High cost of living in the spotlight as government unveils 2022/23 Budget

Dar es Salaam. As Finance and Planning Minister Mwigulu Nchemba presents Tanzania’s budget for the financial year 2022/23 today, expectations are high that he will come up with a detailed plan on how the government will address the spiralling cost of living.

This year’s budget comes at a time when official data put the annual headline inflation rate for the month of May, 2022 at 4.0 percent compared to 3.3 percent for May 2021.

The rise is largely on account of increasing prices for some food and non-food items during the past few months. The price increases have been mostly fuelled by foreign reasons, including a rise in global demand after repeated lockdowns caused by the Covid-19 pandemic and the fuel, grain, fertilizer and cooking oil supply chain disruption after Western powers imposed economic sanctions on Russia following the latter’s military operation in Ukraine.

Fuel

In Tanzania, Dar es Salaam residents are currently paying Sh2,994 and Sh3,131 for a litre of petrol and diesel respectively. The prices are however somewhat reasonable, thanks to the government’s Sh307 and Sh321 subsidies per litre of petrol and diesel respectively.

The current prices for petrol are however Sh745 or 33 percent more than they were in June last year when a litre fetched Sh2,249. They are also Sh1,058 or 51 percent higher than they were in June 2021 when a litre of diesel fetched Sh2,073.

Transport

The rise in fuel prices, coupled with other operational costs saw the Land Transport Regulatory Authority (Latra) adjusting bus fares in such a way that for urban buses from Zero to 10 kilometres, passengers will pay Sh500 instead of 400 and those who used to pay Sh450 will be Sh550, representing a 20 percent increase.

Fares for upcountry have risen by 11 percent from Sh36 per kilometre to Sh41 for ordinary buses while semi luxury bus fares have increased by six percent whereby a passenger now pays Sh56.88 per kilometre from Sh53.

Tanzania Bus Owners Association (Taboa) director of communication Mustafa Mwalongo said the current fuel prices were not correlating with the just newly announced fares.

Tanzania Association of Oil Marketing Companies (Taomac) executive director Raphael Mgaya said whatever measures the government would take, creating an environment for fuel supply security should top the list of its priorities. In the same vein, owners of private schools have also transferred the costs to parents by raising charges for school buses.

“The measures to be taken should not, in any way, disturb importers and distributors, or, it will cause fuel crisis and thus paralyse the country’s economy,” cautioned Mr Mgaya. In his come of most recent discussions with The Citizen, Mr Mgaya has maintained the need for the government to maintain its fuel subsidy system and also to introduce a price stabilization fund.

Wheat

With the disruption in global supply chain, Tanzania, which is heavily reliant on Russia for its wheat requirements, has seen local prices of the product rising to levels that had never been witnessed before.

While Dar es Salaam residents used to buy a 100-kilogramme at an average price of Sh115,000 in May last year, the same has since risen to an average of Sh235,000. This suggests an increase of 104 percent, according to data from the Ministry of Investment, Industry and Trade.

According to the executive director for Agriculture Non-State Actors Forum (Ansaf), Mr Audax Rukonge, the situation calls for a budget that puts emphasis on local production.

“Specifically, the budget should come up with ways of addressing infrastructure challenges in areas that have been identified as fit for wheat production,” he said, noting that by raising local production, Tanzania will reduce its reliance on imports from Russia and partly, Ukraine.

He said, the Tanzania Agricultural Research Institute (Tari) should also be empowered so it can come up with high-yielding varieties.

Available data show that Tanzania produces only 100,000 tonnes out of its annual demand of 900,000 tonnes. It is only 250 acres of Tanzania’s land that is planted with wheat. The country spends up Sh1.3 trillion on wheat imports each year. The rise in wheat prices has also fuelled a rise in local prices of bread and noodles among others.

Cooking oil

Presenting the 2022/23 financial year budget for her docket, the Investment, Industry and Trade minister, Dr Ashatu Kijaji, said prices of cooking oil have been in an upward trend on the global market.

In March, 2022, the average price of sunflower cooking oil was quoted at $1,491.3 per tonne from $711.71 in March 2019.

In the same vein, the price for crude palm oil jumped from $573.02 per tonne to $1,776.96 per tonne.

In addition to the shortage of raw materials, the escalation in the global market price has had an effect on the domestic market price since last year.

However, prices have been going up and down, but not to the relief that citizens deserved.

