Thursday, January 18, 2018

MANAGING TAX RISKS: Meeting 2017/18 tax targets is tough

 

By Shabu Maurus

Implementation of Tanzania’s 2017/18 ambitious budget reached six months on 31st December 2017. The government projected that for 12 months from July 2017, it will be able to raise and expend Sh31.7 trillion. The Tanzania Revenue Authority (TRA) was tasked to collect Sh17.1 trillion. About 54 per cent of the budget. This article traverses the tax collection statistics recently issued by TRA for the first half of 2017/18 fiscal year.

In its recent statement to the public, TRA boasts to have collected a total Sh7.9 trillion in the first half of the fiscal year.

The statement indicates that the monthly collections were the lowest in July 2017 at Sh1.1 trillion and highest in December 2017 at Sh1.7 trillion.

According to the statement, tax collections have grown by 8.5 percent from a similar period in the 2016/17 fiscal year.

But how far this from the 2017/18 target? To collect 17.1 trillion in 2017/18 one would expect an average monthly collection of 1.4 trillion shillings. But, in the first six months, the actual monthly collection averages at 1.3 trillion shillings. To achieve their 2017/18 target, TRA would need to collect another 9.2 trillion shillings by 30th June 2018. The half-year collection is only 46 percent of annual collection target (17.1 trillion shillings).

Recently, the Minister of Finance and Planning, Dr. Philip Mpango revealed that in the first half of the year, the economic growth was 6.8 percent. During a similar period in 2016/17, the rate was 7.7 percent.

The minister attributed the shrinkage to industries that are cyclic in nature such agriculture and tourism. The minister, however, is optimistic that the annual growth rate target of 7 percent will be met.

TRA’s actual tax collection statistics from 2006/7 to 2016/17 indicate that in the first six-month TRA collects, on average, 49 percent of the actual annual collection.

Going with this average, the actual tax collection by June 2018 can be roughly projected at 16 trillion shillings.

This is one trillion off the target. Tax collection is largely dependent on the interplay of several economic and non-economic factors.

The tax administration capacity of the TRA and tax compliance behaviors of the taxpayers affect tax collection. Positively or negatively. The employment, consumption patterns, financial markets, FDIs, government expenditure, imports, and exports, are some of the factors.

The biggest chunk of tax collections comes from taxes on imports, PAYE and local consumption taxes (VAT and Excise Duty). External factors, for example, can easily influence the level of imports (and exports).

To what is extent do the tax collection reality is reflected in the expenditure side of our fiscal equation? The budget is prepared in such a way that expected revenue balances the expected expenditure.

This essentially tells us that even the slightest underperformance in tax collections must be somehow be compensated by other revenue sources or a corresponding reduction in expenditure.

The tax revenue target and the performance so far are likely to increase TRA’s tax collection drive.

To policymakers, tax collection performance will inform the fiscal policies reforms for the coming financial year. To taxpayers, this essentially means TRA will expect nothing less than full compliance.

This is clear if one looks at TRA’s collection target as taxpayer’s tax payment target! Therefore, taxpayers are expected to pay 17.1 trillion shillings in total by end of June 2018. And so far, taxpayers have paid 46 percent!

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Thursday, January 18, 2018

SBL factors women soccer into economic equation

 

By Karl Lyimo

On January 10 this year, Serengeti Breweries Ltd (SBL) once again hit the High Road of Corporate Social Responsibility (CSR). That was when the second-largest brewer in Tanzania signed an agreement with the country’s Football Federation (TFF) to sponsor the Tanzania Women’s Premier Soccer League for three years, at a cash cost of Sh450 million.

But, that’s only one aspect of the sponsorship-related ‘Tanzanian trinity’ beholden of the Brewer, the Football Federation and Women-in-Soccer.

Other aspects include – but are NOT limited to – support by the Brewer of the women’s league with “on-field and off-field signage and branding, in printed media and across digital and social media channels.”

Established in 1996, and incorporated as ‘Serengeti Breweries Limited’ in 2002, SBL is the second-largest brewer in Tanzania after Tanzania Breweries – with its assorted beverages accounting for 35 per cent of the market-share by volume. [The EastAfrican: March 3, 2017].

Less than a year ago – on May 12, 2017, for sticklers for detail – SBL first embarked on the same High CSR Road with an even bigger footprint. That was when the Brewer entered into a more-or-less similar agreement with the very same Football Federation – but that time allocating a relatively-whopping Sh2.1 billion over three years for the Men’s Premier Soccer League.

One intriguing thing here… The vast difference in the amounts of money allocated for male and female soccer leagues is arguably ample testimony of how gender inequality has been fostered in Tanzania – willingly or unwillingly. Indeed, the same thing can be said across the footballing world, where male soccer has ‘traditionally’ taken precedence every which way over female soccer.

But, no matter…

What really matters here’s that it’s taken another relatively-newcomer in the country’s private sector to stand up and be counted in the Women Soccer stakes. [But an earlier sponsor, Azam-TV, insisted on hogging the broadcasting rights…].

A bazillion businesses have the habit of shouting ‘Corporate Social Responsibility’ from the rooftops of their headquarters – but they very rarely, if ever, factor gender equality into the equation!

Indeed, they’d (for example) finance water projects ostensibly to relieve women from having to fetch water from afar.

But, such projects don’t ‘help’ women alone; everyone benefits from them, gender notwithstanding.

It’s unlike sponsoring women soccer that’s solely for female footballers! Call it ‘giving back to the female segment in Society’… Call it ‘a shot-in-the-arm’ for women soccer… Call it ‘boosting gender parity in sports…’

At the end of it all, we must give the ‘Thumbs-Up’ to SBL for going that arduous extra mile specifically for women soccer.

Indeed, apart from boosting gender parity in sports, SBL’s decision also has all the benefits that come with soccer in particular, and sports in general.

From the business/economic viewpoint, soccer has an untold impact upon economies, creating jobs, building infrastructure, boosting incomes for service providers (hospitality, transportation, manufacturing, etc.), keeping people out of mischief and criminality…

Imagine the calamity that’d befall the likes of Nike, Adidas, Puma, BWIN, Emirates, etc. – as well as national, regional and international soccer associations and related organizations – if there was no organized soccer and related activities… ye gods!

No Sir (and Madam, to be politically correct!) SBL deserves kudos for squarely factoring women soccer into the economic equation… Cheers!

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Thursday, January 18, 2018

FRANCHISE: Powerful growth tool for family businesses

 

By Wambugu Wa Gichohi , info@worldaheadafrica.com or wambugu.wagichohi@worldaheadafrica.com

Statistics on small business growth from various sources worldwide indicate that 80 per cent of all businesses started today will not survive to their fifth birthday.

And worse still, another 80 per cent of the remaining ones never see their eighth. But what is more shocking is that many seemingly successful family businesses today, particularly the African-owned ones, follow their founders to the grave. Even Asian family-brands which we all respect for good succession planning are currently challenged by modern social and economic dynamics.

The story of some leading indigenous brands in East Africa is one, like most other success stories, of men and women who overcome all odds to build market-leading brands- Azam, Equity Bank, Mo-brands, Britam, Mukwano, Centum, Bidco etc. Some of their founders narrate how they walked barefooted for long distances to get an education, how they slept in the same house with sheep and goats in their early village life, how they sold this and that in school to support their siblings, how some of them save meticulously to take their children to world class universities in the West and how some of such founders did not even make it to secondary school, yet they built brands we all respect today.

Naturally we all do not want our children to go through the same life as we did. So we spare nothing to secure the best education and the best trappings of life for them. Children of many African entrepreneurs often take up educational courses that are parallel to the family business that pay their fees, meaning that after graduation, they are employed elsewhere, sometimes retiring without ever getting involved in running the family business. In the meantime, as the family matriarch ages, business fortunes dwindle and on the deathbed the matriarch bequeaths the business to the child who never did as well as the others education wise- never mind their zero involvement in the business at its prime. The result-a once blissful business weathers and soon follows its founder into the grave, in a graveyard littered with many similar brands run in similar fashion. And when the family starts fighting to divide late matriarch’s property (many die intestate) there goes the last nail on the coffin of a once blossoming family business!

Asian and western families approach their businesses differently, particularly Asians. From as small a business as a tea kiosk, through meticulous saving habits which run in their DNA, their children attend university knowing that when they graduate, the tea kiosk awaits them to grow into a hotel. They take up courses as nearly relevant to the family business as possible. Present-day Bidco, Mo and Azam brands come to mind among many others. While these businesses are likely to survive their founders, their long-term sustainability could be threatened by the ambitious millennial generation that their children are. “Yes our family owns this business and has educated me, but how many are we in this? I want mine, bigger…. You have exposed me to the world’s best and my Harvard colleagues are talking Analytics, IOT and BIG data, I belong there- not in a family business where my free voice (which Harvard taught me) is unlikely to be heard!” Though the author has not interviewed any of the bigger brands, a good number of Asian family-owned SME brands he has worked with are currently facing this challenge.

The writer is a franchise consultant helping indigenous East African brands to franchise, multinational brands to settle in the region and governmnents to create a franchise-friendly business environment.

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Thursday, January 18, 2018

Airlines expect to do brisk business after tough year

Airlines operating in Tanzania are optimist

Airlines operating in Tanzania are optimist this year. International Air Transport Association’s projections give them hope of business growth. PHOTO |FILE 

By Alex Malanga @ChiefMalanga amalanga@tz.nationmedia.com

Dar es Salaam. Airlines expect a brisk business this year.

Together with the International Air Transport Association (Iata) growth forecast and Tanzania’s possible economic expansion, they hope to post substantial gains.

However, recent World Bank projected growth rates of 6.6 per cent in 2017 and 6.8 per cent in 2018, down from 7.1 per cent may make their goals elusive.

Last month, the International Monetary Fund (IMF) also warned that Tanzania’s economic growth was showing signs of slowing down due to decreased government spending as well as lower-than-expected tax revenue collection.

It also noted weak private sector credit growth and increased nonperforming

Iata reports show that while African airlines generally continue to make loss, passenger demand continues to be healthy and demand side growth of around eight per cent is expected in 2018.

“Our business was good last year, and growth is likely to be stronger in 2018,” noted Air Tanzania Company Limited (ATCL) managing director Ladislaus Matindi.

He said in the second half of this year financial year, ATCL surpassed its target of serving 110,000 domestic passengers.

“So far we have surpassed the target by almost 100 per cent. This is a good indication and we hope by the end of this financial year in June, we will be above the target by far.”

ATCL has two aircraft, and expects three more this year.

It also hopes that its launch of the Zanzibar-Comoro route will attract more customers.

The company will improve service quality and provide them at affordable prices.

Plans are underway to launch Airtel Money and CRDB payment services for customers as the company uses M-Pesa services in payments.

After receiving all of its aircraft this year, ATCL expects to open new routes to Kenya, Uganda, Burundi, Rwanda, Zambia and DRC.

It also eyes Far East, Middle East, Europe, South Africa and West Africa markets. It is also plans to increase its frequency on its Mbeya, Dodoma and Mwanza routes.

“Tanzania’s economic figures are very impressive. This will leverage on new business opportunities and hence more money in circulation,” Mr Matindi said.

Precision Air’s plans for 2018

“We won’t have new routes but we’ll increase frequencies,” Precision Air corporate affairs manager Hillary Mremi noted.

Plans are afoot to increase frequencies to Kahama and Entebbe from three days to daily and four to five days per week respectively.

“This financial year will end with the same figures of 408,807 of passengers, recorded in the previous financial year that ended in March 2017,” he said.

“We are optimistic with economic trend and Iata’s forecast. We have all what it takes to perform well.”

He also hopes that the signing of a Bilateral Air Services Agreement between Tanzania and India held last year has huge potential. Precision Air opened a number of new routes last year. They include Dar-Kahama, Dar- Seronera (Serengeti), Dar-Zanzibar-Arusha and Dar- Entebbe.

From its hub in Dar es Salaam, Precision Air flies to Arusha, Kilimanjaro, Mwanza, Bukoba, Musoma, Kigoma, Tabora, Kahama, Mtwara, Zanzibar, Seronera, Nairobi and Entebbe. Mr Mremi speaks of numerous charges as restrictive to growth.

They include those for landing, parking, passenger services, departure and navigation. Others are an 18 per cent VAT on leasing aircraft as well as spare parts, fuel and expert training

“It is not much of a surprise that those costs are surging hence eating into earnings,” he lamented.

“In a broader sense, greater stability, the recent upward trend for commodity prices and healthy forecast continental growth bode well for future demand stimulation,” Fastjet airlines marketing and communications general manager Hein Kaiser told BusinessWeek.

“Fastjet expects to perform well during 2018 as we not only build our fleet in Tanzania but also our network. Plans are afoot to increase our fleet and roll out new routes.”

At present Fastjet has two Embraer E190 aircraft in Tanzania, two Embraer E145 aircraft in Zimbabwe and another E145 in Mozambique.

Year 2017 was good

He said 2017 was good for Fastjet in the sense that the implementation of fleet changeover programme, network reconfiguration and rebuilding phase came to fruition. During 2017’s implementation of our stabilisation plan, Fastjet suspended loss-making routes that were carrying limited numbers of passengers on an inefficient aircraft size.

The airline reconfigured its fleet composition to match aircraft gauge to market demands and accordingly adjusted the schedule.

The move was necessary to position Fastjet for growth in 2018 and beyond.

“The past year has been a very positive one for us as we launched a new market in Mozambique, increased frequencies on some of our trunk routes in Zimbabwe and continued to build the airline following the successful implementation of our stabilisation plan,” he noted.

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Thursday, January 18, 2018

TZ offers potential amid World Bank’s low growth forecast

 

By PAUL KIBUUKA paul.kibuuka@isidoralaw.co.tz

Last week I learned that the World Bank downgraded its Tanzania economic growth forecast for the just-ended year to 6.6 percent, and expects growth to hit 6.8 percent this year, and 6.9 in both 2019 and 2020. (See, The Citizen, January 11, 2018)

But these projections are in contrast to the Tanzanian government’s target of real GDP growth of 7.2 percent in FY2017-18 based on an expected growth of 7.1 percent in 2017 and 7.3 percent in 2018.

Slowed growth in China, along with low commodity prices, high levels of debt and rising default rates and policy uncertainties have contributed to the cut in the World Bank’s forecast for Tanzania, according to the January 2018 edition of the Global Economic Prospects report.

However, despite this projected slowdown, I am optimistic about Tanzania’s long-term economic future.

Investing, after all, is all about discerning value where it just doesn’t seem to be present. Thus, although Tanzania cannot be perceived as weak in Africa terms, Tanzania may well offer unexpected value in the next few months.

Not surprisingly, the World Bank expects Tanzania to be the fastest growing economy in the East African Community bloc, and one of Africa’s fastest growing economies.

Economic data released by the government has spurred some scepticism with assertions of data being exaggerated; nevertheless, to a remarkable extent, investors I have spoken to still consider Tanzania a positive investment destination, citing President Dr John Magufuli’s relentless assault on corruption and laziness.

Tanzania is one of the top 10 recipients of foreign direct investments (FDIs) in Africa, according to the latest edition of the African Economic Outlook report. The Tanzania Investment Centre (TIC) is targeting to attract $5 billion in FDIs into the country by 2020 to drive further growth.

With global companies such as Heidelberg Cement Group and Citibank established in Tanzania, the country is basically a launch pad into the rest of Africa due in part to its long-standing political stability and the strategic geographic location, whereby 6 landlocked countries surround Tanzania.

Nevertheless, a good understanding of Tanzania’s political environment, including laws and regulations that influence or restrict business and investment activities, is crucial for any investor sizing up Tanzania.

Tanzania’s demographics exhibit huge potential

Tanzania’s youthful population is under 25 and growing rapidly because of the high fertility rate of 5.5 per woman, compared to a global figure of 2.5, according to the latest Thematic Report on Fertility and Nuptiality of the National Bureau of statistics.

Paradoxically in the absence of direct jobs, as Tanzania’s working-age population rises and pension awareness is enhanced, savings increase and this turns into a source of funds for investment.

Annual investment by the social security sector in Tanzania increased by Sh4.9 trillion to Sh9.30 trillion in 2015/2016 from Sh4.40 trillion in 2011/2012, according to the SSRA’s sectoral statistics released in June 2016.

In short, Tanzania’s demographic profile can help drive asset prices and eventually consumer spending and boost GDP growth.

Trade, natural resources and tourism are fundamental drivers

Trade is still a cherished source of income for Tanzania and trade partnerships can be seen through Kenya, South Africa, China, India, UAE, Japan and Switzerland. Export earnings amounted to $8,753.3 million in the year ending April 2017.

