TOPIC ONE

TAX REVENUE APPEALS AND OBJECTIONS

Objections and Appeals

Disputes may occur between the taxpayer and income Tax Department, VAT
Department and Customs and Excise Tax Departments relating to: - (a) The computation
of tax payable on assessment.

(b) The levy of penalties such as for non-submission or late submission of returns of
income etc.

(c) Refusal by the taxpayer to pay tax, which had already been paid by him and now
due to certain reasons or by error, the Commissioner General requires him to pay
it again.

(d) Some other reasons.

In case the taxpayer does not agree with the assessment made upon him, he/she can
object the assessment by raising a notice of objection [section 12(1)]

A valid notice of objection must fulfill the following conditions:

(a) It must be in writing (section 12(1)

(b) It must be a precise statement (not vague) [sec.12 (2)], that is, it must state clearly
the grounds in which the assessment is objected.

(c) The person objecting must pay the amount of tax which is not in dispute or one
third of the tax assessed whichever is greater, pending the final determination
of the assessment. [sec.12(3)].

The commissioner general may accept the valid notice of objection without payment
of any tax at all or a lesser amount as is reasonable where there is good reason s
 warranting reduction or waiver of tax payable, until the assessment is finally
determined (section 12(4).

(d) The objection must be filed and received by the commissioner within 30 days
from the date of service of the notice of assessment (section 12(2).
Note:
The tax not in dispute is the amount which would be charged if the assessment is
amended in accordance with the notice of objection but for tax or duty assessed on
imports the amount not in dispute is the whole of the tax or duty assessed on such
imports

The power of the Commissioner General on receipt of notice of objection (section 12

(5):
Up on receipt of a notice of objection the Commissioner General is supposed to: -

(a) Admit the notice of objection to the assessment of tax or

(b) Refuse to admit the notice of objection to the assessment of tax.

The following are the reasons for which the commissioner will refuse to admit the
notice of objection [section 12(6):
(a) If the notice of objection is not in writing, or is not precise or the taxpayer has not yet
paid the tax not in dispute or one third of the tax assessed whichever amount is
greater; or

(b) The notice does not raise any question of law or fact in relation to the assessment; or

(c) The relief sought cannot be granted in law or equity; or

(d) The objection is time barred; or

(e) The objection is otherwise misconceived.

Section 12(7) allows the commissioner general to admit the notice of objection after
the expiry of the authorized period if:
(a) He is satisfied that the taxpayer could not file the objection within the time
prescribed due to his absence from the United Republic, sickness or other reasonable
cause; and

(b) The taxpayer has made an application to the commissioner after making a precise
statement of objection and has paid the tax not in dispute or one third of the tax
assessed whichever is greater.

Under section 12(8), any person who is not satisfied by the refusal by the Commissioner
General to admit the notice of objection may appeal to the Tax Revenue Appeals Board
against the refusal after:

(i) Depositing with the commissioner the amount of tax assessed which is not in
dispute or one third of the tax assessed whichever is greater; and

(ii) Interest due as a result of late payment if a notice of late payment is issued
concerning the amount for which the objection has been raised.

The decision of the Board on whether or not the notice of objection be admitted by the
commissioner is final

Powers of The Commissioner General upon Admission of a Notice of Objection (section

13)
The commissioner may determine the objection as filed or call for any evidence as is
necessary for the determination of the objection and may in that respect:
(a) Amend the assessment in accordance with the objection and serve a notice of the
final assessment to the objector; or
(b) amend the assessment in the light of any further evidence that has been received;
and serve the objector with a notice setting out the reasons for the proposal; or

(c) Refuse to amend the assessment and serve the objector with a notice setting out
the reasons for the refusal.

The taxpayer (the objector) is required to make submission in writing to the

Commissioner General within 30 days from the date of service of the commissioner’s
notice of proposed amendment or refusal to amend the objection stating his/her
agreement or disagreement with the proposed amended assessment or the proposed
refusal.

