INSIGHTS

Guide to the Tanzanian Tax System

TP&Tax (LINK) provides an overview of the tax system in Tanzania, outlining key aspects such as laws and liabilities, tax rates, tax incentives, taxation of expatriates, transfer pricing regulations, and more.

Introduction to Tanzania’s Tax System

The Tax Administration Framework

The administration of taxes is governed by the Tax Administration Act, 2015 (TAA, 2015) and tax administration regulations including the Tax Administration (General) Regulations, 2016.

The Tanzania Revenue Authority (TRA) is the government agency responsible for the administration and collection of taxes in Tanzania.

Tanzania has a “self-assessment” tax system in place where the taxpayer is responsible with ensuring compliance with tax laws and regulations, by properly presenting its tax returns and pay correct taxes. The TAA, 2015 recognizes approved tax consultants to assist/ represent the taxpayer in tax related matters. An approved tax consultant is one who has been issued a certificate of registration and approval by the Commissioner General.

The revenue authority has powers to audit the tax affairs of a person before the lapse of five years with exceptions where there is an indication of fraud which would call for an investigation.

Tax Residency in Tanzania and Tax Liability

In Tanzania, tax liability is determined by residency status. Residents are taxed on their worldwide income, while non-residents are only taxed on their Tanzanian-sourced income.

An individual is a resident in Tanzania if meets any of the following:

(a) has a permanent home in the United Republic and is present in the United Republic during any part of the year of income;

(b) is present in the United Republic during the year of income for a period or periods amounting in aggregate to 183 days or more;

(c) is present in the United Republic during the year of income and in each of the two preceding years of income for periods averaging more than 122 days in each such year of income; or

(d) is an employee or an official of the Government of the United Republic posted abroad during the year of income.

A corporation is a resident corporation for a year of income if-

(a) it is incorporated or formed under the laws of the United Republic; or

(b) at any time during the year of income the management and control of the affairs of the corporation are exercised in the United Republic whether physically or through any electronic means which includes virtual means.

A partnership is a resident partnership for a year of income if at any time during the year of income a partner is a resident of the United Republic.

A trust is a resident trust for a year of income if:

(a) it was established in the United Republic;

(b) at any time during the year of income, a trustee of the trust is a resident person; or

(c) at any time during the year of income a resident person directs or may direct senior managerial decisions of the trust, whether the direction is or may be made alone or jointly with other persons or directly or through one or more interposed entities.

Types of Taxes in Tanzania

The applicable taxes in Tanzania can be categorized in two broad categories: Direct taxes and Indirect taxes. Direct taxes refer to taxes on what you earn and what you own, while indirect taxes refer to what you spend.

Direct Taxes

Direct taxes are governed by the Income Tax Act, 2004 (ITA,2004) and the supporting regulations, which impose income tax on earnings by a person (individual or entity) from employment, business, and investments where taxes are charged either progressively or at a flat rate.

The laws and regulation cover a range of taxes on earnings particularly employment tax, corporate tax, presumptive tax, single instalment taxes, and withholding taxes.

Tanzania Tax Base (Taxable Income)

Taxable income in Tanzania is grouped into:

  • Employment income (salaries, wages, bonuses, allowances, and fringe benefits)
  • Business income (profit and gains from a trade, profession, vocation)
  • Investment income (dividend, rent, royalty and so forth)

Employment Income Tax in Tanzania

A progressive taxation system applies on resident individuals’ income from employment on amount below TZS 12,000,000 (annual), and a flat 30% on any excess. The employer is required to withhold such income tax when making payments to an employee and submit a monthly statement indicating among other information, names of employees, total employment income per employee, and income tax withheld per employee. Employees do not file tax returns.

Personal income tax rates in Tanzania are progressive, with the following bands:

Tanzania Personal Income Tax Rates

*Taxable income is exclusive of employee’s deduction to the social security fund.

