Tanzania National Budget bulletin for 2022/2023

On June 14, 2022, the Minister for Finance and Planning, Hon. Mwigulu Lameck Nchemba (the Minister), delivered the 2022/2023 National Budget Speech themed ‘Accelerating Economic Recovery and Enhancing Productive Sectors for Improved Livelihoods’ (the National Budget). In this article, we summarise the key budget issues that may affect organisations across multiple sectors in Tanzania.

In line with the theme, the Government’s priority in the 2022/2023 financial year is the productive sectors, including energy, investment and trade, agriculture, livestock, and fisheries. Estimates of the Government budget for 2022/2023 have been prepared based on macroeconomic assumptions, and targets show that 2022 will have a real Gross Domestic Product growth rate of 4.7% and 5.3% in 2023. The National Budget for the 2022/2023 financial year is TZS 41.48 trillion.  

We have highlighted below key matters covered in the National Budget. Some of these will be reflected in the Finance Act, 2022, expected to be published today.

Exemption from withholding tax on interest on corporate and municipal bonds

The effect of the proposal is to exempt withholding tax on interest payments from corporate and municipal bonds. This measure aims to raise alternative financing for the implementation of development projects. It is hoped that this will in turn increase investment products in the market.

Proposed amendments to the Income Tax Act Cap 332

Exemption from Capital Gains Tax

The National Budget proposes to amend the Income Tax Act Cap 332, which will have the effect of:

• exempting Capital Gains Tax on any transactions carried out for the implementation of agreements involving entry into or transfer of Joint Ventures (JVs) formed by investors and the Government in mining projects and the issue of Free Carried Interest (FCI) shares from investors to the Government; and
• exempting Capital Gains Tax from shares freely transferred to the Government through the Treasury Registrar.

The effect of this amendment is to allow for an expedient and smooth transfer of project assets to the JV company and FCI shares to the Government.

Other proposed amendments to the Income Tax Act Cap 332

The National Budget proposes to introduce a rate of 3.5% for taxpayers with a turnover exceeding TZS 11 million a year but not exceeding TZS 100 million a year. Additionally, there is a proposal to improve the Tanzania Revenue Authority (TRA) systems to enable taxpayers to effect payments through mobile wallets. If implemented, this measure will ease the remittance of taxes, enhance compliance, and increase Government revenue collection.

Digital Services Tax

The National Budget proposes to introduce a Digital Services Tax (DST) of 2% on the turnover of non-resident service providers, which is expected to uphold equity principles of taxation and expand the tax base.

Income tax on truck and passenger buses

The National Budget proposes to introduce an income tax of TZS 3.5 million per year on each truck and passenger bus. The aim is to increase Government revenue and have a predictable and transparent tax regime.

Withholding tax rate on payments to non-residents in the film industry

The National Budget proposes to reduce the withholding tax rate on payments to non-residents in the film industry from 15% to 10%. This proposed amendment aims at supporting the growth of the film industry, encouraging the transfer of employment, and boosting livelihood.

Withholding tax on rentals paid by individuals for residential houses, apartments and commercial premises

The National Budget proposes to extend the 10% withholding tax requirement to payments made by individuals for renting premises, whether for residential or commercial purposes.

Withholding tax on payments to small-scale miners

The National Budget proposes to introduce a withholding tax of 2% on payments made to small-scale miners. This proposal seeks to introduce a special taxation regime for small-scale miners and reduce challenges encountered when collecting tax from this group.

Advance income tax for retailers of petroleum products

The National Budget proposes to introduce an advance income tax of TZS 20 per litre for retailers of petroleum products. This tax will be collected from retailers by importers of respective products and remitted to the Government. It is hoped that this will ease the process of payment of income tax by petrol stations and reduce their operational costs.

Proposed amendments to the Workers Compensation Fund Act

The National Budget proposes to amend the Workers Compensation Fund Act Cap 263 by reducing the Workers Compensation Fund contribution rate from 0.6% to 0.5%. This measure is aimed at achieving some level of equity in the contributions made for private and public sector employees.

Proposed amendments to the Value Added Tax (the VAT Act)

Minister’s powers to exempt VAT for strategic investors

The Minister proposes to amend the VAT Act to confer on him powers to exempt VAT on strategic investors. The mandate to exempt will only be exercisable following approval from the National Investment Steering Committee and the Cabinet. This change aims to attract more investment and align the provisions of the VAT Act with the Investment Act Cap 38 in supporting Government undertakings.

VAT exemptions

The National Budget proposes several new VAT exemptions, mainly in the agriculture, livestock, and fisheries sectors, to encourage growth in these sectors and create employment. To mention a few, these include VAT exemptions on agro-nets, moisture meters, rain gauges for weather stations, PH meter, tissue culture equipment, tensiometers, refrigerated trucks, cold rooms for perishable agricultural products, pasture seeds (pasture grass seeds), pasture legumes seeds, pasture multiple tree seeds and pasture cuttings, and rhizomes and stolons, standing trees, raw materials for manufacturing of gas cylinders, and spoil testing equipment.

Removal of VAT exemptions

The National Budget  proposes to remove existing VAT exemptions. These are:

1. removal of VAT exemption on data devices such as smartphones, tablets, and modems. This exemption was introduced in 2021 but it is now removed because it did not meet the intended objective; and
2. removal of VAT exemption on Air Charter Services. The aim is to create uniformity across all rentals which are generally subject to VAT.

Zero-rating some of the local supplies

The National Budget proposes to introduce VAT at a zero-rate (0%) on double-refined edible oil and fertiliser.

This zero-rated VAT will be applicable for a period of one year and is aimed at providing relief to farmers and consumers during the current period of global recession.