If the objector disagrees with the commissioner’s first proposal (i.e. as (b) and (c)
above, the commissioner general may do the following (section 13(5)) :
(a) Determine the objection in the light of the proposed amended assessment or
proposed refusal and any submission made by the objector; or

(b) Determine the objection partially in accordance with the submission by the
objector; or

(c) Determine the objection in accordance with the proposed amendment or

proposed refusal

If the objector has not responded to the Commissioner ‘s proposal to amend the
assessment or proposal to refuse to amend assessment the commissioner shall continue
to make final assessment of tax and accordingly serve the objector with a notice of final
assessment.
Appeal procedure [section 14]
Any person may appeal to the Tax Revenue Appeals Board if such person is aggrieved
i.e. is not satisfied by the following:

(a) The calculation by the Commissioner General of the amount due for refund,
drawback or repayment of any tax, levy or charge; or

(b) A refusal by the commissioner General to make any refund or repayment; or

(c) A determination by the commissioner general under section 24 of the Income Tax
Act; or

(d) The decision of the commissioner General to register or refuse to register any trader
for the purpose of the Value Added Tax Act

• Section 14(2) requires any person who objects a notice issued by the
commissioner General with regards to the existence of liability to pay tax, duty,
fees, levy or charge may refer his objection to the Board for determination.

• Section 14(4) requires the Commissioner General to pay the amount due as a
refund, drawback or repayment which is not in dispute pending determination
of the Board if there is a dispute over the calculation by the commissioner general
of the amount due a refund, drawback or repayment of any tax, duty, fees, levy
or charge and in relation to such dispute, an appeal has been referred to the Board.

Finality of assessment (section 15)

Section 15 provides for the time when an assessment is considered to be final. The
assessment is considered final and conclusive if:

(a) No notice of objection has been given; or

 (b) A notice of objection has been given and

(i) The assessment has been amended under section 13(1); or

(ii) A notice of objection has been given and the assessment has been
amended under section 13 in such a way that no appeal will be
available against the amendment; or an appeal has not been preferred
against any determination of an objection by the commissioner general;

(iii) The objection has been finally determined on assessment of tax on an

appeal.

Note that the commissioner is not allowed to make additional assessment which will require
reopening a matter which has been determined on an appeal
However, when any fraud or any gross or willful neglect has been committed by or on
behalf of any person in connection with or in relation to any tax, duty or levy the
commissioner general may make an additional assessment on that person even if it
involves re-opening a matter which has been determined on such appeal.

Right of appeal to the board or to the tax revenue appeals tribunal (section 16)
According to section 16(1), any person who is aggrieved by the final determination of
the assessment of tax by the commissioner general may appeal to the Board.

However, an appeal cannot be made in respect of the following (section 16(2):

(a) a determination made by the commissioner general under section 13(1)(a) i.e. if
the assessment is amended in accordance with the objection; or
 (b) a determination is made by the commissioner general under section 13(5)(a), i.e.
if the amendment is determined in the light of the proposed amended assessment
or proposed refusal and any submission made by the objector; or

(c) a determination made by the commissioner general in accordance with section

13(5)(b) to the extent that the determination is made in accordance with the
submission by the objector i.e. in accordance with the reasons and evidence
provided by the objector.

According to section 16(3) the Board shall not entertain an appeal unless:

(a) A notice of appeal is served upon the Commissioner General within 30 days
following the date on which a notice of final determination of assessment of tax
is served on the appellant (a person making an appeal); and

(b) The appeal is lodged with the Board within 45 days following the date on which
a notice of final determination of assessment of tax is served on the appellant.

Appeal to the tax revenue appeals tribunal (section 16(4)

A party (commissioner or any other appellant) who is aggrieved by the decision of the
Board may appeal against the decision to the Tribunal within 30 days from the date of
the decision by the Board, and shall serve a notice to the opposite party within 15 days
following the date on which the notice of appeal was filed to the Tribunal.

