Budget sails through as Chadema abstain

MPs yesterday voted overwhelmingly to pass the government’s 2013/14 Budget after Finance minister William Mgimwa spent an hour responding to concerns voiced by lawmakers.
 
But outside Parliament, investors in tourism faulted proposed tax reforms for the sector, saying, if passed, they would have an adverse impact.
 
Specifically, investors say the abolition of withholding tax exemptions on payments in respect to aircraft lease rentals and the removal of Value Added Tax exemption on tourism services will hurt the industry.
 
“Potential tourists very much concerned and are waiting for the final decision before they react accordingly.
 
However, many have already said that if the reforms are implemented, they will cancel their trips to Tanzania,” Tourism Confederation of Tanzania (TCT) Executive Secretary Richard Rugimbana told The Citizen at the weekend.
 
But yesterday in Parliament, MPs approved the Budget tabled on June 13 by Dr Mgimwa, giving the government the green light to start implementation of the plan on July 1.
 
Chadema MPs, however, abstained from voting because they did not participate in the debate that followed the tabling of the proposals. They were in Arusha mourning the death of a party official and three other people after the July 15 grenade attack at a Chadema campaign rally. The attack also wounded at least 70 people.
 
The budget totals Sh18.2 trillion, of which the government has set aside Sh12.57 trillion and Sh5.67 trillion for recurrent and development expenditure.
 
The government plans to raise Sh11.15 trillion as tax and non-tax revenue; Sh1.1 trillion from the general budget support; Sh383.45 billion from local government collections; Sh2.69 trillion from foreign loans and grants; Sh1.69 from local borrowing and Sh1.25 trillion from non-concessional borrowing.
 
But the government’s decision to abolish tax exemptions in the tourism sector has attracted the attention of investors from as far away as Europe.
 
A letter from the European Association of Travel Agents and Tour Operators (ECTAA) seen by The Citizen threatens to cancel all their tour plans in the country this year.
 
“We take the liberty of contacting you following the recent announcement by the Tanzanian Minister of Finance, Dr William Mgimwa, that tourist services, which were hitherto exempted from VAT, would soon be subject to the 18 per cent VAT rate,” says the letter signed by ECTAA Manager Christina Russe.
 
“Our concern is if such taxes are introduced at short notice, will have a major impact on European tour operators and that tour operators will not be able to pass on the additional cost of the VAT to the customers and will have to absorb these costs themselves.”
 
In Dar es Salaam, Mr Rugimbana said tourism stakeholders, both local and foreign, could not cope with the additional costs.
 
“It is practically impossible to introduce VAT on tourism services starting July 2013, mainly because overseas agents have already entered into binding agreements for much of the financial year 2013/2014,” he said.
 
Mr Rugimbana said that some operators had booked and received payment for safaris as far ahead as 2014/2015.
 
TCT says oil and gas exploration in the country is likely to spur the tourism sector, adding that for the country to realise the full potential of this growth, a strong and safe aviation sector is critical.
 
The views were echoed by The Hotel Association of Tanzania (Hat).
 
“The recent budget proposes fundamental changes to the taxation of aviation businesses, there had been no discussion with industry players, no indication of any change, no warning,” said Hat Chief Executive Officer Lathifa Sykes in a telephone interview.
 
She said the 18 per cent VAT, 15 per cent withholding tax on aircraft lease payments and the 20 per cent duty on imported aircraft would have serious repercussions on the local tourism sector because competitors like Kenya and South Africa had no such taxes.
 
“Tanzanian operators are already disadvantaged in that a Tanzanian operator providing non-tourist charter services in Tanzania has to charge VAT yet a foreign operator providing charter services in Tanzania does not,” Ms Sykes said.
 
“Through this budget, the Tanzanian government is proposing to make it almost impossible for Tanzanian operators to operate locally let alone survive in the face of regional and international competition.”
 
According to TCT, abolition of withholding tax exemption on payments in respect of aircraft lease rental would also adversely affect the tourism sector.
 
Mr Rugimbana said the cost of leasing an aircraft ranges between 1.5 per cent and 2 per cent of the value of the aircraft per month, and imposing withholding tax on leases would have a devastating effect on operators and will raise little revenue for the Treasury.
Source: The Citizen, reported from Dar es Salaam and Dodoma
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