Social Security Contributions

In Tanzania, both employees and employers are required to make social security contributions. There are two main social security schemes:

  1. National Social Security Fund (NSSF) for the private sector
  2. Public Service Social Security Fund (PSSSF) for employees of public service

In both schemes a total of 20% per employee must be contributed. In NSSF both employees and employers contribute 10% each while for PSSSF employees contribute 5% and employers 15%. These contributions provide benefits such as pensions, disability coverage, and survivors’ benefits.

Business and Investment Income Tax in Tanzania

Income tax of an individual is taxed at similar progressive tax rates as those of employment income. Where the total income of a resident individual includes net gains from realization of certain identified assets, a progressive tax rate applies on the amount exclusive of the net gain. The net gain would be taxed at 10%. The income of non-resident individuals and of persons from conducting mining and/or petroleum operations is taxed at 30%.

Exception is on resident individuals with business turnover with source in the URT not exceeding TZS 100,000,000 per annum, where a presumptive tax regime would apply. Presumptive taxes are progressive and vary between businesses maintaining documents and those that don’t, the later attracting slightly higher taxes. A presumptive tax regime does not apply any tax on the turnover not exceeding TZS 4,000,000; taxes 3.5% of turnover above TZS 11,000,000 but not exceeding TZS 100,000,000 and is progressive for the turnover thresholds in between TZS 4,000,000 and TZS 11,000,000. It is more favorable on business that are profit making and in circumstances where maintaining documents is a challenge.

The presumptive income tax regime does not apply to individuals engaged in professional, technical, management, construction, and training services.

Income tax of a corporation including limited companies, trust, unapproved retirement fund, a domestic permanent establishment of a non-resident person, clubs and trade associations is taxed at 30%. Income from clubs and trade associations is generally exempt if at least 75% of it is derived from members. Businesses engaged in gaming activities are taxed separately as governed by the Gaming Act.

Lower corporate tax rates apply on special mentioned types of corporations including those newly listed in with the Dar es Salaam Stock Exchange with at least 30% of its equity ownership issued to the public.

For corporations with perpetual unrelieved loss for three consecutive years, an alternative minimum tax shall apply equivalent to 0.5% of the turnover of the third year of perpetual unrelieved loss. An exception to this law is corporations conducting agricultural business or engaged in the provision of health or education.

Further, the Finance Act of 2023 introduced:

  • Tanzania Digital Services Tax

This is a single instalment tax on non-residents providing digital services for a payment that has a source in Tanzania, at a rate of 2% of gross payments; and

  • Transportation Advance Tax

This is an advance tax on earnings by a resident individual or entity engaged in transportation of passengers or goods, which is based on the number of passengers or load capacity.

Tanzania Corporate Tax Rates

Single Instalment Taxes in Tanzania

Tax on what you own provides for a single instalment tax on gain from realization of certain assets.

The ITA, 2004 provides for single instalment tax on gain in conducting an investment from the realization of an interest in land, petroleum or mineral rights or buildings situated in Tanzania, shares or securities held in resident entity.

The tax rate for single instalment tax is 10% and 20% of the gain for a resident person and non-resident person respectively. A rate of 30% applies on realization of mineral rights and/ or petroleum rights. Single instalment tax in relation to realization of shares, securities or interest in land is what is also commonly termed as capital gain tax.

Withholding Taxes in Tanzania

Tax on earnings is also in the form of withholding taxes whereby a tax deduction considered as “withholding tax” is made by a resident person upon making payments. They are advance taxes and maybe final or non-final depending on the payment they relate to.

Withholding tax rates in Tanzania differ depending on the nature of supply and the residence status of the person being paid.

Tanzania Withholding Tax Rates

Indirect Taxes

The other important category is of the applicable taxes on consumption/ purchase.