Extension of time set for the appeal to the Board or Tribunal (section 16(5)
The Board or Tribunal, may extend the limit of time (i.e. may allow more time) set above
if it is satisfied that the failure by a party (whether is the commissioner or a taxpayer) to
give notice of appeal, lodge an appeal or to effect service to the opposite party was
occasioned (caused) by absence from the United Republic, or sickness or other
reasonable cause, subject to such terms and conditions such as to costs as it may consider
just and appropriate.
Tax deposited pursuant to section 12(3) i.e. tax not in dispute or one third of the tax
assessed whichever is greater [section16 (6)]

Where the objector makes an appeal to the Board or to the Tribunal, any tax deposited
pursuant to section 12(3) shall continue to remain deposited with the commissioner
general pending the final determination of the appeal by the Board or for the case of an
appeal to the Tribunal, pending final determination of the appeal by the Tribunal

Powers of the Board and the Tribunal (Section 17)

The following are the powers of the Board and the Tribunal:

(a) to take evidence on oath;

(b) to resolve any complaint or appeal by mediation, reconciliation or arbitration;

(c) to issue warrants of arrest for failure to comply with summons;

(d) to order payment of costs in relation to any matter referred to the Board or the
Tribunal

(e) to dismiss any matter before it;

(f) To adjourn the hearing of any proceedings before it

In spite of the powers in (a) to (f) above, the Board or the Tribunal shall have the
power to summon and hear any witness and receive evidence in the manner and to
the same extent as if it were a court exercising civil jurisdiction in a civil case and the
provisions of the Civil Procedure Code , relating to summoning of witnesses, the
taking of the testimony on oath, and non-compliance with a witness summons shall
apply in relation to an appeal before the Board but the Tribunal may not admit any
fresh evidence save in the circumstance in which the High Court may admit fresh
evidence on a first appeal in a civil case

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 OUTPUT TAX AND INPUT TAX Output Tax
The transactions on which output tax is charged must fall within the scope of Tanzania Mainland VAT.
The scope of the tax is provided in section 4 of the Value Added Tax Act, 1997, (VATA).

For the transaction to be within the scope of Mainland Tanzania VAT it must fulfill all of the following
conditions:
▪ It must be a supply of goods or services
▪ It must be supplied in Mainland Tanzania
▪ It must be supplied by a taxable person
▪ It must be done in the course or furtherance of business
▪ It should not be exempt (sec. 10 Second Schedule to the VATA)
If any of the above conditions is not met, then the transaction does not fall within the scope of Mainland
Tanzania VAT.

Supply of goods or services: The term “supply” is not defined in the VATA. For VAT purposes the
term is taken to mean “to provide”, “to furnish or to serve”. The supply can be of goods or services and it
is important to make the identification because the time of supply (sec.6) and place of supply (sec.7)
varies between goods and services. In most cases the supply is made for a consideration. It rarely occurs
without consideration e.g. in the case of self-supply of goods or provision of gifts.

Supplied in Mainland Tanzania: In case of goods they should be situated in Tanzania at the time of
supply and in case of services the provider should belong in Mainland Tanzania.

Supplied by a Taxable Person: The provider of either goods or services must be either registered by
the Commissioner or is required to be registered (sec. 2)

In the course of furtherance of business: The term “business” is defined in section 2 as, “include
all form of trade or commercial activity”.

Furtherance of business It
is not defined in the VATA.
New Zealand Case N43 (1991) 13 NZTC, Bath gate DJ said at p3366: “An act done for the
purpose or object of furthering the (business), or achieving its goals, can be to help, or advance, and
thus a ‘furtherance’ of a taxable activity, although it may not necessarily be always in the
course of that taxable activity”.

Retail Scheme
The purpose of retail scheme is to allow traders who are unable to issue tax invoices for every sale, to
estimate their output tax by calculation, rather than by addition of tax charged on each transaction.

The traders are retailers selling to the general public, who do not normally require a tax invoice.
Generally, they have high volume of low volume transactions. There is no formal definition of retailer
in the Law or notice. Retail scheme is under General Regulation 14.
 What is the purpose of retail schemes?
To allow traders who are unable to issue tax invoices for every sale, to estimate their output tax by
calculation, rather than by the addition of tax charged on each transactions.

