Highlights of the Budget 2005 – 06

• Revenue target exceeded for Income Tax & VAT; Customs collection less than budgeted.

• Expenditure less than budgeted.

• 41 % of the Government Budget depends on foreign aid.

• Domestic Revenues expected to be realized during the year 2005 – 06 TShs 2,066.75 billion as against TShs 1,739.29 billion, an increase of 18.8% over the previous year budget.

• Budgeted Expenditure for 2005 – 06 pegged at TShs 4,176.05 billion.

• Inflation reduced from 4.8% in March 2004 to 4.1% in March 2005.

• Increase in Foreign Exchange Reserves to 8.3 months of imports as of March 2005.

• Real GDP Growth rate for 2004 increased to 6.7%.

• Minimum Taxable amount for Income Tax on income for individuals increased from TShs 60,000/- to TShs 80,000. Tax rates remain the same.

• Aviation Fuel (JET A1) exempted from Excise Duty and VAT.

• VAT remains at 20%.

• VAT relief extended to railway locomotives, rolling stocks, railway spare parts and accessories and mobile health clinics.

• Excise Duty on soft drinks, beer, wine, spirits and cigarettes to go up.

• Vehicle license fees increased from TShs 10,000 to TShs 20,000 per vehicle per annum.

• Stamp Duty reduced from 4% to 1% in selected cases.

• No more renewal of forest business license.

INTRODUCTION

The Minister for Finance Hon. Basil P. Mramba introduced the estimates of the Government revenue and expenditure for the financial year 2005/2006 in the National Assembly on 8th June 2005. The following are the highlights, which essentially is our interpretation and is given without any obligation or liability on our part.

ACHIEVEMENTS OF THE THIRD PHASE GOVERNMENT

The achievements of the Third Phase Government include the following:

• Government has achieved and sustained macro-economic stability.

• Inflation has gone down from 21 % in 1996 to 4 % in 2005.

• The GDP growth rate has accelerated from 4.2 % in 1996 to 6.7 % in 2005. 

• The balance of payments has strengthened substantially.  Our foreign reserves are sufficient to cover 7 months of imports of goods and services compared to only 2 months ten years ago. 

• Due to an attractive investment environment, there are now 26 commercial banks compared to only 2 in 1996, 5 non-banking financial institutions compared to only 2 in 1996. 

• Money and capital markets have also grown. There is now a Stock Exchange, about ten insurance companies, and many more financial services which did not exist ten years ago.  Established the Dar es Salaam Stock Exchange (DSE) and the Capital Markets and Security Authority (CMSA)

• During 1995/96, the Government collected TShs 37 Billion per month which has gone upto about TShs 145 Billion a month by 2004/2005

• Tax policies and systems underwent major reforms including harmonization of various taxes with the aim of simplifying their collection. 

• Elimination of nuisance taxes or those with little productivity, including the development levy.

• The Value Added Tax (VAT) was introduced in 1997.

• Major routes of tax evasion have to a large extent been put under control.

• The new Large Tax Payers Department, formed under the Tanzania Revenue Authority has been instrumental in improving the environment for better tax compliance.

• Various tax laws have either been amended or repealed to take into account new developments.

• Management capacity within the TRA has been strengthened and more capacity building is being undertaken.

• The Tax Revenue Appeals Board (TRAB) and the Tax Revenue Appeals Tribunal (TRAT) were established in 2000, aimed at addressing the concerns of tax payers.

• Customs procedures have been restructured to become more modern, including the introduction of flow meters for fuel.

• Better relationship with the development partners with external grants and concessional loans increasing from TShs 187 Billion in 1995/1996 to TShs 1.7 Trillion by 2004/2005.

• Introduction of Integrated Financial Management System (IFMS) and the on-going Public Financial Management Reform Programme (PFMRP) in the Public financial management.

• Debts worth TShs 1.3 Trillion already cancelled under HIPC.

• Domestic debts worth TShs 144.3 Billion repaid from 1995/1996 till date.

• Establishment of the Unit Trust of Tanzania.

• Primary school fees have been abolished to enable all school-aged children to be enrolled.  The tuition fee for government secondary schools has been reduced from TShs 40,000 to TShs 20,000 per annum.

• Taxes on imported agricultural implements and equipment, for example tractors, have been abolished to reduce production costs.

• Free medical services in government hospitals and healthcare centres for pregnant women, children under five years of age, and those suffering from leprosy, tuberculosis and HIV/AIDS.

• Wages and salaries for civil servants have been raised from a minimum of TShs 17,500 per month in 1995 to TShs 60,000 per month in 2004.