Beyond this, Tanzania is abundantly endowed with natural resources for developing into one of the world’s richest countries. For example, the country has extensive gas fields, and a $30 billion liquefied natural gas (LNG) export terminal is planned. And perhaps most notably, Tanzania is Africa’s fifth largest producer of gold.

With 44 million hectares of arable land available, Tanzania offers strategic investment opportunities for investors in rainwater harvesting for agriculture and livestock; large scale commercial farming; and agro-processing.

Other opportunities include, but are not limited to, PPP projects in power, roads, railways, telecoms and other economic infrastructures.

But of concern is Tanzania’s poor competitiveness ranking, which relates to the ease of doing business, even as the government recognizes that improved business regulation is critical for making economic progress. This will smooth the path to stronger investor confidence in Tanzania.

Tanzania has the added benefit of its growing capital market, where opportunities abound to invest capital to yield returns.

Banks in Tanzania are extending loan tenures, and they are also participating in loan syndications even though collaborative efforts are needed to address the causes and drivers of high lending rates.

Finally, despite the optimism engendered by Tanzania’s demographics and other fundamental drivers highlighted above, enhanced investments in business, legal, regulatory and institutional reforms as well as in human capital are still desperately needed in Tanzania. Such reforms should help improve the competitiveness of Tanzania.

Mr Kibuuka is the managing partner of Isidora & Company Advocates.

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Thursday, January 18, 2018

Why experts are worried about tight fiscal policies

Finance and Planning minister Philip Mpango

Finance and Planning minister Philip Mpango speaks at a past event. PHOTO|FILE 

By The Citizen Reporter @TheCitizenTZ news@tz.nationmedia.com

Dar es Salaam. The World Bank and the International Monetary Fund (IMF) have projected Tanzania’s lower economic growth rates.

Although the government expects a growth rate of above seven per cent, the Bretton Wood’s institutions project lower levels due to uncertainties ranging from weak budget implementation, challenging business environment and private sector concerns about authorities’ enforcement of rules.

A recent World Bank report forecast growth rates of 6.6 per cent in 2017 and 6.8 per cent in 2018.

Economists agree that the economy is shaken, but hope the situation will improve in the long team.

They cite the main challenge as economic consolidation stemming from austerity measures and a campaign against corruption and misuse of public resources.

“All these measures like squeezing expenditure, removing unqualified workers from the payroll can affect the economy in a short-term, but they are also grounds for putting the economy in a better position in the long run,” says Prof Delphin Rwegasira of the University of Dar es Salaam’s Economics Department.

“We need to consider the context in which the little-slower growth is happening because the new government has come up with different strategies to consolidate the economy in the long run. So, the growth may be below seven per cent this year but in the long term things will be in line with the government projection of 7-8 per cent to become a middle-income country.”

In its vision, Tanzania plans to transform itself into a middle-income status come 2025.

For Dr Abel Kinyondo, of Repoa, although Tanzania’s economy is affected by its contractionary fiscal policies and little participation of the private sector to the economy, there are opportunities which may stimulate its development.

“Things like the construction of the Uganda-Tanzania oil pipeline and the standard gauge railway are opportunities for creating jobs. If the government can also change its stance and expand the fiscal policies by involving the private sector, it could help more in building the economy,” he says.

According to him, maintaining the tight fiscal policies may plunge the country into recession.

“GDP is one of the worst indicators of economic growth because it does not separate local and foreign contribution and therefore doesn’t reflect the reality on the ground,” he says.

“We need to see more employment opportunities and better services like health, water and education and this is a real economic development.”

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Thursday, January 11, 2018

5 soft drink producers press govt on Sh30bn tax refunds

Finance and Planning minister Philip Mpango and

Finance and Planning minister Philip Mpango and his deputy Ashatu Kijaji keenly listen to discussants during the discussion on the 2017/18 Budget Framework Plan and National Development Plan in Parliament. PHOTO | file 

By Alex Malanga @ChiefMalanga amalanga@tz.nationmedia.com

Dar es Salaam. The government withholds more than Sh30 billion in refundable additional import duty on industrial sugar owed to five soft drink producers, a confederation says.

The Confederation of Tanzania Industries (CTI) has named the five soft drink producers as SBC Tanzania Ltd, Bonite Bottlers Ltd, Nyanza Bottling Company, Coca-Cola Kwanza and Bakhresa Group.

Initially, importers of industrial sugar were being charged 10 per cent duty, but the government raised it to 25 per cent in the 2015/16 financial year.

Import duty for sugar climbed to $460 (about Sh1 million) per tonne of the cost, insurance and freight (CIF) value of the imported product.

CTI criticised the imposition of 15 per cent additional import duty, saying it would kill innovation and cut jobs.

The government maintains that the move is aimed at protecting local sugar producers against imports.

CTI also unhappy with the government failure to honour an agreement on refunding the 15 percent duty as soon as it is proved that the sugar was indeed imported for industrial production.

“It is unfortunate that it is two and a half years now since the government has been holding our money,” CTI policy and advocacy acting director Akida Mnyenyelwa told BusinessWeek.

He laments that is contrary to the government’s industrialisation drive.

“The government should speed up the process of refunding... it should at least take two days for big firms and one day for small ones,” opined Mr Mnyenyelwa.

He suggests for removal of the 15 refundable duty. Only import duty of 10 per cent should remain if it is to do away with inconveniences in question and turn the country to an industrialised nation.

“Refundable import duty should be removed as it adds no value in the government’s basket of revenue,” opined Mr Mnyenyelwa.

Bakhresa Group corporate affairs director Hussein Sufian was once quoted by this paper as saying the 15 per cent refundable import duty was constraining the company’s cash flow.

“This increases the cost of doing business. In manufacturing, we use borrowed funds and therefore, delays in refunds are disservice to us as we will have to pay more interest rate after failure to pay loan on time,” said Mr Sufian.

Tanzania Private Sector Foundation executive director Godfrey Simbeye said the 15 per cent refundable duty attracted a liquidity problem.

“The policy hurts industrial sugar users. In that regard, we can’t be competitive enough to compete in international market.”

He alleged that the government was delaying to refund them because some manufacturers were using industrial sugar as the final product and not as a raw material.

He suggested that importers declare their suppliers so that it could be easy for the government to trace the matter.

“Why should the industry suffer because of a few players? Why doesn’t the government punish those who mess up?”

The Tanzania Revenue Authority (TRA) director for taxpayers services and education, Mr Richard Kayombo, reacted that the government was still undertaking the verification to prevent people from importing sugar for domestic consumption under the pretext of industrial sugar.

“The manufacturers’ funds are safe in the escrow account pending the completion of the auditing.”

TRA commissioner general Charles Kichere was last September quoted by BusinessWeek as calling upon CTI to ensure that its members utilise industrial sugar for the intended purpose.

“Experts believe that timely payment of refunds to companies is a legal obligation of the state. Thus, there is no excuse for delaying.”

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Thursday, January 11, 2018

Focus on withholding tax obligations

 

By Shabu Maurus

Withholding tax (abbreviated as “WHT”) is one of the greyest areas of the income tax law in Tanzania. It is an administrative mechanism for collection of income tax. Income tax is essentially a direct tax. Both the tax burden and the obligation to remit the tax to the tax authority fall on the same person.

However, under WHT, the obligation to remit the tax fall on the person making the payment. Income tax on salaries (the PAYE)) is probably the commonest WHT.

But deciding on WHT obligation is not always straightforward. Some provisions of the law are not clear. Some tax rules are very complex. WHT is, therefore, an area that is easily overlooked by taxpayers. As a taxpayer, however, your WHT obligations are not relieved by lack of clarity or complexity of the tax law. When making a payment there are at least four questions that need to be answered.

(a) Who are you?

Non-residents do not have WHT obligation in Tanzania. Also, individuals not engaged in business, generally, don’t have a WHT obligation. Investors under the Export Processing Zone and Special Economic Zone are relieved from WHT obligations on dividend and rent during the initial period of ten years. Strategic investors are also relieved of the WHT obligation on interest paid to non-resident banks. Resident organizations whose budgets are substantially funded from Government budget subvention have a special WHT obligation when making payments in respect of goods. Operators in the extractive industry have specific WHT obligations.

(b) Who are you paying?

If you are paying a person who is exempt from income tax, no WHT obligation arises. The Second Schedule to the Income Tax Act, Cap 332 lists several exempt persons. No WHT obligation if you are paying a resident financial institution an interest. There is also no WHT obligation on payment of rent to a resident person for use of assets other than aircraft, land, and building. WHT obligation does not arise if you are paying an insurance premium to a resident insurer. However, WHT obligation arises if the insurer is non-resident.

(c) Where is the source of payment?

Generally, WHT obligation arises on income sourced in Tanzania. To determine whether an income has a source in Tanzania or not, the income tax law prescribes various rules (the famous Section 69 of the Income Tax Act, Cap 332). But in some cases, the source rules can also be a source of complexity in determining a WHT obligation.

(d)What are you paying for?

What you paying for determines your WHT obligation. WHT obligation does not arise if you are making payment in respect of goods. But there are two exceptions. If the paying organization is substantially financed by the government, WHT obligation arises. WHT obligation also arises if the payment is to a resident person and in respect of specified minerals.

WHT obligation may arise when paying a dividend, interest, natural resource, rent or royalty. Also, payment of service fee may attract WHT. Generally, WHT applies on income from services or investments. But it is not a blanket application. There are myriad of inclusion or exclusion rules which may be adjusted depending on the status of the payer or payee or the source of that income.

What to do

There is no simple formula available to taxpayers. Navigating the above four questions may prove to be extremely challenging. Especially for lay taxpayers or non-routine transactions. If you are in doubt on whether WHT obligation would arise or not, consider getting an advice from your tax consultant or your nearest tax office before making payment. To policymakers, the simpler the better.

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Thursday, January 11, 2018

YOUR BUSINESS IS OUR BUSINESS: Use lotteries to finance industrialisation agenda

 

By Karl Lyimo

Lexicographers tell us that ‘industrialisation’ is the process by which an economy is transformed from, say, primarily agricultural to one based on goods manufacturing.

The transformation is basically through large-scale introduction of manufacturing, advanced technologies, and other productive economic activities. Manual labour is often replaced by mechanised mass production, with craftsmen replaced by assembly lines. Lexicographers also tell us that a lottery is ‘game of chance…’ and that a lottery – variously known as a raffle, prize draw, sweepstake, sweep, bingo, lotto, tombola, drawing-of-lots, pools, etc. – is ‘a means of raising money by selling numbered tickets and giving prizes to the holders of numbers drawn at random.’

A ‘game of chance’ – as opposed to ‘a game of skill(s)’ – is usually played for money or stakes, and the ‘winner’ is determined by a chance event, such as by drawing numbers, throwing dice, tossing/flipping a coin… [This is unlike a game of skill(s) where the outcome is determined mainly by mental or physical skills, rather than by chance. Poker is one such game, which may involve ‘bluffing skills and other forms of psychological warfare!]

This literary piece was prompted by an event 449 years ago to the day when the first recorded lottery in England took place on January 11, 1569, with a £5,000 the jackpot. Roughly Sh15.2m at current exchange rates.

But lotteries – or what passed for lotteries the way we know them today – date back to Classical history. E.g.: ‘Keno Slips’ from the Chinese Han Dynasty (205-187BC) which financed major government projects.

The term ‘lottery’ is derived from the Dutch word ‘lot,’ meaning ‘fate’ – and the Dutch state-owned ‘Staatsloterij’ is ‘the oldest running lottery!’

Tanzania clambered aboard the ‘Lottery Bandwagon’ with its 2003 Gaming Act (Chapter 41 of the Laws of Tanzania) which, among other things, formalized the business – and imposed a ‘gaming tax’ on licensed gaming activities. Fair enough…Tanzania can go further, by harnessing the ‘lottery industry’ potential to fund President Magufuli’s industrialization agenda – thereby shifting industrialisation from the backburner to the front-burner! Britain used the money raised from its ‘lottery business’ to “expand the Royal Navy, develop seaports, and establish colonies and export markets.”

China used funds from its ‘Keno’ betting slips to finance state projects, including the historic Great Wall of China. Tanzania is today home to several ‘betting openings’ – including at least 11 on soccer alone: SportPesa; M-Bet; Mkekabet; Meridianbet; PremierBet; PrincessBet; MojaBet; Sokabet; ThroneBet; FastBet, and SupaBets… [kampuni-za-kubeti-mpira-nchini-Tanzania/>]. According to the state Gaming Board Director-General Abbas Tarimba, “over Sh1.5 trillion ($686 million) is generated into the economy annually via gaming activities. The gaming industry contributed three per cent to the 2015 GDP, totaling US$45.63 billion. [/www.kasomafrica.com/lotteries-in-tanzania/> Aug. 24, 2016].

Unfortunately, the volume in monetary terms of the gaming subsector is unknown as much of it is informal, clandestine. But, apparently, it is mammoth… So, in My Book of Things, President Magufuli’s Administration should seriously explore ways and means of harnessing and tapping the latent potential in the lotteries business to help execute his industrialisation agenda.

We’ve seen lesser, ‘sub-sub-sectors’ contributing to industrialization – albeit doing so on the sidelines of the Economy. Among them are scavengers of empty bottles and scrap metal for the recycling industries!

Well, why not use lottery proceeds to directly finance industrialisation, pray…? Cheers!

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Thursday, January 11, 2018

FRANCHISE: Franchisee’s role in franchising

 

By Wambugu Wa Gichohi

By the very nature of franchising, the franchisor, having spent considerable time and money developing the franchise network has an upper hand in the alliance. At the same time the franchisor seeks to attract and retain worthwhile franchisees seeking to fulfill their personal and financial goals through the franchisor’s system. To maintain this balance, the franchisor must play low and prepare a franchise agreement that achieves this position. The roles of each party must be clearly defined and those of the franchisee broadly include the following.

The franchisee provides expansion capital: All franchised units are owned by franchisees, who provide all capital necessary to acquire the franchise rights, build, stock and operate the franchise outlets on pre-agreed terms.

They also pay the franchisor ongoing monthly royalties based either on monthly turnover or a fixed amount, in addition to supporting the national marketing budget and doing their own territorial marketing. Additional support needed from franchisor such as book keeping, staff recruitment and training is also paid for.

The franchisee avails management time needed to successfully run their outlet: Franchisees own and run their units, thereby removing micro-operational headaches from the franchisor who now concentrates on the macro issues of the network roll-out. This also ensures better operational efficiencies as owner-managers are more committed to the success of their businesses than company employees. Franchisor’s therefore look for not just financial investors (franchisors can raise equity funds easily) but individuals who can commit their time-in addition to finances-in running the franchise.

The franchisee provides the franchisor in-depth market intelligence: Franchisees are responsible for all marketing activities in their assigned territories. They have better local knowledge and a stronger foothold in the territories, normally being respected individuals in their locality.

They are therefore better placed and bound to collect and avail to the franchisor valuable in-depth market intelligence that the franchisor cannot get using other conventional business models. This information is valuable in enabling the franchisor to disrupt the market through marketing programs and products that stay at par if not ahead of market trends.

The franchisee provides business sustainability: Ideally, franchisees are recruited locally, meaning they are fully conversant and compliant with local customs, culture, practices and qualifications (where necessary as in the case of the legal profession in East Africa where Kenyan lawyers cannot freely practice in Tanzania), thereby offering a better chance of business sustainability than through company-owned outlets. Family-owned businesses would better wake up to the reality that when the matriarch dies, the businesses die as well. Franchising gives them a real chance to survive the family matriarch.

Constant income to franchisor: The essence of franchising is that the franchisor earns royalties from the business system and intellectual property developed over time.

The writer is a franchise consultant helping indigenous East African brands to franchise, multinational brands to settle in the region and governments to create a franchise-friendly business environment.

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Thursday, January 11, 2018

Hoteliers battle fall in occupancy rates

Hoteliers say to impress more customers, a

Hoteliers say to impress more customers, a number of attractions should be upgraded. PHOTO|FILE 

By Gadiosa Lamtey @gadiosa2 glamtey@tz.nationmedia.com

Dar es Salaam. Occupancy rates in hotels and similar establishments in Dar es Salaam have fallen terribly.

This is because the city centre has few tourist attractions, analysts say.

Also, there are few places in the city centre where they can spend their free time on buying goods from global brands or enjoying cultural and historical heritage.

