Government Has Not Imposed Any New Tax In The 2010 Budget

The Ministry of Finance and Economic Planning (MOFEP), has taken note of discussions in the media regarding some revenue measures outlined by government in the 2010 Budget. This is particularly with respect to the restoration of excise and customs duties.

First of all, it must be emphasized that government has not introduced or imposed any new tax in the 2010 Budget. Government seeks to improve the efficiency of the existing tax regime through:

a) A shift from specific to ad-valorem excise taxes on existing selected commodities;

b) Restoration of import duty on food imports, especially on rice, wheat, maize and vegetable oil; among others.

It is important to note that, both the specific and ad-valorem taxes are designed to be revenue neutral. This means, they rake in almost the same amount of revenue if used efficiently.

Government has identified several challenges with the use of specific rate on commodities such as tobacco products, beer and spirit. These challenges have often led to massive loss of revenue to government due to the difficulty in interpreting a proper index for the “specific rate”, with concomitant negative effects on government’s revenue and the efficiency and fairness of the tax system. It is for this reason that government has decided to move to ad-valorem rates.

Furthermore, the ad-valorem rates that are to apply to the said goods in the 2010 fiscal year are not new phenomenon. They have been in the Customs, Excise and Preventive Service’s (CEPS’) books since 1984/86 before the change in 2007. In fact, the main objective of the shift from specific to ad-valerom is to maintain the tax rate that existed in the country prior to the introduction of the specific in 2007. The Harmonised Commodity Codes and the Tariff Schedule of 2004 of CEPS contains the entire rates that have been mentioned in the 2010 Budget.

Further, government has decided to restore the import duties on wheat, rice, maize and vegetable oil, which were removed in 2008 in the height of the global food crisis. The global conditions that necessitated the removal of those duties have abated and government finds it pertinent to restore the duties in order to encourage local production, create jobs and conserve foreign exchange. This development is not just welcome news and an incentive to our local farmers but also fits into the social democratic values of this government. The duties as they were before their removal in 2008 are as follows:

a) Wheat- 10%;

b) Rice - 20%;

c) Vegetable oil-20%;

d) Maize - 20%.

These are contrary to the alarming figures that have been thrown out in the public.

ISSUED BY ABDUL HAKIM AHMED,

MEDIA LIAISON MINISTRY OF FINANCE & ECONOMIC PLANNING

THE NEWS EDITOR