REVIEW OF IMPLEMENTATION OF THE BUDGET FOR 2004/2005

• GDP grew by 6.7 % in year 2004 against target rate of 6.3 % (Previous year 5.6%)

• Inflation rate decreased to 4.1 % at the end of March, 2005 from 4.8 % in July 2004. It is expected to go down to 4 % by end of June 2005.

• Foreign Exchange Reserve at the end of March, 2005 had reached a level sufficient to cover imports of goods and services for period of 8.3 months above the target of 6 months.

• Domestic revenue collection for first 9 months (July 04 to March 05) of the fiscal year is TShs. 1,314,524 Million, which exceeds the targets by 2 % or TShs 21,681 Million.

• Collection from VAT, & Income tax surpassed the budget.

• Customs collection less than budgeted, but non-tax revenue collections from Ministries, Departments and Regions surpassed the budget.

• Grants and concessional loans from July 2004 to March 2005 reached TShs 429,676 Million, less than 1.1 % of the budgeted amount.

• TShs 719,817 received as Grant and concessional loans for financing development expenditure which is more than 23 % of the budgeted amount.

• The actual expenditure from July 2004 to March 2005 was TShs 2,429,269 Million against a budgeted amount of TShs 2,486,892 Million. Out of the above, recurrent expenditure was TShs 1,560,067 Million.

• The figures compare favourably with the previous year as depicted in the table below

(Fig in TShs ‘Million)

HIGHLIGHTS IN THE IMPLEMENTATION OF THE MACRO-ECONOMIC AND FISCAL POLICIES FOR 2005/2006

• The main thrust is the implementation of the National Strategy for Growth and Reduction of Poverty (NSGRP-MKUKUTA).

BASIS, POLICIES AND OBJECTIVES OF THE 2005/2006 BUDGET

• Attaining a Real GDP growth rate of 6.9 % in 2005, 7.2 % in 2006, 7.6 % in 2007 and 7.9 % in 2008.

• Inflation rate to be consistent with that of the trading partners, but not more than 4%.

• Domestic Revenue is targeted to reach 14.3 % of Gross Domestic Product for 2005/2006 and thereafter to 14.5 % and 14.6 % in the subsequent years.

• Foreign exchange reserves to be equivalent to at least 7 months of import of goods and services.

REVENUE POLICIES

• Aims to collect T. Shs. 2,066,751 Million, which will be 14.3 % of GDP, an increase of 18.7 % compared to last year.

• Measures to be implemented to improve domestic revenue collection includes

• To strengthen administration and management in the Customs Department.

• To further restructure the Tanzania Revenue Authority in order to enhance the management of sources of domestic revenue;

• To strengthen the Large Tax Payers Department so as to serve a larger number of tax payers including shifting all mining companies to the Department.

• To reform the tax system in some areas so as to improve efficiency in tax administration; and

• To improve non-tax revenue collection and information from ministries and government departments, particularly those falling under the Retention Scheme.

• Expects to receive grants and concessional loans totalling to 41% of the national budget.

•  Government shares worth TShs 10,420 Million in companies and parastatals will be sold.

• Reserves with Bank of Tanzania will be drawn down by TShs 259,225 Million.   

• Integrated Financial Management System will be rolled out to 32 more District Councils to ensure better and timely reporting.

• More than 50 % of the budget has been allocated for implementing MKUKUTA priorities under growth, reduction of income poverty, improved quality of life, good governance and accountability.

• Adequate resources made available for works, health, education, agriculture and water sector.

• Funds set aside for remaining expenses for the General Elections due in October.

• 4.5 % of the budget support allocated for the Revolutionary Government of Zanzibar.

• Funds have been set aside for purchase of anti- retroviral drugs for HIV/AIDS, payment to defunct East African Community pensioners, higher education, implementing the Anti-corruption Strategy and Action Plan, and to the Judiciary System.

• 1/8th of the skills and development levy allocated to Tanzania Education Fund.

• Tanzania Airports Authority to receive 100 % of the revenue collected as passenger service charges.

• 18% of the domestic revenue allocated for development projects.

• Total estimated expenditure is TShs 4,176,050 Million during the year.

• Total projected grants and concessional loans is TShs 1,724,910 Million.

• There will be a shortfall of TShs 2114,744 Million. This gap will be met by Non- Banking borrowings.