A recent report by the National Bureau of Statistics shows that the rates of bed occupancy in April 2017 dropped by 3.4 per cent from the level in a similar month in 2016.

Hoteliers say some attractions require the upgrading to attract more customers.

Many hotels around city centre depend on customers coming for meetings and businesses.

Around the city centre, there are more than 10 famous hotels. They include Serena, Courtyard, Holiday Inn, Southern Sun, Hyatt Regency, Ramada Encore and New Africa. Most of hotels target visitors who come for meetings and businesses in Dar es Salaam.

“In three years, we operate at close to 50 per cent occupancy despite Dar es Salaam being a business hub and the financial capital. Tourist attractions can be developed for leisure and vacation travellers as well,” said Ramada Encore operations manager Saumitra Gaur. “That way, depending on business travellers alone would fall. The seasonality of the business for the hotels would no longer be an issue as the visitors would be able to come to Dar es Salaam more often for vacations.”

He said it was important to upgrade infrastructure, museums, zoological gardens and theme parks to attract visitors to Dar es Salaam who will also stay in its hotels.

Peacock Hotels operations director Daniel Mfugale told The Citizen that generally occupancy rates in most Dar es Salaam hotels dropped in 2017.

Although business at Hyatt Regency in Dar es Salaam was relatively good last year, sales and marketing director Denis Glibic said the lack of tourist attractions in the city was also a big challenge to guests.

He urged authorities upgrade tourist attractions and add new ones. “Last year was not bad for our hotel as we finish the upgrading of rooms and other areas. This year will be a challenging one as the government is shifting its base to Dodoma. But we will find a way to maintain our customers.”

Hotels Association of Tanzania CEO Nura Karamagi said the fall in occupancy rates was caused by low tourist arrivals.

She suggested that more efforts be made to increase the number of tourists.

“We are in discussion with the government to find ways of increasing the number of tourists. Unless the challenge is tackled hotels will lose.”

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Thursday, January 11, 2018

Basics of investing in stock market that one should know

 

By Moremi Marwa

Let us start the New Year, 2018 by going back to the basics: what does owning shares mean, what is a share, who can issue shares, who can invest in share, etc.

Owning shares

Wouldn’t you love to be a business owner without ever having to show up at work in the company to which you have invested? Imagine if you could just be sitting back, watch your company grow, and collect the dividend cheques as the money rolls in! and in case of liquidity challenges and you real need money, you can just look into the TV or reading a newspaper, get the value of your investment based on the indicative market price, call a broker, place a sale order and there you are – have the money you really needed. This situation might sound like a dream, but it’s closer to reality than you might think.

This is what owning shares in the company listed in the stock exchange is all about.

When you start on your road to financial freedom (some say to measure your financial freedom you take your current annual income multiply by the number of years to retirement), you need to have a solid understanding of shares and how they trade on the stock market – commonly known as the stock exchange – such as the Dar es Salaam Stock Exchange.

Over the last few decades, the average person’s interest in the share market has grown exponentially. Shares are now widely considered as the vehicle for growing peoples’ wealth and a sustainable tool of income earning. We might somehow have come across a story of one real rich man called Warren Buffet of Omaha, Nebraska in the United States of America, who, together with his partners, have made significant amount of wealth through investing in shares via a company called Berkshire Hathaway Inc.

Despite listed shares popularity, however, most people in our society don’t fully understand or appreciate the concept of shares and it can be a means to enhance one’s income and wealth without necessarily have to invest time and such related resources working in the company to which you have invested into, if the economy is not doing so well or the company is mismanaged, shares can be a cause of poverty and financial distress. That’s why you have probably heard comments from relatives and friends with either says: “So and so auntie made a killing in DSE shares recently, and now she’s got another hot tip...” or “Watch out with shares-you can lose everything in a matter of days!....” So much of this misinformation is based on a get-rich-quick speculative mentality. This being the case, there are some misinformed people within our societies who sometimes make us think that shares are either the magic answer to instant wealth with no risk or that investing in shares is like gaming and gambling.

Shares can (and do) create massive amounts of wealth, but they aren’t without risks. The key to protecting yourself in the share market is to understand where you are putting your money. It is for this reason that we have initiated and embarked in these thought leadership initiatives on matters related to investing in securities that are listed in the stock markets i.e. shares, bonds, etc to provide the foundation you need in order to make investment decisions yourself in an informed fashion. Yes, you might need to seek investment and financial advice from more sophisticated and trained individuals, but you will have the basics.

So, what is a share?

A good place to start on your basic investment knowledge journey is to understand what a share is, different types of shares and the share market. So let’s begin at the beginning with a basic understanding of what shares are. Plain and simple, shares represent ownership of a company. A share represents a claim on the company’s assets and earnings. As you acquire more shares, your ownership stake in the company becomes greater. Whether you say shares, stocks, equity, it all means the same thing.

By buying a share, money, which could have been idle or otherwise, held in low interest earning savings in banks and other financial institutions and instruments moves to a more productive economic activity.

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Thursday, January 11, 2018

Insurance industry posts healthy growth to reach Sh660bn

Commissioner of insurance Baghayo Saqware

Commissioner of insurance Baghayo Saqware speaks at a past event. With him is Tanzania Insurance Brokers Association president Mohammed Jaffer. PHOTO|FILE 

By Alex Malanga @ChiefMalanga amalanga@tz.nationmedia.com

Dar es Salaam. The insurance industry grew by 7 per cent to Sh660 billion in 2016 compared to the previous year, a new report shows.

It was quoted at Sh618.9 billion in 2015, according to the report dubbed ‘Annual Insurance Market Performance Report for the Year Ended 31st December 2016,’ which was launched last December.

The Tanzania Insurance Regulatory Authority (Tira) attributed the performance to its strong initiatives including, public relations, insurance week celebrations and capacity building for industry stakeholders. Also in a pipeline are supervision of the authority’s zonal offices operations and consumer education through seminars and workshops.

Tira, according to the report was and still is committed towards promoting micro insurance work for Tanzanians by launching the regional business case sessions in Mwanza and Iringa to create direct linkages with the rural communities. “Total volume of business, in terms of gross premiums written for both general and life assurance businesses, increased by 7 percent in 2016, well below by 80 per cent of the industry’s projected growth of 15 per cent, “ reads a report in part.

Report indicates significant improvement in performance in medical and health classes of insurance, with in 2016 alone a total of 702,598 members and 3,377,023 beneficiaries reportedly to have been covered by the National Health Insurance Fund (NHIF).

The Community Health Fund took the lead by covering 1,452,855 members and 8,717,130 beneficiaries.

During the period total contributions of NHIF amounted to Sh354.4 billion, with total benefits payment to the fund beneficiaries amounting to Sh218.7 billion. Going by the report figures, insurers’ total investments increased by 14 percent to Sh518.6 billion during the period under review compared to 2015.

The largest share of insurers’ investment assets comprised bank deposits, accounting for 47 per cent.

It was followed by government securities and real estate investments and shares, contributing 20.8 per cent, 16.1 per cent and 13.3 per cent, in that order.

Investments in related parties and other financial investments accounted for 1.8 per cent and one per cent respectively.

Meanwhile, insurers’ net worth increased by 9.2 percent to Sh268.1 billion compared to Sh245 billion at end of prior year. The country’s insurance penetration (premiums as a percentage of Gross Domestic Product (GDP) has remained largely at 0.7 percent during the last five years, 2012-2016.

This is attributed to parallel growth recorded in the national economy during the period under review. The contribution of the insurance companies to the wider Financial Sector GDP -premiums as a percentage of financial and insurance GDP, slightly decreased from 19 percent in 2015 to 18 percent in 2016.

Over the past ten years, the lowest ratio was recorded during 2016; while the highest ratio was recorded in 2014.

The insurance companies contributed to the government through payment of corporate taxes amounting to Sh10 billion in 2016 compared to Sh9.97 billion in 2015.

Other sources include Value Added Tax (VAT), Withholding Tax and Levies to the Government.

Apart from the tax benefits enjoyed by the government, insurance industry during the period was reportedly to have created jobs for more than 4,000 people.

Under the period of reference, the Tanzania insurance premium per capita- the ratio of insurance premium to country population, grew by 6.6 percent to Sh13, 807.7 in 2016 from Sh12, 946.84 in the previous year.

The total number of insurance companies registered under the Insurance Act, as at 31st December 2016 (including one reinsurance company, Tan Re) was 31.

Out of these, 24 insurance companies are privately owned with at least one third Tanzania citizen ownership, two companies are 100 percent state owned by the government, while five companies are 100 percent owned by Tanzanians.

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Thursday, January 4, 2018

Diesel consumption down as companies shift to gas

Guests are taken round new Sahara Tanzania oil

Guests are taken round new Sahara Tanzania oil storage facilities with a capacity of 36 million litres at Kigamboni in Dar es Salaam recently. PHOTO| EMMANUEL HERMAN 

By Alex Malanga @ChiefMalanga amalanga@tz.nationmedia.com

Dar es Salaam. Diesel consumption is falling while that of petrol, kerosene and aviation fuel is increasing.

Diesel consumption decreased by 1.9 per cent in the first 11 months of 2017 compared with that in a similar period the previous year, according to data from the Petroleum Bulk Procurement Agency (PBPA).

The average monthly diesel consumption was 148 million litres in 2017, down from 151 million litres the previous year, PBPA cited Energy and Water Utility Regulatory Authority reports.

That happened despite the fact that diesel imports climbed to 1.1 million tonnes from 935,092.37 tonnes.

PBPA acting supply manager Raymond Lusekelo hinted that some companies shifted to use of natural gas.

He also attributed the trend to the government’s control of localisation of petroleum products which were meant for transit.

‘’The move by the Tanzania Revenue Authority to adopt the technology that can track the cargo and reduce the risk of being diverted while in transit as it used to be in those old days might also have been one but not limited to the factors behind the decrease in consumption of diesel,’’ noted Mr Lusekelo.

As demand for diesel dwindled, the consumption of petrol and aviation fuel (Jet A1) and kerosene was increasing.

The total local average petrol consumption amounted to 714,949.49 tonnes from 662,690.16 tonnes, with that in transit going down to 637,654.08 tonnes from 657139.43 tonnes.

“Ahead of the end of the year, from September, most people use private vehicles to travel to upcountry hence high demand for petrol. This might be the like hood reason behind the trend,” a source with knowledge of the sector commented in condition of anonymity.

Consumption for aviation fuel and kerosene was 1.8 per cent higher to notch 21.6 million litres.

Increase in the use of aviation fuel and kerosene despite a decrease in its import both for local and transit to 179,531.93 and 65,104.08 tonnes from 186,993.47 and 72,349.5 tonnes respectively might be fuelled by a rise in the number of airlines in 2017 compared with the previous year.

In January the Tanzania Civil Aviation Authority licensed 10 airlines, bringing the total number to 63 from 53 during the period.

Mr Lusekelo believes that with the increasing number of operators with storage facilities to 23 more businesses will be attracted at the Dar es Salaam Port.

He was speaking during the inauguration of Sahara Group storage facility of 36 million litres recently.

According to Mr Lusekelo, out of 40 operators only 23 players have their own storage facilities with a total capacity of 1 billion litres.

The top three leading company in terms of storage capacity is Tiper, GBP Tanzania and Gapco Tanzania, with 211.4 million litres, 122.5 million litres and 101.3 million litres respectively.

As of December 15, Tanzania had a total of 198.6 million litres and 333.9 million litres of petrol (total of local and transit) and diesel against the storage capacity of 288.7 million litres and 627.9 million litres.

It had 32.1 million litres and 6.9 million litres of aviation fuel and kerosene against the storage capacity of 72.8 million litres and 27.2 million respectively.

“The entry of Sahara Tanzania Limited into the oil and gas sector in the country is commendable indeed as it has come at a period when the administration of President John Magufuli is spearheading a drive to bring about significant investment in the sector,” noted Mr Lusekelo.

According to Sahara Tanzania Limited terminal manager Taofik Lawal “We bring smart solutions to energy needs by deploying the best possible technology as well as distribution and storage facilities that are world-class. Our operations are guided by best international practices and we are passionate about total quality management and excellent service delivery.”

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Thursday, January 4, 2018

Stable food, oil prices keep inflation rate at single digit

 

By Mnaku Mbani @mnaku28 mmbani@tz.nationmedia.com

Dar es Salaam. Stable food and energy prices helped to maintain inflation rate at a single digit last year, The Citizen has learnt.

Headline and core inflation rates remained at single digits between January and November 2017, consistent with the monetary policy stance, and assisted by prudent fiscal operations.

National Bureau of Statistics (NBS) reports have shown that the inflation rate has averaged 4.9 per cent during the first 11 months of 2017.

The monthly inflation rate started 2017 at 5.2 per cent, before increasing to 6.4 per cent in March and April.

It hit the lowest rate of 4.4 per cent in November 2017.

However, overall Consumer Price Index increased to 108.94 in November 2017 from 105.92 in January 2017. The increase of the overall index is mainly attributed to price increase for food and non-food items.

NBS monthly price reports showed that good harvests earlier 2017 improved significantly the availability of food, lowering prices and reducing the headline inflation rate to below the medium-term target of 5 per cent.

That kept inflation within the authorities’ target range.

Analysts and economists say the annual inflation rate stabilised due to good harvests and low oil prices.

Although prices of beans and rice increased by 14 and 29 per cent respectively during the year that ended in September while prices of maize – a staple -- fell by one per cent.

The Bank of Tanzania’s Monetary Policy Statement for June 2017 showed that the headline inflation was projected to remain around the medium term target of 5 per cent as food supply would improve due to favourable weather.

The trend indicates that inflation will remain at a single digit in 2017/18, supported by decline in food and energy prices.

NBS reports have indicated that food and non-alcoholic beverages inflation ranged from 7.6 and 11.8 per cent from January to November 2017.

The major drop was experienced on restaurants and hotel where its inflation was below one per cent since April 2017 from four per cent during the first three months of last year.

Inflation rate for health dropped from 4.8 per cent in January 2017 to two per cent in November.

Other commodities and services with their inflation rates in January 2017 in brackets were alcohol (1.6 per cent) and tobacco (5).

The rates fell to 1.4 and 2.5 per cent in November.

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Thursday, January 4, 2018

MANAGING TAX RISKS: Cash hurdles you may face in 2018

 

By Shabu Maurus

As we start the year 2018, most of us have a multitude of resolutions or objectives. It is normal. Some would write them down and some may not. Some of the resolutions are financial or financial related.

Setting resolutions may be easy but accomplishing them may be quite a chore. There are a number of challenges that can come on your way. And tax is likely to one of them. This is especially true if you are in business and you are not actively managing your tax affairs. Handling of your tax affairs can no longer be a business as usual.

The tax landscape in Tanzania has significantly changed recently. The tax laws are changing. In 2017 alone, there were at least four legislative instruments that amended some tax laws. The tax authority is also becoming very aggressive in their interpretation of tax laws as well the actual tax collection.

Tax compliance and risks

Tax compliance broadly may involve registration, de-registration, the filing of tax returns, making tax payments, or giving the tax authority business information. Is your organization aware of these various obligations as they relate to its business? Not doing any of those actions within the prescribed timelines may attract unexpected penalties. And if the inaction amounts to an offense, a fine or jail term or both may apply.

There are various reasons non-compliance may happen. Sometimes non-compliance can happen due to organization’s failure to apply tax laws, regulations and decisions to routine business operations. For example, selling a product to a sister company may have different tax implications from selling the same product to the un-related company. So similar sale transactions, but different tax implications. The question is whether the organisation is able to identify and manage that risk.

Non-compliance can also come from a failure to correctly apply the relevant tax laws to specific transactions. This is especially likely for the unusual or non-routine transactions. It can be a sale of fixed or capital assets, sale of business or part of the business or a restructuring project. For example, the sale of building, land or share is subject to a specific tax treatment. Is your organisation aware of these specifics?

Tax management

Tax management is a systematic process. A process to identify tax risks; to assess, rank and prioritise the various tax risks facing the business. It is also a process to respond to the tax risks and continuously evaluate the responses for improvement.

How does the board of directors of the organisation ensure that tax affairs of their organisations are managed properly? Does the board know all taxes that their organisation is obliged to comply? Ultimately, it’s the board that is responsible for actions or inactions of their organisation. It is not uncommon to find out that some organisations do not even know all the taxes that they are required to comply.

Unfulfilled resolutions

The consequences for not managing your tax affairs are numerous. And most of these are likely to come as a surprise.

TRA can demand tax from you based on their best judgment if you have not supplied them with sufficient business information. Some of the demands can be very frightening to your business.