The traders are retailers selling to the general public, who do not normally require a tax invoice.
Generally, they have high volume of low value transactions. They are mostly known as the Retailers. No
formal definition of retailer in the law or notice. Retail scheme have been described under Regulation
14 of the VAT General Regulation 1998. Definition as per the dictionary- the sale of goods to the public
for use or consumption rather than for resale.

What are record keeping requirement?

Regulation 12, drawing attention to concession allowed in 12(C) - no requirement to keep ‘record of
value of each supply made’). Retailers are not relieved of the requirement to issue ‘receipts’ (see
sec. 29 of the VAT Act.) Is it feasible or Desirable that retailers issue receipts? Or Keep records?

Yes. The Primary record retailers must keep is the record of daily gross takings - this is the record,
which forms the starting point for the scheme calculations.

Must keep a record of payments as they are received Must not reduce gross takings by amounts taken
out of till Cheques treated as cash on day received Must include deposits if advance payments Non-
retail supplies e.g. sale of assets, sales to other registered traders must be excluded from the scheme
calculations.

What are the schemes?

Method 1
• Separation of standard and exempt goods at ‘point of sale’ - or can be used if standard rated
goods only are sold.
• Would normally expect separation to be achieved by using a cash register with separate
‘department’ keys, or by using different till for each class of goods.
• Could also be achieved by writing down cash sale as it takes place. (Reg. 12 states that a record
must be kept of each supply as it takes place, and each payment received.)
• At the end of the period, the takings applicable to standard rated goods are totaled,

Steps as per Reg. 14

Step 1: Separate gross takings at the point of sale between taxable and exempt supplies

Step 2: Each day at the close of business total the records of gross takings
 Step 3: At the end of the prescribed accounting period, from the records of taxable daily gross takings,
calculate the tax using the tax fraction for the rate of tax in force and include the amount on the VAT
return for that period. VAT fraction applied; to give the output tax due. Method 1

Standard Rated Taking X 1/6= Output Tax

Method 2
Where trader is unable or unwilling to separate at point of sale. .Sales of standard rates and exempt
goods are apportioned in the same ratio as taxable and exempt purchases made in the period. All
taxable and exempt purchases are included, not just goods purchased for resale, expenses and
overheads are also included, which can have a very distortive effect

Step as per Regulation 14

• Step 1: Record total gross taking for each day
• Step 2: At the end of each prescribed accounting period total daily gross taking for that period
• Step 3: Allocate those gross takings to taxable supplies in the same proportion that the value taxable
purchases made in the period bears to the value of total purchases in that period.
• Step 4: From the gross takings allocated to taxable supplies calculate the tax for the prescribed
accounting period using the tax fraction in force and include the amount on the VAT return for the
period.

Taxable purchases x DGT Total x VAT Fraction

Total Purchases

= Output tax

(Output figure for box 02 of the VAT return can be calculated by multiplying output tax x 5).

The trader must carry out on annual adjustment similar to that required for partial exemption, by
recalculating at the end of the tax year, using the whole year’s figures. If the annual adjustment
reveals any over or underpayment, an appropriate entry is made in the VAT account in the first period
after the end of the tax year. The trader is allowed to choose which method he wishes to use; having
chosen his method, he must use it for one full ‘accounting’ year.
 Risk Involving Retail Schemes
What are the risks involving retail schemes?

i. Suppression of sales,
ii. Suppression of both sales and purchases
iii. Method 1 – Miss-keying/miss-description iv. Method 2 - Inclusion of services or ineligible
transactions

How might these be detected and combated?

i. Suppression of sales will depress the mark up achieved of both standard and exempt goods.
ii. Suppression of both sales and purchases will not affect mark up.
iii. Miss-keying or miss-description of standard goods as exempt will depress standard rates markup
but inflate exempt mark up.
iv. Inclusion of ineligible items in method 2 will increase standard rated mark up, but the wrongly
included items will not be fully taxed.

How can these problems be dealt with?

i. By examination of mark ups achieved, and comparison with markup calculated from stock
challenge.
ii. Extended challenge of stock to detect suppressed purchases questioning of trader and staff to
determine knowledge and practice in liability/keying errors.
iii. Examinations of records and interview with trader to discover any services or ineligible supplies
provided Substantial suppression will probably be best dealt with by mark up exercise.

