Tanzania – the new president’s budget; putting energy, infrastructure and industrialisation first
The first budget of the new President, Dr Magufuli, aims to encourage economic growth through job creation and industrialisation. The industrialisation is to be funded by increased tax revenues (from a broadening of the tax base), and the creation of a viable business environment in various sectors to attract domestic and foreign investment. However, the accompanying Finance Bill that will implement the budget contains fundamental changes to the tax system and has not met with widespread approval from the private sector.
The budget seeks to increase private sector participation in the economy through:
- the review of various taxes and levies,
- an improved reliability of electricity supply,
- an increase in services related to the accessibility of loans to the private sector,
- the enhancement of capital markets, and
- the strengthening of the coordination of public private partnerships (PPPs).
The budget makes reference to the ‘key areas’ that the Magufuli government aims to focus on. These areas include the increase of infrastructure investment and the improvement of the electricity sector. According to the budget, the government has allocated approximately US$2.5 billion for infrastructure projects, such as a standard gauge railway line, roads, ports and airports. Preparation of these projects would require adequate time and careful scrutiny, and implementation of these projects will be expected to commence during the second half of the current fiscal year. There are also further plans to introduce incentive packages on tax and other benefits whilst facilitating the availability of credit through the TIB Development Bank (a government owned development bank) and other financial institutions in order to increase investor participation.
The government has budgeted approximately US$515 million to ensure the availability of a reliable power supply for industrial and domestic purposes. It aims to ensure that the Tanzania Electricity Supply Company (TANESCO) is financially independent and competitive in power generation, despite its recent struggles. The budget further stresses the importance of the implementation of future projects, including rural electrification and the completion of other ongoing projects such as the Kinyerezi I and Kinyerezi II gas fired electricity generation plants.
The government also proposes to introduce tax benefits under the East African Community (EAC) Customs Management Act 2004 to grant duty remissions for inputs and raw materials for use in the manufacture of solar equipment.
It is proposed that laws relating to public procurement and PPPs (namely the Public Procurement Act 2011, the PPP Amendment Act 2014 and the PPP Regulations 2015) are to be revised by the Finance Act 2016, which is expected to be published in July 2016. The aim is to reduce bureaucracy, fix loopholes and expedite decision making on infrastructure projects in Tanzania.
But whilst the budget will depend largely on increased revenue collection and enhanced private sector investment to fund its aims, the reaction of the private sector has been less than positive. Observers see little that is being done to broaden the existing taxpayer base and instead cite the proposed fundamental administrative and technical changes to the tax system as being significant deterrents to further investment.
In putting forward the budget, the Magufuli administration has set aggressive timeliness for its implementation. Success in implementing the budget will depend on the cooperation of all government institutions, since it will largely rely on domestic revenue. Looking at the immediate future, this may prove difficult but President Magufuli has already demonstrated that he is capable of implementing rapid change.