Tanzania's Tax Structure
Introduction
Taxation is
one of the oldest functions of a government in running government
affairs. Apart from the cost of running the government, normally there
are some services which have to be met by the state. Imperatively
government have to provide social services, maintain law and order,
ensure defense and a horde of other undertakings which the free market
cannot provide or which the state feels are better provided by itself.
In this regard the
government has to raise revenues to cater for such expenses thus,
government finance is all about budgeting the revenue and expenditure of
government. The government financier normally has five sources to
choose from namely : taxes, the sale of goods and services, grants, the
creation of new money and borrowing. There is no universal formula of
how the government should raise such revenue to cater for government
expenses, but in most cases the government relies on taxes as a major
means of raising such revenue. Therefore, out of the five sources from
which the government can raise her revenue, taxation is a handmaid for
raising revenue to meet government expenditure.
Thus, taxation is the
primary source of revenue at all levels of government. Therefore by all
standards taxes are inevitable due to their inherent advantages over
other sources of revenue. For example, grants result into loss of
liberty for the grantee government; the creation of new money is
inflationary in nature; borrowing is to shift the burden to future
generations; but by imposing taxes the government is not indebted to the
taxpayers since there is no quid pro quo as to tax and the government
is not obliged to render individual account on how it has spent her
money, but rather to spend that money for the benefit of the people. In
carrying out this function (of raising revenue), government formulate
tax policies, enact tax laws (statutes), and translate these policies
and statutes into the desired tax structure and administer its
attainment.
Types of taxes
Basically there are two
types of taxes. Each type is classified according to the legal and
effective incidence to the final payer. These two types are direct and
indirect taxes.
Direct taxes
These are taxes levied
directly on people's income from employment, business or ownership of
property and an investment. The impact and incidence of the tax falls on
the same person i.e. incidence cannot be shifted to another person e.g.
Corporate tax, Pay As You Earn (PAYE) and withholding taxes.
Corporation Tax
This is a tax, which is
paid from corporate profits. Companies or entities have to prepare final
accounts, which must be approved by authorized Auditors, and
Accountants recognized by both NBAA and TRA. These accounts are
submitted to TRA on the prescribed accounting date.
All companies whether resident or non-resident are required by the Income Tax laws to file an estimate of income within three months after the start of its accounting year. The firm is supposed to pay tax based on four installments. Six months after the accounting period, the firm must file a final tax return to TRA. The current corporation tax rate is 30%.
All companies whether resident or non-resident are required by the Income Tax laws to file an estimate of income within three months after the start of its accounting year. The firm is supposed to pay tax based on four installments. Six months after the accounting period, the firm must file a final tax return to TRA. The current corporation tax rate is 30%.
Individual Income Tax
Individuals include sole traders and salaried people who are taxed at progressive individual income tax rate, which varies from the lowest marginal rate of 14% to the top marginal rate of 30%. However, for a non-resident individual the applicable rate is 20%, which is charged on the total income. The table below shows the current resident individuals tax rates.
Resident Individual tax rates for 2012/13 Financial Year [Source: Income Tax Act, 2004 (As amended)]
| Monthly Income | Tax Rate |
| Where total income does not exceed Tshs. 170,000/=. | Nil |
| Where total income exceeds Tshs. 170,000/= but does not exceed Tshs. 360,000/= | 14% of the amount in excess of Tshs. 170,000/= |
| Where total income exceeds Tshs. 360,000/= but does not exceed Tshs. 540,000/= | Tshs. 26,600/= plus 20% of the amount in excess of Tshs. 360,000 |
| Where total income exceeds Tshs. 540,000/= but does not exceed Tshs. 720,000/= | Tshs. 62,600/= plus 25% of the amount in excess of Tshs. 540,000/= |
| Where total income exceeds Tshs. 720,000/= | Tshs. 107,600/= plus 30% of the amount in excess of Tshs. 720,000/= |
Small traders, who operate mostly without keeping proper business records, are charged income tax based on the annual turnover of their business. There are four turnover bands with their taxes as per the table below:
Tax Rates for Presumptive Cases [Source: Income Tax Act, 2004]
| TURNOVER PER ANNUM | TAX PAYABLE WHERE INCOMPLETE OR NO RECORDS ARE KEPT | TAX PAYABLE WHERE RECORDS ARE KEPT |
| Tshs. 4,000,000 or less | Nil | Nil |
| Tshs. 4,000,000 - 7,500,000 | 100,000 | 2% of the turnover in excess of 4,000,000 |
| Tshs. 7,500,000 - 11,500,000 | 212,000 | Tshs. 70,000 plus 2.5% of the turnover in excess of 7,500,000 |
| Tshs. 11,500,000 - 16,000,000 | 364,000 | Tshs 170,000 plus 3.0% of the turnover in excess of 11,500,000 |
| Tshs. 16,000,000 - 20,000,000 | 575,000 | Tshs 305,000 plus 3.5% of the turnover in excess of 16,000,000 |
The above bands which are legally enforceable by TRA are mere estimates and they are not a substitute for the requirement for keeping business records. All taxpayers whose turnover exceed Tshs 20,000,000 are required to prepare and submit to TRA the audited financial statements together with the return of income of the year of income.
