SPEECH DELIVERED BY
HON. ABDISALAAM I. KHATIBU (MP) - DEPUTY MINISTER FOR FINANCE
AT THE TCCIA NATIONAL CONVENTION ON NOVEMBER 14, 2001 AT THE NEW AFRICA HOTEL
President of TCCIA,
H. E. Ambassador of Sweden Mr. Sten Rylander,
Minister for Water and Livestock Development,
Minister for Agriculture and Food Security,
Minister for Planning Commission and Privatisation,
Members of TCCIA,
Distinguished Guests,
Ladies and Gentlemen,
Let me at the outset thank you for inviting me to the TCCIA National Convention today. Its gives me great pleasure to participate in such forums where the government and private sector can exchange views so openly and candidly.
Mr. President , my foremost perception at this forum was to obtain challenging views and exchange ideas with the invitees rather than dwelling at delivering a speech. I will thus make my speech brief. I would however like to focus on two key areas in which government devotes its efforts in promoting private sector development: - capital availability to the private sector and how the government aims to use the budget for enhancing private sector development and in reducing poverty over the short to medium term.
The revenue policies, expenditure framework and its financing components are deployed by government to achieve the medium to long term objectives. Over the short, medium to long term the thrust of government policies is to maintain and consolidate the macroeconomic stability for which the government has worked so hard to achieve. Now the government is expecting a positive supply side response from the private sector.
Mr. President, In light of the ongoing economic reforms, the government is fully committed to streamline the tax system with a view of making it effective, efficient, equitable and transparent on sustainable basis. In fulfilling this commitment the government for some years now has decided to constitute a Task Force of Tax Reform on a yearly basis starting 1998/99. TCCIA is a member of the steering committee of the Task Force and no wonder many of you have made presentations to the Task Force regarding specific issues for streamlining the tax system. The government, in each subsequent budget adopted many recommendations made by the Task Force and would like to sight some of the recommendations the government adopted for the current fiscal year budget:
· Abolition of withholding tax on goods and services for holders of Tax Payer Identification Numbers (TIN) to address cashflow issues of local businesses.
· The government abolished its exemption on VAT from purchases of goods and services in order to provide a level playing field for domestic suppliers.
· Abolishing advance payment of incomes tax which individuals or groups were obliged to pay prior to commencement of business.
· Imposition of suspended duty on certain goods that were being dumped in the domestic market and consequently hurting domestic producers.
· Adjustment of the import tariff bands in a way that would benefit domestic producers.
· Abolition of import duty and VAT on computer equipment so that state of the art computing technology is available to the domestic producers.
Mr. President, distinguished guests, ladies and gentlemen, I am not listing the above so that the government can be praised but am highlighting some of the changes that have been made in view of the government’s commitment to make the tax policy more business friendly. Needless to say, more changes will come in response to demanding situations.
Over the short to medium term the government will remain steadfast to its commitment of further streamlining the tax system, increasing transparency and promoting exchange of information between government and the private sector.
It is hoped that greater cooperation from the private sector and improvements in tax administration will result in significant expansion of the tax base and compliance. Once the government is able to realise the potential VAT collection, the government plans to review the VAT rate with a view of adjusting the VAT rate downwards. However, to achieve this the government depends on the private sector-government partnership effectively reducing tax evasion enhancing compliance and hence increasing VAT collections. Increase VAT collections will provide the government with the necessary financial room to adjust the VAT rate downwards without adversely affecting the expenditure profile.
Mr. President, the government realises that it is not really fair to ask the private sector to pay taxes when the government is exempt from paying taxes itself. It was on the strength of this realisation that made the government decide on revoking VAT exemption for itself from July 2001. The government envisages to take further bold steps including considering to abolish its exemption from other taxes in future. Over the short to medium term, the government will review existing taxes with the view of consolidating certain taxes in order to reduce the transaction cost for business and eliminate nuisance taxes – like the elimination of advance payment of income tax which individuals or groups were obliged to pay prior to commencement of business from the current fiscal year.
Moreover, the government also aims to consolidate revenue from local government with those of the central government so that the issues of multiplicity of taxes can be effectively addressed. Over the short to medium term the government aims to consolidate taxes in a way that places least financial and administrative burden on the agriculture sector. The private sector is expected to reciprocate the government initiatives by effectively complying to this friendly tax regime.