Easy registration process for digital service operators

The National Budget proposes to amend the VAT Act to allow digital economy operators to register for VAT without imposing other obligations under the Income Tax Act.

Currently, the VAT Act provides for the taxation of suppliers of electronic services but does not provide the mechanism to implement such requirements.

VAT on alternative financing

The National Budget proposes that the VAT Act recognise and treat equivalent financing arrangements similarly to conventional borrowing to enhance financial inclusion and the accessibility of financial services.

Licence fee for manufacturers and importers of excisable products

There is a proposal to reduce licence fees from TZS 500,000 to TZS 300,000 to reduce the cost to manufacturers and importers of excisable goods, and to support economic growth and recovery in the sector.

Excise duty to exporters of horticultural products

Proposed exemption from excise duty on plastic sleeves puneet, plastic cryovac bags, modified atmosphere packaging map bags, plastic sleeves, perforated bags, and poly packaging bags, cling film and plastic liners for horticultural export.

This exemption is aimed at providing relief to farmers and promoting the export of horticultural products.

Excise duty on sugar confectionery

There is a proposal to impose an excise duty on sugar confectionery, i.e. chocolate, biscuits, and chewing gum, at TZS 500 per kg on locally manufactured sugar confectionery and TZS 700 per kg on imported sugar confectionery.

5% excise duty on lead acid

There is a proposal to impose an excise duty on lead acid that is used in piston engines. This is aimed at reducing the environmental effects caused by the consumption of lead acid batteries.

Proposed changes to the Mining Act

During his speech, the Minister proposed to decrease the royalty on coal used as raw materials in factories from 3% to 1% and the royalty on gold minerals sold to refinery centres from 6% to 4%. The proposals seek to cut down production costs, attract more investment in the mining sector, and increase employment and Government revenue.

Proposed amendments to the Bank of Tanzania Act

The National Budget proposes to amend the Bank of Tanzania (the BoT Act) by setting a limit on Government borrowing to not exceed 18% of approved domestic revenue in the current fiscal year from the current rate of one-eighth of the domestic revenue collected in the preceding fiscal year. Among other things, this proposal is aimed at harmonising the country’s borrowing rates with other East African Community countries and enabling proper execution of the Government budget.

Proposed amendments to the Export Levy Act

The National Budget proposes to amend the Export Levy Act Cap 196 to introduce an export levy of 30% or USD 150 per metric tonne (whichever is higher) on copper waste and scrap metals HS Code 7204 and 7404. Among other things, this change is aimed at ensuring the availability of raw materials to the respective industries while simultaneously protecting local manufacturers.

Proposed amendments to the National Payment System Act

The National Payment System Act Cap 437 is proposed to be amended by reducing the mobile money transaction levy on sending and withdrawing money from the current maximum of TZS 7,000 to a maximum of TZS 4,000 on each transaction. This reduction is equivalent to 43% of the levy currently being imposed. Along with the 43% reduction, the Minister proposed to extend the base and include all electronic transactions. This reduction will have a significant impact on the general population as well as the telecoms and financial services sectors in Tanzania. 

Mandatory insurance expanded

The National Budget proposes to amend the Insurance Act Cap 394 to expand the scope for mandatory insurance. When these amendments are incorporated into law, it will be compulsory for marine vessels, commercial buildings, public markets, imported goods, ferries, and pontoons to be insured. This amendment will not only increase insurance uptake but also enhance financial inclusion.

Implementation of the Blueprint for Regulatory Reforms (the Blueprint)

To implement the Blueprint and improve the business environment in Tanzania, the National Budget proposes to amend various fees and levies including those in the following bodies:

1. Ministry of agriculture

The proposal to abolish the impoundment fee of TZS 200 per square meter of surface area for water stored in irrigation dams and increase the export permit application fee for manufactured fertiliser from USD 0.2 to USD 0.5 per tonne.

2. Tanzania Bureau of Standards (TBS)

The proposal to reduce the batch certification fee on imported sugar from TZS 6 per kilogram to TZS 2.5 per kilogram.

3. Occupational Safety and Health Authority (OSHA)

The proposal to abolish the peak expiratory fee of TZS 10,000 and the flow test fee of TZS 25,000. There is also a proposal to amend section 17 of the Occupational Safety and Health Act Cap 297 to allow OSHA to issue a licence within 7 days after the applicant meets the relevant criteria.

4. The Water Utilities Regulatory Authority (EWURA), Land Transport Regulatory Authority (LATRA) and Tanzania Communications Regulatory Authority (TCRA)

It is proposed that EWURA, TCRA, and LATRA give up their powers to regulate standards to TBS. This would mean that TCRA would have to provide communication equipment standards to TBS in relation to requests for standards, and EWURA and LATRA would provide standard requirements to TBS together with the experts needed to regulate.

5. Urban authorities

The Local Government (Urban Authorities) Act is proposed to be amended to enable urban authorities to establish joint centres for mobilisation, coordination and improvement of the business environment.

The National Budget Objectives and Targets

This year marks the second year of implementation of the third 'Five-Year' National Development Plan (2021/2022-2025/2026). The Government’s key issues for the financial year 2022/2023 include continuing to address the effects brought on by the COVID-19 pandemic and the conflict between Russia and Ukraine. The Government also intends to continue prioritising the following flagship projects:

• Rail: construction of the Central Corridor Standard Gauge Railway (SGR)
• Road: completion of the construction of regional road networks
• Sea: improvement of ports, construction, expansion and rehabilitation of port infrastructure
• Air: strengthening Air Tanzania and rehabilitation of airports infrastructure

Should you require further information, please do not hesitate to contact Tenda Msinjili, Peter Kasanda and Esther Kilimba.