Gains or profits from employment
This is an income, which an employee earns from an employment in the form of salary, which is payable in daily, weekly, or monthly basis. It includes:
=> Payments of wages, salary, payment in lieu of leave, fees, commissions, bonuses, gratuity or any subsistence traveling entertainment or other allowance received in respect of employment or service rendered;
=> Payments providing any discharge or reimbursement of expenditure incurred by the individual or an associate of the individual;
=> Payments for the individual's agreement to any conditions of the employment;
=> Retirement contributions and retirement payments;
=> Payment for redundancy or loss or termination of employment;
=> Other payment made in respect of employment including benefits in kind.
Gains or profits from business
A person's income from a business during a year of income is the amount of gains or profits from that business. The following amounts derived from business are regarded as gains or profits and they are taxable: service fees; incomings for trading stock; gains from the realization of business assets or liabilities of the business; amounts derived from the realization of the person's depreciable assets of the business; amounts derived as consideration for accepting a restriction on the capacity to conduct the business; gifts and other ex-gratia payments received by the person in respect of the business; amounts derived that are effectively connected with the business and that would otherwise be included in calculating the person's income from an investment; and all other amounts derived in conducting the business.
Gains from investments
The income from investments include:- Any dividend, distribution of a trust, gains from life insurance, gains from an interest in an unapproved retirement fund, interest, natural resources payment, rent, or royalty, net gains from realization of investment assets (Capital gains), amounts derived as a consideration for accepting a restriction of the capacity to conduct the investment.
Indirect taxes
These are taxes, which are based on
consumption. Examples of such taxes are like Import Duty, Excise Duty,
and Value Added Tax (VAT), etc. By definition the legal incidence of the
tax falls on the trader who acts as a collection agent of the
government while the effective incidence falls on the final consumer of
goods or services who eventually pays the tax.
(i) Value Added Tax (VAT)
Value Added Tax is a consumption tax charged by VAT registered traders on all taxable goods and services at a standard rate of 18%. The VAT is a multistage tax levied at each stage of production and distribution up to the retail stage. The tax is also levied on taxable imports made by persons whether or not registered for VAT. All exports are renovated (0%).
All traders or businesses whose taxable turnover exceeds Shs. 40 millions per annum or Shs. 10,000,000 in a period of three (3) consecutive months are obliged to apply for registration to the Commissioner for Domestic Revenue within thirty (30) days of becoming liable to make such application.
Application for VAT registration is done by filling the application form online or manually and TRA inspect the business site before approving any registration. One registered, the taxpayer is required to submit monthly VAT returns either with payment, repayment or a nil return to the month following the month of business.
Some persons and institutions are relieved from the payment of VAT on supplies or on importation of taxable goods and services, while some goods services are specifically exempted from VAT.
Introduction of Electronic Fiscal Devices (EFDs)
The Government since 1st July 2010 introduced an Electronic Fiscal Device (EFD) System aiming at enhancement of tax compliance. The System is being implemented in two phases with the first phase planned to cover all VAT registered taxpayers countrywide based on their turnover. In view of this decision, all VAT registered traders are obliged to ensure that they use the System as prescribed in Value Added Tax (Electronic Fiscal Devices) Regulations, 2010.
According to Regulation 10 (2) of the value Added Tax (Electronic Fiscal Devices) Regulations, 2010 all taxable persons are not allowed to conduct or operate any business undertaking within Mainland Tanzania without using Electronic Fiscal Devices. In order to minimize the cost of implementing the regime, the Government meets the cost of purchasing the devices by refunding.
Refunds to Outgoing non-citizen Passengers. With effect from 1st January 2012 the Government through TRA started to process and make VAT refunds to eligible outgoing non-citizen passengers who are departing to foreign destinations by using the Julius Nyerere International Airport or Kilimanjaro International Airport. The value for the goods subject for refund is shs. 400,000/=
(ii) Excise Duty on locally manufactured goods
Excise duty is levied on certain specified goods and services for soft drinks, beer, wines, spirits, mobile phone services, plastic shopping bags, satellite television services, cigarettes and petroleum products. The duty is charged either at specific or ad-valorem rates depending on the type of goods.
Currently there are five ad-valorem rates: 7%, 10%, 20%, 30% and 120% (the highest rate of 120% is imposed on shopping plastic bags for the purposes of protecting the environment).
Most of the locally manufactured goods are charged excise duty at specific amount for a given number or quantity. The items that are charged excise duty at specific rates include Cigarettes, wines, spirits, beer, soft drinks (including bottled drinking water) and petroleum products.
Taxes on International Trade
The Customs and Excise Department administers all taxes on international trade, which are:
=> Import Duty,
=> Excise Duty on imports and,
=> Value Added Tax on imports.
(i) Import Duty
The East African Partner States have adopted the Common External Tariff that is applied throughout the region from 1st January 2005. The process of harmonizing the external tariff has resulted into changes in tariff rates and even tariff codes in certain areas. The rates applicable with effect from 1st January 2005 are:
=> 0% for raw materials, capital goods, pharmaceuticals, hand hoes and agricultural implements,
=> 10% for semi-finished goods,
=> 25% for final consumer goods or finished commercial goods.