REFORM OF TAX STRUCTURE AND NEW TAX MEASURES

 Proposed areas of reforms

• The Income Tax Act

• The Value Added Tax Act

• The Excise Tariff Ordinance

• Transport Licensing Act

• Motor Vehicle License Fee

• The Stamp Duty Act

• Forestry Act

INCOME TAX ACT

The personal income tax threshold has been raised from TShs 60,000 to TShs 80,000 per month. The proposed income tax rates are detailed below. The marginal income tax rates for the various income brackets remain the same i.e., 18.5%, 20%, 25%, and 30%.

 THE VALUE ADDED TAX ACT

1. The Second Schedule to include in the exemption list, Aviation Fuel for domestic air operators.

2. The Third Schedule to include in the exempted list railway locomotives, rolling stocks, spare parts, and accessories and Mobile Health Clinics.

3. Mining activity removed from the Third Schedule as the relief is already provided under other provisions within the same law.

THE EXCISE TARIFF ORDINANCE

Excise Duty Rates

1. Aviation fuel (JET A1) exempted from excise duty

2. Excise duty rates increased for the following items:

• Carbonated soft drinks from the current rate of TShs 39.4 per litre to TShs 41.5 per litre.

• Malted Beer from the current rate of TShs 243 per litre to TShs 256 per litre.

• Wine produced with more than 25 % imported grapes from the current rate of TShs 780 per litre to TShs 820 per litre.

• Spirits from the current rate of TShs 1,158 per litre to TShs 1,216 per litre.

3.  Excise tax on cigarettes will be based on filter content as follows:

• Cigarettes without filter and containing more than 75 % domestic tobacco, from the current rate of TShs 3,970 to TShs 4,170 per thousand cigarettes.

• Cigarettes with filter and containing more than 75 % domestic tobacco, from the current rate of TShs 9,367 to TShs 9,840 per thousand cigarettes.

• Other cigarettes not mentioned in (a) and (b), from the current rate of TShs 17,017 to TShs 17,870 per thousand cigarettes.

• Cut rag and/or cut filler from the current rate of TShs 8,593 to TShs 9,025 per kilogram.

• The excise duty rate on cigars remains at 30 %.

TRANSPORTATION AND MOTOR VEHICLE LICENSE FEES

1. Transport license fees for non-passenger vehicles including pick ups and cargo haulage vehicles abolished.

2. The annual motor vehicle license fee increased from TShs 10,000 to TShs 20,000 per vehicle per annum.

STAMP DUTY ACT 

Stamp Duty rate reduced from 4 % to 1% of the value for the following instruments:

1. Exchange of Property

2. Bill of Sale

3. Certificate of Sale

4. Instrument of Gift

5. Transfer of Lease by way of Assignment

6. Instrument of Partition

7. Instrument of Release

8. Instrument of Settlement

In the case of acknowledgment of debt from 4 % to a nominal value of TShs 500.

THE FORESTRY ACT AND REGULATIONS 

1. License fees for residing in a Government forest reserve, and license fee for cultivating in forest reserve, for citizens who have been permitted to inhabit in forest reserve areas abolished.

2. Forest business license be issued only once when a business is established and not every year, consistent with similar measures taken in regard to business licenses.

CUSTOMS DUTY ACT

Certain common external tariff rates  as per the East African Community Member Country Ministers’ recommendations to the EAC Sectoral Council of Trade, Finance and Investment which will meet on 20th June, 2005 as directed by the Summit of Heads of State of the EAC at their meeting held in Dar es Salaam on 29-30 May, 2005 will be amended. The agreed measures will be implemented together with the other tax measures contained in this speech.

BUDGET FRAMEWORK 2005/2006
PARTICULARS	TSHS MILLIONS	TSHS MILLIONS	TSHS MILLIONS
REVENUE:
Domestic Revenue
Tax Revenue	1,897,506
Non Tax Revenue	169,245
Total Domestic Revenue		2,066,751
Foreign Loans and Grants (Including HIPC Debt relief)		1,724,910
Draw Down Reserves		259,225
Non Bank Borrowing		114,744
Proceeds from sale of shares		10,420
TOTAL REVENUE			4,176,050
EXPENDITURE:
Recurrent Expenditure
Public Debt	528,144
Ministries	1,617,178
Regions	37,790
Local	484,150
Special Expenditure	123,605
Total Recurrent Expenditure		2,790,867
Development Expenditure
Domestic Sources	370,038
External Sources	1,015,145
Total Development Expenditure		1,385,183
TOTAL EXPENDITURE			4,176,050

Highlights of Kenya Budget 2005/2006

 Current position of domestic economy

• Registered a real growth rate of 4.3%.

• Inflation rate at 16%.

• Money supply expanded by 13.2%.

• Reduced the net domestic debt by K Shs. 3 Billion.

• Foreign exchange reserve in December 2004 was equal to 3 months imports.