In April, a five-litre can of sunflower cooking oil fetched between Sh33,000 and Sh40,000 in major shops across Dar es Salaam, a massive jump from only between Sh20,000 and Sh25,000 about six months (October) or so.

The prices have now gone down to somewhere between Sh35,000 and Sh38,000 in most of the shops in the city.

But, still stakeholders say the government could do more to take down prices and reduce the pains that citizens were going through.

Confederation of Tanzania Industries (CTI) trade policy specialist Frank Dafa believes that a cut in import duty of edible oil will boost production in cooking oil and thus addressing a dire shortage and untouchable price of the product.

He was of the recommendation that import duty be slashed from the current 25 percent to 10 percent.

“This (edible oil) is an intermediate good so it has to be charged 10 percent as per the EAC (East African Community) Common External Tariff,” stressed Mr Dafa.

In tandem with the skyrocketing prices for cooking oil and construction materials, there has been a rise in prices of other products like beans, maize and rice.

Rising LPG prices

With the disruption in supply chain, occasioned by the US-led sanctions on Russia in response to the latter’s military operation in Ukraine, prices of Liquefied Petroleum Gas (LPG) in Tanzania have been on the rise during the past few months.

While Tanzanians could refill a 6kg cylinder for Sh21,000 in June 2021 the same now fetches Sh24,000. Similarly, one needed Sh50,000 and Sh125,000 to refill 15-kilogramme and 38-kilogramme cylinders respectively in June 2021. On the contrary, one now needs Sh58,000 and Sh130,000 respectively to refill a 15-kilogramme cylinder and a 38-kilogramme cylinder respectively.

The Oryx Energies deputy managing director, Mr Mohamed Mohamed said yesterday that the government needs to set fixed fees and costs on the product as a way of ensuring that prices do not move in accordance with world market prices.

“The advice is that the government should set a fixed amount for the charges, fees and levies on LPG, including fee for Tanzania Bureau Standards (TBS) instead of depending on world market prices,” he said.

He said the rise in prices were a reflection of increasing global costs and domestic levies and charges on the product.

Cereals

On average, prices of maize have increased by 78 percent in the country during the period of the last one year, available data shows.

Data from the Ministry of Industry and Trade show that average price for a 100-kilogramme bag of maize reached Sh80,632 last week (June 10, 2022), an increase of Sh35,290 compared with Sh45,341 on June 09, 2021.

The highest price of maize was Sh120,000 for a bag recorded at Tandika market in Kinondoni, Dar es Salaam while the lowest was Sh67,000 in Tanga.

Likewise, rice prices went up by 38 percent to an average of Sh220,556 per a 100-kilogramme bag from Sh160,000 during a similar period last year.

Data show that residents of Kindononi paid the highest price at Sh280,000 for a 100-kilogramme bag while the lowest price was Sh180,000 in Tanga town.

Meanwhile, a 100-kilogramme bag of beans has also increased by an average Sh12,368 from Sh190,000 to Sh202,368 over the cause of one year.

Tourism

In the tourism sector, expectations are that the government will consider working on VAT and Concession Fees.

Players in the sector say the good signs of recovery for Tanzania’s tourism sector may not yield the anticipated results due to high taxation.

These are largely manifested in the often disputed value added tax (VAT) and the concession fee.

The latter is paid by tourists accommodated inside the tourism sites such as the national parks.

They are not entirely optimistic despite the leading foreign exchange earning sector showing all signs of recovery from Covid-19 impact.

“Tanzania is losing business as a safari destination because of VAT on tourism services,” cautioned Mr Aafeez Jivraj, the director of Tanzania Private Select Safaris.

He said although cash from VAT was a sweetener to the national coffers, it made the country lose some visitors to close competitors in the region.

“When a client walks into an agent’s office, his mind is 100 percent that his holidays are to be in Tanzania.

“After getting the costs, the client starts to look for other options as Tanzania is expensive”, he told The Citizen yesterday.

The options are the country’s close competitors in safari tourism namely Kenya,Zimbabwe, Namibia, South Africa and Botswana.

Mr Jivraj, who has been operating the safari tours from the 1990s, wondered as to why the government imposed VAT at a time its neighbours ditched it.

“Maybe it was because this country does not have VAT refunds for the visitors. For instance, at our airports there are no VAT clearing desks”, he explained.