METHOD 2:

TAXABLE PURCHASES
TOTAL PURCHASES X DGTX 1/6 = OUTPUT TAX

Input Tax

Conditions Governing Input Tax Deduction

Taxable persons may reclaim the VAT they incur on their purchases of goods and services subject to
the conditions (rules) mentioned below: The law is provided under sect.16 of the VATA 1997 and
General Regulations 1998, Reg 3-8 of the Value Added Tax.
▪ The amount to be claimed must actually be VAT properly charged by another taxable person or
relate to a taxable importation.
It is important to establish whether there was an actual supply to the business?

The existence of a tax invoice is not conclusive evidence that a supply has occurred. Firstly, invoices
are often issued in advance. Secondly, the invoice could be fraudulent.
▪ The supplies on which the tax was charged must be made to the person seeking to claim the input
tax. The supplies must be to the taxable person not to someone else. Check if the supply was made
to the taxable person or to a third party?
▪ For example, payments made by a clearing and forwarding agent to third parties such as Customs,
DAHACO, THA etc. on behalf of his principal is an input tax of the principal, whether the receipt is
issued in the name of the agent or importer.
▪ The supplies must have been incurred for the purpose of the business. Is the expenditure for the
purpose of the business of the taxable person? Goods or services must be used or to be used for
the purpose of the business. Refer cases
▪ The supplies must normally be received in the accounting period on which the claim is to be made.
▪ The person seeking to claim input tax must hold satisfactory documentary evidence of the supplies
in support of his/her claim.
▪ The supplies received must not be subject to input tax restriction i.e. non-deductible i.e. motorcars,
entertainment.
(i) In case goods, the goods were in the ownership and possession of the taxable person at the date
of registration and the same were received not more than six months prior to registration.
(ii) In case of services, the services were received not more than six months prior to registration.
Note: The services should relate to the goods in ownership and possession by the taxable
person at the date of registration.
(iii) There is documentary evidence to support purchases and utilization of the goods or services on
which input tax is claimed.

Partial Exemption
If a trader makes only exempts supplies he is not liable to register for VAT. If he makes a mixture of
exempt and taxable supplies, he must register if the value of taxable supplies exceeds the registration
threshold. Such a trader is a partially exempt. The major disadvantage for traders making exempt
supplies is that they cannot register and therefore they cannot reclaim the tax they are charged by their
suppliers if it relates to their exempt supplies.

What attributes to partially exempt trader? Types of Supplies these are Standard rated, zero rated,
Exempt

What makes exempt supplies different from the others? Input tax incurred in making exempt supplies
cannot be reclaimed

The registration position of trader who makes only exempt supplies cannot register for VAT purpose.
If a trader makes a mixture of taxable and exempt supplies he must register if taxable supplies
exceed the threshold. Trader is then faced with problem of apportioning the input tax between
exempt supplies (not claimable) and taxable supplies.
 Method1:

Advantages
(i) Simple to operate
(ii) No complicated bookkeeping required

Disadvantages
(i) Crude method
(ii) Recovery of input tax not related to use - may be significant amount of input tax not recovered.
More suitable for smaller traders where books are simple, amount of tax not significant;

Traders where taxable outputs are low compared to exempt outputs.

Method 2:

Advantages
(i) Better recovery of input tax
(ii) Recovery related to use (attribution)

Disadvantages
(i) Need better records (to analyze input tax into the three categories)
(ii) More difficult calculation
(iii) Suitable for use by larger traders with better bookkeeping systems.
The trader is entitled to choose whichever method he/she wishes.

First Method
Step 1: Calculate the value of taxable supplies made in the prescribed accounting period.

Step 2: Calculate the value of all supplies made in that period.

