Tanzanians in the low-income bracket could turn out to be the biggest losers as some tax measures introduced in the 2017/18 budget are likely to do them more harm than good.
Reacting to the budget speech delivered by Finance and Planning minister Dr Philip Mpango, some experts have said people with fixed income could also be hurt by the fiscal measures.
There are many queries on the decision by the government to increase excise duty on petroleum products, which would most likely increase production and transportation costs, and offset other tax measures that were meant to relieve low-income groups.
Reducing produce cess on crops was meant to relieve farmers, but the increase in taxes on petroleum products, including kerosene, by Sh40 would hurt them more, KPMG senior manager for tax services, Mr Donald Nsanyiwa said. Rural dwellers depend on kerosene more for their fuel needs.
Speaking at a budget analysis briefing organised by KPMG, Mr Nsanyiwa said it is very possible that the reduction in produce cess from five per cent to three per cent for cash crops and to two per cent on food crops would be offset by the increase in taxes on petroleum products.
He added that it was not clear what the cancellation of the annual vehicle registration fees was intended to achieve, but it will only benefit the middle class in urban areas.
The government increased taxes on petroleum products to compensate the removal of the annual motor vehicle license fees, but the petrol tax would hurt even those who do not own cars.
“Reducing and removing some taxes on vehicles, while increasing excise duty on petroleum products will have no positive impact on peasants most of whom have never dreamed of purchasing a car,” he said.
On the tax measures announced by Dr Mpango on Thursday, which amended the Local Government Finance Act, the government also said cess would also not be applied on transportation of crops of less than one tonne from one district council to another. But the expected increase in transportation costs might also remove the benefit of the removal on cess.
Salaried workers and other people with fixed incomes are also set to get hurt because the increase in cost of production and transportation will increase the cost of living.
The government’s failure to act on Skills and Development Levy (SDL) as well as the Pay As You Earn (PAYE) tax will be a bane to salaried workers.
In the 2016/17 SDL, the rate was reduced from 5 per cent to 4.5 per cent. “There was an expectation that Dr Mpango might introduce a further cut of 0.5 per cent or even 1 per cent this year. Unfortunately, this was not the case, and SDL remains at 4.5 per cent,” a budget analysis document by the PWC audit firms reads in part.
Experts have always urged the government to reduce SDL to making hiring costs affordable, especially during the current hard economic times that have seen many businesses either closing down or reducing the number of workers.
There was also no change in the taxation of individuals through the PAYE and the threshold for the top marginal rate of tax remains at Sh720,000 per month. Employers have also been advocating for the reduction of the PAYE to boost workers’ income.
In addition to PAYE employers are also required to pay social security of at least 10 per cent as well as making monthly contributions to the newly created Workers Compensation Fund, which make recruiting and maintaining payroll more expensive in the country.