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TAX
SYSTEM
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
| |
Non
Resident
% |
Resident
% |
| Management
or professional |
30 |
Nil |
| Royalty |
30 |
Nil |
| Rent
and premium on properly |
40 |
Nil |
| Dividends |
20 |
20 |
Any
interest (first 150,000/=
Bank deposits interest
exempt) |
15 |
10 |
| Any
pension or retirement annuity |
15 |
Nil |
Taxation
of branches of foreign companies
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.
|
Rate
Band (Tshs)
|
Rate
|
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0 -
100,000
|
Nil
|
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100,000
- 500,000
|
20%
in excess of 500,000
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500,001
- 1,000,000
|
Shs.80,000
plus in excess of 1,000,000
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1,000,001
- Above
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Shs.205,000
plus 30% in excess of 1,000,000
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