The Private sector has expressed dissatisfaction over the budget announcement and endorsement in the parliament last week, stating that some of the issues included are going to affect negatively the performance of businesses as they are a multiplier effect.
Even as the Private Sector through its umbrella body participated in budget think tank and presented its position paper on the proposed budget framework, nothing was included in the budget speech.
The proposals were also submitted to Budget Parliamentary Committee
“This means that our participation in the think tank was a waste of time. We are not happy with this,” said Tanzania Private Sector Foundation Executive Director Godfrey Simbeye.
Tanzania is geographically and strategically located in such away it can be the source of goods, services and food to other African countries and away from Africa. But this is not being released partly because the potential we have is not maximally utilized.
To make Tanzania businesses more competitive domestically and in the economic regions we requested the Government to propose taxes that are healthy, supportive and will promote the growth and expansion of the existing businesses and attract new investments especially in the rural areas.
Among the recommendations made to the government for inclusion on the finance bill was exemption of Value Added Tax (VAT) on tourism.
The private sector proposed that tourist operation should be exempted inoder to make Tanzania tourism competitive. Much as Tanzania has a comparative advantage by having more tourist sites but the country’s pricing packages are making tourism services not to be competitive.
“But to our surprise clause 104 (g) – Item 21 of the VAT Act is deleted and therefore VAT will be charged on tourism services against the private sector proposal, this is very sad and will do no good to the tourism sector than harm,” said Mr Simbeye.
Tourism in the past few years has been the number one foreign exchange earner beating gold and other traditional exports. According to the Bank of Tanzania statistics released in April this year the country earned $2.3 billion in the year ending March 2016 from tourism. Manufactured goods brought in the country as low as $1.4 billion and gold brought as low as $1.3 billion.
The World Travel & Tourism Council (WTTC) released a report in 2014 forecasting the number of direct employment in the travel and tourism sector to fall 0.4 per cent to 401000 jobs.
Travel and tourism generated 402500 direct jobs in 2013 equivalent to 3.8 per cent of the country’s Gross Domestic Product (GDP).
“Adding VAT on tourism will not only affect income but also employment offered to Tanzanians.”
Another saddening observation included in the endorsed finance bill which will affect the tourism sector is not exempting aircraft lease and maintenance from paying VAT as per private sector proposal. This will affect dearly the local tourism sector as competitors like Kenya and South Africa has no such taxes.
Tourist stakeholders revealed that the cost of leasing an aircraft ranges between 1.5 per cent and 2 per cent of the value of the aircraft per month, imposing VAT on leases will have a devastating effect on operators and will raise relatively little revenue for the treasury.
The private sector is also on the view that VAT on Financial services including bank charges and insurance should be exempted. VAT exemption on financial services was granted just a year ago after lengthy discussions. VAT on such services will have serious negative effects in the already ongoing national efforts regarding financial inclusion.
“We submitted that revenue raising measures must be fair and economically efficient. Ill-conceived tax changes may raise revenue in the short-run but will eventually hinder economic growth over the longer-term.”
Clause 10 – Section 124 (6A) (b) is amended to capture excise duty of 10 per cent on mobile money payment service. Thus both transfer and payment services will be subjected to excise duty. The aim of this proposal is to cover all income received by telecommunication service in the provision of mobile money services.
The private sector believes that the increase in charges is likely to deter/check the rate of broader financial inclusion especially for the low income predominantly rural unbanked population.
It will also affect employees who receive their salaries through banks and subsequently into the mobile money system. The employee will be taxed when transferring his salary from his bank account to mobile wallet form convenience but will be taxed again when withdrawing his money from mobile money system.
The government’s decision to repel the current section 76 and replaces it with a new section 76 which introduces interests for late tax payments by 5% immediately after the due date and for every period of 30 days or part thereof. This means Interest on late payment has been increased to 5% per month for each month that the tax remains unpaid, from the previous statutory rate of 12% plus 5% both per annum.
The private sector believes that this is extremely punitive since it disregards the statutory rate that is annual and considers a 5% of tax unpaid for each month that the tax it remains unsettled. It is not friendly given the challenges in the economy that are faced by taxpayers as they struggle to get cash flow in their businesses.
“TPSF would like the Government and the General Public to know that, the Private Sector in Tanzania totally support the Government to increase its revenue collections by collecting various taxes. One of the criteria to belong in the business associations is to be a tax payer and a formal business. Therefore it should be known whoever indulging in any activities leading to avoidance of tax payments is not one of us,” said Mr Simbeye.