Finance Act Analysis 2023
- The Finance Act of 2023, an essential piece of legislation supporting the government’s fiscal proposals outlined in the annual national budget, has introduced significant changes to various provisions of the existing laws. This comprehensive analysis aims to provide insights into the key amendments brought forth by the Finance Act of 2023 and their potential implications for taxpayers and businesses.
- It is important to note that while this analysis strives to provide accurate and reliable interpretations of the Finance Act 2023, our understanding and perspectives on specific provisions may differ from those of the tax authorities.
Amendment of the Income Tax Act
Change in control
The Act is amended by excluding from taxation the change in underlying ownership resulting from:
(a) allotment of new membership interest of the entity; or
(b) transfer of membership interest of a resident entity to
another resident person.”
By implementing these changes, the government aims to encourage investment in the country and facilitate smooth ownership transitions within resident entities without adding tax burdens to such transactions. However, it’s important to note that the change on transfer of membership interest only apply to transfers involving resident entities and individuals within the country. Other scenarios, such as transfers to non-resident persons or indirect ownership changes through group entities, may still be subject to taxation as the amendment does not explicitly address those situations.
Source of payment of electronic services
The Act has revised the scope of Digital Service Tax (DST) to apply on electronic services instead of “services rendered through a digital marketplace” as it was previously stated. DST is applicable on gross payments which means total payment excluding VAT, derived by a non-resident person from an individual in respect of electronic services, other than a payment made in the course of conducting a business.
Further, the DST due date has been extended to 20th day of the month following the month to which the return relates disregarding the previous due date of the 7th day of the following month.
Withholding tax on investment returns
The amended section 82(2) of the income tax act exempts individuals from withholding tax unless the payment is made in conducting a business. The intention of this amendment is to remove withholding tax obligations from individuals paying rent for residential premises. However, individuals paying rent for commercial buildings still need to withhold and remit tax to the TRA.
Final withholding payments
A final withholding tax of 2% has been introduced on payments for the acquisition of precious metals, gemstones, and other precious stones supplied by primary mining license holders or artisanal miners. This change aims to address tax collection challenges from miners.
Additionally, a 10% final withholding tax has been introduced on payments to resident persons for verified carbon emission reductions. This expansion of the tax base may lead to increased tax revenues.
Single instalment at time of realization or receipt
For the realization of an interest in land or building, a resident person who realizes an interest in land and does not have records of cost of assets will be subjected to pay 3% of the higher of the proceeds or approved value of the assets as a single-instalment income tax.
The Act is amended by including in the list of exemptions:
• “amount derived from gain on the internal restructuring of mining companies pursuant to the requirement of a Framework Agreement entered between the Government and investor to form partnership entity;
The drive to the amendment is to simplify the implementation of Government commitments outlined in Framework Agreements and accelerate consortium projects between the Government and mining investors.
• amount derived by the National Health Insurance Fund from investment returns on fixed deposit, treasury bonds, treasury bills or dividends”.
This amendment aims to support NHIF to provide expanded health services to the community.
Amendment of the Income Tax Act
Tax regime for individuals in the transportation business
Individuals involved in passenger and goods transportation are now subject to regular corporate income tax rules.
Individuals involved in the transportation business and with a turnover below TZS 100 million shall be taxed according to the prevailing presumptive income tax rates as presented below:
Amendment of the Tax Administration Act
Primary Data Server
A primary data server definition is broadened by including physical or virtual server and read as;
“physical, virtual or any other server that stores data created or collected by a taxable or liable person in the ordinary course of business”
The amendment goes in hand with a requirement to all persons storing data in electronic form to maintain a primary data server in Tanzania effectively from 1 January 2024, which gives liable taxpayers ample time to manage and adopt with the storage of primary data servers.
Issuance of fiscal receipts
Section 36 (1) of the TAA is amended by deleting the word ‘by using electronic fiscal device’ and the subsection now reads;
“A person who supplies goods, renders services or receives payment in respect of goods supplied or services rendered shall issue fiscal receipt or fiscal invoice”
The amendment is made to accommodate other technological and approved devices issuing fiscal receipts.
Disclosure of Information on Contracted services
A thirty-days timeframe from the date of executing a contract for contracted or subcontracted services has been introduced for entities engaged in extractive industry to disclose to the TRA the names of persons contracted and sub-contracted in projects.
Definition of terms
The Act 2023 has amended the TAA by introducing the definitions for ‘storage facility’ and ‘owner’ as follows;
“storage facility” means warehouse, godown or any other storage facility, which is used to keep own or other persons’ goods for business purposes, provided that such warehouse, godown or other facility is not part of a shop, factory, industry or farm; and
“owner” means a person who establishes or operates and is in control of the facility and possession of the storage facility or a person to whom the storage facility has been leased or sub-let to.
Application for Tax Refund
Prior to the current amendments, the time limit for application for tax refunds was three years from the date of payment of tax in excess.
The amendment extends the application time limit for tax refunds to three years from the date of a tax decision or other decision resulting in a tax overpayment.
Amendment of the Tax Administration Act
Fine for Failure to Use Electronic Fiscal Device
Changes have been made to the penalties for not issuing EFD receipts or using EFD machine. The new penalty is either TZS 1,500,000 or 20% of the value of goods or services sold, whichever is higher. Previously, the penalty range was TZS 3,000,000 to TZS 4,500,000.