However, there are some sensitive goods which attract more than 25% duty rate, these include yoghurt and cream containing sweetening matter, cane or beet sugar and chemically pure sucrose in solid form, sacks and bags of a kind used for the packing of goods and worn clothing and other worn articles.
(ii) Excise Duty on Imports
Excise duty is levied on certain specified imported goods like wines, spirits, cigarettes, petroleum products and saloon cars and specified non-utility vehicles which are aged 10 years or more from the date of manufacturing. The duty is charged either at specific or ad-valorem rates depending on the type of goods.
(iii) Value Added Tax on Imports
VAT is levied on all goods and services imported into the country unless such goods or services are specifically exempted. All importers must pay VAT regardless of whether or not registered for VAT. However, the importer who is registered for VAT can claim as an input tax in his business, the VAT paid on the imported goods and VAT or imported services the input tax is treated as reverse charge hence added to the value.
(iv) Destination Inspection Fee
Following the introduction of Destination Inspection (DI) in July 1st 2004, imported goods are not subjected to inspection at the country of origin but at their destination. In order to complement the DI, mobile scanners were acquired whereby all containerized cargo are categorized as red, yellow and green channel. Those in the red channel are subjected to physical verification while those in yellow channel are scanned. Containers in the green channel are released immediately. All imported goods regardless of their value are required to be inspected at a fee of 0.6% on Free on Board (FOB) value.
Other Taxes
(i) Skills and Development Levy (SDL)
This is a tax based on the total gross emoluments paid by an employer to the employees. It is charged at the rate of 6% of the total gross emolument paid during the month and is paid by the employer.
The gross emoluments include include salary, wage, leave pay, payment in lieu of leave, subsistence allowance, etc. Two thirds (2/3) of the levy goes directly to the Higher Education Students' Loans Board (HESLB) since 1st July 2011, and the remaining one third (1/3) is remitted to the Vocational Education and Training Authority (VETA).
(ii) Stamp Duty
Stamp Duty is imposed on certain legal instruments or transactions, affidavit, conveyance & lease Agreement. The rates used are 1% and Tsh. 500/-. The rate of 1% is based on the consideration applicable to non business persons when issuing a receipt whenever they sale their privately owned assets or properties.
In order to facilitate availability of credit in the financial sector and development of the stock market the maximum stamp duty rate for registration of property for security or mortgage is Tshs. 10,000. Stamp duty on conveyance for agricultural land is chargeable at Tshs. 500.
Proceeds of agricultural produce and school fees earned by government and privately owned schools, colleges, training institutions, proceeds of game of of chance, rental income, sale of fish by fishermen, receipts for business income and instruments when executed by Export Processing Zones and Special Economic Zones are exempted from stamp duty. In addition, the transfers of financial securities by companies listed by the Dar es Salaam Stock Exchange are exempted from stamp duty.
(iii) Airport Service Charges
For the international travel a person has to pay USD 30 and a local travel Tshs. 5,000.
(iv) Port Service Charges
For the Resident and non-resident travel payment per trip is Tshs. 500 and USD 5 respectively.
(v) Motor Vehicle Registration tax and transfer fee
A person has to pay Tsh. 150,000 and 45,000 if he is registering a Motor Vehicle or Motorcycle respectively. Alteration fee is Sh 10,000 while a new registration card costs Tsh 10,000. The number plates are available to approved suppliers. Transfer fee for motor vehicle is Tshs. 50,000 and Tshs. 27,000 for motorcycle.
(vi) Motor Vehicle annual License fee
The motor vehicle annual fee is charged according to its engine capacity as follows:-
Motor Vehicle Annual License Fee [Source: Income Tax Act, 2004 (As amended)]
| Engine Capacity | Annual Fee |
| Not exceeding 500cc. | Tshs 50,000 |
| More than 500cc, but not exceeding 1,500cc | Tshs. 100,000 |
| More than 1,500, but not exceeding 2,500cc | Tshs 150,000 |
| More than 2,500cc | Tshs. 200,000 |
Administration of Tax Structure
There are four departments that are involved directly in the administration of various tax laws. These revenue departments are:-
1. Domestic Revenue Department (DRD),
2. Customs and Excise Department (CED),
3. Large Taxpayers Department LTD), and
4. Tax Investigation Department (TID).
The DRD deals with both direct and indirect taxes while CED is charged with a responsibility of collecting indirect taxes on international trade. The other two departments of LTD and TID complement the efforts of the DRD and CED.
There are four departments that are involved directly in the administration of various tax laws. These revenue departments are:-
1. Domestic Revenue Department (DRD),
2. Customs and Excise Department (CED),
3. Large Taxpayers Department LTD), and
4. Tax Investigation Department (TID).
The DRD deals with both direct and indirect taxes while CED is charged with a responsibility of collecting indirect taxes on international trade. The other two departments of LTD and TID complement the efforts of the DRD and CED.
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