Analysis of "Tanzania Budget 2016/17" by Tax Consultant, Makundi I.W



Value Added Tax (VAT):-
 Bitter- Sweet for Tourism industry
Tourist services have been VAT exempt, however from 1 July 2016 tourist services will be VATable at the statutory rate of 18%, For tourists, the additional 18% will relatively be pass on to them, consequently it will be expensive to visit attractions, for tour companies can now be able to claim their input VAT compared to when tourist services were VAT exempt which means technically in taxation they were not able to claim input VAT on exempt supplies.

 Good news for Contractors
Now all bitumen are VAT exempt, bitumen is mostly used by contractors as a binder to aggregate particles in road construction, also used by makers of waterproofing products and used in sealing flat loofs.

 Mind your Steps
New VAT arrangement between Tanzania Mainland and the Zanzibar stipulates that, the Government of Zanzibar will now collect VAT on the supplies from Mainland Tanzania to Zanzibar, and Mainland Tanzania will collect VAT on the supplies from Zanzibar to Mainland Tanzania; Previously Mainland Tanzania used to collect VAT on supplies to Zanzibar and refund the amount to Zanzibar. The new arrangement is cost saving to Mainland on administrative costs in collecting Vat on behalf of Government of Zanzibar.

 All Unprocessed Food stuffs and Unprocessed Agricultural products are now VAT exempt including un-processed vegetables, un-processed fruits, cereals, Live fish and Soya beans

 Dietary Supplements
Vitamins and food supplements are now VAT exempt

 Water Guards
Water treatment chemicals have now been included in VAT exempt List.

 Major boost for Aviation in Tanzania
Insurance services in general is a VAT-able service, now the Government has announced that from 1 July 2016, Aviation Insurance will be VAT Exempt. This is a Megadeal for Air Tanzania, Fastjet, and Precision Air to mention just a few.

 Devil in the Detail for Stock brokers, Banks and Financial Institutions

Introduction of VAT on fee based financial services.

Most common fee based financial Activities includes, (i) Merger and Acquisition Services(ii) Stock Broking Services (iii) Portfolio Management Services (iv) Capital Restructuring Services (v) Corporate Financial Counselling (vi) Issue Management Services and Credit Rating Services.
Stock brokers, Banks and Other Financial Institutions have to wait to see the details in the Finance Act 2016 to clearly understand the detail of this VAT introduction, if the minister meant Fee-only or precisely Fee- based.

Income Tax changes

 Decisive Powers on Rental Income
The Commissioner General (CG) of TRA has now been given power to determine rental income based on the minimum market value to charge withholding tax on rental income. CG can now decide to re-determine self declared Rent to what he considers to be minimum market value of rent of respective property for tax Purpose.

 Armed Forces detached from Tax Exemptions
Exemption included Excise Duty, VAT and Import Duty through Armed forces canteens and shops, The Government will now provide allowances as an alternative and suitable way to deliver the goods to them.The allowance will enable the armed forces to procure their own requirements according to their preferences

An additional TShs. 3,800 per month for every employee , as the minimum Tax rate have gone down from 11% from 9% , that is Tax rate on taxable income that exceeds TShs 170,000 but does not exceed 360,000 is now 9% that is 2% of TShs 190,000. Note that, other tax bands and rate remained the same.

 Send-off Pay:
Income Tax exemption on final gratuity to members of parliament has been removed,:-as a send-off pay, each Member of Parliament receives TShs 160 Million.

 Remove Withholding tax exemption
On shares or securities listed in the Dar es Salaam Stock Exchange that are owned by a resident person or a non resident person who either alone or with other associate controls less than 25 percent of the controlling shares of the issuer Company; Previously these shares were considered to be Non-investment assets as per Section 3 of Income Tax Act hence exempted from Withholding Tax on investments accorded to other shares listed in DSE.

 Payment to Approved Retirement Fund Striped off Withholding Tax Exemption
Withholding tax on payments made to approved retirement fund arising from investment incomes has been imposed,

 Tax Exemption From the Horse Mouth
When reading the Budget, The Minister Mentioned that NGO’s and Religious Institutions will now start paying Taxes on importation and ask for Refund including Filing an application to the Ministry of Finance for Approval before any importation.

