The industrialists’ view is shared and supported by other stakeholders, including economists and activists. Experts say that to make matters worse, the increments are made without consulting stakeholders or conducting informed cost-benefit analyses on the consequences of the excessive increases.
They thus recommend that the government stops the habit starting from the forthcoming fiscal year, which starts in less than a month. Manufacturers say the tendency denies businesses the opportunity to expand operations, invest in growth and development, frustrates efforts to create new jobs and undermines the competitiveness of local products and services.
“Raising tax rates and imposing new taxes may be problematic depending on the base on which they are anchored. Thus, a careful planning and consideration of likely effects due to elasticity and buoyancy of different combination of taxes will be critical,” the head of poverty alleviation think tank Repoa, Dr Donald Mmari told Smart Money last week.
Prof Honest Ngowi of Mzumbe University cautions that the government should not run into the trap of increasing types and rates of taxes. According to him, the few Tanzanians currently paying direct taxes are already highly taxed.
What should be done, he argues, is to improve collection from the existing revenue sources. The CEO of Skylink Group, Moustafa Khataw said the solution was in expanding the tax net to also cover informal business that generate billions of shillings but are not taxed.
The experts also have it that the excessive increase of tax rates has also not enabled the government to meet its revenue targets or mobilise enough funds to be able to live within its means. CTI says reducing the rates and a rational fiscal stance should be the way forward, which would greatly boost industrial development in the country.
The move would also lead to reasonable consumer prices, the industrial lobby adds.
“Unpredictable and high increase in excise duty on cigarettes, beer, wines and soft drinks (nonpetroleum products) has had an adverse impact on the competitiveness of these products, thereby affecting the sales volumes,” it says in a tax proposals package submitted to the government in March this year.
“For instance, excise duty increase on beer and spirits from 10 per cent in 2013/14 to 20 per cent in2014/15 resulted into a decrease in sales volume by eight per cent. On the other hand, the reduction of excise duty from 91/- a litre to 55/- on soft drinks helped the industry to grow and reduce prices and therefore enabling it to invest a total of US$110 Million in 2014/15.”
CTI has proposed the current excise rates to be maintained. It says increasing the charges promotes proliferation of substandard products, encourages smuggling and prompts tax avoidance and evasion.
Tanzania Breweries (TBL) says that if there’s another increase, it should not exceed five per cent. According TBL Group managing director Roberto Jarrin, beer made from 100 per cent locally-sourced malt should qualify for a 20 per cent excise duty remission.
He told journalists late last month in Dar es Salaam that any excessive increase would stunt the growth of the industry. Maintaining the status quo or cutting the current rates, he added, would enable TBL to make serious investments decisions such as building the US$50 million malt plant in Iringa Region.
“With Tanzania being a relatively poor country, affordability is vital to growth of our sector and the economy at large,” Jarrin said. TBL paid more than 380bn/- in taxes in 2015.
Frequent and unpredictable increases do not only hurt producers and consumers but also lead to loss in government revenue. CTI says that reducing the rates or maintaining the current ones would promote investment and growth in the domestic industry.
According to it, the current prices on beer and spirits should be maintained to help the industry grow, and increase remittances to the Exchequer by 65bn/- annually. Its estimates show that on average, a five per cent volume growth would lead to a 15 per cent increase in total product tax collected.
Other benefits to be accrued would be the beer sector’s continued support and growth of the economy with at least 100bn/- a year in capital expenditure as well as maintain and increase over two million jobs through the production and supply chains. Brewers would also support the agricultural sector growth via contract farming with local farmers, preserve and encourage local production, and prevent consumption of illicit, unhealthy, and unregulated and untaxed informal alcohol
Another major challenge relating to the tax regime experienced by manufacturers in different subsectors is the high import duty on raw materials and intermediate goods used in manufacturing.
The imposition of import duty on intermediate industrial inputs such as industrial sugar (25 per cent), aluminium barrier laminates (25 per cent), toothpaste tubes (25 per cent) and other inputs have resulted into a considerable increase in the cost of production, and consequently, reduced competitiveness of domestic manufacturers.
“The upfront payment of an extra 15 per cent duty on imported industrial sugar has for instance, resulted into unnecessary costs and caused serious cash flow problems to domestic manufacturers due to tying down their working capital. Domestic manufacturers using industrial sugar as production input paid a total of 11bn/-, which was held by Tanzania Revenue Authority (TRA) for more than six months,” the CTI fiscal document reads.
The business association also has it that government exemptions and low duties on imported competing goods has an adverse impact on domestic manufacturers who are faced with an influx of low priced goods. It also laments the uplift of values of imported industrial inputs by TRA officials.
Calling it unjustified, arbitrary and discretionary, CTI says the habit has resulted into considerable increase in cost of doing business as industries are faced with increased transaction costs in terms of delays, demurrages and clearing costs. Another issue for concern is the weak tax administration in instances of under invoicing, under declaration, smuggling and influx of counterfeit and substandard goods.
Loopholes in the tax administration system have led to false declarations and the influx of cheap imported products that tend to discourage production of domestic products while endangering consumers due to use of counterfeits. CTI says that this contributes to a narrow tax base; hence the collection of government revenue remains focused only to a few genuine domestic businesses.
The industrialists are also irked by multiple fees, levies and charges imposed by Government ministries, agencies and departments. Here the association argues that there is existence of duplication of roles and operations, which has resulted into unnecessary bureaucracy and increased cost of doing business, thus affecting the competitiveness of industries.
Lastly, it wants something done on VAT on raw materials and intermediate goods whose final products are exempted from the consumption tax.
“This has adversely affected manufacturers by increasing their production costs and reducing their competitiveness since they cannot claim back the VAT collected on processing inputs for the final products that they produce, as these are VAT exempt!
This has been the case for producers of agricultural products such as milk, fertilisers, poultry feeds, and pharmaceuticals where VAT has been a cost of production that cannot be claimed on the final products,” it notes.
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