Indirect taxes in Tanzania include Value Added Tax (VAT), Excise Duty, and Customs Duty

Value Added Tax (VAT) in Tanzania

Tanzania Mainland and Zanzibar have independent VAT laws and regulations.  Classes of VAT include taxable and exempt supply. Taxable supplies include supplies made at a standard rate of 18% and supplies made at a zero rate of 0%. Except as provided, all supplies are regarded as taxable supplies. In most cases, taxable supplies would be charged VAT at a zero rate if they are supplied or used outside Tanzania. Money is not considered as a form of supply.

VAT registration requirement is met when forecasted annual or semi-annual turnover of taxable supplies meets or exceeds TZS 100,000,000 or TZS 50,000,000 respectively. Once a taxpayer is registered for VAT, they will be required to file a VAT return and pay any tax due by 20th of every month following that to which it relates. A nil VAT return will be filed where no transactions occurred during the reporting period.

VAT becomes payable when the net effect between VAT on sales is higher than VAT on purchases, and a receivable if the vice-versa occurs. A constant receivable position qualifies for a refund in cash upon application and meeting other requirements as per the VAT Act, 2015.

Excise Duty in Tanzania

Excise duties are indirect taxes on the sale, use, manufacture or importation of specific products and services. It is charged in both specific and ad valorem rates. The liability to pay excise duty falls on either the purchaser or the seller depending on the nature of item supplied. Unlike most other countries, excise duty also applies on fees charged by financial institution and telecommunication service providers, pay-to-view television services and electronic communication services supplied by electronic communication service provider.

Excise duty filing of the return and payment of the duty are both due on 30th of the month following that to which it relates. A nil excise duty return is filed where there are no dutiable transactions during the period.

Customs duties in Tanzania

Custom duties are applicable upon importation of goods. Favorable rates and rules are applicable upon importation from members of the East African Community (EAC) where rules of Origin criteria are met. Customs duty rates vary depending on the nature of goods:

Other Taxes and Levies

Skills and development levy (SDL)

SDL is governed by the Vocation Education Training Act and is charged at a rate of 4% of the total gross emoluments made by the employer to the employees in the respective month where the number of employees is ten or above.

Every employer is required to file SDL returns by the 7th day following the month to which SDL relates. Where SDL is payable, the employer should submit payments by the 7th day following the month to which SDL relates.

Stamp duty

While it is applicable on several instruments, the most common one is the lease agreements where stamp duty would be paid by the lessee at 1% of the annual value of the lease agreement for the duration of the lease, and agreements or memorandum of agreement (exemptions considered) at TZS 500/=.

Taxation of Expatriates in Tanzania

Expatriates working in Tanzania are subject to the same personal income tax rates as residents. However, they are taxed only on their Tanzanian-sourced income.

Tax treaties may affect the taxation of expatriates in Tanzania. These agreements help prevent double taxation and often provide for reduced withholding tax rates on certain types of income.

Tax Treaties in Place with Tanzania

Tanzania has double tax treaties with nine countries which may provide for a lower rate of withholding tax on dividends.

  1. Canada – Tanzania Income and Capital Tax Treaty (1995)
  2. Denmark – Tanzania Income and Capital Tax Treaty (1976)
  3. Finland – Tanzania Income and Capital Tax Treaty (1976)
  4. India – Tanzania Income Tax Treaty (1979)
  5. Italy – Tanzania Income Tax Treaty (1973)
  6. Norway – Tanzania Income and Capital Tax Treaty (1976)
  7. South Africa – Tanzania Income Tax Treaty (2005)
  8. Sweden – Tanzania Income and Capital Tax Treaty (1976)
  9. Tanzania – Zambia Income Tax Treaty (1968)

Transfer Pricing in Tanzania

Transfer Pricing is the process of pricing the exchange of goods and services between associates. In Tanzania, an associate is a relative of an individual, partners in a partnership, an individual or a company that has more than 25% shareholding in another company, or anyone (other than an employee) that may have influence in the company.