Forecast for 2005/2006

• Growth rate 5%.

• Targeted revenue collection 22.8% of GDP.

• Inflation rate 5%.

• Money supply 8%.

• Foreign exchange reserve 3 months imports.

Measures

• Control expenditure on Government vehicles, Government employees travel, accommodation and telephone (prepaid).

• Enforce fully the anti-corruption laws and regulations.

• More powers by way of decentralization funds for local authorities.

• Abolished 17 licenses.

• Speed up VAT refund.

• Increase the share of health sector from 8.6% to 9.9%.

• Education sector will receive 28% share of Government expenditure.

• 44% increase in the funds allocated for public works.

• Expects to collect KShs 323.4 Billion in revenue.

• Recurrent expenditure of KShs 404.3 Billion and Development expenditure of KShs 104 .2 Billion.

• Deficits to be met from external grants and finances.

 Tax proposals

 Tax proposals are almost neutral and additional tax revenue expected of KShs 0.4 Billion only.

 Excise Measures

• Duty on used clothing at 45% or US 30 cents per Kg, which ever is higher.

• Remove import duty on pharmaceuticals, diapers and sanitary pads, and LPG.

• Remove import duties imposed on coal, media containing computer software, safety belts, speed governors, crude palm steering and splints for manufacture of matches.

• Provide, under a special incentive scheme (duty remission schemes), paper for printing educational material, and inputs for manufacture of agricultural equipment and for use in horticulture.

• Exempt refrigerated trucks and hotel equipment from duty.

• Upward adjustment of 10% on excise duty of beer and cigarettes.

• Consolidate the excise duty on neutral spirits to KShs 100 per proof litre at the distillery or point of importation.

• Change the tax point on petroleum products from bonded facilities to point of importation.

• Reduce the excise duty on motor vehicles from ranges of 20% to - 60% to single rate of 20% regardless of engine capacity.

VAT Measures

• On deregistration pay tax on all taxable assets instead of stocks only.

• LPG and Sanitary towels shifted from exempt to Zero rate.

Income Tax Measures

• Vehicle benefit for private usage in the case of leased vehicles shall be the cost or prescribed rate which ever is higher.

• Married woman not compelled to be assessed with her husband.

• Objections on assessment to be filed within 30 days instead of 60 days.

• Benefit in kind of employees is exempt up to KShs 36,000 per annum.

• Newly listed companies at Nairobi Stock Exchange to pay corporation tax only at 20% for 5 years.

• Increased mortgage interest relief from KShs. 100,000 to KShs 150,000.

• Increased the allowable Capital expenditure on private motor vehicles for wear & tear purposes from KShs. 1 Million to  KShs. 2 Million.

Highlights of Uganda Budget 2005/2006

Current position of domestic economy

• Registered a real growth rate of 5.8%.

• Inflation rate at 5%.

• Revenue collection is less than 13% of GDP.

• Revenue collection surpassed the target.

Forecast for 2005/2006

• Growth rate 6.8%.

• Imports to grow by 20% and exports to grow by 10%.

• 60% of budget to be financed from domestic revenue.

• Revenue collection targeted at 13.4% of GDP.

Measures

• Moratorium on opening new banks will be lifted.

• Uganda Development Bank (UDB) will be reopened.

• Export Guarantee Facility to be moved from Bank of Uganda to UDB.

• Bank of Uganda work closely with Central Banks in Kenya and Tanzania for a Monetary Union in East Africa.

• Kenya agreed in principle to waive customs rental fees and Port storage charges at Mombassa Port.

• Kenya has also permitted Uganda to develop own holding facilities at Mombassa.

Tax proposals

The major amendments proposed in the budget are given below.

Customs Duty

• Abolished customs duty on pharmaceutical products, solar equipment and accessories.

• Duty rate remitted to Zero on deep cycle batteries, paper for printing text books, examination papers and covers and Speed Governors.

• Duty on second hand clothes reduced from 70% or US cents 50 to 40% or US cents 30 per Kg.

Excise Measures

• Excise duty on petrol and diesel to go up.

• Excise duty on air time of mobile phones to go up from 10% to 12%.

• Introduced specific Excise Duty on sugar of U Shs 50 per Kg.

 VAT Measures

• Increased VAT rate to 18%.

Income Tax Measures

• Interest earned by financial institutions from loans granted to agricultural sector to be exempted from tax.

• Income of Unit Trusts and other Collective Investment Schemes distributed to unit holders to be exempt from withholding tax.

Other Taxes & Fees

• Fees payable on motor vehicles and motor cycles to go up. No change for buses and Lorries.