Mr. President, I would however pose a challenge to the private sector by not only dwelling on prayers for tax cuts, elimination or zero rating of VAT. Rather they should come up with new taxable areas and advice the government on how to go about taxing those new areas. This will entail broadening the tax base and thus reduce the incidence of tax burden to the existing taxpayers. Of course it should be good enough to encourage compliance on sustainable basis.
In the same spirit, Mr. President, over the last five years the government has made significant ground towards implementing a sound expenditure framework. Firstly, the government implemented the cash management system whereby expenditures for a given period were fully covered by revenues and grants. The government has refrained from borrowing from the domestic financial system to finance its recurrent operations. To control and account for all expenditures the government undertook the Government Accounts Development Project (GADP) where the government implemented the Integrated Financial Management System (IFMS) of accounting. This accounting system now incorporates commitment control mechanisms that will not allow any accumulation of arrears. The government has
passed the Public Finance Act and the Public Procurement Act to make government expenditures more transparent. The government will soon be initiating expenditure tracking studies aimed and making sure that service delivery is improved and to hold ministries and departments answerable to the people on issues of public finance management. Government’s theme is to ensure value for money is realised on sustainable basis.
Over the short to medium term expenditure policies will be geared towards human capital and infrastructure development. The government will focus on seven priority sectors. Priority sectors are to include:
o Human Capital Development in
i. Health
ii. Education
iii. Water
o Infrastructure Development i.e.
i. Roads
ii. Lands
o Productive and Good Governance
i. Agriculture
ii. Justice
Infrastructure development and human capital enhancement will allow Tanzanians to increase their capabilities and well-being. Better infrastructure and enriched human capital population will have obvious benefits to the business community.
In order to hold government responsible to the people, my ministry has started publishing in national newspapers the amounts released to all government institutions including local government authorities. It’s the duty of citizens to hold these entities accountable for service delivery.
Mr. President, as I said earlier, the government had decided not to borrow money from domestic financial system to finance its recurrent expenditures. This deliberate move was made so that the private sector was not “crowded out” by government borrowing requirements. The government budget does not resort to any foreign borrowing on commercial terms either.
The government has also taken stock of the arrears that were accumulated in the past and in the current budget has made an adequate provision for clearing past budgetary arrears which will allow most of the private sector to be paid back for the funds used to supply government with goods and services. Further the government has implemented a stringent system for expenditure control. This system will not issue a local purchase order (LPO) in case the respective vote does not have sufficient funds. The government has also decided not to honour any payment request by suppliers, which has not been generated by IFMS. I would urge the business community not to supply any goods or services to ministries and departments for which a local purchase order has not been provided.
Mr. President, distinguished guests, ladies and gentlemen, let me now turn towards my second key area of discussion; capital availability to the private sector.
Let me state at the outset that over the short, medium and long term the government will remain committed to fostering market determination of credit and interest rates.
The government does not have any plans of forcing private lending institutions to lend to the business community. However, the government does recognise that there are certain hurdles that make commercial lending institutions not lend to the business community. These are:
o Information asymmetries between the lenders and borrowers. Commercial lending institutions often cannot ascertain the credit worthiness of borrowers and lenders being risk averse do not lend. In order to assuage this situation, the government is in the process of establishing a credit information bureau at the Bank of Tanzania.
o Commercial lending institutions have informed the government that certain laws impede repossessing of assets a borrower pledges with the lender,
in case of default. Commercial lending institutions have asked the government to review such laws with the view of addressing these anomalies. The government is keenly following up developments on this front as well.
Last year the government launched the National Micro-Finance Policy. Within the ambit of this policy the government has set up certain trust funds to provide loans for setting up mirco-enterprises. Microfinance scheme works on the principles of peer monitoring and has been successful.
The government would advice the business community to setup forums where commercial lending institutions come together with the business community and resolve the issues that are causing low level of lending to the business community. We are aware that some of the commercial banks have already taken measures of reducing interest rates in order to increase lending. This is an encouraging sign and the government hopes that other banks will follow suit. Now the business community should make sure it improves its credit worthiness with banks to avoid defaulting on loan repayments, so that banks further reduce interest rates.
Mr. President, distinguished guests, ladies and gentlemen.
We have achieved the necessary conditions for growth i.e. macroeconomic stability. Now the challenge that confronts us is to translate this achievement into sustainable economic growth. The government has to work closely with the business community to bolster production, increase employment and alleviate poverty. Lets get together and achieve these objectives.
Once again I thank you for the opportunity to be with you today and share my thoughts with you.
Ahsante Sana.
Hon. Abdisalaam I. Khatibu (MP)
DEPUTY MINISTER FOR FINANCE
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