Budget lists tax changes to enhance investments

11Jun 2021
Henry Mwangonde
The Guardian
Budget lists tax changes to enhance investments

THE government has proposed a number of tax reforms aimed at attracting foreign investments, creating jobs and boosting revenue collection.

Finance and Planning minister Dr Mwigulu Nchemba (brandishing briefcase) is led to the podium in the National Assembly in Dodoma city yesterday to table the Government’s Budget estimates for financial year 2021/2022. Photo: Correspondent Ibrahim Joseph

Among the key changes in the government’s fiscal plan for the coming financial year, the income tax for employees - Pay As You Earn (PAYE) – drops from the current nine percent to eight percent of salary, and removal of six percent value detention fee for Higher Education Students' Loans Board (HESLB) beneficiaries.

Tabling the 2021/22 budget estimates totaling 36.33trn/-, the minister for Finance and Planning Dr Mwigulu Nchemba affirmed that statutory contributions be paid directly to the Treasury for all institutions whose employees are paid through the Treasury.

Institutions that pay employees from their own sources will continue to submit their employees' contributions to the funds, with the central government starting to pay a monthly allowance of 100,000/- for divisional officers for fuel and maintenance costs.

Praising the work of ward councilors in overseeing development activities, he said that it is unfortunate that in some councils they are not paid their statutory allowances on time.

“From this financial year, the government will start paying allowances to ward councilors directly into their bank accounts so that they perform their duties effectively,” he told cheering MPs.

The government has set aside 400bn/- for civil servants’ promotions during the coming fiscal year, he stated, noting further that the government will continue servicing debts owed to social security funds via budgetary funds and issuing non-cash Treasury bonds maturing from two to 25 years.

A list of tax and levy reforms that the Budget proposes are intended to promote growth particularly in agriculture, industry, enhance purchasing power and thus boost government revenues, he stated.

Customs duty on raw materials used to produce equipment for the fight against the Covid-19 pandemic are to be scrapped, including facial masks, sanitizers, ventilators and protective clothing for medical personnel, he said.

The estimates propose reducing tariffs to zero percent from 10 percent and 25 percent for one year on raw materials for such equipment, he said, noting that this exemption would be issued systematically to provide relief in producing such equipment locally.

Value-added tax on smartphones tablets and modems are to be scrapped to encourage the use of telecommunication services so as to achieve the target of 80 percent of internet users by 2025, the minister proposed.

He said the telecommunications sector has become a key link in expanding the scope of economic activity to become part of the digital world and enhancing financial inclusion.

“I recommend exemption of Value Added Tax on smartphones with HS Code 8517.12.00, tablets with HS Code 8471.30.00 or 8517.12.00 and modems with HS Code 8517.62.00 or 8517.69.00,” he elaborated, noting that the current level telecommunications service use stands at 46 percent, to promote usage of data services.

As the 2021/22 fiscal plan is the first in the implementation of the Third Five Year Plan (2021/22 -2025/26) hinged on ‘Realising Competitiveness and Industrialisation for Human Development,’ it took into account priority areas articulated in the annual plan for 2021/22.

These include an inclusive and competitive economy; deepening industrialization and service provision for value-addition of agricultural products; investment and trade promotion plus human development and skills development, he said.

“In realising inclusive and competitive economy, the government will focus on financing projects that will build a vibrant society capable of competing regionally and globally, promoting macroeconomic stability, he said.

Improving the business and investment environment, promoting innovation and transfer of technology, developing the railway infrastructure and services while rehabilitating roads that link Tanzania with neighbouring countries are also emphasised in the annual plan, he stated..

Decongesting urban areas; improving rural roads, bridges as well as the water and air transport infrastructure, transforming the ICT and digital infrastructure generally and improving ports, airports and energy infrastructure were equally vital, he said.

In deepening industrialization and service provision, emphasis will be directed to industries that add value to crops, livestock and fishery products, he said..

“Priority areas will include: construction and rehabilitation of irrigation and crop storage infrastructure; strengthening research centres and extension services; value addition to crops, livestock, fish and fisheries products for local and international markets; improve livestock artificial insemination services; and construction of modern abattoirs and livestock markets,” he said.

Expenditure policies in 2021/22 include allocating funds to priority areas that stimulate economic growth and accord priority to ongoing projects prior to committing to new ones, he stated.

Other areas include the need to ensure that the budget deficit does not exceed 3.0 per cent of GDP in line with East African Community macroeconomic convergence criteria, which is part of efforts to attain a regional monetary system.

This involves efforts to control the creation and accumulation of arrears; to maintain discipline in public expenditure and to enhance the use of ICT in government business in order to increase efficiency as well as building capacity to local experts on financial systems security, the minister stated.

The first national budget of the sixth phase government re-emphasised priority areas including maintaining peace, unity and solidarity, continuing with major strategic projects and improving the business environment by reviewing policies, laws and regulations hampering initiatives by the private sector.

Fostering private investment and increasing employment opportunities, improving tax collection and administrative systems and simplifying tax payments, widening the tax base are key aspects of budgetary objectives, he declared.

The need to continue strengthening parastatal operations so that they operate profitably, pay dividends and appropriately contribute to government revenues was underscored..

Increasing productivity in agricultural, livestock and fishery products through improving access to capital by small scale farmers and rural investors from financial institutions like the Tanzania Agricultural Development Bank was taken up as well.

Improving irrigation, value addition and markets for agricultural produce, promoting industrial investment specifically those utilizing domestic raw materials and are labour intensive will particularly be encouraged, he said.

Continuing to curb the trafficking of minerals and building centres for the refining and processing of minerals shall similarly increase the contribution of the mining sector in the country’s GDP, he added..

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