Tanzania in International Tax Law: Possible Budget 2020/21 tax policy responses to COVID-19
Well yes, I decided I would take the second crack at making predictions for possible tax policy responses in Tanzania’s upcoming Budget 2020/21 while considering the present coronavirus disease 2019 (COVID-19) pandemic and the fact that there are often a few surprise pronouncements in national budgets.
My first crack at these predictions was the article entitled “Expectations from Tanzania’s Budget 2018/19” (The Citizen, June 12, 2018), following which I penned “Post-budget analysis of the 2018/19 financial plan” (The Citizen, June 19, 2018).
Budget 2020/21 is, in all likelihood, not going to be the usual Budget. In addition to a high-profile election scheduled for 2020, we are facing an existential threat posed by COVID-19 that is ravaging the world economy and African economies are not excepted.
The Tanzanian government is likely to unveil a package of measures to support the economy and businesses from the repercussions of, and disruptions caused by, the virus. In this sense, the optimism is that the Finance Minister will announce tax policy measures in the next Budget to support businesses and bolster economic recovery, or intervene with a timely and temporary emergency fiscal stimulus plan.
But whichever way the government goes, broad support will be required from the august House in Dodoma. As numbers stand, the ruling CCM party would scrape through and get the measures passed.
Now then, what tax policy options does the current government have?
Initially, the allure might be to consider the measures that were introduced between mid-2007 and 2009 when global financial markets and banking systems faced extreme stress.
In Budget 2009/10, the measures to address the economic impact of the global financial crisis included compensating crop buyers as well as cooperatives and private companies which sold cotton and coffee products at a loss during the fiscal year 2008/09; providing government guarantees to reschedule outstanding loans; availing concessionary working capital loans to businesses whose operations were negatively impacted by the economic crisis; and strengthening the export credit and the SME guarantee schemes in an effort to spur export production.
Perhaps the COVID-19 crisis is a different challenge and might necessitate the present government to emphasise instantaneous economic relief actions because, unlike the 2008 global financial crisis, the COVID-19 crisis will likely see demand and supply returning to normalcy in the medium term.
This view is fortified by the stimulus packages unveiled by neighbouring Kenya, Rwanda, and Uganda as well as other African countries, including Mauritius, South Africa, and Ghana to alleviate current cash-flow deficiencies of businesses.
Tax policy responses by the government of Tanzania could include a reduction in Tanzania’s normal corporate income tax rate from 30 percent to 25 percent for the hardest-hit sectors such as aviation, tourism, hotels, and construction—but as a temporary measure.
Increase in the alternative minimum tax (AMT) rate to 0.5 percent from 0.3 percent was in 2018 and is applicable to the turnover of companies with perpetual unrelieved tax losses for the current and preceding two income years. The government may consider reverting to the old AMT rate of 0.3 percent, but tax deduction provisions may not help lower a tax bill for an AMT taxpayer.
Other tax changes, such as reductions in PAYE and VAT to increase disposal incomes and cushion businesses from the cash-flow impacts related to monthly VAT payments would be welcome measures.
A cut in the PAYE top marginal rate for resident individuals from 30 percent to 25 percent and exemption of the lower personal income tax bands would cushion employees in the wake of salary reductions. These changes could be attractive to the government because, apart from being easy to withdraw, their impact can be felt immediately.
What’s more, a directive to release verified VAT refunds within a set time period or, alternatively, permitting the offsetting of those refunds against VAT withheld by appointed VAT agents would bring reprieve for businesses.
Tanzanian tax policy for many years now has taken a tough stance on deductibility of business expenses under the Income Tax Act, 2004; perhaps in contrast thereto and as a judicious accommodation of the COVID-19 crisis, a relaxed stance might produce a huge impact.
Beyond these possible tax policy responses for Budget 2020/21 or the emergency fiscal stimulus package, the government may also consider non-tax measures; for example, release of pending contractor payments, sovereign debt restructuring, and freezing some development budget expenditure—except health and agriculture—after conducting an opportunity cost assessment.
All of these options could be costly thus calling for a delicate balancing act to help the country weather the COVID-19 storm that has disrupted economic activity and life in Tanzania and around the world.
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Paul Kibuuka ([email protected]), a tax and corporate lawyer and tax policy analyst, is the CEO of Isidora & Company and the Executive Director of the Taxation and Development Research Bureau.