Penalty and interest can also be demanded. Your business premises can be closed leading to losses as business operations stop.

The tax authority can also recover tax directly from your bank accounts. TRA can also recover the tax from some or all your customers who buy from you on credit.

Any of these can be enough to paralyze your well-crafted resolutions!

Mr Maurus is a partner with Auditax International

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Thursday, January 4, 2018

YOUR BUSINESS IS OUR BUSINESS: Stock exchanges: from NYSE to Dar bourse…

 

By y Karl Lyimo

Historians – no doubt working through the ubiquitous Internet – never fail to remind the world that it was on a date like today’s (January 4) in 1865 that the New York Stock Exchange (NYSE) opened its permanent headquarters near Wall Street in the US city of New York.

While NYSE was founded in 1792, its very, very ‘distant cousin,’ the Dar es Salaam Stock Exchange (DSE), was founded in Tanzania on September 19, 1996 – some 204 years later!

Very briefly, a ‘stock exchange’ is a bourse, mart or marketplace where stock brokers and traders can buy and sell shares of stocks, bonds and other ‘securities’ – including ‘fungible, negotiable financial instruments that hold some type of monetary value.’

A ‘security’ in this context represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity’s bond), or rights to ownership as represented by an option.

You don’t get it? Well… never mind that for now!

DSE was established a little more than 21 years ago in Dar es Salaam, Tanzania’s de facto capital and most important metropolis every which way you look at it.

‘Jointly owned’ by the government of Tanzania (70 per cent) and the public (30 per cent), DSE boasted a market capitalization of some Tsh23,721.49 trillion in June 2015 – and 26 listings of companies whose shares are traded on the local bourse.

By comparison, the world’s four biggest stock exchanges as of June 2015 (with their market capitalization shown in brackets) were the New York blockbuster (NYSE: $19.223 trillion); NASDAQ ($6.831 trillion); London Stock Exchange Group (LSE UK&Italy: $6.187 trillion), and the Japan Exchange Group ($4.485 trillion).

The term ‘market capitalization’ denotes the value of a company that’s traded on the stock market. It’s calculated by multiplying a company’s outstanding shares by the current market price of a share. For example: a company with 20 million shares selling at (say) Sh100 apiece would’ve a market capitalization of Sh2 billion…

… Easy as falling off a log rolling downslope on a dark, wet night, isn’t it?

The investment community uses market capitalization to determine a company’s size, as opposed to using sales or total asset figures.

This is important because the size of a given company is a basic determinant of various characteristics in which investors are interested, including especially the risk factor.

Usually, a stock market is split into a primary and secondary market.

The primary market is where new issues by companies ‘going public’ are first sold through an initial public offer (IPO) – with the worth of the company and the amount of shares being issued determining the opening stock price of the IPO.

Subsequent trading goes on in the secondary market, where participants include institutional and individual investors.

Noteworthy is the fact that listed companies are entitled to the money raised from their IPOs – but aren’t entitled to any money from the buying and selling of its shares thereafter!

So much, then, for stock exchanges – at least from the NYSE, founded in 1792, to DSE, a 1996 ‘sibling still in nappies’ businesswise!

Another January 4 development…? Well, the English mathematician-cum-physicist Isaac Newton was born on today’s date in 1643… And the French educator-cum-inventor of the ‘Braille’ for the blind, Louis Braille, was born on January 4, 1809… Cheers!

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Thursday, January 4, 2018

What ails fertiliser bulk procurement system faces hurdles

Since more than 90 per cent of fertilisers on

Since more than 90 per cent of fertilisers on sale in Tanzania are imported, urban centres are only entry points before storage and distribution. PHOTO|FILE 

By Rosemary Mirondo @mwaikama rmirondo@tz.nationmedia.com

Dar es Salaam. The fertiliser bulk procurement process faces obstacles, the regulator says, as retailers continue buying the commodity from wholesalers at retail indicative prices.

Tanzania Fertiliser Regulatory Authority (TFRA) econometrician Ban Nkonya warns that unless the challenge is tackled, farmers will be uncertain about getting fertilisers.

“The new indicative price is more transparent and enables retailers to know the prices at which they can buy from wholesalers and sell it profitably,” he said.

Explaining he said that in the indicative pricing structure, more margins have been put towards rural areas.

That places the fertiliser market where it is supposed to be: in rural areas.

Since more than 90 per cent of fertilisers on sale in Tanzania are imported, urban centres are only entry points before storage and distribution.

He said for the distributor and wholesaler to get profits, they have to transport the fertiliser in bulk to regional and district market outlets where retailers are found.

According to him, farmers should find the fertilisers as close as 30 km from their farms, adding that the fertiliser bulk transportation contributes to farm gate price reduction through application of the economies of scale.

“Transportation in bulk has been tested over the last three months and proven to reduce the transport cost by more than 50 per cent compared to a retailer who transports fertiliser in small amounts,” he said.

According to him, a retailer who transports 3.5 tonnes of fertilisers from Dar es Salaam to Makambako spends Sh5,000 per bag. The transport cost decreases by 30 per cent if two retailers transport a cargo of 10 tonnes in one truck. It further falls to 55 per cent if 10 retailers hire a 30-tonne semi-trailer to transport 600 bags.

“The scenario of volume discount through application of the economies of scale principle was applied to enable retailers maximise profits while complying with indicative prices set by the government,” he said.

Since Tanzania now has indicative prices for wholesalers and that more marketing margins have been set towards the retail market outlets, it is expected that distributors will be transporting fertilisers in bulk even using the railways, reducing the transport cost further.

He said the fertiliser price reduction was necessary but not a sufficient condition for increased fertiliser utilization by smallholder farmers. According to him, for the fertiliser market to be more vibrant and competitive, the supply and demand sides for optimal market underpinnings aimed at enabling small holder farmers access fertilizers through fertilizer retailers have to strengthen their civil society organisations so that they bargain the wholesale price more successfully.

Further, farmers have to utilise their agricultural marketing cooperative societies (Amcos) so that they collectively transport fertilisers from retailers to rural areas more cheaply, while crop buyers should apply the hub/spokes model for bank credit to Amcos for acquisition of sufficient fertilisers on time.

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Thursday, January 4, 2018

FRANCHISE: Franchisor’s role in franchising

 

By Wambugu Wa Gichohi

By the very nature of franchising, the franchisor, having spent considerable time and money developing the franchise network has an upper hand in the alliance. At the same time the franchisor seeks to attract and retain worthwhile franchisees seeking to fulfill their personal and financial goals through the franchisor’s system. To maintain this balance, the franchisor must play low and prepare a franchise agreement that achieves this position. The roles of each party must be clearly defined and those of the franchisor broadly include the following.

It is the franchisor’s role to provide brand power. Reaching the franchisability threshold requires a business to have undertaken significant steps in branding, thereby placing the brand strategically in the minds of consumers. A brand is a name, term, design, symbol, or other feature that distinguishes an organiation or product from its rivals in the eyes of the customer. It is proprietary to the business. Brand power therefore are the tried, tested and trusted marketing programs developed over time to build and enhance brand image, grow brand equity and attract customers consistently. Branding is a set of marketing and communication methods that help to distinguish a company or products from competitors aiming to create a lasting impression in the minds of customers. Key components forming a brand’s toolbox include a brand’s identity, brand communication -such as by logos and trademarks-, brand awareness, brand loyalty and various brand management strategies. It is these marketing and communication systems that the franchisor deploys to the franchisee in order to further grow the brand. Since you cannot grant what is not legally yours, a logical starting point before franchising is to legally protect your brand through registration of trade or service marks, patents, copyrights, designs and know how, (collectively known as intellectual property) with relevant registration authorities in all markets you wish to enter prior to seeking any franchisees.

The franchisor also places the operating systems at the full disposal of the franchisee. Before franchising, a business perfects, documents and copyrights its operating systems such that they are easily trainable to other users without the risk of being misused. Such systems should always be tuned to consistently deliver the brand promise in order to retain customers and build repeat business from them, while at the same time attracting new customers, thereby keeping the franchise network alive at all times.

The franchisor gives continuous and ongoing support to franchisees. Remember franchising replicates the franchisor’s success formula, hence the franchisor is obliged to help the franchisees in all aspects of replicating the business. In offering this support, a franchise field consultant is the franchisor’s single-most important resource as the link with the franchisees. The consultant visits franchisees regularly to assess compliance with franchisor standards and offer help whenever a franchisee deviates from the set standards. Other support may include occasional training, recruitment, book keeping, IT, legal and reporting support, all which the franchisee pays for.

The writer is a franchise consultant helping indigenous East African brands to franchise, multinational brands to settle in the region and governments to create a franchise- friendly business environment.

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Thursday, January 4, 2018

Importance of values, good conduct in financial markets

Twin Towers, the headquarters of the Bank of

Twin Towers, the headquarters of the Bank of Tanzania, in Dar es Salaam PHOTO|FILE 

By Moremi Marwa

In the last week’s article, I indicated how the ten years’ experience since the 2008 financial crisis has brought in some new knowledge and insights on how regulators of financial markets should go about conducting their business and fulfilling their mandates. I said that based on what we observe, the regulatory response to the prudential crisis has been profound, equal to the significance of the crisis itself and in trying to mitigate the repeated happenings, at least if it has to do with similar contexts.

The response from the learned insights has redefined and reshaped the financial markets, especially the banking industry. Examples of ringfencing and separation of investment banking from commercial banking activities are some of clear indications. The introduction of IFRS 9, which is due for operational from this January of 2018, is such other example.

I went further to indicate that for a keen observer of the conduct of financial markets’ regulators, one will learn that from their different points of views, they perceive such aspects related to their mandates as well as market conduct as not just being the cause from business conducts of firms operating in the financial markets – but rather more into it there are personal and individuals conducts too that impacts the happenings. That sometimes people who are afforded with fiduciary duties to oversee these businesses and those responsible for their operations in some cases gets ahead of themselves for various motives.

As a result, for example, having individuals within financial firms being held personally accountable for their work has shown to affect outcomes positively. For instance, there is evidence related to accounting and financial management practices, even here at home, which indicates an increasing perceived individual accountability, such as by requiring audit engagement partner to sign the audit report with their own name, rather than the company name, with the aim of improving both the quality of the audit and decreasing manipulative practices – this has indicated positive results.

As it is with other societal issues and challenges, firms operating in the financial markets whether they are listed or not listed are focusing on the aspect of culture too. For instance, we now hear in boardrooms relentless discussions of culture and we often are being asked how senior managers in firms that operate in the financial markets should measure their culture and how regulators, could measure and set targets for their businesses’ culture. Many regulators have recently opted to assess what management is doing to manage issues of culture within their firms by using four types of lever.

The first lever is a clearly communicated sense of purpose and approach. Clearly communicating the ‘what’ and the ‘how’ are very important to getting a firm to work effectively and efficiently. But they pale into the background when contemplating the power and effect of a well communicated and resonant ‘why’. It is the tacit understanding, shared by employees, of a company’s true purpose. This may not necessarily what is articulated formally in a company’s mission statement and values. I often learn more about a firm’s sense of meaning by reading the strategic plans. And I suspect that employees do too.

The second lever available to senior managers is ‘tone from the top’ – what staff hear and see from senior management. What are the behaviours that senior managers role model to their employees?

The third lever is the formal governance processes and structures, the policies and systems that specify expected behaviours and decisions. From a conduct culture point of view, regulators look for a well thought through conduct risk framework: is there a clear exposition of conduct risks, the systems and controls for mitigating them and risk indicators for monitoring them?

Finally, there are people related practices, including incentives and capabilities. Remuneration, promotion and recognition criteria all matter. Does a firm’s pay structure reward misconduct? Is the pressure to turn a profit driving employees to act against consumers’ interests?

People capabilities are becoming more and more important to having the right culture. It’s not enough to be motivated to behave in a new way; people also need to understand how to be successful with the new behaviours.

The accountability regime reinforces this view of culture and its key drivers. It sets a standard for the outcomes of culture and has an important impact on senior managers, on how a firm is governed and on people’s capabilities. How does it do this?

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Thursday, January 4, 2018

Swissport misses only 10pc of revenue target in tough year

Swissport Tanzania handles cargo at Julius

Swissport Tanzania handles cargo at Julius Nyerere, Kilimanjaro, Songwe and Mtwara airports. PHOTO|FILE 

By Alex Malanga @ChiefMalanga amalanga@tz.nationmedia.com

Dar es Salaam. Swissport Tanzania attained 90 per cent of its revenue target despite a tough year, a top official says.

Without giving the exact amount of money, Swissport CEO Mrisho Yassin attributed the performance in 2017 to improvement in the working environment and service quality.

The company had of providing aviation services for decades until the market was liberalised last year.

It operates ground- and cargo-handling as well as aircraft maintenance and fueling services.

To survive, the company embarked on training, safety and quality, leveraging on good results from airlines audits.

According to Mr Yassin, the company cut its operational costs by 5 per cent.

“Although 2017 was very challenging, we performed well. We stayed strong and retained our customers except Fly Dubai, which was on October 1, grabbed by one of our competitors.”

Swissport Tanzania operates at Julius Nyerere, Kilimanjaro, Songwe and Mtwara airports.

With 1,000 employees, the company has a market share of 99 per cent, serving 32 airlines.

Swissport competitors are Nas-Dar Airco that offers cargo and ground-handling services as well as Africa Flight Services, a subsidiary of Paris-headquartered Worldwide Flight Services, which provides only cargo services.

Swissport Tanzania is a subsidiary of Swissport International -- the world’s largest provider of ground and cargo-handling services to the aviation industry.

“Further liberalisation of ground-handling business should be considered carefully,” Mr Yassin opines. “We acknowledge that competition is healthy, but if not managed properly it can kill the industry.”

A source says cargo operators depend on only Emirates, KLM Royal Dutch Airlines, Swissair and Kenya Airways.

Ground handlers rely on Fast Jet, Kenya Airways, Ethiopian Airlines and Emirates, according to the source.

To improve the situation analysts said more investment is needed in airlines to avoid killing cargo and ground-handlers if foreign airlines pull out the local market.

Retaining customers is Swissport’s priority in 2018.

“We have laid down strategies on retaining customers and continuing delivering quality and reliable services to beat our competitors,” he said.

“A series of training on operational efficiency, modern human resource management, investment decisions and the way we engage with our customers will be observed to achieve long -term success and guarantee customer retention and profitability growth.”

Swissport is glad that competition did not catch it by surprise as it that at one time the market would be liberalised.

Mr Yassin was quoted in the company’s 2016 financial report as banking his profit growth hopes on Terminal Three, which according to Works, Transport and Communication minister Makame Mbarawa will be completed by early next year.

He said upon the completion of the facility, which will be capable of accommodating 6.5 million would-be travellers annually, well above Terminal Two’s 2.5 million travellers, will significantly reverse the situation.

The company looks forward to capitalising on the new infrastructure to improve efficiency.

“There have been many changes in macroeconomic aspects and we hope the aviation industry will adapt and respond well to the changes,” he said.

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Thursday, December 7, 2017

MANAGING TAX RISKS: VAT challenges to intra-Union trade

 

By Shabu Maurus

Last week, we discussed the disparity of levying value-added tax (VAT) on financial services between Mainland Tanzania and Zanzibar.

In Mainland Tanzania, VAT only applies on fees charged on financial services whereas in Zanzibar, the law unclear. VAT guidelines are needed for smooth implementation of VAT on financial services on both sides of the Union. In this article, we focus on another VAT aspect. The timing of input tax credit.

Input tax and output tax are some of the most important VAT concepts. For VAT-registered businesses, input tax is the amount of VAT paid on purchases. Thus, for a furniture manufacturer, input tax is the VAT paid on the purchase of timber. Similarly, for a transporter, input tax is the VAT paid on lubricants or spare parts for the vehicles. Output tax is the VAT charged on sales. Again, for a furniture manufacturer, output tax is the VAT charged on the sale of furniture. Likewise, the VAT charged on transport fee is the output tax for the transporter.

Ideally, a VAT-registered business is required to pay the output tax to the tax authority on a monthly basis. But the VAT laws, normally, would allow the VAT-registered businesses credit for the input. But such input tax credit is only available if the business fulfills some prescribed conditions like having a valid tax invoice. In case input tax credit is available, the amount of tax payable to the tax authority is essentially the difference between output tax and input tax. Thus, if in November 2017 the output tax was Sh150 million and input tax is Sh100 million, then the tax payable is Sh50 million (150 less 100).