We have to wait and see how this is incorporated in the Finance Bill and Finance Act 2016.
“the Government will continue to control tax exemptions to religious institutions and investors to ensure they are productive and beneficial to the nation”.

In view of this, the Government will amend relevant legislations in order to address tax exemption abuses. These amendments will be incorporated in the Finance Bill 2016. Among other things, the amendmentswill require beneficiaries to pay taxes and apply for refunds which will be reimbursed upon verification.

Changes in the Excise Duty

 Not a Good day for Telecoms
Introduction of excise duty of 10% on both receiving mobile Money
To also cover commission received in the provision of mobile money services. Previously 10% excise duty was on sending mobile money, so most Telecoms commission was mostly allocated on receiving money to do away with Excise duty.

 Soft Plastic Bags Banned
The Government has decided to abolish the manufacturing, selling, buying and use of soft plastic bags of less than 50 microns.

 Natural Gas
The excise duty rate on Natural Gas from cent 43 per cubic feet to cent 45 per cubic feet

 With exception to bottled water which Excise duty has remained the same all other Non Petroleum Products Excise duty has increased by inflation rate of 5%
Including soft drinks, locally and imported produced fruit juices, beers, energy drinks and non-alcoholic beverages, Wine, Spirits, Cigarettes, lubricating oils and greases,

 Imported Furniture discouraged
To increase excise duty rate of imported furniture from 15 percent to 20 percent

 The excise duty rate on “cigar” remains at 30 per cent
Skills Development Levy (SDL)

 Skills Development Levy (SDL)
Skills Development Levy has gone down by 0.5% from previous 5% to 4.5% starting 1 July 2016.

 The Motor Vehicles Tax on Registration and Transfer
Motor Vehicle Registration fee has gone up from the current rate of Shs. 150,000 to Shs. 250,000 permotor vehicles and from Shs. 45,000 to Shs. 95,000 per motor cycle and tricycles;

 Dig Deeper to Personalized your Motor Vehicle.
Fee for Personalized Registration Numbers has double to TShs. 10 Million from 5 Million, for every three years.

 Over to You
Mandate of collecting property tax has been transferred from Local Government Authorities to the Tanzania Revenue Authority.:-TRA will estimate tax and make valuation of the properties; institute proper remittance procedures of property tax to respective local governments; dispute resolution and review property tax exemption.

 Minor Tax Changes
The Government has decided to maintain the current levels of taxes and levies on fuel so that we maintain price stability and provide economic stability.

 Changes in the East African Community Customs Management Act, 2004

Common External Tariff (CET)
 Measures to protect Local manufactures, cement, Iron, Aluminium cans, fishing nets, “oil and petrol filters” crude edible oil
 To Protect Local Cement Industries, Tanzania to increase import duty rate on cement from the current rate of 25 percent to 35 percent which is classified for one year.
 Increase the CET rate on flat rolled products of iron or non-alloy steel from 0 percent to 10 percent.
 Increase the import duty rate on Bars and rods of iron and steel from 10 percent to 25 percent.
 Increase the CET rate on Aluminium milk cans from 10 percent to 25 percent.
 Increase the import duty rate from 10 percent to 25 percent on made up fishing nets.
 Increase the import duty rate from 10 percent to 25 percent on “oil and petrol filters”
 Grant stay of application of CET rate to manufacturers of crude edible oil and apply 10 percent instead of 0 percent for one year

 High tensile bars which not manufactured in the region:-Grant stay of application of CET rate of 25 percent on iron and steel products which are used in construction of bridges and bridge sections, classified under HS Code 7308.10.00 and instead apply duty rate of 0 percent for one year;

 Grant the stay of application of CET rate of 25 percent on “automotive bolts and nuts” classified under HS Code 7318.15.00 and apply duty rate of 10 percent for one year

 Grant duty remission to manufacturers of “bolts and nuts” classified under HS Code 7228.30.00 and 7228.50.00 by charging a duty rate of 0 percent instead of 10 percent . This measure will enable manufacturers to obtain raw materials at reasonable price since they are not manufactured in the region

