TPSF proposes cuts in value-added tax rates

ABOUT one month to Budget Day in Tanzania that's slated for early next June, the Tanzania Private Sector Foundation (TPSF) has proposed reduction of the extant rates of value-added tax (VAT) on an assortment of goods and services for the 2012/13 financial year which commences on July 1 this year. In its as yet unpublished report ― a copy of which Business Times has accessed, the Foundation has identified 15 main taxation areas which it considers as deserving of reduced tax rates and other forms of tax relief as appropriate. Proposals on all this were scheduled to be lodged with the Government today through its National Fiscal Reform Task Force (NFRTF), a special unit at the Ministry of Finance & Economic Affairs that is well-versed in fiscal affairs The Foundation's executive director, Godfrey Simbeye, said in Dar es Salaam yesterday that TPSF has specifically drafted a proposal requesting the Government to reduce the 18 per cent ad valorem rate of value-added tax that is currently being charged on goods and services to 16 percent. Speaking during a breakfast meeting with stakeholders in the city, Simbeye said that the proposed rate reduction will help promote smoother operational activities by the private sector. Noting that the private sector is the biggest source of tax revenues in Tanzania, accounting for about 90 per cent of the tax-paying community in the country, the director said its suggestions and proposals deserve to be given due consideration.

TPSF Managing Director Mr. Godfrey Simbeye Simbeye pointed out that Tanzania's VAT rate is relatively higher than the one charged by the Kenya Government, which stands at 16 per cent. Speaking in an interview with the media after the formal presentation of the report's proposals, he expressed the view that, if the extant rate is reduced from 18 to 16 per cent, this will encourage the establishment of more businesses in Tanzania. He also noted as a fact that Tanzanian goods are sold at higher prices at the marketplace, both at home and in the other East African Community countries, than is the case with goods from those countries. However, he declined to give relative statistics, or the methodology used to arrive at such conclusions, insisting only that reduction of the current VAT rate would pave the way for more business investments. Other proposals included in the TPSF draft report are the reduction of Hotel Levy from the current 20 per cent to 16 per cent; and the Skills Development Levy which stands at six per cent of the payroll. The Foundation proposes that this should be reduced to two per cent. This proposal is based on the fact that the extra four per cent of the tax goes directly to the Higher Learning Students Board and, as such, does not directly benefit private sector employers. In a presentation given by Consultant Placidius Luoga, the call was made to raise the minimum taxable salary level to Tsh350,000 a month, below which employees should not be taxed. Turning to the telecommunications industry, the TPSF report noted that the levy charged by Local Government Councils of 0.3 per cent on telecommunications towers was out of place. Noting that the towers do not produce refuse or garbage, the report asks rhetorically: “why charge tax on them at all...?” TPSF has often been submitting various proposals on tax measures ― including rates reduction and exemptions ― to the Government ahead of the national budget every year. The overriding objective is to give relief to the private sector operators whose contribution to the economy is quite considerable.