Step 3: Calculate the amount of tax payable on supplies made to the registered person in that period.
(Total input tax)

Step 4: Divide the amount obtained in step 1 for the period by the amount obtained in step 2 (the value
of all total supplies made in the period)
Step 5: The amount of input tax to be claimed as a deduction or credit in the prescribed accounting
period is the product obtained by multiplying the amount obtained in step 3 by the amount obtained in
step 4.

METHOD 1: Formula
Taxable supplies x Total Input Tax = Deductible Input Tax

Total supplies

Second Method
Step 1: Divide input tax for the prescribed accounting period into categories: -

Category A: input tax that is directly attributable to taxable supplies

Category B: Input tax that is directly attributable to exempt supplies

Category C: Input tax that is paid for the purposes of the business but is not directly attributable to
either taxable supplies or exempt supplies.

Step 2: Calculate the value of taxable supplies made in the prescribed accounting period.

Step 3: Calculate the value of all supplies made in that period.

Step 4: Divide the amount obtained in step 2 for the period by the amount obtained in step 3 (the
value of all total supplies made in the period)

Step 5: The amount of input tax to be claimed as deduction or credit in the prescribed accounting
period is the product obtained by multiplying the amount obtained in step 4 by the amount obtained in
category C

(found in step 1) and then add the input tax attributable to taxable supplies (category A found under
step 1)

Second Method:
Taxable Supplies X C+ A = Deductible input tax

Total Supplies
Where: A = Category A, Tax on taxable supplies

C= Category C, Tax on Partial exempt supplies

Illustration
The taxable person indicates through his records that during the month of March, 2008, VAT was paid
on his purchase as follows: -

VALUE VAT 18% VAT inclusive

(SHS) (SHS) price (SHS)
i) Sugar ii) 50,000 9,000 59,000
Cooking iii) 75,000 13,500 88,500
Laundry soap 60,000 10,800 70,800
iv) Transportation of wheat flour & maize 10,000 1,800 11,800
v) Bags for replacing wheat flour
vi) Tax invoice books 12,500 2,250 14,750
vii) Electricity vii)
Telephone 37,500 6,750 44,250
10,000 1,800 11.800
12,500 2,250 14,750
48,150

During the same month, the taxable person supplied (Sold) goods with the values indicated below: -

VALUE Vat 18% VAT inclusive price

(SHS) (SHS) (SHS)
(i) Sugar 60,000 10,800 70,800
(ii) Cooking oil 90,000 16,200 106,200
(iii) (iv) Laundry soap 80,000 14,400 94,400
(v) Toilet soap 100,000 18,000 118,00
(vi) Wheat flour 40,000 Exempt 40,000
Maize 30,000 Exempt 30,000

400,000 59,400

Required
a) Calculate the input tax to be claimed as a deduction or credit for the prescribed accounting
period of March, 2008
 b) Calculate the amount of VAT paid to be Commissioner f or VAT in respect of the month of March,
2008

Feedback:
Answer A
Apportionment of input tax:

First Method (direct method)

Step 1: The value of taxable supplies made is Shs

SHS.
Sugar 60,000
Cooking oil 90,000
Laundry 80,000
Toilet soap 100,000
Total 330,000

Step 2: Value of all supplies made is:

SHS.
Sale of wheat flour 40,000
Sale of maize 30,000
Taxable supplies – Step 1 330,00

Total 400,000

Step 3: Tax payable on supplies made to the registered person is shs. 48,150 (i.e. total input tax paid
on the purchases shs 48,150

Step 4: Value of taxable supplies x

input tax

Total supplies

(330,000/400,000) × shs 48,150 = shs 39,724

Thus, amount of input tax to be claimed = shs. 39,724
Amount of tax be paid to VAT department
 Total output shs.
59,400
Less: Input tax to be claimed shs. 48,150
VAT paid for the month shs. 11,250

Apportionment of Input tax

Second method (attribution

method) Step 1:
(a) Category A: Input tax directly attributable to taxable supplies: -

SHS.
Sugar 10,000
Cooking oil 15,000
Laundry soap 12,000
TOTAL 37,000

(b) Category B: Input tax directly, attributable of AXEMPT supplies: -

Transportation of wheat flour and maize 2,000

Bags for repacking wheat flour 2,500

Total 4,500

(c) Category C: input tax paid for the purposes of the business but is not directly attribute either to
taxable supplies or exempt supplies: -