Similar conditions for tax credits

Conceptually, most conditions for input tax credits between Tanzania Mainland and Zanzibar are similar. But the time within which such input tax credit can be claimed differs. Under the VAT law applicable in Tanzania Mainland, input tax credit cannot be claimed after six months from the date of invoice. If you think this time is too short, in Zanzibar it’s even shorter! A business has a maximum of only three months to claim input tax credit under the VAT law in Zanzibar.

The difference is not economically efficient as it leaves an avenue to tax planning.

For a business operating on both sides of the Union, it may seem much safer to incur input tax in Tanzania Mainland rather than Zanzibar. This may be particularly relevant for the purchase of shared services or goods. Good tax systems would strive to make business decisions tax neutral.

Let’s keep the neutrality objective aside. With the advent of electronic fiscal devices (EFDs) that can keep records for years, the rationale for the shorter time frames (3 or six months) is very difficult to see. In fact, when the two sides of the Union adopted their VAT laws back in 1998, the timeframes for input tax credit were both 12 months. There are various very valid business reasons as to why a tax invoice can take longer than six months to accept for payment.

The invoice may be under dispute between the supplier and the customer. May the goods require replacement or services not satisfactorily completed and a supplier is given some time to rectify before a payment can be processed. And some of the disputes may take several months to resolve. I have also seen some cases where a supplier sends an invoice to a wrong address, only to realize it later and resends the invoice to the correct address. Invoices can also be internally misplaced, particularly for the big organisations.

Mr Maurus is a partner with Auditax International

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Thursday, December 7, 2017

YOUR BUSINESS IS OUR BUSINESS: ‘Choosing’ between the WB and the IMF

 

By Karl Lyimo

If ‘siblings’ are offspring who’ve one or both parents in common, then the International Monetary Fund (IMF) and the International Reconstruction & Development Bank (IRDB, popular as the ‘World Bank/WB’) are siblings.

That’s basically because both institutions are creatures of the founding fathers who included British economist John Maynard Keynes (1883-1946) whose ideas are generally acknowledged as having fundamentally changed the theory and practice of macroeconomics and the economic policies of governments.

The WB and IMF are collectively known as the ‘Bretton Woods Institutions.’ That’s because they were founded in the remote Bretton Woods village of New Hampshire in the US where delegates from 44 members of the League of Nations (later UN) met in July 1944 to determine the way forward for a world caught between a rock and a hard place!

The ‘rock’ in this case was the Great Depression (1919-39)… With the ‘hard place’ being World War-Two (1939-45).

The IMF and the WB are twin intergovernmental pillars that support the structure of the world’s economic and financial order as per the Bretton Woods Agreement of 1945.

Among IMF’s obligations are overseeing the international monetary system; promoting exchange stability and orderly exchange relations among its members; providing short-to-medium-term credits to members that find themselves in temporary balance-of-payments difficulties, and supplementing the currency reserves of its members through the allocation of special drawing rights (SDRs).

For its part, the World Bank promotes economic development of the world’s poorer countries; assists the countries through long-term financing of development programmes; provides to the poorest developing countries (whose annual per capita GNP is less than $865) special financial assistance through the International Development Association, and encourages private enterprises in developing countries through the International Finance Corporation.

While the IMF draws its financial resources principally from the quota subscriptions of its member countries – it currently has at its disposal fully-paid-in quotas totaling SDR145 billion (about $215 billion) – the World Bank acquires most of its financial resources by borrowing on the international bonds market. It has an authorized capital of $184 billion, of which members pay in about ten per cent.

IMF draws its staff (currently numbering 2,300) from its 182 member-countries – while the World Bank Group draws its 7,000-strong staff from its 180 member-countries!

In view of the foregoing, it’s really silly to ‘choose between the WB and IMF’ – as the headline to this tedious palaver tends to suggest! There’s a world of a difference betwixt the two – the primary difference being in their respective purposes and functions.

While one’s busy stabilizing exchange rates, the other’s busy reducing world poverty… ‘Wapi na wapi!’

While both do extend funding to their member-countries, IMF loans are loaded with ‘conditionalities.’ After all, they’re really ‘rescue packages’ for ‘errant governments’ in the hope they’d have learned a lesson or two, as they struggle to repay the loans at rather hefty interest rates.

[No wonder Mwalimu Julius Nyerere (1922-99) – founder-president of Tanganyika/Tanzania (1962-85) – never saw eye-to-eye with the Fund. In a moment of desperation, Mwalimu distorted its acronym to ‘International Ministry of Finance!’]

On the other hand, WB ‘cooperation’ comes in the forms of technical and financial support for long-term economic development projects such as infrastructure. It also helps countries in reforming inefficient economic sectors.

Although the Bank and IMF are distinct entities, they nonetheless work in close cooperation – the bedrock of their cooperation being the regular interactions of their experts at headquarters and in their member-countries abroad.

Cheers! And long-live the Bretton-Woods babes… [israellyimo@gmail.com].

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Thursday, December 7, 2017

FRANCHISE: Benefits of franchising for building business-I

 

By Wambungu Wa Gichohi

Franchising your brand delivers the following benefits;

Paradigm shift-franchisor now thinks entrepreneurially:

The minute you start franchising, your focus shifts to that of BIG PICTURE from that of a technician fixing everything or a manager coordinating everything in the business.

Your brand’s promise becomes your single product, as opposed to the earlier phase where focus was on the individual products sold in each of your company-owned units.

Better operational efficiencies:

Operational efficiencies of individual units are higher in franchising than in a chain of many company-owned units.

This is because the franchisee owns the franchised unit and has high stakes in the success of the business, unlike company employees whose stake in success of the company-owned units is less.

Bulk buying is possible:

The franchisor normally retains the right to supply all inputs, if any, to all the franchised units though other sources are also sometimes allowed.

Economies of scale associated with bulk buying will translate to lower input costs for both franchisor and the many franchisees.

Improved income with less-expenses:

The monthly royalties that franchisors collect from franchised units come NETT of all expenses.

Whatever percentage this is, and although the per-unit return is lower than in company-owned outlets, it is income that the franchisor earns with nearly no cost of sales and at break-even point, the returns overtake those from own outlets.

Wealth creation:

A franchise network is a big army of independent businesses working together in unison to create wealth for their owners and for the economy. You are in business for yourself but not by yourself.

All in the network work to create wealth for themselves, for the network and for the nation!

Commercial diplomacy:

Brands involved in international franchising play a key role in commercial diplomacy, augmenting political diplomacy efforts of their mother governments.

Mess up with Ford, McDonald’s or Coca Cola if you want to see the wrath of the American government!!

Reigning in competition:

Most brands in your business line that started off after yours and are currently giving you competition started off small, operated under the radar for a considerable while and had grown to be worthwhile competitors before you knew it.

Entrepreneurs do not necessarily like building businesses from scratch and if there is an option that would deliver them to business success earlier than a green field operation, they would jump in quickly.

That is exactly what franchising offers.

For you the brand owner, you gain by tapping the energies of many would-be competitors, building a strong army of dedicated entrepreneurs all working in harmony to grow your brand.

While some may opt out at some point, the conditions in the franchise agreement ensure that they cannot start their own competing businesses within a certain radius of the territories you assign them and before expiry of a certain period, thereby ensuring less worthwhile competition for you within your territories.

The writer is a franchise consultant helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment.

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Thursday, November 23, 2017

FRANCHISE: Franchising as SME strategy in Africa

 

By Wambugu Wa Gichohi

Franchising nurtures and develops the entrepreneurial talent in a country. Hence it has been acknowledged by the South African government as an important SME strategy to contribute to the economic development of the country. Our governments in East Africa can borrow a leaf from South Africa, and the reasons are clear;

Franchising supports the economy: Because of its higher success rate, higher standards, quality control and efficiency, franchising offers more sustainable support to the economic development of a country. This is done through Creating jobs: In Europe the average number of direct employment in a franchised unit is nine and in South Africa it is 20. One in four Canadians are employed in franchising. It is estimated that for every one direct job in franchising another indirect job is created. McDonald’s came to Africa through South Africa in 1995 and could soon announce entry into East Africa having started the master franchisee recruitment process.

Since then they have created nearly 16,000 (direct and indirect) jobs in South Africa and their entry into East Africa will no doubt offer a new avenue for additional job creation. Wealth creation: With 75 different industries using the franchise model- 17 being the most prominent- franchising contributes 2.5 per cent of the GDP in the USA, 10 per cent in Mexico, and 11.67 per cent in South Africa. The average direct jobs created per franchise outlet in South Africa is 17. It is acknowledged that one direct job creates one indirect job. The average household in South Africa has four to five people. It is therefore fair to say that franchising impacts on the lives of between 68 and 136 people per franchise outlet. With 757 franchised brands and 35,111 franchise outlets, franchising impacts between 2,387,548 to 4,775,096 people across the 17 franchise sectors. Based on this example and assuming we can quickly mobilize and create 400 franchise systems in East Africa in the next five years (Egypt achieved this within four years of embracing franchising) with an conservative average 50 outlets each, franchising could impact between 1,360,000 and 2,720,000 people in East Africa by 2022. This might be the secret key to unlock exponential GDP growth, one which our governments have missed. Training: Franchising provides skills transfer through training. Prior industry experience is not a prerequisite for most franchises. Once you are in the franchise system as a franchisee, you get initial training by running one of the company-owned units (the prototype unit or one designated specifically for training e.g. McDonalds Hamburger University). You also get ongoing support from the franchisor throughout the franchise period. Stimulating growth: Franchising as an SME strategy has boosted the economies of many countries around the world. According to the Word Franchise Council, 50 per cent of all retail trade in the USA is through franchise systems, 35 per cent in Europe, 30 per cent in Canada, 26 per cent in Australia and only 11 per cent in South Africa.

In conclusion, it is often said that franchising is the best ambassador of free enterprise in the world. It is indeed the wave of the future.

The writer is a franchise consultant helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment.

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Thursday, November 23, 2017

MANAGING TAX RISKS: VAT challenges to intra-Union trade

 

By Shabu Maurus

Value Added Tax (VAT) is not one of the Union matters listed under the First Schedule to the Constitution of the United Republic of Tanzania. Mainland Tanzania and Zanzibar, for VAT purposes, are two different jurisdictions.

VAT is one of the most important sources of revenue to both Mainland Tanzania and Zanzibar. VAT makes around 30 percent of the total annual tax revenues for each of the two sides of the Union.

For consumers residing in either or both parts of the Union, the fact that each part of the Union is a different VAT jurisdiction may not sound very relevant. After all VAT rates are the same – 18 percent. However, for businesses operating on both sides of the Union or across the two sides (“intra-Union trade”), VAT is likely to be one of the key considerations in their business decisions. If VAT is not handled well, it may mean 18 percent less profit in a particular taxable transaction.

The biggest pitfall, especially for Mainland-based businesses when extending to Zanzibar, has been the assumption that the two sides of the Union are one and the same even for non-Union matters like the VAT. Most of those would hence fail to adequately if at all, take into consideration the VAT intricacies and the potential tax challenges of operation on both sides of the Union. Both sides of the Union adopted VAT from July 1998. The VAT Act, 1997 was the law applicable in Mainland Tanzania only. Zanzibar, on the other hand, had (and still have) the VAT Act, 1998 that is applicable in Zanzibar only. These original VAT laws were, for all intents and purposes, very similar but both were not very facilitative to the intra-Union trade.

In 2014, Mainland Tanzania repealed its 1997 VAT law and replaced it with the VAT Act, 2014 with a destination principle as one of its key pillars. The destination principle is an internationally recognized rule that requires VAT to be collected by the jurisdiction where goods or services are finally consumed and not where the seller is located. The new VAT law was effective from July 2015. Zanzibar, however, still has its 1998 VAT law but it has undergone several changes over the years, including the amendments made this year. However, the Zanzibar VAT law has not fully adopted the destination principle. For example, services supplied to a customer outside of Zanzibar by a supplier located in Zanzibar will bear VAT in Zanzibar.

In Mainland Tanzania, the VAT law (VAT Act, 2014) is administered by the Tanzania Revenue Authority (TRA). The VAT law (the VAT Act, 1998) in Zanzibar is administered by the Zanzibar Revenue Board (ZRB). The two tax administrators are legally and practically independent of each other.

The two VAT laws and their administrations bring several challenges to businesses operating on both sides of the Union or those with ‘cross-border’ supply of goods or services. Some of the challenges stem from the existing differences between the two VAT laws. In my next few articles, I intend to cover the various differences in the two VAT laws and their implications for business.

The aim is two-fold. First is to highlight the key VAT aspects that taxpayers operating on both sides of the Union should be aware of in order to make their VAT compliance smoother or at least take the necessary precautions as part of their tax risk management. And second, is to point out some areas that I believe may require some reforms. Reforms that are geared to make the two VAT laws more facilitative to the intra-Union trade.

Mr Maurus is a Partner with Auditax International

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Thursday, November 23, 2017

YOUR BUSINESS IS OUR BUSINESS : Focus on ‘selective’ industrialisation first

 

By Karl Lyimo

If ‘industrialisation’ is the development of industry on an extensive scale, then ‘selective industrialisation’ implies intentionally choosing some things and not others – with the ‘most suitable,’ ‘most qualified,’ etc., being among the criteria used in making the selection…

‘Industry’ is, of course, the economic activity concerned with the processing of raw materials, and the production of goods in established manufactories.

Economic growth

Industrialisation can transform an economy like Tanzania’s from being primarily agricultural to one based on manufacturing. Individual manual labour is often replaced by mechanized mass production – and individual craftsmen replaced by assembly lines.

Industrialization can lead to – and result in – economic growth, more efficient division of labor, and the use of technological innovation to solve problems.

If these characteristics are tangible, meaningful and sustainable on the ground, then the industrialization has been effective, successful.

Industrialization in Tanzania isn’t that new– having somewhat ‘ballooned’ following proclamation on February 5, 1967 of the ‘Arusha Declaration (and Tanu Policy) on Socialism and Self-reliance’ by the Mwalimu Julius Nyerere Presidency.

That Declaration sparked wholesale nationalization, as well as establishing new industries. This was in a singular effort to put the so-called ‘Commanding Heights of the Economy’ under State control.

Then the balloon sort of burst a few years after Mwalimu relinquished the Presidency in 1985. This flung the doors wide open to wanton privatization that ‘flourished’ in earnest under the Benjamin Mkapa Presidency (1995-2005).

But, the industrialisation didn’t quite ‘flourish’ in like manner then. Post-Nyerereindustrialisation faltered for the next generation or so. The few industries that were hobbling along post-privatization more often than not benefited the foreign investor-conglomerates rather than hapless Tanzanians and their ‘wishy-washy, spiritless’ economy.

Then Dr John PombeMagufuli came on the scene as President of the fifth-phase Tanzania government, sworn into office on November 5, 2015.

Magufuli just as soon proclaimed ‘industrialisation’ as among his regime’s priorities.

But, industrialisation is no child’s play. It’s not a scenario that can be cobbled together overnight.

That’s why Tanzania should perforce take the ‘Selective Industrialisation’ route to success as proposed by the UN’s Industrial Development Organisation nearly a decade ago.

Conceptual breakthrough

Describing it as a ‘conceptual breakthrough’ to uplift the world’s poorest, selective industrialization offers the best chance for smaller, developing countries to achieve sustainable economic progress over a relatively shorter time.[See ‘UN Agency proposes selective industrialisation to help world’s poorest.’VoA News, Feb.23, 2009].

According to Unido’s 2009 Industrial Development Report, ‘choosing the right products to make for the global market is key – if low-income and slow-growing countries are to break free from the poverty trap.’

The operative words here are: ‘CHOOSING THE RIGHT PRODUCTS TO MAKE FOR THE GLOBAL MARKET.’ That’s ‘selective industrialization’ in a nutshell for you!

There’ll, of course, be hurdles to surmount, including those by the World Trade Organization – which looks askance at the so-called ‘Third World’ when ‘regulating’ world trade – and the ‘developed countries’ that are usually unwilling/unready to liberalise their trade regimes to allow/enable developing countries to become future competitors at the world’s markets. Tears!

[

‘industrialisation’ is the development of industry on an extensive scale, then ‘selective industrialisation’ implies intentionally choosing some things and not others – with the ‘most suitable,’ ‘most qualified,’ etc., being among the criteria used in making the selection…

‘Industry’ is, of course, the economic activity concerned with the processing of raw materials, and the production of goods in established manufactories. Industrialisation can transform an economy like Tanzania’s from being primarily agricultural to one based on manufacturing. Individual manual labour is often replaced by mechanised mass production – and individual craftsmen replaced by assembly lines.

