MOFEP defends revenue measures outlined in 2010 Budget ...says Gov`t has not imposed new taxes

Government has not introduced or imposed any new tax in the 2010 Budget, but rather seeks to improve the efficiency of the existing tax regime through a shift from specific to ad-valorem excise taxes on existing selected commodities, and the restoration of excise and customs duties on food imports. The Ministry of Finance& Economic Planning (MOFEP) has stated.

A statement issued by Abdul Hakim Ahmed, media liaison at the Ministry of Finance & Economic Planning, yesterday, in reaction to discussions in the media regarding some revenue measures outlined by government in the 2010 Budget particularly, with respect to the restoration of excise and customs duties explained 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.”

The statement noted that Government has identified several challenges with the use of specific rate on commodities such as tobacco products, beer and spirit. These challenges, according to the Ministry, 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.

The Ministry further explains that the ad-valorem rates that are to apply to the said goods in the 2010 fiscal year are not new. “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 Harmonized Commodity Codes and the Tariff Schedule of 2004 of CEPS contains the entire rates that have been mentioned in the 2010 Budget,” it said.

The statement mentioned that 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, emphasizing that 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; Wheat - 10%; Rice - 20%; Vegetable oil -20% and Maize - 20%. These are contrary to the alarming figures that have been thrown out in the public,” the Ministry of Finance asserted.