Tanzania: Budget Opens Bonds, Stocks Stiff Competition

 

By Abduel Elinaza

A BIT of asset war between Treasury bonds and stocks looms after the government proposed income tax exemption for the former junior instruments.

The aim is to remove grey areas by extending the exemption to cover all government bonds from income tax charged from the interest earned from the Treasury instrument.

The Minister for Finance and Planning, Dr Mwigulu Nchemba, moving the 2021/22 budget proposed to widen the scope of the exemption from income tax on interest derived from Treasury bonds.

"The government exempted Income Tax on interest derived from Treasury bonds of not less than three years' maturity for the fiscal year 2002/03 only.

"This measure is intended to extend the exemption to promote investment in Treasury bonds... ," Dr Nchemba told the house on Thursday.

Vertex International Securities Manager of Advisory and Capital Markets Mr Ahmed Nganya said treasury bonds performance if the motion passed will remain relatively stable.

"The government bonds performance will remain relatively stable although we expect a bit of asset war with equities that we expect to outperform," Mr Nganya said. The debt analyst said the exemption will also increase investors' confidence and push further competition in the debt market.

"Clarity on Exemption of income tax on all Government Bonds will boost Investors' confidence and increase domestic revenues. "We expect the 2021/22 Finance Bill aims at getting rid of grey areas to avoid unintended consequences," Mr Nganya said.

The PwC 'Nurturing Investment Growth; Embedding Economic Resilience' report analysing the budget said this measure aims to clear "a grey area" and promote investment in treasury bonds to finance government projects.

"Currently, the exemption only strictly applied to government bonds... with a maturity of more than three years although there was always a grey area whether the interest was subject to income tax as it was in practice exempted based on the Bank of Tanzania guidelines for treasury bonds," PwC report showed yesterday.

For the next week, analysts projected the 5-year Treasury bond to be oversubscribed with no significant change in yield. Zan Securities Chief Executive Officer Raphael Masumbuko said investors are for longer-term instrument and the notion will be proved by Wednesday auction, which is the last auction for the 2020/2021 fiscal calendar.

"Investors' appetite appears to be for the longer-term securities, which offer a higher return and we anticipate this the notion to be reflected on Wednesday 5-year Treasury bond auction," Mr Masumbuko said through the firm's weekly market wrap-ups report.

Nevertheless, analysts have it that the proposed budget covers a wide range of important areas of the economy and they expect it to reach the expected target of 34.6tri/- if it is well-reviewed.

The budget, according to some of them, envisages improving the business environment to attract private sector investment to increase employment.

And improve tax collection and administration systems to simplify tax payments and widening the tax base and improve the efficiency of parastatals.