Industrialisation can lead to – and result in – economic growth, more efficient division of labor, and the use of technological innovation to solve problems. If these characteristics are tangible, meaningful and sustainable on the ground, then the industrialisation has been effective, successful.

As an outgrowth of capitalism – ‘capitalism’ being an econo-political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state – industrialisation isn’t a new phenomenon, as the (European) Industrial Revolution that started in the late 18th Century Christian Era attests. By parity of reasoning, industrialisation in Tanzania isn’t that new – having somewhat ‘ballooned’ following proclamation on February 5, 1967 of the ‘Arusha Declaration (and Tanu Policy) on Socialism and Self-reliance’ by the Mwalimu Julius Nyerere Presidency. (1962-85).

That Declaration sparked wholesale nationalisation, as well as establishing new industries left, right and centre. This was in a singular effort to put the so-called ‘Commanding Heights of the Economy’ under State control.

Then the balloon sort of burst a few years after Mwalimu relinquished the Presidency in 1985. This flung the doors wide open to wanton privatization that ‘flourished’ in earnest under the Benjamin Mkapa Presidency (1995-2005).

But, the industrialization didn’t quite ‘flourish’ in like manner then. In all fairness, it must be admitted that post-Nyerere industrialisation faltered for the next generation or so. The few industries that were hobbling along post-privatisation more often than not benefited the foreign investor-conglomerates rather than hapless Tanzanians and their ‘wishy-washy, spiritless’ economy. Then Dr John Pombe Magufuli came on the scene as President of the fifth-phase government of the United Republic, sworn into the highest office in the land on November 5, 2015.

Magufuli just as soon proclaimed ‘industrialisation’ as among his regime’s priorities.

But, industrialisation is no child’s play. It’s not a scenario that can be cobbled together overnight. That’s why Tanzania should perforce take the ‘Selective Industrialisation’ route to success as proposed by the UN’s Industrial Development Organisation (Unido) nearly a decade ago.

Describing it as a ‘conceptual breakthrough’ to uplift the world’s poorest, selective industrialization offers the best chance for smaller, developing countries to achieve sustainable economic progress over a relatively shorter time. [See ‘UN Agency proposes selective industrialisation to help world’s poorest.’ VoA News, Feb.23, 2009].

According to Unido’s 2009 Industrial Development Report, ‘choosing the right products to make for the global market is key – if low-income and slow-growing countries are to break free from the poverty trap.’

The operative words here are: ‘CHOOSING THE RIGHT PRODUCTS TO MAKE FOR THE GLOBAL MARKET.’ That’s ‘selective industrialisation’ in a nutshell for you!

There’ll, of course, be hurdles to surmount, including those by the World Trade Organization – which looks askance at the so-called ‘Third World’ when ‘regulating’ world trade – and the ‘developed countries’ that are usually unwilling/unready to liberalize their trade regimes to allow/enable developing countries to become future competitors at the world’s markets. Tears! [israellyimo@gmail.com].

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Thursday, November 16, 2017

Tanzania beats regional peers in value addition

Tanzania Tooku Garment workers sew clothes for

Tanzania Tooku Garment workers sew clothes for export at the Benjamin Mkapa Special Economic Zone in Dar es Salaam. PHOTO|FILE 

By Alex Malanga @hiefMalanga amalanga@tz.nationmedia.com

Dar es Salaam. Tanzania tops the list of East African (EAC) countries with the highest manufacturing value addition (MVA) growth rate at 7.7 per cent, a new report shows.

Rwanda, Uganda and Kenya came next after Tanzania by 6.9 per cent, 5.7 per cent and 3.4 per cent.

Things were not good to Burundi which saw a decline of 1.2 per cent.

The performance is good news for Tanzania, as the achievements came at a time when the country has set an ambitious industrialisation plan to transform the economy to attain a middle income status.

Some analysts say the trend indicates that Tanzania is on a sustained and sold path of structural change towards manufacturing.

The United Nations Industrial Development (Unido)-funded report dubbed ‘EAC Industrial Competitiveness Report 2017’, launched last week here in the city, to meet industrialisation target and undergo structural change, significantly higher MVA growth rate is required.

During the period under reference, Kenya had the highest MVA in the region at $5.4 billion (Sh12 trillion).

Tanzania, Uganda, Rwanda and Burundi followed at $3 billion (Sh6.7 trillion), $2.1 billion (Sh4.7 trillion), $402 million (Sh896.5 billion) and $204 million (Sh454.9 billion) respectively.

Tanzania, Uganda and Rwanda’s growth rates provided a room for them to bridge the gap with Kenya’s level of production, indicating some convergence in manufacturing performance between partner states.

Confederation of Tanzania Industries policy and advocacy acting director Akida Mnyenyelwa said the performance was attributed to tight control of dumping goods.

The government had in a recent past increased import duty to 25 per cent, well above the previous 10 per cent, to discourage imports.

“We convinced the government that we have sufficient goods to meet both local and international markets

“The improvement in Tanzania’s MVA growth rate is commendable as it results to increase in share of manufacturing sector in economic output.” “This indicates movement to the desired structural change towards manufacturing and may positively impact the overall economic growth of the country,”

He said it can also impact positively on employment in other sectors and contribute to boosting productivity.

In Tanzania, metal products, and food beverages top the list of manufactured top the list of the exported manufactured sectors, with textiles, petroleum and chemicals sector joining the list. The report suggests for the improvement of the Shares of the country’s manufacturing in total exports which dropped to 42 per cent in 2015.

“There is an urgent need to increase manufactured products in the export basket, the move of which will also boost MVA per capital, which measures the role of manufacturing in the economy,” said Mr Valency Mutakyamirwa, the head of industrial intelligency unit at the ministry of Industry, Trade and Investment.

Historically, industry and manufacturing have been pathways to economic development in several regions of the world, but, in East Africa, industry’s share of GDP has, on average, been small due to low level of exportation.

The manufactured export capacity of the region, whose growth significantly went down since over the past seven years, is half that of its production. This indicates that it is not sufficiently competitive on the international market, according to the report.

“With awareness of the country’s current industrial development trajectory, it is high time the government assessed which sector development strategies best suit its objective,” he opined.

The report was of the view that EAC countries should increase their industrial presence in domestic and international markets while developing industrial structures in sectors and activities with higher value added and technological content.

“We need to position Tanzania’s industry in the international scene by benchmarking its performance and capability against other competitors,” noted Mr Mutakyamirwa.

This can be influenced by providing a compass to policy makers, private sector, manufacturing association in particular, and other stakeholders interested or involved in industry on the broad direction of the industrial development trajectory.

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Thursday, November 16, 2017

MANAGING TAX RISKS: Will sugar escrow account work?

 

By Shabu Maurus

Sugar has over the years remained one of the topical areas in Tanzania. In 2014, Tanzania’s sugar industry was in a crisis of oversupply, specifically the supply of cheap and illegal sugar imports. The problem left local sugar producers holding tonnes of stock. In 2016, the situation reversed and sugar became scarce forcing the prices up.

This year, the minister for Finance and Planning amended the tax administration regulations (The Tax Administration (General) Regulations, 2016). The amendments came through the Tax Administration (General)(Amendment) Regulations, 2017 published on June 29, 2017 and became effective from 1st July 2017.

The new regulations require the Tanzania Revenue Authority (TRA) to establish and maintain an escrow account at the Bank of Tanzania (BoT). Under these new regulations, importers of industrial sugar which qualifies for import tax exemption (i.e. a duty remission) are required to deposit 15 per cent additional import tax upon the importation of industrial sugar.

Additional import tax

The import tariff book (The East African Community Common External Tariff) list sugar as one of the sensitive items. In Tanzania, importation of industrial sugar qualifies for a duty remission. However, to curb possible abuse of industrial sugar imports, an additional import tax of 15 per cent was introduced in the past. The additional import tax is refundable if the importer subsequently proves to TRA that the imported sugar was actually used for the intended industrial purpose.

One of the reasons for the duty remission for industrial sugar was to provide relief to manufacturers who use industrial sugar as part of their inputs. Logically, this augurs well with the industrialisation drive. The use of additional import tax as a control over exemption abuse negates the intended relief to the industrialists because tax refunds take time to get.

Can the new regulations speed up refunds?

Broadly, there are two reasons TRA may delay the refund to eligible importers. Firstly, the lengthy verification and approval process. And secondly, the unavailability of money for TRA to pay back the eligible importers. The establishment of the escrow account will only be able to address this second problem but not the first. The account will ensure money is always available for refund to importers.

To address the first problem, TRA needs to put in place an effective verification and approval strategy. The law requires TRA to make a refund decision within three months but practically, it takes significantly more time to get tax refunds in Tanzania. The recent tax collection statistics published in TRA website for the period July to September 2017 indicate that no tax refund has been paid. From a financing point of view, even this three-month statutory period is still painful to the taxpayers as they may have to bridge the gap with short-term finances which do not come for free.

Loopholes

What happened to the Tegeta Escrow Account and the famous EPA scandal should serve as good lessons to Tanzania. As per the regulations, the importers who paid additional import tax to the escrow account are entitled to refund only to the extent of the amount of industrial sugar actually used in manufacturing the intended finished product. This is fine. The regulations, however, fall short of prescribing modalities for TRA to deal with the unclaimed amounts or the amounts that for one reason or the other will never be refunded to the importers. When should TRA recognize the unclaimed amounts in the escrow account as tax revenue? What criteria will be used to determine the unclaimed amounts?

Mr Maurus is a Partner with Auditax International

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Thursday, November 16, 2017

YOUR BUSINESS IS OUR BUSINESS: Banning and burning chickens business

 

By Karl Lyimo, israellyimo@yahoo.com

Why’d a struggling, least-developed country like Tanzania incinerate 6,400 chicks worth Sh12.5 million imported by a budding entrepreneur?

Let me begin at the beginning…

About a month ago, I urged Tanzanian authorities to consider harnessing the huge poultry business potential to accelerate industrialization.

Despite the comparative advantages in poultry-farming – and the potential benefits for investors, including jobs-creation – the poultry industry is another little-thought-of opportunity that’s a sure-fire path to all-inclusive industrialization. [See ‘Tap into the huge poultry potential to industrialize.’ The Citizen: October 12, 2017].

Poultry-farming is generally done at two levels: small-scale ‘indigenous’ chicken-keeping (mostly by rustics), and ‘commercial’ farming on a larger-scale, involving breeder farms, hatcheries, layers-and-broilers farms, processors and traders.

This economic sub-sector is a good industry-based jobs-creator, with the competitive advantage as a proteins source compared with four-legged beasts like cattle, goats, sheep, pigs... Poultry meat production increased by 6.2 per cent in five years – from 93,534MT in 2010/11 to 99,540MT in 2014/2015 – while, say, ‘total meat production’ rose by 18.72 per cent, from 503,496MT to 597,757MT!

But, that growth rate isn’t commensurate with the poultry business potential, including comparative advantages! Indeed, poultry-farming isn’t ‘for the birds’ – pun unintended here. It must be promoted most vigorously for countrywide industrialization.

Unfortunately, that isn’t the case on the ground… Instead, some government authorities have been throwing spanners in the works – thereby impeding growth of the poultry business!

The latest such proverbial ‘spanner’ was thrown into Tanzania’s poultry business by regulatory authorities who, on October 31, 2017, (conspiratorially perhaps?) incinerated 6,400 hapless chicks worth Sh12.5 million at Namanga on the Kenya/Tanzania border!

Reportedly, the chicks were confiscated from a 23-year old entrepreneur-in-the-making, Ms Mary Matia – for allegedly being smuggled in from Kenya, and also as a precaution against possible avian diseases outbreak.

The destruction was done under cover of the TFDA and TRA statutes, as well as the Veterinary Act (2003) and the Animal Diseases Act (2003). [See ‘Public irked as Authorities burn chicks,’ The Citizen: Nov. 1, 2017].

Indeed, Tanzania did ban chicken imports on veterinary-cum-human health grounds – plus sheer protectionism in all its ramifications.

But, the chicks-burning raises questions that need answers. For example: were the chicks vetted to determine their ‘veterinary health’ status?

Why was the plea by the owner, Maria, to re-export them peremptorily denied? How’ll she repay the loan?

Why were 1,300 ‘Kenyan’ cattle ‘smuggled’ in to graze about the same time auctioned by Tanzania for Sh200m over fears they’d spread diseases – and NOT incinerated like the Matia chicks?

Why don’t the authorities also incinerate the million-plus wildebeeste when they return to Tanzania during their to-and-fro annual migration across Serengeti/Masai-Mara? In summary whereof: chicks are incinerated; cattle are auctioned; wildebeeste are given VIP treatment…!

Oh, Tanzania’s poultry sub-sector is a chaotic, crazy-quilt business.

While one school of thought ‘sees’ chicken imports as “killing Dar’s poultry farming” [See The Citizen, December 18, 2013], another sees “importation of chickens healthy for local (Tanzanian) poultry farming…” [Daily News-Dar es Salaam; December 31, 2014]!

Sheesh!

To efficaciously industrialize the poultry business, we really need to humbly go back to the drawing boards… Tears!

Mr Lyimo is a socioeconomic commentator based in Dar

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Thursday, November 16, 2017

FRANCHISE: Franchising as SME strategy in Africa

 

By Wambungu Wa Gichohi

Franchising nurtures and deFranchising nurtures and develops the entrepreneurial talent in a country. This is very prevalent in South Africa and other countries where franchising has taken root. It is for this reason that franchising has been acknowledged by the South African government as an important SME strategy to contribute to the economic development of the country. Other African governments, particularly our governments in East Africa can borrow a leaf from South Africa, and the reasons are clear as explained hereunder

Standards

The success of a franchised system is highly dependent on the standards of service, quality and efficiency that are established and maintained. This applies as much on the shop floor as on the value chain supporting the franchise system. Besides the desire of both the franchisor and franchisee that the standards of operation are maintained and external factors also have an influence in keeping standards high, namely; once a system is successful, competition will follow with improved offering thereby necessitating constant standards update (to the benefit of the consumer!). International brands also enter the market, raising the standards bar even higher!

Part of global network

There is a common saying in international business that if you want to attract the wrath of the USA government, try to mess around with Coca Cola, Ford and McDonalds. Through franchising a country becomes part of the global village. This is due to a local franchise system expanding internationally or an international franchise system entering the local market. The benefits are massive for the country as it attracts investments, skills transfer (sharing of expertise and knowledge e.g. technology) and the country earns foreign currency when local brands export to other franchise markets. In South Africa, 14 per cent of franchising systems are international brands whilst 56 per cent of South Africa’s indigenous concepts have expanded internationally. In contrast, although franchising records are not easily available in East Africa, it would be safe to say that 99 per cent of franchising systems in East Africa are international brands with no known records of local brands that have expanded their franchise systems to other parts of the world.

Innovation

Franchising is a unique source of innovation. It also stimulates the development of the entrepreneurial spirit. It is estimated that franchising currently covers more than 75 industries in the world with more than 10,000 different franchised concepts. The franchisee networks of each of these brands contribute to this development. Regrettably, Africa as the second largest continent with the most countries only contributes between 3-4 per cent of these franchise concepts with 98 per cent concentrated in South Africa, Egypt and Morocco.

Reduced risk

The risk of developing the franchise system is reduced. The concept is a proven system, ongoing advice and assistance is given by the franchisor as is initial and on-going training. The failure rate is lower than in the case of independent SMEs and makes it easier to obtain finance as discussed above.

The writer is a Franchise Consultant helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment.

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Thursday, November 16, 2017

Tanzania sees cashew production rise 50pc

 

By Alawi Masare @AMasare malawi@tz.nationmedia.com

Dar es Salaam. Production of cashew nuts is expected to increase by as much as 50 per cent in the current harvesting season after positive market responses that led to the doubling of prices last year.

Last season, Tanzania’s cashew nut production was 265,000 tonnes but the Cashewnut Board of Tanzania director general Mr Jarufu Mkuruge says it may rise to between 350,000 and 400,000 tonnes this season. “When the prices improved last season farmers increased production and the government supported them with farming inputs. We see production improvement as prices are also increasing,” says Mr Mkuruge in a telephone interview.

Cashew nut is one of the leading traditional exports but it’s mainly exported in raw form.

In the year ending May 2017, cashew nuts exports improved to $340.9 million from $186.3 million recorded in May 2016, according to the Bank of Tanzania. The improvement was due to increase in both volume and price.

In the last harvesting season, the price increased to Sh3,800 per raw kilogramme compared with Sh1,250 recorded during the 2015 harvesting season, thanks to improved markets and supervision.

