Mixed reaction on budget to businesses

Straton Makundi, is a partiner with Auditax International         

In Summary

It is partly on this background that some tax proposals and other revenue measures were based.

While presenting the Tanzania Budget for 2015/2016 which amounts to Sh22.5 trillion, the Minister for Finance indicated that the government expects a shortfall of 9 per cent on collections of tax
revenue for the year ending 30th June 2015. A number of reasons were given for this including the shortfall in tax collections particularly withholding tax due to the decline in activities related to gas, oil and minerals exploration and production, low collections from excise duty on soft drinks, beer, cigarette and financial services, low responses from traders on the use of Electronic Fiscal Devices (EFD) machines etc.

It is partly on this background that some tax proposals and other revenue measures were based.

Excise Duty

The budget tax proposals have heeded the call by private sectorstakeholders not to increase excise duty on various products including beer, soft drinks and cigarettes which have been experiencing annual increases above inflation for a number of years. The shortfall on excise duty collections has probably triggered this move which is good for these industries. This will provide stability and enable the affected companies to compensate for the losses suffered.

Tax proposals to promote domestic industries

The minister introduced some measures to protect local industries against the impact of cheap imported goods. These measures include increases of import duty on imported sugar and rice, PVC pipes, plastic tubes for packing of toothpaste etc.This is a good move given the complaints for instance by local sugar producers on the impact of cheap imported sugar on their profitability and sustainability. Further, proposals have been made to provide tax relief for raw materials for making soap, pasta and spaghetti, matches, fishnets, etc. All these measures will also compliment government efforts to create employment opportunities.

Skills and Development Levy (SDL)

Further, the restoration of exemption of Skills and Development Levy (SDL) on labour intensive farming activities is commendable given the impact of SDL on employment costs. However, employers in all sectors where SDL is charged have been complaining on the impact of the levy for increasing employment costs. The government reduced it from 6 per cent to 5 per cent in 2014/2015 and there were expectations that tax proposals in this year’s budget would continue with the reduction trend which did not happen. This coupled with the requirement for employers from the private sector to contribute one per cent of the annual wage bill to the Workers Compensation Fund (WCF) effective from 1st July 2015 are additional employment costs to businesses. The public sector employers are required to contribute to the fund 0.5 per cent of their annual wage bill.

The impact of increases in fuel taxes to the economy

The minister proposed significant increases in fuel taxes. These increases have significant effects on the cost of doing business and will lead to increases in prices of goods and services. The few concessions granted e.g. on excise duty may be eroded by tax increases on fuel.

Railway Development Levy

The introduction of infrastructure levy to be named Railway Development Levy of 1.5 per cent of the CIF value of imported goods except those with relief or exemption under the East African Community Customs Management Act, 2004 is a good move for businesses in the long-term, as it will reduce transport costs hence the general costs of doing business. This will happen if the collected funds will be spent for the intended objectives. The levy will in the short-term have effects on prices as it will be passed on to consumers.