, cigarettes and wine as follows: On carbonated soft drinks from 69/- to 83/- per litre, reflecting an increase of 14/- per litre and on wine with domestic grapes content exceeding 75 per cent from 145/- to 420/- per litre, equivalent to an increase of 275/- per litre.

Duty on wine produced with more than 25 per cent imported grapes would rise from 1,345/- per litre to 1,614/- per litre, an increase of 269/- per litre, on spirits from 1,993/- per litre to 2,392/- per litre – an increase of 399/- per litre, on beer made from local un-malted cereals from 248/- per litre to 310/- per litre – reflecting an increase of 62/- per litre and on other beers from 420/- per litre to 525/- per litre;

Mgimwa said, excise duty rates on cigarettes are amended as follows: On cigarettes without filter tip and containing domestic tobacco more than 75 per cent from 6,820/- to 8,210/- per thousand cigarettes, which is equivalent to an increase of 1,390 per thousand cigarettes or shillings 1.40 pre cigarette.

On cigarettes with filter tip and containing domestic tobacco more than 75 per cent would be increased from 16,114/- to 19,410/- per mil, an increase of 3.30/- per cigarette, on other cigarettes not mentioned from 29,264/- to 35,117/- per mil, which is an increase of 5,853/- per thousand cigarettes.

On Cut rag or cut filler, excise duty will be reviewed from 14,780/- per kilogram to 17,736/- per kilogram; being an increase of 2,956/- per kilogram; and the excise duty rate on “cigar” remains at 30 per cent.

The government has also proposed to make amendments in the Motor Vehicle Registration and Transfer Tax Act by introducing personalised plate numbers at a charge of 5m/- for three years.

Other amendments, according to Mgimwa, will be on the Airport Departure Service Charges Act, whereby Airport Service Charges have been increased from the current rate of $30/- to $40/- for passengers traveling outside the country and from 5,000/- to 10,000/- for passengers traveling locally.

The minister said a Value added Tax rate of 10 per cent will be introduced for selected VAT relieved beneficiaries. “The measure would compel all beneficiaries enjoying special relief under the third schedule of the Value Added Tax Act to pay VAT for their taxable supplies requirements at a reduced rate of 10 per cent instead of 18 per cent,” he said.Other amendments, includes item 19 of the second schedule to the VAT Act in order to include “Electronic Fiscal Devices” on the list of exempt items. “The measure intends to make the product affordable to the business community and encourage its use for the improvement of compliance,” he added.

Mgimwa said the government would exempt VAT on various equipment (Compressed Natural Gas and Piped Natural Gas) that will be used for storage, transportation and distribution of natural gas.

“The move is aimed at promoting usage of natural gas in various sectors of the economy such as motor vehicles, domestic and industrial use, as well as preserving forests, reduce environmental degradation and encourage production of gas cookers in the country,” he said.

Mgimwa also proposed to make amendments in the Income Tax Act, to introduce a NIL band for turnover below 3m/- to exempt low-income earners. According to him, the measure is aimed at protecting the government revenue and ensures individuals whose turnover is below 3m/- is not taxed under the presumptive scheme. Currently, traders whose turnover does not exceed the amount pays 35,000/-

The government will introduce a 10 per cent withholding tax on interest income earned by the non-residents from banks, as is the case with residents, he said, noting that the proposed measure is intended to create a fair playing field for all taxpayers.

Mgimwa said the government would abolish exemption currently provided under Section 54(2) of the Income Tax Act to a resident corporation which holds 25 per cent shares or more so that dividends of the corporation will now be taxed at a reduced rate of 5 per cent. “Such move would create fairness and equity to all dividend earners,” he stressed.

The amendments, said the treasury boss, would impose Capital Gain Tax on the sale of shares relating to local company by the parent or offshore company in order to control tax avoidance malpractice.

Mgimwa said that there would be an adjustment to the Pay As You Earn (PAYE) threshold, as a result of enhancement of salary scales from 135,000/- to 170,000/-

The Finance Minister also informed the House that the government would introduce exemption of Income Tax to the Dar es Salaam Stock Exchange (DSE); exempt holders of gaming licenses from paying Income Tax on their incomes in respect of which income tax had already been paid under the Gaming Act Chapter 41.