In this season, the prices are rang ing between Sh3,800 and Sh4,065 per kilogramme, signaling yet another yielding bonanza for cashew nut farmers. “I wish every farmer could bring their stocks out for auction before December so that they enjoy good prices as most buyers are targeting Christmas and New Year festivals. In January, they may also shift to West African countries whose season starts in January,” added Mr Mkuruge.

International buyers include those from Vietnam and India.

Leaders of cooperative unions say it’s too early to assess the production potentials but generally they see a renewed awareness in farming cashew nuts.

“The market improvement has really increased the importance of cashew nut farming with many people participating now,” says the manager of Tandahimba and Newala Cooperative Union (Tanecu) Mr Mohamed Nassoro. According to him, the main challenge has been on the requirement for all payments to be made through banks.

The buyers pay to a collection account managed by cooperative union and the money is distributed to Agricultural Marketing Co-operative Societies (AMCOS) which provide cheques to individual farmers for payment through banks.

“This process delays payment for about two weeks to reach the individual farmers. Unfortunately, some farmers also do not have bank accounts and alternatively seek support even from their friends,” said Mr Nassoro.

Processing plants

Tanzania has the best cashew nut variety in the world which should be supported by processing factories but the main challenge with it it’s mostly exported in raw.

Mr Mkuruge says for instance, out of the 83 buyers licenced for this season, only seven of them will export the processed cashew.

Tanzania plans to build three cashew nut processing factories in Mtwara, Tunduru and Mkuranga through financing of Cashewnut Industry Development Trust Fund - CIDTF - an independent body incorporated under the provisions of Trustees’ Incorporation Act (2002).

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Thursday, November 16, 2017

Industry urges govt to expand export basket

President John Magufuli and Bakhresa Group

President John Magufuli and Bakhresa Group Chairman Said Salim Bakhresa (right) during the inauguration of a Bakhresa Food Products Ltd (BFPL) fruit and vegetable processing plant in Mkuranga District, Coast Region last year. PHOTO | FILE 

By Alex Malanga @ChiefMalanga amalanga@tz.nationmedia.com

Dar es Salaam. The Confederation of Tanzania Industries (CTI) has called for the diversification of the country’s export basket in the early stages of industrial development.

Tanzania mainly exports metal products and food beverages, followed closely by textiles, petroleum and chemicas products, according to the East African Industrial Competitiveness Report 2017, which was launched last week.

But CTI policy and advocacy acting director Akida Mnyenyelwa said the majority of manufactured goods do not meet international standards, partly because of low level of technology. “Majority of industries are less competitive when it comes to international trade,” he said.

This, he said, narrows the export basket. He explained that this also causes export earnings to fluctuate, which eventually leads to the problem of balance of payments, budgets deficits and does not permit future systematic economic planning

To avoid this, Mr Mnyeyelwa called for the diversification of the export basket at early stages of industrial development.

His sentiment was echoed by the head of industrial intelligence unit at the ministry of Industry, Trade and Investment Mr Valency Mutakyamirwa.

He said it is imperative for policy makers to deal with the issue of diversification of the country’s exports.

“This will help cushion the country against shocks arising from the instability in the foreign exchange markets, especially for primary products,” noted Mr Mutakyamirwa.

This strategy, he said, will contribute to the development of new export markets for manufactured goods destined for the EAC and other markets.

The findings of the report indicate that trade policy captured by openness and nominal exchange has a large effect on export competitiveness, their coefficients are large.

United Nations Industrial Development Organisation (Unido) representative to Tanzania, Mauritius and EAC Stephen Kargbo was also reading from the same script, saying diversification would reduce vulnerability to domestic and external shocks like natural disasters and sudden fluctuations in demand or global prices. He said products and market diversification would provide a room for stabilisation of the export earnings as it enhances movement towards activities with greater potential for value addition as well as greater potential for skills development and innovation.

“Market diversification is equally important as over-reliance on a single market has greater potential to adversely affect the economy in the event of reduction of in demand than diluted and stable demand in other markets,” said Mr Karbo.

Chairperson of the EAC Council of ministers Maganda Wandera on the grounds that diversification of the country’s productive and export structure is an important element of industrial competitiveness and economic development more broadly.

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Thursday, November 16, 2017

Bourse shocks prompt TCCIA Investment to change tack

TCCIA Investment Plc shareholders follow

TCCIA Investment Plc shareholders follow proceedings during the 12th annual general meeting in Dar es Salaam last week. PHOTO|THE CITIZEN CORRESPONDENT 

By Gadiosa Lamtey @gadiosa2 glamtey@tz.nationmedia.com

Dar es Salaam. It was established in 2005 to specifically tap potentials of the stock market but TCCIA Investment PLC now seeks to diversify its portfolio following shocks in the stock exchange.

The company - owned by mostly old men and women - started with a capital of Sh1.9 in the year and bought shares in seven counters of the companies listed on the Dar es Salaam Stock Exchange.

By 2014, the capital had expanded to Sh34 billion following gaining of shares in the bourse.

However, some other counters depreciated in the recent years and reduce the company’s capital from the apex of Sh34 billion in 2014 to Sh27.8 billion in 2016.

In year 2016 the company’s performance decrease of 61 per cent below the net profit tax realized in 2015. The net profit before tax was Sh220 million compared to Sh564.2 million earned during the previous year.

And now, the company looks to diversify its investment into agriculture and create another subsidiary that will help in generating more revenue that revealed in the Company’s 12th Annual General Meeting by chairman of the board Mr Aloys Mwamanga Since the company commenced operations twelve years more than 95 per cent of the investment portfolio has been in the form of equities of listed companies.

However the board is targeting investment in fixed income financial instrument, government securities, corporate bonds and interest earning bank deposit.

“We believes that investment income earning assets offers good trade off especially when the equity market is less attractive as is the case now,” he stressed

Although the board floated the company’s shares during the months of February and March this year the results were not encouraging.

As a results the board has decided to scale down implementation of the projects which had originally been identified for implementation during 2017. Due to that downfall the share company will focus on the implementation of constructing warehouses in Mikindani district, Mtwara where the land is located at a strategic areas has already secured.

However the management has already submitted the request proposal to Capital Markets Securities Authority (CMSA) to that can approval the company entered into the DSE.

Further he said the aim of listing shares in stock market as to enable shareholders to determine the true value of the shares and also offer opportunity to investors who wish to enter or exit to freely do so within minimum cost in terms of time.

The management also explore the possibility of applying for a brokerage license so as to diversify its source of revenue as well as minimize payment of commission to brokers who handle transactions from time to time.

Expounded further the Company’s CEO Donald Kamori current there are total of 3430 shareholders, adding only last year over 1000 members were joined.

“Despite the up and down we experienced last year but still the company is stable as the capital increased so we will go to other sector in order to extend our capital like in Mtwara,” he said

According to him, the Mtwara project the feasibility study already been conducted in near future the construction would kick start, adding the target to help the farmers within the area so that can benefit from their agriculture.

But also there are other real estate’s projects in Dodoma that would construct of a parking for trucks. The board will however continue with efforts for securing land in Tanga for the purpose of constructing warehouses.

However the directors emphasized that two projects will be implemented only after conducting detailed feasibility studies whose results show that the projects are viable on a sustainable basis.

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Thursday, November 9, 2017

Air transport feels the pinch of financial crunch: TAA

 

By Alex Malanga @ChiefMalanga amalanga@tz.nationmedia.com

Dar es Salaam. Passenger and cargo traffic fell in the past two years despite a 1.5 per cent increase in aircraft movements to 145,619 in 2016, Tanzania Airports Authority (TAA) data show.

According to TAA, passenger traffic decreased by 1.7 per cent in 2016, falling to 3.4 million during the same year, while the total transported cargo volume declined by 18 per cent, to 20,634.7 tonnes.

The Julius Nyerere International Airport (JNIA) in Dar es Salaam accounted for 72.7 per cent of the total passenger traffic, and 84.3 per cent of the total cargo transported in year-2016.

TAA acting director general Richard Mayongela attributes the negative performance to the government’s directive to ban foreign trips by public officials that were considered really unnecessary.

‘There is no room for wasteful trips.”

When President John Magufuli formally assumed power on November 5, 2015, he restricted foreign trips for senior officials in an effort to curb misuse of public funds that was rampant in the past.

Officials wishing to travel abroad at government expense were required to seek prior approval from the office of the president, the vice-president or the chief secretary – always fully stating the necessity and benefit(s) of the trips.

The President told Parliament that Sh356.3 billion was spent on travels abroad by officials from government ministries, departments, agencies and parastatal institutions between the years 2013/14 and 2014/15.

Mr Mayongela also said that illiquidity was partly to blame for the aviation industry’s financial and other woes.

For example, PrecisionAir corporate affairs manager Hillary Mrema laments that the current economic hardships are adversely affecting air transport as a matter of course.

“Air transport suffered in 2016. The government’s cost-cutting measures led to turbulence not only for airlines, but also for the whole of the aviation industry.”

That, he noted, was partly because the government – the main spender – reduced its transactions with the private sector. “It is inevitable for us to feel the pinch due to the government’s decision to ban foreign trips by public servants.”

In the event, he appealed to TAA to lower the current airlines operational costs by decreasing charges for industry operators.

Tanzania Air Operators Association executive secretary Laurence Paul expressed a desire to see a safety and economic policy being formulated that would enable the aviation industry to prosper.

He also called on the government to tackle the challenge of multiple charges to reduce the burden for airlines.

Business expert Donath Olomi believes that the investment environment should generally be improved in all the sectors of the Tanzanian economy so as to attract more investors. This would speed up attainment of the middle-income economy envisaged in the National Development Vision-2025.

In the event, he called upon the government to create opportunities for more Tanzanians to get involved in large projects that create new jobs and fuel money circulation.

“Our customers are mainly those in the middle-income bracket. We need to strengthen this class to foster growth of the industry,” Dr Olomi stated.

Experts advised operators to stop cut-throat competition, saying it is harming them.

To increase efficiency, airports should be improved.

In a related development, passenger air travel at the global level is projected to maintain positive growth rates up to 2030, despite the number of challenges which the industry is facing.

According to the International Air Transport Association (IATA), airlines around the world are struggling with high jet fuel prices and sluggish economic growth.

However, it is predicted that these difficult economic conditions will be offset by an increase in passenger volume numbers – which is in turn projected to translate into improved financial performance of the airline transport business.

It is believed that the global aviation industry will reach close to $30 billion in profits in 2017, up from only $8.3 billion in 2011.

Between 2016 and 2035, the number of airline passengers is projected to grow at a compound annual growth rate of almost five per cent.

Recently, IATA announced full-year global passenger traffic results for 2016, which show that demand rose by 6.3 per cent, from six (6) per cent the previous year.

This strong performance was well ahead of the ten-year average annual growth rate of 5.5 per cent.

Capacity rose 6.2 per cent (unadjusted) compared to 2015, pushing the load factor up by 0.1 percentage point to a record full-year average high of 80.5 per cent.

A particularly strong performance was reported for last December with an 8.8 per cent rise in demand outstripping 6.6 per cent capacity growth.

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Thursday, November 9, 2017

YOUR BUSINESS IS OUR BUSINESS: Trade Cullinan diamonds on the world’s markets

 

By Karl Lyimo

Today, November 9, is ‘Inventors Day’ in Germany, Switzerland and Austria, designated to commemorate contributions by inventors to the national economy. Countries are free to designate a date of their own choice.

Unfortunately, Tanzania’s yet to designate ‘Inventors Day’ – although the President John Pombe Magufulu administration (Nov. 5, 2015—) has embarked upon ‘industrialization’ in noble efforts to propel Tanzania to a semi-industrialized, middle-income Economy – in tandem with the ‘National Development Vision-2025.’

Regarding inventions in general: was it sheer coincidence that, for example, Gail Borden – the ‘inventor’ of condensed milk – was born in USA, where ‘Inventors Day’ is February 11? Then again: what was an American surveyor-cum-publisher doing ‘inventing’ condensed milk, instead of surveying and publishing, pray?

Well, I honestly don’t know!

Could it also be said that the underground miner at the ‘Premier Diamond Mine’ in South Africa, Thomas Evan Powell, ‘invented’ the Cullinan diamond on January 26, 1905…? Or, perhaps more accurately:

did he ‘discover/stumble upon’ what later proved to be the largest gem-quality diamond ever discovered – weighing in at 3,106.75 carats (1⅓ pounds; 621.35g)?

Powell handed the stone to the surface manager, Frederick Wells who, at first, reportedly threw it away – not believing it could be the McCoy! Then, on second thoughts, he retrieved it and handed it to the mine’s owner, Sir Thomas Cullinan – after whom the stone was just as soon named! [See /www.heritagedaily.com/2014/02/where-are-they...cullinan-diamond.../73927>]

Perhaps as the divine Sisters of Fate would’ve it, Sir Thomas was visiting the mine that very psychological moment… And, as they say: the rest is History…

But, half-a-mo… Sages down History have yelled ‘finders keepers; losers weepers’ – virtually pontificating that ‘whoever finds something by chance is entitled to keep it…!’

Well, that never happened in the Cullinan diamond saga, where the ‘finders’ were instead given peanuts for their historic find!

While the Cullinan was estimated to be worth over $400 million, the slogging miner Powell, and the surface manager, Wells, were each awarded £3,500 ostensibly for their honesty in handing it over, instead of ‘pocketing’ it!

The stone was then ‘sold to the Transvaal government for 150,000 pounds.’ Transvaal promptly presented it to British King Edward-VII on his 66th birthday, November 9th, 1907: exactly 110 years ago to the day today… If nothing else, this makes The Cullinan significantly topical here today, November 9!

Insured for $1.25 million when it was posted as a parcel to England, the stone was just as soon entrusted by the King to the prestigious diamond cutter of the time, Amsterdam-based Asscher’s Diamond Co. The cutter, Joseph Asscher, reportedly fainted on seeing the inordinate stone! [Google for ‘HeritageDaily’].

It took eight long months to ‘cut’ the original Cullinan into nine prestigious diamond pieces, 96 smaller ‘brilliants’ and 9.50 carats of unpolished pieces.

All in all, the Mother-of-all-Diamonds ‘gave forth’ Cullinan-I (the ‘Star of Africa:’ 530.20-carats); Cullinan-II (317.40-carats); Cullinan-III (94.40-carats); Cullinan-IV (63.60-carats); Cullinan-V (18.80-carats); Cullinan-VI (11.50-carats); Cullinan-VII (8.80-carats); Cullinan-VIII (6.80-carats), and Cullinan-IX (4.39-carats). All these – totaling 1,055.69 carats (a carat is 200mg) – are worn as the British Crown jewels, or are on display in the Tower of London… For business-minded capitalists with the proverbial dollar-signs in their eyes – and a cold river stone where their God-given heart should be – the Cullinan was bad for business. Look at it this way… Why, for example, would such a high-value, unrivalled resource in historic and mercantile/commercial terms be a royal heirloom monopoly, or museum pieces at the Tower of London?

Shouldn’t the ‘Cullinans’ be part and parcel of the global diamond jewellery market, which hit the $80.1bn mark in year-2016? [© Statista 2017].

‘A diamond is forever,’ yes; but isn’t it past being just ‘a girl’s best friend’ – and into brokers’ hands? Cheers!

[israellyimo@gmail.com].

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Thursday, November 9, 2017

Franchising as SME strategy in Africa

 

By Wambugu Wa Gichohi

Africa probably presents the world’s last big business opportunity. The continent however, has been trivialized and more than marginalized by global businesses. But Africa desperately needs to achieve growth. The continent offers real opportunity and prospects that are truly exciting and rewarding. But optimism and hope does not produce results.

The question then begs why Africa has until recently been isolated. The reality checks for business and investors are, broadly speaking, the following which in essence are also Africa’s challenges for future development. Economics and Politics: Africa is the only continent that continues to grow poorer. Even Africans themselves seem to doubt their own economies. It is estimated that about 40 percent of African’s private wealth is held overseas. The GDP of a typical African country is barely that of sizable town in the developed world. In fact, in global terms African economic activities are almost completely insignificant. Governance and Democracy: The continent in general does not get good press. Warfare, diseases, corruption, famine and genocide have been the dominant features of international coverage. Terms like “a hotbed of terror” followed by crippling travel advisories are commonplace directed towards Africa.

