The Tanzania industrialists have received the just tabled Budget for 2015/16 with mixed feelings, as it contains measures which will have both positive and negative consequences to the manufacturing sector.
The Minister for Finance, Hon. Saada Mkuya recently presented before the Parliament of the United Republic of Tanzania, the 2015/2016 Budget of an estimated expenditure of TZS 22.495 trillion for recurrent and development activities.
Presenting their comments on the budget, the Confederation of Tanzania Industries (CTI)'s Chairman Dr. Samuel Nyantahe said that the Budget for 2015/16 focuses on completion of development projects as identified in the Annual Development Plan and Big Results Now, National Strategy for Growth and Poverty Reduction phase II (MKUKUTA II); and the implementation of water
and electricity supply projects (in rural areas).
He said that these measures are essential for provision of strong foundation for rapid and sustainable economic growth.
Dr. Nyantahe also commended the Government's efforts to put more focus on macro-economic stability which is vital for the economy. The efforts include Government commitment to continue taking measures to keep inflation rates down; maintaining stable public spending and focusing on investments that will improve the conditions for enhancing growth and creating jobs.
However, he said, the budget has measures that will negatively affect the performance of the manufacturing sector, including hiking of import duty on industrial sugar from 10 to 50 percent ( where 40 percent will be refunded after TRA is satisfied that the sugar was properly used) and the increase of import duty rate from 10 to 25 percent on plastic tubes used for packing of toothpastes, cosmetics and similar products. Other measures taken by the Government, that will have negative effects on the performance of the manufacturing sector are the amendment of Petroleum Act - CAP 392, which increased tax charges per litre of diesel, petrol and Kerosene; amendment of Road Toll Act- CAP 220 and introduction of infrastructure levy of 1.5 percent on Cost, Insurance and Freight (CIF) value of imported goods.
Also, the manufacturers have raised concerns that if the new Value Added Tax (VAT) Act will be implemented as envisaged, from 1st July 2015, it will be difficult for the stakeholders to comply with it since they were not involved in its preparation. The manufacturers recommend to the Government to undertake adequate dissemination as well as sensitization seminars of the Act before and during its initial implementation.
CTI'S SPECIFIC COMMENTS ON THE BUDGET:
Positive Measures taken by the Government
i. Increasing budget allocation to key sectors of the economy, namely:
-Industry; TZS 116.5 billion equivalent to 0.518 percent of the total budget
-Energy; TZS 916.7 billion, equivalent to 5.7 percent
-Infrastructure; TZS 2,428.8 billion equivalent to 15.1 percent of the total budget.
-Education; TZS 3,870.2 billion equivalent to 24 percent of the total budget and,
-Water utility TZS 573.5 billion which is equivalent to 3.6% percent of the total budget
The increase in the budget allocations to these key sectors for the growth of manufacturing sector and the economy in general will reduce impediments which affect these sectors and thus positively contribute to economic growth.
ii. Maintaining current Excise Duty on beer, cigarettes and soft drinks. For many years the government has depended on these products as the main source of revenue. This has adversely affected the growth of these industries. The decision to maintain the current Excise Duty on these products will give space for the respective industries to grow and contribute positively to the process of economic development.
iii. The removal of Pipes (PVC and HDPE) - HS code 3917.31.00 and Trailers items from the list of Deemed Capital Goods under the Tanzania Investment Center (TIC) will protect and stimulate production of the products. Currently the local industries have the capacity to produce adequate quantities of products.
iv. Imposing import duty of 25% on steel products used in construction(bars, rods, angles, shapes and sections) under HS code 7213.10.00 and 7213.20.00, since these are finished imported products. The domestic production meets the demand.
v. Imposing export tax at the rate of 10% of Free on Board (FOB) value of the skin on wet blue leather, aiming at encouraging value addition and investment in the manufacturing of leather in the country. However careful administration is needed to avoid further smuggling of the product.
vi. Continue to grant duty remission on hard wheat under HS Code 1001.99.10 and HS Code 1001.99.90, aiming to provide relief to industries and manufacturers of wheat related products and to consumers.
Generally, the above measures will enable industries to enhance production, improve consumer welfare, promote use of local materials, enhance competitiveness and stimulate economic growth.
Negative Measures from CTI'S perspective
i. Import duty on industrial sugar of 25 percent The introduction of special procedures for paying import duty on importation of industrial sugar, where importers will be required to pay 25% of the duty at the time of importation and then get a refund of 15% after producing evidence to the satisfaction of TRA that the sugar has been used properly, the process will unnecessarily tie up working capital of respective industries, causing delays in refund and increasing costs of doing business as one has to pay for interest on working capital.
The Confederation believes that the current tax policy of paying 10 percent and verification on the consumption of sugar by the Sugar Board and TRA suffices to administer the use of industrial sugar.
CTI proposes the Government and Sugar Board of Tanzania to enhance enforcement of the previous procedures where an industry was required to apply for the importation of industrial sugar to the Sugar Board.
ii Import duty on plastic tubes
The increase of import duty rate from 10% to 25% on plastic tubes used for packing of toothpaste, cosmetics and similar products under HS Code 3923.90.20 will increase costs of production as there is only one industry which is producing this product in Kenya and has no adequate capacity to supply to other users of such product like toothpaste manufacturers in the region.
The Confederation proposes that the import duty on this product remains at the current rate of 10% to protect domestic industries.
iii. Amendment of Petroleum Act - CAP 392 and increase of charge tax on diesel, petrol and Kerosene oil by 50/- per litre will increase transport and manufacturing as many industries use fuel for generating electricity. CTI argue the Government that the collected revenue be used in rural power supply as stipulated in the speech.
iv. The amendment of the Road Toll Act- CAP 220 which increases the tax on diesel and petrol by 50/-per litre will also result into increased cost of transport as well as manufacturing.
v. On the newly introduced infrastructure levy of 1.5 percent on CIF value of goods (Railway Development Levy), CTI recommends that in order to enhance domestic industrial competiveness the levy should exclude industrial capital goods and raw materials
vi. The implementation of the new VAT Act, which in the view of CTI, members were not educated about the Act and its regulations, will start applying from 1st July 2015 be concurrent with government's mass awareness campaign/seminars.
The 2015/2016 budget has attempted to strike a balance between acquiring more government revenue and economic growth. CTI is optimistic that such good initiatives need to be enhanced. The Confederation supports these initiatives as well as all measures which will ensure success of the 2015 Government Development Vision of Tanzania becoming a middle income country