”Sustain the Momentum” summed up sentiment at a recent PwC pre-budget event featuring panelists from financial services, manufacturing, mining, telecommunications and tourism. Against a background of good recent GDP growth (5% in 2023) and stronger projected future growth (6.1% short term (per AfDB), 6.5% medium term (per the IMF)), the plea from participants was for the coming budget to support this anticipated upward trajectory by being growth focussed.
Why the call for, and what is meant by, a growth focused budget? Well, it is a call for awareness that tax policy choices are not a “zero sum game” as the level of taxation can influence the level of economic activity, and for such choices to be informed by a medium and long term focus (rather than just the budget year). If taxes are set too high then business activity can be sub-optimal, and so measures intended as revenue raising may actually result in lower tax revenues than might otherwise have been generated. Conversely, a policy that supports higher economic growth by ensuring that taxes are not excessive can result in higher revenues.
Practical examples of the impact of tax policy interventions abound. For example, the telecommunications sector highlighted that the immediate impact of the introduction in July 2021 of the mobile money transfer and withdrawal levy was a 40% decline in activity. Conversely they noted the significant pick up in activity in this financial year following the removal of mobile money transaction levy on electronic money transfer. For this year they propose the removal of the levy on withdrawals so as to further encourage mobile money activity - thereby supporting digital and financial inclusion, and by extension more transparent data on taxpayer financial activity.
Another interesting case study is excise duty revenue collections on consumer goods following last year’s budget. Statistics for nine month collections to March 2024 show lower excise duty revenue growth on goods subjected to the higher (20%) tariff increase (beer and tobacco with growth of 16% and 20% respectively) as compared to soft drinks which were subjected to a lower 10% tariff increase (but growth of 42%).
Having seen these tariff increases last year, what do manufacturers expect this year? A reminder expressed by them was that when making the excise changes in last year’s Budget the Government had committed to a three year rate freeze. The logic of this was to enable business to be able to plan appropriately for the medium term. As such the coming Budget is very much seen as a test of trust - in particular, will the commitments made last year to the sector be fulfilled?
A further general concern expressed by the sector was discussions on regional tax harmonisation should be contextual. For example, although higher absolute excise duty rates apply in Kenya, this is a market with a higher consumer buying power than in Tanzania.
For the financial sector a particular recent concern has been the application of certain anti-avoidance provisions that should not be of relevance to their sector, but nevertheless are currently applied to them (namely, provisions dealing with thin capitalisation and with controlled foreign companies). A long standing concern for the sector remains the TRA approach with regard to defaulting customers - including issues to do with income tax relief for bad debts, as well as the income tax and VAT treatment on realisation of collateral.
Looking forward, a concern expressed by the financial sector but also other participants, and against a background of an existing tax regime that on a holistic basis is already very high, was the potential imposition of new levies to fund the National Health Insurance Fund. Again, ultimately there is only so much of the cake for the taxman and regulatory bodies to nibble, and if taxes and other levies exceed this then overall consequences are likely to be adverse for all - a “lose lose” scenario.
A non-tax issue raised at the forum related to challenges of access to foreign exchange (FX), and the potential adverse impact on the level of economic activity. Given this context, a particularly important aspect of this year’s Budget will be to see the extent to which the tax concerns of mining and tourism (the two largest FX generators) are addressed.
Aside from tax policy issues, one tax administration concern raised by a number of the participants was their perception of a plethora of recent sudden tax demands and related bank attachment orders.
”Kazi iendelee” (“let the work continue”) is the Government’s slogan embracing the necessity for hard work to achieve development and growth aspirations. Having heard the concerns recently expressed by tax stakeholders, they might suggest a similar but slightly different refrain as the theme for the coming budget - namely, “Kasi iendelee (na iongezeke)” (“let the growth continue (and increase)”). Let’s sustain the momentum - “Kasi iendelee”!
By David Tarimo - PwC Country Senior Partner, CEO Roundtable of Tanzania Chairman
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