 Grant duty remission of 0 percent to local manufacturers of motor vehicle “air filters”

 Reinstated:- Grant import duty remission of 0 percent on splints which are raw materials used in the manufacture of matches due to lack of adequate matured forests, last year Import duty exemption for splints used in the manufacturing of matches was removed

 Reduce progressively import duty remission levels on sugar and sugar confectionery from the current rate of 10 percent. Reduction of import duty rate will be as follows: 2016/17 the rate will be 15 percent; 2017/18 the rate will be 20 percent, and 2018/19 the rate will be 25 percent. The current duty rate of 10 percent undermines local production and promotes importation of the product and abuse in the usage of the product

 Grant duty remission to manufacturers of “Aluminium cans” encouraging production of “Aluminium cans” in the region;

 Grant stay of application of EAC CET rate of 35 percent on Wheat (Wheat grain) due to lack of capacity in the region to produce wheat to satisfy the demand;

 Increase the specific duty rate on worn clothes and shoes from 0.2 USD/Kg to 0.4 USD/kg intended to gradually phase-out importation of used clothes and footwear in the region.

 Increase Import Duty rate from 10 percent to 25 percent for one year on paper products

EAC Customs Management Act, 2004

 Additions Exemptions for hospitals Under 5th Schedule EAC-CMA Refrigeration equipment, incinerator’s equipments,staff uniforms, blood collection tubes
 Grant duty remission to the manufacturers of Inputs for the manufacture of deep cycle batteries
 Grant duty remission for inputs or raw materials for use in the manufacture of solar equipments
 Fees and levies to be abolished are as follows:

o Tanzania Food and Drugs Authority

o Export Permit for food – Tsh. 50,000;Retention fees for Human and Veterinary medicines from domestic manufacturers – Tsh. 100,000;Duplicate Certificate for Human and Veterinary medicines from domestic manufacturers – USD 50;Duplicate Certificate for Human and Veterinary medicines from foreign manufacturers – USD 100;Evaluation of product promotional materials – Domestic – USD 50;Abreviated Advert – Domestic – USD 25;Duplicate certificate for foreign food, medicines medical devices – USD 100;Duplicate certificate for foreign Medical devices domestic – USD 30;Duplicate certificate for Medicines Domestic – USD 50;Retention fees for imported In Vitro Diagnostics (IVD) – USD 150;Retention fee for domestic manufactured cosmetic manufactured cosmetics – Tsh. 30,000;Pre-registration GMP inspection fees for domestic pharmaceutical manufacturing sites – USD 250;Medical representative foreign per company – USD 1,000;1% FOB value for cosmetics raw materials;0.5% FOB for importation of pharmaceutical raw materials;Hospital permit for Psychotropic and Narcotics – Tsh. 10,000;Import permit for Psychotropic and Narcotics – Tsh. 50,000;Export certificates for pharmaceuticals – Tsh. 50,000;Certificate of Pharmaceutical Product – Tsh. 50,000;Inspection of new food processing facilities – small – Tsh. 100,000;Disposal certificates;Health certificates – Tsh. 50,000; and Trade fair fees – Tsh. 200,000.

 Cotton Board

o Uhuru touch contribution – Tsh. 450,000; and Fee for District Council to deliberate on cotton buyers – Tsh. 250,000;

 Tea Board
Fire and rescue levy – Tsh. 800,000.

 Coffee Board
Cherry Processing License – USD 250

 Cashewnut Board
o Cooperative Union levy – Tsh. 20/- per kg;Transportation Fee – Tsh. 50/- per kg;Task Force on Various Issues – Tsh. 10/- per kg;Storekeeper costs – Tsh. 10/- per kg.

Nota Bene :- these proposed tax changes when approved shall become effective on 1st July, 2016, unless stated otherwise.

This Brief Budget Analysis has been prepared by:

Innocent Wilfred Makundi - Consultant - Tax Services
(BAF, MBA-CM, CPA, Tax Consultant)
Mob: +255-713-670126.
Facebook: www.facebook.com/innocent wilfred
Email: [email protected]
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