Tax in Tanzania

Taxation is one of the oldest functions of the Tanzanian authorities in conducting her affairs. By definition, a tax is a compulsory contribution from an individual into the state to defray the expenses incurred in the common interest of all with no reference to the special benefits conferred. It’s a compulsory payment or contribution for the support of governmental or other public functions.

Brief History of Taxation in Tanzania

Tanzania adopted and periodically reformed the colonial tax systems beginning with the poll tax that was introduced by the British in the early 20th century. Reforms which were done post-colonial age include introduction of sales tax in 1969, enacting of new income tax laws in 1973, amendment of the present tax laws to revise the tax bases and rates, abolition of a excise duty in 1979 and export obligation in 1985/86, re-introduction of previously abolished excise duty in 1989.

In recognition of the ongoing mediocre performance of the taxation structure and the demand to check at the tax system as a whole, the Government appointed a Tax Commission in October 1989. The Commission’s primary task was to research and examine the local and central government taxation system and its government, and make recommendations to the authorities. Specifically, it was to recommend changes to the present tax system to expand the tax base, improve revenue collections, and encourage increased efficiency of production in the market. The Commission’s report was presented to the Government in December 1991.

This”low-rate, broad-base” plan was believed to be more consistent in practice with both efficient resource allocation and equity compared to the”high-rate, narrow-base” pattern which had dominated the Tanzanian tax system previously.

Current Tax Regime in Tanzania

Basically Taxation in Tanzania is in the kind of two kinds of taxes. Each type is classified based on the legal and efficient incidence to the last payer. Both of these types are indirect and direct taxation.

Direct taxes

These are taxes imposed directly on people’s earnings from employment, business or possession of property as well as an investment. The impact and incidence of the tax falls on exactly the identical person i.e. incidence can’t be shifted to a different person e.g. Corporate tax, Pay As You Earn (PAYE) and withholding taxes.

Corporation Tax

This is a tax, which can be paid from corporate earnings. All businesses whether resident or non-resident are required by the Income Tax legislation to submit an estimate of earnings within three months following the beginning of its accounting year. The company is supposed to pay tax based on four installments. Six months after the accounting period, the company must file a final tax return to TRA. The current company tax rate is 30% and 10% for new assemblers of vehicles, tractors and fishing boats for the first 5 years from commencement of operation

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 9% to the top marginal rate of 30%. However, to get a non-resident person the applicable rate is 20%, which is charged on the whole income. The table below shows the current resident people tax prices. Sole traders are also required by the law to submit an estimate of earnings within 3 weeks of the new accounting year. They’re taxed according to a presumptive taxation system, in which the tax payable estimates are dependent on annual turnover/sales, rather than gain.

Indirect taxes

These are taxes, which are based on ingestion. Examples of these taxes are like Import Duty, Excise Duty, and Value Added Tax (VAT), etc.. By definition the legal incidence of the tax falls upon the dealer who acts as a collection agent of the government while the effective incidence falls upon the final consumer of goods or services who finally pays the tax.

Value Added Tax (VAT)

Value Added Tax is a utilisation tax charged by VAT registered traders on all taxable goods and services at a normal rate of 18%. The VAT is a multistage tax imposed at each stage of manufacturing and distribution up to the retail stage. The tax can be imposed on taxable imports produced by persons whether or not registered for VAT. All exports are remodeled (0% ).

VAT registration requirements

  1. All traders or companies whose taxable turnover exceeds Shs. 100 millions per annum or 50 million in a span of six months ending at the conclusion of the prior months.
  2. Professional service providers such as accountants, attorneys, Engineers, and related consultancies no matter the turnover filed under legislation of the United Republic of Tanzania.

All of the above are required to submit an application 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 filed, the taxpayer must submit monthly VAT returns either with payment, repayment or a nil return before 20th of the month following the month of business.

Some persons and associations are relieved from the payment of VAT on supplies or on importation of taxable goods and services, though some products and services are specifically exempted from VAT.

Useful resources:

Tanzania EOR