Legislative requirements

Section 33 of the Income Tax Act, 2004 requires transactions between associates, to be conducted at arm’s length i.e., as if conducted between parties that are not related. As a result, the Income Tax (Transfer Pricing) Regulations, 2014, were introduced in February 2014, with a requirement for companies transacting with their associates to prepare and maintain contemporaneous transfer pricing documentation. The document needs to explain the transactions flow, pricing policies applied and a demonstration that they are conducted at arm’s length. The 2014 TP Regulations were repealed in April 2018 and replaced with the Tax Administration (Transfer Pricing) Regulations, 2018. The 2018 TP Regulations were more robust and in alignment with the global transfer pricing standards.

Regulation 7 of the TP Regulations require a transfer pricing document to be in place by the time of filing the final tax return i.e., 6 months after the financial year end. If requested by the Tanzania Revenue Authority (“TRA”), then it should be submitted within 30 days. However, if the total magnitude of the related party transactions during the year is TZS 10 billion (approx. USD 4.27M) and above, then the transfer pricing document needs to be filed with the revenue authority along with the final tax return. An extension of a maximum of up to 30 days can be provided upon request.

Penalties for non-compliance

Failure to comply with Regulation 7 (i.e., maintain or submit document when due), results to a penalty of TZS 52.5M (approx. USD 22,435) per year. Additionally, failure to comply with the arm’s length principal, results to a penalty of 100% of the tax liability resulting from the transfer pricing adjustments. Prior to 1st July 2021, the penalty was 100% of the transfer pricing adjustments.

Transfer pricing audits

The TRA has a special unit within the Large Taxpayers Department, called the International Taxation Unit (“ITU”), which comprises of officials that are knowledgeable and experienced in transfer pricing.  This department is responsible for conducting transfer pricing audits for the large taxpayers and provides support to the TRA regional offices in transfer pricing matters, during tax audits. In many instances, if taxpayers in other regional offices have a high-risk profile, the TRA auditors from the regional teams request the ITU to conduct a special transfer pricing audit.

Transfer pricing audits are special audits that are either conducted concurrently with general tax audits or separately. Therefore, if the TRA auditors have closed an audit for a particular year, they can reopen the years and review the transfer pricing affairs of the taxpayer. These audits typically begin by the TRA requesting to review the taxpayers’ transfer pricing documents in place, which need to be submitted within 30 days. Failure to do so, results to a penalty of TZS 52.5M as mentioned above. Thereafter, interviews are conducted to understand the functions performed, assets utilized, and risks assumed while undertaking transactions. The law provides the taxpayer with 14 days to respond to the audit findings once they are issued. However, a maximum of additional 14 days may be granted upon request to the Commissioner of the TRA.

Tax Incentives Available in Tanzania

Under the Tanzanian Income Tax Act, 2004, there are a number of tax incentives (Exemptions and Deductions) available.

(https://www.tra.go.tz/index.php/103-tax-incentives/169-what-tax-incentives-are-granted-under-the-income-tax-act-2004)

Reduced Corporate Tax Rate for Listed Companies

There is a reduced corporate rate of 25% which is charged for three years to newly listed companies with Dar es Salaam Stock Exchange, with at least 35% of equity share issued to the public.

100%   Capital   Allowance In Agriculture

Investors in agriculture enjoy 100% capital allowance on expenditure incurred on plant and machinery, including windmills, electric generators and distribution equipment used solely in Agriculture.

50% Initial Capital Allowance

The 50% allowance is granted on expenditure of plant and machinery that is used in manufacturing and installed in the factory or providing services to tourists and fixed in a hotel. Other rates for capital allowances range from 37.5% for items like computers and earthmoving equipment to 5% for buildings dams, water reservoir etc.

Withholding Tax Exemption

The law provides exemption of withholding tax chargeable by foreign banks on interests payable to strategic investors as defined by Tanzania Investment Act.

Tax Credit

The income tax law provides for tax credit in case the tax was paid abroad on the same income, which was assessed in respect to resident person (Individual or entity).

