Tanzania

Finance Act 2022

Some of the significant changes brought in by the Finance Act 2022 include the following:

Tax administration 

• The Tanzania Revenue Authority (TRA) is required to issue a Taxpayer Identification Number (TIN) to individuals with a National Identification Number.
• The requirement to maintain a primary data server in Tanzania has been extended by one year (i.e. effective date is 1 July 2023).
• Every owner of a storage facility who intends to keep goods for business purposes is required to register the facility with the Commissioner General, keep records of all stored goods, and report to the Commissioner on a monthly basis.

Income tax 

• Introduction of taxation on digital transactions (limited to electronic services) at the rate of 2% of the gross payment received, excluding value-added tax (VAT).
• Definition of 'equity' for thin capitalisation has been limited to paid-up share capital at the end of the year of income.
• Amendment of the definition of 'residence' for corporations to include scenarios where management and control are exercised in the United Republic of Tanzania via electronic means.
• Exemptions: 
  • The Minister for Finance has been granted power to exempt special strategic investment approved by the National Investment Steering Committee from income tax.
  • Exemption from capital gain tax on transactions involving free carried interest to the government and transfer of projects assets to a joint venture company.
  • Exemption from tax on amount derived from gain on realisation or transfer of shares to government through the Treasury Registrar.
  • For companies operating in both mainland Tanzania and Zanzibar, the Act allows a tax credit to be claimed for income tax paid in either jurisdiction. In addition, the Act provides for the Minister (upon consultation with the Minister responsible for Finance in Zanzibar) to determine the presumptive income tax rates in Zanzibar.
• Payments with a source in the United Republic of Tanzania:
  
  • Expansion of the scope of natural resource payments with a source in the United Republic of Tanzania to include payment for harnessing, generating, or utilising land, air, or water natural resources for generation of power or anything of value, whether the respective natural resource is located alongside the border or within the country.
  • Payments made by an individual other than payments made in conducting a business in respect of a service rendered by a non-resident through a digital marketplace.
• Sectoral: 
  • Transportation business: A resident person engaged in the transportation business is required to pay an advance tax with an amount ranging between 180,000 and 2,790,000 Tanzanian shillings (TZS)per vehicle based on the type of vehicle used (see table below). The operator is also required to issue receipts by electronic means.
    
    

    Category A: Goods vehicles (load in tonnes)	Tax payable (TZS)
    0 to 1	180,000
    1 to 5	450,000
    6 to 10	720,000
    11 to 15	1,710,000
    16 to 20	2,430,000
    21 to 25	2,610,000
    Above 25	2,790,000
    Category B: Passenger vehicle	Tax payable (TZS)
    Bus and other similar vehicle with seating capacity below 10 passengers	180,000
    Bus with seating capacity from 11 up to 16 passengers	450,000
    Bus with seating capacity from 16 up to 30 passengers	720,000
    Bus with seating capacity up to 32 passengers	1,710,000
    Ordinary bus	2,430,000
    Semi luxury bus	2,610,000
    Luxury bus	2,790,000

  • Financial services:
    • Controlled foreign company (CFC) rules: In determination of unallocated income of a resident financial institution, the 'distributions which are treated as not-distributable as determined by the Bank of Tanzania' should be included as part of the total distributions made.
    • Alternative financing is defined as 'any financial arrangement approved by the Bank of Tanzania other than conventional financial arrangements'.The margin on such an arrangement will be treated as interest.
  • Media: Reduction of the withholding tax (WHT) rate to 10% (from 15%) on royalty payment relating to the use of cinematography film, video tape sound recording, or any other like medium, whether paid to a resident or non-resident.

Value-added tax (VAT)

• Exemptions:
• The Minister for Finance now has powers to grant VAT exemption on goods and services for implementation of "special strategic investments" or "strategic investments" approved by the National Investment Steering Committee under the Tanzania Investment Act.  The Minister shall grant this exemption by order published in the Gazette upon approval by the Cabinet.
• Non-governmental organisations (NGOs) having an agreement with the government that provides for VAT exemption may, upon application to the Commissioner General, be granted VAT exemption on importation and supply of goods and services solely for projects implemented by the NGO. The Finance Act has now introduced a requirement for Ministerial approval of the imports and supplies in order to receive the exemption.
• VAT exemption on air charter services to apply until 30 December 2022. Further to that, such supplies will no longer be exempt from VAT.
• One year exemption on supply of double-refined edible oil from locally grown seeds by a local manufacturer and a supply of raw materials of specified HS Codes and packaging materials to be used solely and directly by the local manufacturer.
• Various additions to the exemption schedule to the VAT Act (i.e. exemptions that do not require application) in relation to the agricultural sector, including on standing trees, fishing hooks, reels and lines, dairy packaging materials, locally manufactured sisal bags etc.
• Several other deletions and amendments to the exemptions schedule to the VAT Act.

• A supply of locally manufactured fertiliser will be zero-rated for a period of one year from 7 October 2022.
• VAT deferment on capital goods now extended to certain agricultural vehicles, such as tractors and semi-trailers, by inclusion of the relevant HS codes (87.16 and 8701.20.90) for these items within the definition of the term 'Capital Goods'. However, the Act now includes a condition that these items must be locally manufactured or assembled in a customs-bonded warehouse.
• Non-resident providers of digital services required to register under the VAT Act can now do so without imposing an obligation under the Income Tax Act 2004. The VAT Act is also amended to enable a non-resident to apply for VAT registration if it is impractical to appoint a VAT representative in accordance with procedures prescribed in respective regulations.
• Introduction of definition of 'alternative financing arrangement' as 'any financial arrangement approved by the Bank of Tanzania other than conventional financial arrangements'. The Minister for Finance is empowered to make regulations prescribing the manner and procedure of dealing in loans, including alternative financing.

Other taxes and levies

• The Minister for Finance now has powers to grant excise duty remission on goods purchased or imported for implementation of “special strategic investments” or “strategic investments” approved by the National Investment Steering Committee under the Tanzania Investment Act. The Minister shall grant this exemption by order published in the Gazette upon approval by the Cabinet. A similar exemption is applicable to fuel tolls under same conditions.
• Electronic communications: Scope of electronic money transaction (EMT) levy extended to also include transfers from bank account to mobile money account. Exemption from the EMT levy for transactions involving payment of salaries by employers. The EMT levy upper limit is revised to TZS 2,000.
• The scope of the 5% excise duty on pay-to-view services (previously applied to services supplied by cable and satellite) is expanded to include those provided using terrestrial or other technology services.
• Introduction of a 10% tax on the amount of winnings from sports betting.
• Change of workers compensation fund rate from 0.6% to 0.5% for private companies.