Finance Act 2021
Some of the significant changes brought in by the Finance Act 2021 include the following:
- Broader scope of requesting for remission of interest and penalties. Taxpayers can apply for waiver of interest and penalties on all types of taxes that were previously restricted to specific tax types and criteria.
- Transfer pricing penalty is now 100% of the 'tax shortfall' instead of the transfer pricing adjustment.
- Tax deposit requirement applies to 'a notice of liability to pay tax' in addition to 'a tax decision on assessment'. Previously, the legislation just referred to 'tax decision'.
- The objective of the change is to enable an objection to a non-assessment tax decision to be made without payment of a tax deposit; however, it is not clear that the amendment achieves this. Firstly, a non-assessment tax decision is unlikely to involve any tax liability, therefore the question of tax deposit does not arise. Secondly, there is no definition of the term 'notice of liability to pay tax', so its scope is not completely clear.
- Requirement to maintain primary data server in Tanzania from 1 July 2022.
- 'Primary data server' has been defined as 'a server that stores data that is created or collected by a taxable or liable person in the ordinary course of business'.
- Access to this server is to be granted to the Commissioner General.
- Non-adherence to this requirement constitutes an offence.
- Specific development projects funded by the government. Agreements between the government of Tanzania and a donor or lender that can be granted an income tax exemption by the Minister include a 'grant agreement', 'concessional loan agreement', and 'non-concessional loan agreement'.
- Interest on listed government bonds. An exemption for interest derived from all government bonds with a term of not less than three years listed on the Dar es Salaam Stock Exchange from 1 July 2021.
- Definition of permanent establishment (PE) has been expanded to include the following activities, which if performed by an agent will result in a deemed PE of the other person in Tanzania:
- Habitual exercise of the authority to conclude contracts or issuance of invoices on behalf of that other person.
- Maintenance of stock of goods or merchandise from which the agent delivers such goods or merchandise on behalf of the other person.
- Habitual securing of orders on behalf of the other person or an enterprise with whom the other person has a common control.
- Non-final withholding tax (WHT) of 2% on payments made to agro-products, livestock, and fisheries suppliers (with an exception of payments made by agricultural marketing cooperative societies and cooperative unions). This 2% rate is not specified in the Finance Act 2021, but this appears to be an oversight as the rate was mentioned in the 2021/2022 budget speech. The expectation is that it will be introduced through a Government Notice.
- Introduction of monthly filing of WHT returns, replacing the six monthly filings.
- Reduction of pay-as-you-earn (PAYE) rate to 8% (from 9%) for the lowest taxable band.
- Depreciation rate of 5% for assets owned and employed by a person on the East African Crude Oil Pipeline (EACOP).
Value-added tax (VAT)
- Change of VAT exemption process. Exemption requests to be made directly to Commissioner General instead of previous practice of going through Government Notice issued by the Minister for Finance. This applies to specific government projects and imports and supplies for and to specified purposes and persons.
- Exemption scope broadened to include imports or supply to an entity having an agreement with the government for the purpose of operating or executing a strategic project and also to non-governmental organisation (NGO) having an agreement with the government solely for projects implemented by the NGO. In both cases, such agreements should provide for the VAT exemption on goods and services.
- Introduction of exemption of importation of raw materials to be used solely in the manufacture of long-lasting mosquito nets.
- Various additions to the exemption schedule to the VAT Act (i.e. exemptions that do not require application) including crude oil, livestock insurance, specified smartphones, tablets, and modems, import of precious metals, etc.
- VAT deferment on capital goods now limited to capital goods under chapters 84, 85, and 90 of Annex 1 to the Protocol on the Establishment of the East African Community Customs Union.
- Introduction of zero-rating on supply of transportation and incidental services to an international pipeline where 'international pipeline' is defined as 'a cross-border pipeline for transportation of crude oil from a foreign country to a port facility in the United Republic [of Tanzania] in which such crude oil is exported to another foreign country'.
- Introduction of deeming provisions for goods transferred to Mainland Tanzania from Tanzania Zanzibar where VAT is considered to be paid in Mainland if VAT is paid in Zanzibar at the same rate, and if paid at lower rate, then the difference should be paid in Mainland.
Other taxes and levies
- Electronic communications: Introduction of new levies on airtime and money transfer. Such levies to be accounted for based on relevant bands for which different fixed tariffs apply within a range of rates (airtime levy rate between 5 and 222.7 Tanzanian shillings (TZS); mobile money transfer levy rate between TZS 10 and TZS 10,000).
- Excise duty on spirits increased by 20%.
- The existing provision that imposes a 10% excise duty charge on charges or fees payable to financial institutions (general) and telecommunication services providers (money transfer and payment services) is extended to cover charges or fees payable to payment system providers licensed under the National Payment Systems Act for money transfer and payment service.
- Stamp duty: Upward adjustment of fixed tariff stamp duty amounts.
- Gaming tax reduced from 20% to 15% on winnings.