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The Minister for Finance and Planning on 8 June 2017 presented to the National Assembly the estimates of government revenue and expenditure for 2017/18. The government of Tanzania plans to mobilize and spend TZS 31,712.0 billion in the 2017/18 budget. The budget is aimed at achieving the following macroeconomic targets:
iii. Narrow the budget deficit to 3.8% of GDP in 2017/18 from 4.5% in 2016/17.
The Bill 2017 has subsequently been published, pending tabling before the National Assembly for debate and approval.
We have analysed the key changes that have been proposed for introduction to the taxation regime by the Bill. It is expected that the Bill will be enacted into law later in the year. It will take effect on 1 July 2017 as specified in the Bill.
PROPOSED AMENDMENTS TO TAX LEGISLATION:
AMENDMENT OF THE INCOME TAX ACT, 2004
The Bill introduces a 5% withholding tax on payment made in respect of specified minerals (minerals that a licenced dealer is authorized to deal with) or minerals supplied by a resident person.
The amendments aim to ensure optimal collection of government revenue from the mineral sector. The move will impact small scale miners. Currently it is unclear how the market value will be determined.
With the aim of encouraging industrialisation and job creation, the Bill introduces a reduction of the rate applicable for new plants to assemble vehicles, tractors and fishing boats or out boats engines for those who have a performance agreement with the Government from the normal rate of 30% to 10% for the first five years from commencement of operations.
Although this tax incentive is a welcome move, it does not fully appreciate the commercial realities in the automotive sector as investments are capital intensive and most investors may take between 3-5 years to break even. To fully achieve its purpose of attracting investment to this sector, the reduction should ideally have been granted for a longer period (e.g. tenyears from commencement of operations). An alternative approach would have been to apply the reduced rate to the first five years of taxable profits.
The Bill increases the amount qualifying for capital allowances for “non-commercial” vehicles from TZS 15 million to TZS 30 million. The TZS 15,000,000 has remained unchanged since the Income Tax Act, 2004 was introduced.
This is a welcome move as the new threshold reflects the depreciation of the Tanzania shilling.
The Bill amends the Income Tax Act, 2004 to provide that premiums for general insurance or re-insurance paid to, and proceeding from general insurance or re-insurance paid by a resident person in respect of the insurance or re-insurance of any risk in or outside the United Republic, will be deemed to have a source in the United Republic of Tanzania.
AMENDMENT OF THE VALUE ADDED TAX ACT, 2014 (the VAT Act)
The Bill proposes re- introduction of VAT at 0% on the ancillary transport services in relation to goods in transit through the United Republic of Tanzania. In 2015 the VAT Act was amended to the effect that ancillary transport services attracted VAT at the standard rate of 18%. The proposed amendments seek to reintroduce the 0% rate provided that the services are:
1) an integral part of the supply of an international transport service;
2) rendered by the same supplier providing international transport service; and
3) in respect of goods stored at the port, airport, or a declared customs area for not more than seven days while awaiting onward transport.
This move will enhance the competitiveness of Tanzania ports against neighboring countries such as Kenya. This move will reduce costs of transporting goods through Tanzania which will ultimately make Tanzania ports more competitive.
Filling of VAT return will be extended to the first working day following a Saturday, Sunday or public holiday where the 20th day falls on a Saturday, Sunday or a public holiday.
The exemption is geared towards promoting investments in small and medium scale industries by reducing the outlay on the purchase of machines and plants used in production.
AMENDMENT OF THE EXCISE (MANAGEMENT AND TARIFF) ACT, [CAP.147 R.E 2002]
The fixed tariffs on non-petroleum excisable products (except locally produced water, fruit juices and spirits) including alcohol, soft drinks and tobacco have been increased by 5% to adjust for inflation.
Duty has been decreased for the locally produced fruit juices and wine produced with domestic grapes with content exceeding 75 percent.
To compensate for the removal of annual motor vehicle license fee an increase of TZS 40 per litre on petrol (Motor Spirit and Premium), diesel (Gas Oil) and kerosene (IK) has been proposed.
The Minister has proposed an increase of TZS 40 per litre in the excise duty on fuel as below
The measure is intended to compensate for the loss of revenue resulting from the abolishing of the annual motor vehicle license fee.
Excise duty remains constant at TZS 3,315 per litre for locally produced spirits while imported spirits increase to 3,481 per litre (an increase at inflationary rate of 5%).
Abolishment of the annual motor vehicle license fee (now payable once on first registration and thereafter through excise duty imposed on petrol, diesel and kerosene). There has been an increase in the Motor Vehicle License Fee on first registration as set out below:
Engine Capacity (cc) Old Rate New Rate
501-1500 150,000 200,000
1501-2500 200,000 250,000
Above 20151 250,000 300,000
AMENDMENT OF THE URBAN AUTHORITIES (RATING) ACT, [CAP.289 R.E 2002]
A building that has not been valued will be charged a flat rate of TZS 10,000 for an ordinary building and TZS 50,000 for each floor of a storey in a storey building. A fraction of a building belonging to one or several co-owners in accordance with the Unit Titles Act shall be treated as a separate building.
AMENDMENT OF THE MINING ACT, 2010
There will be an inspection fee at the rate of 1% of the gross value at the point of exportation which will be payable to the Government by a mineral right holder or a licenced dealer on minerals to be exported. Exportation of minerals without payment of such fee is an offence.
This complements the proposed policy and administrative measures to curb loss of revenue in the mining sector. The move includes a ban on direct exportation of minerals from the mines to other countries by establishing a clearing house at the international airports, mining and other appropriate areas.
If you have any questions regarding this legal alert, please contact Sonal Sejpal or Shamiza Ratansi.
For more information about ATZ Law Chambers, please visit our website at www.africalegalnetwork.com/tanzania.
The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.