SHS
Tax invoice books 7,500
Electricity 2,000
Telephone 2,500

Total 12,000
 Step 2: Value of taxable supply = shs. 330,000 =
0.25 Value of total supply shs. 400,000

Step 3: Category C × result of step 2

Shs 12,000 × 0.8825 = shs. 9,900

Step 4: input tax to be claims = Category A + result of Step 3

Shs. 37,000 + shs. 9,900 = 46,900

Computation of Amount to be paid to VAT department: -

Output Tax 59,400

Less: Input tax 46,900

Total vat payable (refundable 12,500

Special Method of Accounting for

Output tax

This method applies to a taxable person who makes supplies of goods or services by retail direct to the
consumer. There are two methods which are provided under regulation 14.

First method Reg. 14 (7) is as follows:

Step 1. Separate gross takings at the point of sale between taxable and exempt supplies.

Step 2. Each day at the close of business total the records of gross takings.

Step 3. At the end of the prescribed accounting period, from the records of taxable daily gross takings,
calculate the tax using the tax fraction for the rate of tax in force and include the mount on the VAT
return for the period.

Second method Reg 14 (8)

Step 1. Record total gross takings for each day
Step 2. At the end of each prescribed accounting period, total daily gross takings for that period.

Step 3. Allocate those gross takings to taxable supplies in the same proportion that the value of
taxable purchases made in the period bears to the value of total purchases in that period.

Illustration
Mrs. Madiba carries on a business of retail grocery at Miyuji in Dodoma since February, 2008 the
following information is available during prescribed accounting period of August, 2008.

(a) Purchases made and expenses made during the period which are VAT exclusive are as

ITEM SHS
Cooking oil 800,000
Bags for parking wheat 175,000
Electricity 150,000
Sugar 550,000
Telephone 200,000
Tax invoice books 250,000
Transportation of milk 150,000
Refrigerator 270,000
Wheat flour 400,000
Green vegetables 150,000
Beer and Spirits 300,000
Soft drink 250,000
Fresh milk 200,000

Also, during the same prescribed accounting period, Mrs. Madiba made the following sales (which
attracted output tax)

Item Gross Payments Received

(VAT inclusive)
 Cooking oil 600,000
Sugar 450,000
Toilet soap 630,000
Laundry soap 510,000
Wheat flour 200,000
Green vegetables 160,000
Beer and sprits 290,00
Soft drinks 160,00
Fresh milk 220,000

The following additional information is also available to you her tax consultant:

i) The amount of beer and spirit supplies includes deposits for bottle taken out by customers
amounting to shs. 20,000

ii) There was cash loose of payment received in respect of supply of soft drinks, of which shs
40,000 have not been included in the payment received during the month.

iii) One crate of beer worth shs. 14,000 were taken for personal consumption by the owner of
the grocer
y. the amount was not included in the payments during the month.

iv) Milk worth shs. 20,000 were returned by customers during the month for various reasons.
This has not been subtracted from the amount shown above.

v) No cash discount was during the month

Required:
Calculate the output tax payable for the month of August, 2008 using the two methods provided
under Regulation 14 of Value Added tax (General) regulations 1 998.

Feedback
Method 1 Regulation 14 (7)

Taxable gross taking during the prescribed period of July, 2011

Item shs
Cooking oil 600,000
Sugar 450,000
Toilet soap 630,000
Laundry soap 510,000
Beer and spirits 290,000
 Less: Deposit for bottle
20,000
270,000
Add: crate of beer for won consumption 14,000 284,000
Soft drinks (160,000 + cash los 40,000) 200,000

Total taxable gross takings 2,674,000

Tax fraction is r(r+100)

Where r=VAT rate which is 1 8%

Therefore, output tax = 18/18 +100) 2,674,000/= shs. 407,898

Thus, output tax= shs 407,898

Method 2- Regulation 14(8)

This method applies where the taxable person was unable to separate gross takings of taxable supplies
from exempt goods

