Taxation

Two main taxes are levied on income.

Corporation tax, which applies to bodies incorporated in Tanzania and foreign companies trading in Tanzania through a branch or agency

Income tax, which applies to individuals, is charged on a graduated basis dependent on income

Other significant taxes include:
- Capital gains tax
- Sales tax
- Customs and excise duties
- Stamp duty and registration dues
- Property tax

This gives a general outline only. If you are considering  working or investing in Tanzania you should seek professional  advice at an early stage so that the full taxation implications  can be considered and planning measures taken to maximize tax  efficiency.
 

Administration

Income taxes are governed by Parliament Statute and case law.  Every year Finance Act is passed introducing new provisions to  amend existing law. Case law is Founded on the fundamental  principle of the binding authority of precedent and has evolved  and developed through the decisions of the judges in the Appeal  courts. The main agencies for the administration of the various  taxes are the Income Tax, the Customs and Sales Tax Department  and the Internal Revenue Department responsible for stamp duty, registration fees, excise duties and various licence fees.
 

Corporate taxes

Corporate tax is levied on the profits of Tanzania resident companies and foreign companies trading in Tanzania through a  branch or agency. A resident company in Tanzania is liable to  tax on its worldwide business profits and capital gains on premises.
 

Residence

All companies incorporated in Tanzania are treated as resident  companies. Foreign incorporated companies are non residents for  tax purposes except if they are centrally managed and controlled  from Tanzania.
 

Tax periods

The basis period is the calendar year, although a taxpayer's own  period other than the calendar year is accepted as the basis period. Preceding taxation is not applicable.

Rates of income tax

The rates of corporate tax are normally fixed by a Finance Act in  advance. The rates for the accounting year ending after 1 January 1993 are as follows:-

- Resident companies 35%
- Non resident companies 40%
- Corporate tax on income derived from the mining of specified  minerals is 17.5% during the first four years of operation. 
 

 Thereafter the normal rates apply.
- A five year tax holiday is granted to all the companies registered under the 1990 National Investment (Promotion and  Protection) Policy Act.
 

Payment of tax

Liability to corporate tax is based on the profits shown in the accounts as adjusted for tax purposes. Two types of tax returns  are processed, provisional return and final return.

With effect from 1 July 1991, corporate tax is payable on a current year basis. At the beginning of each accounting year an estimate of tax payable is made, and is payable quarterly in advance during the accounting year.
 
Loss relief

Losses for tax purposes may arise both from commercial trading  and the grant of investment incentives such as capital allowances in any particular year. These losses may be carried forward  indefinitely and may be set off against any class of income other than capital gains. Loss carry back is not allowable nor group  loss relief.
 
Treatment of dividends

Dividends are usually paid out of profits after tax. The declaration of dividends is guided by the Dividend Act of 1972. A foreign  individual or corporation who receives dividends from a resident  company is taxed at 20% on the gross amount. The resident  withholding tax rate on dividends is also 20%. Dividends received by a resident corporation, which directly or indirectly controls  25% or more percent of the voting power and which is not a financial institution will not be brought to charge to tax. Dividends are taxed once, ie, dividend income is not aggregated to arrive at total taxable income of the tax payer w.e.f. 1-7-92 (Section 33 - (2A).
 
Withholding tax

The following are applicable

Only profits derived from the United Republic of  Tanzania are taxable. Any expenditure incurred outside Tanzania is allowed only after careful consideration.
 

Foreign tax reliefs

A resident company is taxed on its worldwide income. Credit for  foreign taxes is given under the double taxation agreement with  certain Governments which have concluded tax treaties with Tanzania.
 

Tax treaties

Tanzania has tax treaties with the following countries:

Denmark
India
Sweden
Italy
Zambia
 

Income tax on individuals

The income tax fiscal year runs from July 1 to June 30. Income tax is payable by individuals resident in Tanzania on their world wide income and by non residents who receive income from Tanzania sources. The incomes of married persons is taxed separately except where the  income of the married woman is derived from employment in any  business carried on by her husband or with any partnership firm of which her husband is a partner.
 
Residence and ordinary residence

Briefly, an individual is regarded as a resident in Tanzania in any tax year if;

- He/she has a permanent home in Tanzania and visits in any one year

- He/she has no permanent home but either visits the country for    183 days in any one year or averages 122 days per year over a period of 3 years.
 

Taxation of income from employment

In general, individuals who are resident in Tanzania are liable to tax on their worldwide employment income. However double taxation  relief applies as above.

Taxable income will include salary and the value of any benefits  in kind arising from the individuals' s employment. Subject to  certain exceptions, expenses incurred wholly and exclusively in  the performance of employment duties are deductible. The taxable  measure of non cash benefits is generally the cost to the employer of providing the benefit. There are special rules for taxing the  provision of living accommodation.

Pensions

Employer's contributions to approved pension schemes are tax  deductible. All pensions from government and parastatals is tax  exempt. In all other cases fifty percent of pension/gratuity  income of resident individuals is tax free.
 

Other significant taxes

Sales tax

Sales tax is charged on locally manufactured goods and most imports. The rate varies according to the item (average rates are 10 per cent, 20 per cent and 30 per cent). Sales tax will be replaced by Value  Added Tax with effect from 1994.
 

Customs and Excise duties

Customs duty is levied on most imports, at an average import duty rates 10 per cent, 20 per cent and 40 per cent. A number of items are exempted from duties. The following exemptions currently apply:

- No tax is payable on agricultural equipment, industrial raw materials and spares thereof

- No tax is payable on new trucks with load carrying capacity of 3 tons and above and buses with passenger carrying capacity   exceeding 25 passengers

- Second hand motor vehicles are liable to 10% duty and sales tax

- Motor vehicles spares are liable to 10% duty and sales tax

- Import duty on lubricants is 20 
 

Stamp duty and registration dues

Stamp duty is payable on registration of documents. Registration fees are payable on all transfers of movable and immovable property by the transferee. Registration of new share capital or an increase thereof is tax free.
 

Excise duties

A standard rate of 20% is used. There is no excise duty on locally produced textiles, sugar, cement, match boxes, foam mattresses and locally produced or imported mosquito nets.
 

Training levy

A levy of 10% is payable on the total emoluments of non-citizen employees.
 

Payroll levy

A levy of 4% is payable every month on the gross salary (including benefits in kind) paid to all employees, citizens and non citizens.
 

National Provident Fund (NPF social security)

NPF contributions are payable monthly at the rate of 10% in respect of each employee on permanent employment by both the employer and the employee.
 

Housing fund

Employers are required to set aside 20% of the profits after tax for building houses for employees. A 2% levy is deductible from all hire charges for the transport of goods by road except for goods in the course of export from Tanzania.
 

Withholding tax on contractors and tenderers

Government and parastatal contracts and tenders for the supply of various items are subject to 2% withholding tax on the fees payable.

Shs 80,OOO is payable by the employer per annum for each car of less than two tons provided by an employer for use by the employee.
 

Property tax

Property tax is levied by the local government based on the value of premises. The rates depend on the value and location of the property.
 

Single trading transaction tax

Tax at the rate 30% on 75% of the gross proceeds (i.e CIF value of imports including import duty and sales tax) is payable. Single trading transaction is defined as "a transaction" or series of transactions not carried out in a regular trading establishment.
 

Capital gains tax

Capital gains tax is chargeable on any interest in any property sold. It is calculated on the difference between the sale proceeds and the adjusted cost such interest. The adjusted cost is after adjusting for inflation.