100% Deduction in Mining Operations

Investments in mining operations get special treatment in Tanzanian tax system. The whole expenditure incurred for the year (both capital and revenue expenditure) is deducted when calculating taxable income.

Income Tax Exemption Under Export Processing Zone (EPZ)

The following amounts are exempted from income tax:

  • Income derived from investment or business conducted within the Export Processing Zone and Special Economic Zone, during the initial period of ten years.
  • Payment of withholding tax in respect of foreign loan granted to an investor licensed under in the Export Processing Zone and Special Economic Zone during the initial period of ten years.
  • Payment of withholding tax on dividend arising from investment in the Export Processing Zone and Special Economic Zone during initial period of ten years.
  • Payment of withholding tax on rent payable by an investor licensed under the Export Processing Zone and Special Economic Zone during initial period of ten years.

Tax Compliance and Filing Requirements

Tax Year

The tax year in Tanzania follows the calendar year, beginning on January 1 and ending on December 31. Tax years not coinciding with the calendar year in relation to income from any source other than employment or services rendered are permitted, subject to approval from the Commissioner.

Tax Returns and Payment

Companies are required to file provisional tax returns and make provisional tax payments quarterly, within three months after the end of each quarter.

The final corporate income tax return must be filed within six months following the end of the tax year. Any outstanding tax liability must be settled by the time the final return is submitted.

Employment taxes and taxes on digital services are paid on monthly basis by 7th of the month following that to which they related. Single instalment taxes are paid within 30 days from the date of realization of an asset.

Considerations on The Tanzanian Tax Administration Framework

Must One Agree To A Tax Decision?

Where a taxpayer is aggrieved by a tax decision, an objection or appeal is filed in the stipulated manner and time. The person aggrieved by the tax decision has the burden of proof to counter the decision.

Punishments For Tax Non-Compliance

Punishments for non-compliance with tax laws and regulations impose fines, imprisonment, penalties or interests. Fines and imprisonment sentences vary depending on the nature of the offence. Penalties and Interests on the other hand have a fixed factor of the rate or currency points but a variable factor of the time length of non-compliance. Specifically, TAA, 2015 imposes penalty for late filing of tax returns or late payment of taxes at the higher of 2.5% of the tax liability and TZS 225,000 (TZS 75,000 for individuals), per month or part of the month, and interest on late payment of tax at statutory rate per month or part of the month.

Tax Overpayments And Refunds

In cases where a person has made an overpayment of tax, an application should be made by the person to the Commissioner General (CG) to request for a refund. Where the CG is satisfied, the excess tax is offset against other taxes and any remaining excess tax repaid to the person.

The Efiling System

The online gateway portal allows taxpayers to manage their tax affairs including filing of their tax returns and generating transfer forms to initiate tax payments. A taxpayer can obtain access to efiling through online self-registration using a person’s tax identification number (TIN).

Tax Identification Number (TIN)

Every person who becomes potentially liable to tax by reason of a carrying business, investment, or employment, shall apply to the Commissioner General (CG) of the revenue authority for a TIN within fifteen (15) days from the date of commencing the business, investment or employment, or as the CG may determine. Furthermore, so at to make sure each required person is registered for tax purposes, the CG has been given the mandate to register and issue TIN to every Tanzania citizen who is registered and issued with a National Identification Number (“NIDA”) such that, each person’s TIN is connected with their NIDA. A person can only have one TIN.

Fiscal Invoices/ Receipts

Any person supplying goods, renders services or receives payments in respect of goods or services rendered shall issue fiscal receipt or fiscal invoice unless they are excluded from the requirement. One of the categories of exclusion is for businesses with less than TZS 11,000,000 annual turnover.

 

 

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AUTHOR
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Director
TP&Tax Advisors Ltd
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Published
August 12, 2023
Key Contacts
Donasia Massambo
Managing Director
Evelyn Manu
Director

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