VAT refund is the reimbursement of the value added tax that one paid on certain purchases and is charged in many countries in the world.

Non-resident tourists and foreign companies are eligible for VAT tax refunds for goods and services purchased locally.

VAT on tourism services was introduced by the government in 2016 amid uproar from the tourism industry players led by the tour operators.

Mr Jivraj hastened to say that Tanzania was attracting only 30 percent of the visitors and losing 70 percent of its potential due to VAT and other taxes.

Concession fee is among other taxes which has made the wildlife-rich country (Tanzania) one of Africa’s most expensive destinations.

The fee is charged per day for each foreign tourist accommodated at any facility within the national park and other protected areas.

It was introduced about three years ago and tourism operators view it as another double taxation as visitors also have to pay entry fees to the parks.

Officials of the Tanzania Association of Tour Operators (Tato) could not be reached on their budget expectations which will be read in Parliament in Dodoma today.

Understably, however, the Arusha-based organization is reported to have always forwarded its views every moment the budget is under preparation or about to be tabled in the House.

Victor Mollel is the director of Ujumbe Ink, a publishing house for brochures, leaflets, travel magazines and other promotional materials.

He decried the taxation system in the country which he says was not conducive for the tourism sector which had 30 taxes alone.

He made a special appeal to the Tanzania Revenue Authority (TRA) to centralize taxation so that all tourism related taxes are paid under “one roof”.

Tourism is a key sector in Tanzania’s economy, contributing about 17 percent of the country’s Gross Domestic Product (GDP) and 25 percent of forex earnings.

In pre-Covid era, the tourist arrivals had reached 1.5 million visitors, generating a record revenue collection of $2.5 billion in 2019.

The figures of incoming tourists tumbled to a mere 620,000 in 2020 - the peak of the pandemic - but rose to 900,000 last year.

The fall in arrivals triggered an even more devastating drop in revenue collections to $1.7 million last year from an estimated $2.5 billion in 2019.

Amend gaming Act

The government must also urgently amend the country’s Gaming Act, Cap 41 by increasing the ‘Winning Tax’ on all sports betting from the current 15 percent to 30 percent, a move to generate more revenue yet discouraging young people (workforce) from betting.

The call was made by Policy Forum’s Tax Justice Working Group as their pre-budget position at a time when Dr Mwigulu Nchemba, Finance and Planning Minister, unveils the country’s 2022/23 budget today.

The group suggested that keeping the said tax low will of course result in greater economic returns in a short-run yet in long-term, the economic effect (lower productivity) accumulated from a large population of gamblers will be too big for the country to bear.

But on the other hand, higher tax rate in the middle-range, will certainly be the best in ensuring the country does not fall in those that have over regulated or those that have underregulated through taxes.

Media reports indicate that although it is a relatively new industry in Tanzania, gambling has a substantial size with great room to grow. For instance, four years ago, its market was valued at $16 million, with projections to almost double to $31 million by next year.

The growth is said to be contributed by the growing youth population, for instance, of the estimated 60 million people in Tanzania, more than 50 percent are under 18 and over 70 percent are under 30 yet adolescents form over 12 million of the overall population.

Furthermore, the country is ranked as the eleventh country in the world with the most youthful population thus a potential market growth opportunity, for sports betting and the gaming industry at large.

The survey conducted by Shikana Group has indicated at least 89 percent of people engaging in Sports betting activities range from the age of 18-34.

In 2021, the government sought to attract more foreign investment in the industry by amending the Gaming Act Cap 41, which tackled the impact of taxes on economic growth and reduced gaming taxes from a rather high 20 percent to 15 percent.

In addition to lowering casino taxes, the amendment made some changes to sports betting whereby 5 percent of sports betting taxes will go towards the Tanzanian Sports Development Fund.

Early last year, Tanzania’s gaming board had introduced 10 percent tax on gross gaming revenues collected from virtual games.

On the other hand, the working group also suggested a reduction in mobile money transfer levy by 50 percent and align all the application of levy across all financial services transfer and withdrawal transactions.

In addition, the group has proposed the continued review of the mobile money transfer levy and assessment of its detrimental effect on citizens and businesses.

By doing so, the government will increase the use of mobile money services, adding that: “Also implies more revenue to mobile companies which in turn pay taxes and more income to those engaged in the business, especially the youth.”

Reported by Zephania Ubwani, Alex Malanga, Naomi Achieng’ and George Helahela