On June 26th 2023, the Tanzanian Parliament passed the Finance bill,2023. The Act is aimed at accelerating economic recovery, climate change and mitigation and enhancing certain sectors for improved livelihood.
Income Tax Act
The amendment has now excluded from tax capital investments made in a resident entity that result in a change in the underlying ownership of an entity by reason of the issuance of new shares. This is a welcome change as it should foster investment in the country. However, the amendment does not clearly address the outcome if new shares are allotted in other group entities that indirectly own the Tanzanian entity.
A change is also made regarding the transfer of a membership interest. The amendment has eliminated the potential effect of double taxation in circumstances involving the direct disposal of shares in a resident entity that results in a change in the underlying ownership of the entity. However, the change does not cover shares transferred to nonresident persons. The direct transfer of shares to nonresident persons in a resident entity may still trigger change-in-control consequences where other conditions are met.
Digital Service Tax (DST)
Income tax is imposed on payments made to nonresident persons by individuals other than in the conducting of business in respect of electronic services. Further, the Act has extended the time for a nonresident person to file a tax return to the twentieth day of the month after the end of the month to which the return relates.
Income Tax On Realization Of Interest In Land Or Building
The Act introduces a 3% single installment tax on the greater of the incomings (i.e., amount derived or to be derived in realising an asset) or approved value of an asset when a resident person who lacks records showing the costs of the asset disposes of an interest in land or building.
The amendment will speed up certain transactions and reduce the time typically spent in discussions with the revenue authority pertaining to costs of the assets.
The following changes have been made in relation to withholding tax requirement.
The withholding tax obligation pertaining to residential rental payments made by individuals has been removed. The amendment follows challenges experienced in implementing the requirement
Income Tax Exemption
The following are exempted from income tax:
- Gains derived from the internal restructuring of mining companies under a framework agreement between the Government and investor to form a partnership entity
Amounts derived by the National Health Insurance Fund from investment returns on fixed deposits, treasury bonds,
Presumptive tax regime
Entities engaged in the business of transporting passengers and goods are now taxed under the normal corporate income tax rules.
Value-Added Tax (VAT)
The following changes have been made with respect to invoice requirements:
- "Fiscal receipt" is now defined to have the meaning ascribed under the Tax Administration Act — that is, a receipt or invoice issued by using a fiscal device, Government electronic payment gateway system or any other electronic system approved by the commissioner general for Tanzania Revenue Authority (CG).
- The conditions in the law on the requirements for a tax invoice to support an input tax credit or a refund claim have now been repealed. Effective from 1 July 2023, a credit for input tax or a claim for refund should be supported by a fiscal receipt.
VAT deferment on capital goods
The following changes have been made with respect to VAT deferment on capital goods:
- The application of VAT deferment on capital goods has been extended to cover locally manufactured goods.
- The application of VAT deferment on imported capital goods will cease beginning 30 June 2026.
- A person approved for VAT deferment will be required to treat the tax payable on locally manufactured taxable supplies or imports as if these constituted output VAT payable by the person in the tax period in which the locally manufactured goods were supplied or imported goods were imported for home consumption.
Goods purchased or imported for resale in the ordinary course of a person's economic activity do not qualify for VAT deferment, whether in or not in the state in which the goods were purchased or imported.
The definition of "electronic services" has been extended to include online intermediation and online advertisement services.
A supply of locally manufactured garments made from locally grown cotton is zero rated for a period of one year from 1 July 2023 to 30 June 2024
Exemptions upon application to CG
The CG is empowered to grant VAT exemptions on importation of the following:
- Raw materials of polymers of propylene or of other olefins, in primary forms (HS code 39.02) and polyacetals, other polyethers and epoxide resins, in primary forms; polycarbonates, alkyd resins, polyallyl esters and other polyesters, in primary forms (HS code 39.07) to be used solely in the manufacturing of packaging materials for pharmaceutical products.
- Prefabricated structures or supply of locally manufactured prefabricated structures (HS code 9406.20.90) to be used solely in poultry farming
Those entitled to apply for the above VAT exemptions must be local manufacturers of packaging materials of pharmaceutical products or engaged in poultry farming in mainland Tanzania and have performance agreements with the government.
Tax Administration Act
Primary data server
A "primary data server" is now defined to mean a physical, virtual or any other server that stores data created or collected by a taxable or liable person in the ordinary course of business. However, this definition contradicts the law with respect to virtual server. All persons who store data in electronic form are now required to maintain a primary data server in Tanzania effectively from 1 January 2024.
Application for refund
The time limit to apply for a tax refund has been extended to cover the date a tax decision or other decision giving rise to a tax overpayment is made. Previously, the time limit for an application for refund was three years from the date of payment of tax in excess.
Disclosure of information on contracted services
An entity engaged in construction or extractive industry is now required to disclose to the CG the names of all persons contracted and subcontracted during performance of their duties or business or carrying out of any project within 30 days of executing the contract for contracted or subcontracted services. Previously, no timeline was provided for submission of the information to CG.
Vocational Education and Training Act
The following changes have been made with respect to Skills Development Levy (SDL).
- The SDL rate has been reduced from 4% to 3.5%.
- The obligation to file SDL returns has been removed for an employer who is not under obligation of paying SDL.
- The minister for finance has been granted powers to exempt any person from paying SDL upon consultation with the Minister for Education, provided that the exemption is in the public interest.
The above changes will reduce costs to employers. In addition, the removal of the obligation to file SDL returns for an employer who is not required to pay the levy will reduce an administrative burden for these employers.
Changes in other laws
The Act has also amended the following laws:
The following changes are made in the Act
- Exempt refineries from paying inspection fee of 1%
- Reduction of royalty rate for salt from 3% to 1%
The following terms have been defined in the Act.
- "Commercial gaming undertaking" means any gaming activity that is subject to gaming tax.
- "Gross gaming revenue" means the collective amount of wagering or staking placed by players minus the collective amount of winnings paid out to players.
Gaming licenses for operating commercial gaming undertakings are now issued to companies that have at least 5% paid-up share capital owned by Tanzanian citizens.
Export Tax Act
An investor whose commercial undertaking in an Export Processing Zone is the export of meat shall not be liable for an export tax on exported raw hides or skins.
Electronic and Postal Communications Act
The airtime levy has been removed.
National Payment Systems Act
The Act is amended to remove a levy on electronic transfer of money. The levy is now only applicable on electronic money withdrawal transactions.
Local Government Finance Act
The following changes have been made.
- Holders of electronic money issuance licenses are included among entities required to pay a service levy.
- The Tanzania Revenue Authority (TRA) will remain obligated to evaluate, assess, collect, and account for property rates until 31 December 2023; beginning in 2024, the obligation shall be vested in local government authorities.
- The mandate to collect and account for advertising fees on billboards, posters and "hoarding" is vested in the local government authority.
Local Government Authorities (Rating) Act
The following changes have been made.
- Mud huts, thatched houses, mud houses and other similar houses used for residential purposes are excluded from rateable properties.
Applicable rates for property tax are increased as follows:
- From TZS 12,000 to TZS 18,000 for property situated in city council, municipal council, town council and district council
- From TZS 60,000 to TZS 90,000 for each storey in a multi-storey building in city, municipal and town councils and a multi-storey building in a district council
Road and Fuel Tolls Act
The rate of road and fuel toll has been increased from TZS 413 to TZS 513 per liter of petrol and diesel.
Foreign Vehicles Transit Charges Act
The transit charge for a foreign-registered vehicle from a country that charges a higher rate than the one set out in the Act shall be charged at the rate applicable in that respective country.