Additionally, further changes have been made to the penalty for failure to demand EFD receipts or report the absence of EFD receipts. The new penalty is either 20% of the tax evaded value or TZS 30,000, whichever is higher. Initially, the penalty range was TZS 30,000 to TZS 1,500,000.
Bed Night Levy Return
The TAA’s First Schedule recognizes the bed night levy return as one of the return to be filed to the Commissioner General (CG) by adding a sub paragraph (1) (h) that reads:
“in relation to bed night levy, a return filed under the Tourism (Tourism Development Levy) Regulations.”
Amendment of the Value Added Tax Act
Power is vested to the CG to grant VAT exemptions on importation of;
“raw materials of Heading 39.02 and 39.07 to be used solely in the manufacture of packaging materials of pharmaceutical products”; and
“importation of pre-fabricated structures or supply of locally manufactured pre- fabricated structures of H.S Code 9406.20.90 to be used solely in poultry farming”.
However, the exemption is not automatic. It is granted upon application and approval by the CG.
The Act also outlays the applicants of the exemptions above to being none other but;
“a local manufacturer of packaging materials of pharmaceutical products having a performance agreement with the Government of the United Republic” and;
“a person engaged in poultry farming in Mainland Tanzania having a performance agreement with the Government of the United Republic”.
Deferral of VAT on imported capital goods
VAT deferment now applies to locally manufactured capital goods as well, extending beyond only imported capital goods and trailers or road tractors assembled in a customs bonded warehouse (heading 87.16 and HS Code 8701.20.90).
Starting from 30th June 2026, the VAT deferment on imported capital goods will no longer be in effect.
Those granted VAT deferment must treat the tax payable on locally manufactured taxable supplies or imports as output VAT in the relevant tax period.
However, goods purchased or imported for resale in the normal course of business do not qualify for VAT deferment, regardless of the state in which they were purchased or imported.
Zero Rating of Supply of Goods
Locally produced garments made from domestically grown cotton will be exempt from taxes for one year, starting from 1st July 2023 to 30th June 2024. This change aims to encourage the growth of local cotton production and garment manufacturing.
Additionally, the zero rating of supply of locally manufactured fertilizers is extended to 30 June 2024. This aims at providing relief by reducing the cost of production for local producers of fertilizer and its local farmers.
The Act amends the definition of ‘electronic services’ by including “online intermediation services” and “online advertisement services”.
To reflect the amendment made under the Tax Administration Act, this Act is also amended to recognize fiscal receipts issued by other devices than the electronic fiscal device
This is done by substituting the words “tax invoice generated by electronic fiscal device for the supply” with “fiscal receipt” under section 86 (1) of the VAT act.
Additional VAT Amendments
➢Aircraft, aircraft engines, aircraft parts, and aircraft maintenance supplied to local air transportation operators are now exempt from taxation.
➢Automobile accessories used for converting motor vehicle fuel systems to natural gas or electricity systems are now exempt from taxes for individuals engaged in such vehicle conversions.
➢Double refined edible oil from locally grown seeds, supplied by a local manufacturer, will be exempt from taxes until 30th June 2024.
Additional VAT Amendments
➢HS codes on the VAT Act(Exemptions) Schedule have been amended to align with the current version of H.S Codes as per the East African Community Customs External Tariff Book, 2022.
➢Precious metals, gemstones, and other precious stones supplied to refineries, buying stations, or designated Mineral and Gem Houses by the Mining Commission under the Mining Act are now exempt from taxation.
Vocational Education and Training Act(Cap. 82)
➢The SDL rate has been reduced to 3.5% compared to its previous rate of 4%.
➢Further, employers who do not fall under the SDL liability are no longer obliged to file the SDL monthly returns.
The Gaming Act(Cap. 41)
➢Redefining of several of the terms below;
““commercial gaming undertaking” means any gaming activity
which is subject to gaming tax;
“gross gaming revenue” means collective amount of wagering or staking placed by players minus the collective amount of winnings paid out to players;”.
➢The Minister of Finance is vested with power to grant exemptions
from paying SDL to any person, provided that such exemption is for ➢Issuing of gaming licenses for operating commercial gaming
public interest. This is to be done in consultation with the minister responsible for vocational education and training and by order published in the gazette.
All these VETA amendments give relief to employers who do not fall under the SDL obligations to be free from administrative burden and costs in relation to SDL.
undertakings to companies having at least 5% paid-up share capital owned Tanzanian Citizens.
The Excise (Management and Tariff) Act(Cap.147)
➢Excise duty rates will be reviewed every three years starting from the FY 2023/24, a change from the previous annual adjustments considering inflation and macro- economic indicators.
➢Various product-specific excise duty rates have been modified to account for inflation.
➢Excise duty has been newly imposed on several products, including cement, electronic cigarettes and personal electric vaporizing devices, water pipe tobacco, and motor vehicles designed for transporting ten or more persons..
The National Payment Systems Act (Cap. 437)
➢The Act has amended section 46A to limit the scope of applicability of electronic money transfer levy to only withdrawal transaction.
The Mining Act (Cap. 123)
➢Refineries are exempted to paying the 1% inspection fee ➢Royalty rate for salt has been reduced from 3% to 1%.
The Road and Fuel Tolls Act (Cap. 220)
➢An increase of TZS 100 on the road and fuel tolls i.e., from TZS 413 to TZS 513 per litre of petrol and diesel.