Good governance in Africa has a long way to go but a strong start seems to have been made. The rules are surprisingly simple- allow people to do their own thing. Conflict and Strife: The active warfare that has existed until recently in many parts of Africa has caused enormous social upheaval and economic stagnation. But the wars have slowly been coming to an end and in less than 10 years almost all the conflicts have been more or less resolved. Displaced African refugees now populate many parts of Africa and Europe, their absorption and relocation remaining a major challenge. Business Sector: Africa did not appear on the global plans of many western corporations until recently because many people out there simply don’t know enough about Africa.

A Strong Private Sector Required

Much of Africa is characterized by a very strong entrepreneurial spirit. If this were not the case, chances are that many economies would have collapsed entirely as a result of corruption. It therefore seems obvious that a successful nation requires a vibrant business sector. It also seems equally clear that the business sector needs to be multifaceted, encompassing every area of opportunity and every form of corporate identity.

It is in this context that small and medium enterprises (SME’s) will play a vital role. The economies of some of the most successful countries in the world have been built on the contribution of SME’s in providing employment and sustained growth. About 70 per cent of the economic output of a country such as the Netherlands is contributed by SME’s. In the United Kingdom SME’s are constantly penetrating new markets to expand the economy and to absorb labor. In pursuit of economic participation, the development of small and medium enterprises has emerged as a ray of hope and is being acknowledged worldwide as an economic power-base to stimulate growth. It is also within the SME market that a new way of doing business started gaining momentum some 50 or so years ago. This global phenomenon is franchising and a way of doing business most suited to the African scenario. To achieve success however there are some major challenges, other than the above, that need to be addressed.

Franchising as an SME strategy

Franchising in its more than 50 years history, has shown remarkable resilience to weathering the political and economic ups and downs. The very root of the concept lies in melding together of a franchisor’s brand (intellectual property) and support systems with service delivery by self-motivated independent businesses as franchise holders. In markets where the model is successful, it is this high level of motivation, combined with a rigid business format, that has allowed franchising to thrive even in depressed times. Franchising as a business model has no boundaries and no impediments to success. It is ideally suited to the SME sector; it encourages small business development in every imaginable business sector and is a great catalyst for job creation, skills transfer and wealth creation.

Franchising nurtures and develops the entrepreneurial talent in a country. This is very prevalent in South Africa and other countries where franchising has taken root. It is for this reason that franchising has been acknowledged by the South African government as an important SME strategy to contribute to the economic development of the country. Other African governments, particularly our governments in East Africa can borrow a leaf from South Africa, and the reasons are clear as explained hereunder.

Success rate: The greatest strength of franchising as an SME strategy is its proven success worldwide when compared to independent businesses. In the Philippines: 95 per cent franchise systems compared to 25 per cent independent retailers survived the 1997 Asian Economic Crisis. In Australia: franchising has proven to be 2.5 times more successful than other small independent businesses and on average, in South Africa, franchisors closed no more than one outlet during 1994 despite major disruption as a result of political transformation from apartheid to the modern democracy the country is. The majority of franchisors (87.3 per cent) did not close any outlets. Studies by the Africa Development Bank in African markets where franchising is relatively successful (south Africa, Egypt, Morocco etc) indicate that only 15 per cent of businesses started within a franchise system are likely to fold up in the first five years compared to a mortality rate of 80 per cent for those started outside franchise systems. The reason for the success is that entrepreneurs (franchisees) do not in the strict sense of the word start a new enterprise from scratch, they enter the SME market by investing in a business that has proven the concept (tried, tested and proven franchise system) whilst enjoying support from the franchisor. Consequently, financiers tend to listen to them more favorably than their green field startup colleagues, thereby increasing the chances of success.

The writer is a franchise consultant helping indigenous East African brands to franchise, multinational franchise brands to settle in East Africa and governments to create a franchise-friendly business environment.

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Thursday, November 9, 2017

MANAGING TAX RISKS: How to deal with tax uncertainty

 

By Shabu Maurus

Adam Smith, the father of modem political economy, argued that “the tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid all ought to be clear and plain to the contributor and to every other person”. Uncertainty or an absence of certainty is an undesirable characteristic of a good tax system.

Sources of tax uncertainties

There are various sources of tax uncertainties. Some uncertainties stem from the practices of the tax authority, including their interpretations and applications of the tax laws. Some uncertainties may come for the dispute resolution processes, such as inconsistencies in decisions and also the length of time the courts take to decided tax cases.

Other uncertainties may emanate from international transactions and interactions of different tax jurisdictions with differing tax laws and principles. Legislative and tax policy design issues can also be a major source of tax uncertainty, mainly through complex and poorly drafted tax legislation and the frequency of legislative changes.

Dealing with tax uncertainties

It may be practically difficult to completely avoid tax uncertainties in the tax system. So, as a taxpayer, you will most likely have to deal with tax uncertainty. In Tanzania, there are various approaches, a taxpayer may deal with tax uncertainties. Of course, the approach will depend on the nature of the specific tax uncertainty that a taxpayer wants to address. One such approach is for the taxpayer to request a private ruling from Tanzania Revenue Authority (TRA).

Private ruling

In the context of tax administration in Tanzania, a private ruling is a decision of the Commissioner-General of TRA on tax issues raised by a person (normally a taxpayer or a potential tax).The conditions, modalities, and the legal statusof a private ruling are provided for under the tax administration legislation (The Tax Administration Act, Cap 438) and the accompanying regulations.

The objective of a private tax ruling system which is to provide certainty to taxpayers in connection with the application and interpretation of the tax laws in Tanzania.

A private ruling properly issued binds TRA. That is, TRA cannot make subsequent tax decisions that are inconsistent with the private ruling in respect of that taxpayer for an arrangement that is a subject of that ruling. For TRA to issue a binding private ruling, a taxpayer needs to apply in writing making full disclosure of all aspects of an arrangement and ensure that arrangement, materially, proceeds as described in the application.

The ruling will only be effective for the period stated in that ruling or shorter if TRA decides to revoke it. A private ruling has no binding effect to TRA with respect to other taxpayers other the one who applied for it.Most importantly, a private ruling does not have a binding effect to the taxpayer who requested it and hence that taxpayer is also restricted from challenging the ruling unless the challenge is made in respect of a tax decision made in relation to an arrangement which is the subject of the ruling.

Timely issuance of private rulings increases predictability and consistency of tax administration, which in turn provides tax certainty to taxpayers.Without certainty, neither governments nor taxpayers can effectively budget or plan for their future actions. The state benefits from tax certainty, because it will be able to know roughly in advance the total amount which it is going to obtain and the timing. If there is an element of arbitrariness in a tax, it tends to encourage misuse of power and corruption.

Mr Maurus is a Partner with Auditax International

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Thursday, November 9, 2017

CORPORATE SUFI: Give and have sense of contributing



Azim Jamal

Azim Jamal 

By Azim jamal

To give is to live; when you stop giving, you stop living. You give or contribute not just by what you do but also by who you are.

If you have sound character and display honesty, integrity, humility, and discipline, you contribute to others by your own example. Who you are and why and how you do things are just as important as what you do. Thus, by aligning your actions with your words, you become a person of influence and significance.

With our words we can only preach,” said St. Francis of Assisi. “In the end, it is our actions that teach.” When you contribute and serve, you tap into your genius and ignite your untapped potential.

Most people live and die leaving a huge portion of their potential untapped. This happens because they do not discover their true gifts and therefore never discern their callings in life. They fail to find worthwhile causes that are really meaningful to them and that could make a great difference in their lives.

Each of us is endowed with enormous gifts; most of us only scratch the surface of these gifts during our entire lifetimes. But when we give to others, or give of ourselves to meaningful causes, things change. We expect more of ourselves. We discover new feelings of self-worth. And when this happens, we tap into our potential and benefit not only ourselves, but others as well.

Some may define success as making a lot of money. Others may see it as building an empire. Some define it as beating a baseball record, and some as unraveling the secrets of the universe. Still others define it as feeding the hungry children. How do you define success? The happiest people are those who focus on purpose and giving. You must travel the journey from success to significance. This happens when you begin to give and make a difference.

During Expo a long time away in Vancouver, British Columbia, I decided to take Gale, a wheelchair-bound friend, to visit the Expo. I picked her up at her house, patiently seated her in my car, put the wheelchair in the trunk, and proceeded to Expo.

When we reached the Expo, we encountered a huge crowd with long lines everywhere. I felt that I had goofed badly by not thinking things through. How would we ever be able to wade through the crowd and negotiate the lines to see the shows. But since we had come all this way, I reasoned that we should take in at least a few shows. So we both waited in line.

After a few minutes, a police officer passed by and saw Gale in the wheelchair. He asked Gale and me to follow him. He took us to the front of the line, and told us that we could do the same thing at the rest of the shows. We saw most of the shows in a fraction of the time it would have taken me to see the Expo on my own.

It doesn’t always work out that way. But had the officer not appeared, I would still have persevered to ensure that Gale was able to experience the Expo. It’s the intention that counts.

If you’re like most people, you’ve been through difficult times with a friend who has a serious illness, or is hurting from a divorce, or is coping with some other difficult event in life.

You have to balance the compassion, time, and energy you offer to such friends with your own ability to give. You want to empower as far as possible, not overpower!

Condensed message from “Life Balance the Sufi Way” by Azim Jamal and Dr. Nido Qubein. For feedback email info@corporatesufi.com

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Thursday, November 9, 2017

How Tanzania can steer clear of economic downside risks

Finance and Planning minister Philip Mpango

Finance and Planning minister Philip Mpango speaks at a past event. PHOTO|FILE 

By BusinessWeek Reporter @TheCitizenTZ news@tz.nationmedia.com

Dar es Salaam. Tanzania’s economy is facing downside risks this year due to domestic challenges which can be controlled by the government to unlock the growth potential.

The economy is characterised by lower credit growth to the private sector, weak business environment, under-execution of development budget, high level of arrear as well as high levels of the nonperforming loans (NPLs) in the financial sector.

The World Bank in its recent Tanzania Economic Update lowered the growth forecast to 6.6 per cent against the government projection of 7.1 per cent in 2017 due to the challenges that may affect the performance of the economy.

The tight economy influenced the change in the way banks extend loans to private firms and individuals as they become cautious of the weakening quality of assets.

Statistics indicate that the lenders now prefer to invest in risk-free government securities – treasury bills and bonds – while shunning the private sector which is considered the engine of the economy.

According to the Bank of Tanzania (BoT), credit to the private sector increased by just 0.2 per cent in the year ending August 2017 compared with a growth of 13.8 per cent in the same period last year.

At the same time, commercial banks net claims on the central government increased to Sh4.8 trillion from Sh3.4 trillion a year earlier - reflecting the banks preference for the government securities.

The bank’s NPLs are said to be at an average of 11 per cent while the internationally acceptable threshold rate is 5 per cent.

The execution of the development budget was said to be at 62 per cent in 2016/17 while the domestic payment arrears stood at 6 per cent of the gross domestic product (GDP) which was estimated at Sh103 trillion in 2016.

The private sector concerns

The private sector has cited concerns about overzealousness in tax collection as a number of private sector operators have reported incidences of inflated tax bills, threats of business closure or imprisonment, and the solicitation of bribes by tax officials.

Delays in VAT refunds and payments to contractors and other suppliers is another challenge partly attributable to long verification process for refund claims, conducted as part of the anti-corruption drive.

And when VAT refunds and payments to contractors and suppliers are delayed, businesses suffer from cash flow shortages and are not incentivised to be compliant.

Another concern is on the proliferation of regulatory authorities, licences, taxes and charges. The World Bank’s document says Tanzania’s private sector activities are burdened by the need to comply with a multiplicity of laws and regulations, involving payments for licenses, taxes and other charges, with many regulatory bodies which have overlapping mandates.

“Many of the associated regulatory compliance procedures lack transparency and create excessive burdens for businesses. These burdens are disproportionately intense for MSMEs, which often lack the necessary resources to understand and comply with the cumbersome rules and procedures,” states the report.

Way out of downside risks

The World Bank proposed three measures for the government to improve budget implementation and the business environment – the aspects which could facilitate the achievement of the government’s growth targets.

First, it suggests clearing verified government payment arrears to private sector contractors and suppliers. The clearance of current arrears and the prevention of their future accumulation would directly improve the cash and borrowing positions of small- and medium-sized domestic firms and reduce the high level of non-performing loans in the financial sector.

“It could also improve the credibility of the budget and reduce the risk premium applied by contractors involved in government projects,” the report states.

Second, the government is supposed to speed up VAT refunds, a move that could further increase liquidity and directly improve the cash positions of private sector enterprises.

These measures are expected to support business investments, including by exporting firms.

Third, the government can secure external financing to fund ongoing and planned capital expenditures. While the government should continue to implement reforms to increase domestic resources, in the short term, it will need to mobilize additional external financing, particularly on concessional terms, to ensure debt sustainability.

Tanzania’s debt increased by 17 per cent to $26.1 billion in June 2017 from $22.3 billion in the same period last year, according to the Minister for Finance and Planning who presented the proposals for the national development pgrogramme for 2018/19 financial year.

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Thursday, November 9, 2017

OPINION: Can you deal with certainty of business life — TRA audit?

The TRA Commissioner General, Mr Charles

The TRA Commissioner General, Mr Charles Kichere speaks at a past event. PHOTO|FILE 

By Samwel Ndandala

If you are in business, you probably have experienced a TRA audit. If not, you need to remember that just like death and taxes, a TRA audit is a sure eventuality. Since the Biblical times, tax collectors have not had the warmest of public affection. I still remember reading of Jesus calling Matthew, a tax collector, to become his disciple, much to the disapproval of the public.

For my friends at TRA, it is just the nature of the job. But it is my hope that I can demystify tax audits, show some common grounds between taxpayers and the TRA and offer some tips on how taxpayers can best prepare for such interaction.

Naturally, no one running a business wants to spend any more time than is necessary dealing with a tax audit. But taxes have to be paid correctly, and timely - and whilst no one expects you to be enthusiastic about it, tax audits have to happen as a control to make sure that taxpayers are complying with their tax obligations.

Much as the process can be adversarial, in principle there should be some degree of common interest between the taxpayer and the TRA. One is that you want to pay your appropriate amount of tax.

Some use the term ‘fair share’, but the bottom line is you want to pay your legally required amount of taxes. If you are a responsible business or person, then you will want do so to enable government to continue provide public goods and invest in the country’s collective capital. TRA wants this too, they want you to pay the right amount of taxes (and hopefully no more).

The tension of course comes where differences arise whether in relation to technical interpretation or supporting documentation - also not helped, if the relationship is fraught with suspicion on both sides (from the side of the taxpayer that the TRA’s interpretations / approach are strongly driven by revenue targets, and from the side of the TRA as to the probity of the taxpayer).

The ultimate common interest is that both parties have a vested interest in the continuation of the business; the owners as they wish to generate profits, and the TRA because they will want you to continue to pay taxes. If taxpayers were poultry, TRA should be interested in the eggs, not the meat - certainly we do not want taxpayers to feel like chickens with their heads cut off - and to this end, the best approach has to be a collaborative one.

It is in the interest of all parties that the audit is run on an efficient basis so that it consumes the least amount of time possible. From the taxpayer’s perspective, the imperative is to maximise time running the business. Equally, the TRA auditors also want effective use of time as they have plenty of other taxpayers to visit, tons of administrative functions to attend to, and no interest in going through the slow process of dispute resolution.

When a tax dispute goes through the appellate process the cost both to the taxpayer and TRA is significant, whether in terms of time or money, and ideally disputes would be resolved wherever possible with the appellate process being a last resort. In addition, excessive delay in conclusion of an audit might risk punitive interest and penalty costs, which could cripple a business and even threaten its very survival.

Against this background, how do you manage the risks? The first imperative is to understand that preparation does not start when you get a notice from TRA saying they will be visiting next week. Instead, preparation means that you think of tax compliance as an integral part of the business.

Are you filing your VAT returns on time? Do you file your statement of estimated tax payable and revise if appropriately every quarter? Are you withholding tax appropriately? What about your payroll taxes, are you computing the taxes correctly and remitting these on time?

How about social security contributions and other payroll obligations? Any doctor (or vet, given our reference to chickens) will tell you that the most effective intervention happens before the symptoms of the disease surface.

Against this background, taxpayers would be well advised to engage their advisors to carry out a tax health checks or review. And, if such review does identify omissions, we recommend that you declare and rectify these upfront - an approach, that will not only reduce the penalties, but also create goodwill.

What you do not want to do is sit on the fence, as experience tells me that “the chickens will come home to roost”!

Samwel Ndandala (samwel.ndandala@pwc.com), Tax Manager – International Tax Services, PwC Tanzania.

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