Total daily gross takings for the prescribed accounting period of August, 2008

Item shs
Taxable gross takings 2,674,000
Wheat flour 200,000
Green vegetables
Fresh milk 220,000

Less: returns 20,000 200,000

Total gross takings
3,234,000

The proportion of the value of taxable purchases to the value of total purchases during the period:-

Shs Shs
Total purchases 3,845,000
Less: exempt purchases:
Wheat flour 400,000
Green vegetables 150,000
Fresh milk 200,000
750,000
Taxable purchases 3,095,000

Therefore: 3,095,000 × 100 = 80.5%

3,845,000

A gross taking allocated to taxable supplies is:

80.5% x 3,234,000 = Sh. 2,603,370

Thus output tax is 18/118 ×2,603,307= shs.397,124

Illustration III

a) Mwaka & Sechu co. Ltd is a value added tax (VAT) registered operator and carries on the business of
a supermarket on a cash basis. The company’s records show the following income and
expenditure for the month of November 2013

T.SHS T.SHS

Cash Sales
170,000,000
- General goods
- Maize meal and sorghum for 28,000,000
human consumption 198,000,000
Opening stock 300,000,000
Purchases for cash and on credit;
General Goods 120,000,000
Maize and Sorghum for human
consumption 20,000,000
440,000,000
Closing stock (160,000,000)
(280,000,000)
Gross profit 38,000,000
 Expenditures:
Advertising 2,000,000
Rent of premises 5,000,000
Salaries 18,000,000
Other expenses (subject to VAT) 6,000,000 31,000,000
Profit for the month
7,000,000.00

REQUIRED;
Determine the VAT payable or VAT refund for the month of November 2013 for Mwaka & Sechu co.
ltd.

Feedback
i. The tax on purchases is Input tax and Output tax is the tax on sales
ii. Calculation of VAT

VAT paid on Inputs (20% x 133,000,000) = 26,600,000

Input tax to claim

Value of taxable supplies x input tax paid

Value of total supplies

170,000,000 x 26,600,000 = 22,838,384

198,000,000

Output tax 34,000,000

Input tax (22,838,834)

VAT payable 11,161,616

QUESTION ONE

A ltd is a VAT registered trader since January 2012. Due to the changes of registration threshold on July
2015 from TZS 40,000,000 per year to TZS 100,000,000 A ltd made an application to the Commissioner
General for the purpose of de registration for VAT. The following are the information of A ltd on the last
month (July 2015) before the cancelation of registration by the Commissioner General.
Goods and Services Value of Purchases Considerations of Exported supply
supply mainlandmade in
TZS Tanzania

TZS TZS

Maize flour 5,000,000 2,900,000 4,600,000

Wheat flour 3,500,000 4,800,000

Cooking oil 4,660,000 3,200,000 2,500,000

Electricity 150,000 - -

Processed cow milk 2,000,000 - 3,500,000

Rent 600,000 - -

Bags for packing 300,000

wheat and maize flour

During the month of July 2015, A ltd imported a transport service from a transport company registered
and operated in Kenya to transport all exported supplies. The company issued an invoice of Kenya
Shillings 60,000. The exchange rate is TZS/KES 20

At the time the registration is cancelled, A ltd has the following properties on hand
A pick-up which was imported from Japan on March 2010 for a cost of US $ 4,000, insurance cost and
freight incurred to transport the pick-up from Japan to the sea port of Dar es Salaam was US $ 500 and
US $ 800 respectively. The duties rates applicable by then was Import duty 20%, Excise duty 10% and
VAT rate 20%. The market value of the pick up on July 2015 was TZS 12,000,000.

Office furniture purchased in Mainland Tanzania on January 2013 for a consideration of TZS 2,500,000,
the market value of the furniture on July 2015 was TZS 1,500,000.
Loader machine which was imported from China on June 2014 at a price of US $ 3,000 and transport
cost and freight incurred to transport the machine from China to the Sea Dar es Salaam Port was US
$ 500 and US $ 350. The import duty rate was 20%, excise duty 10% and VAT rate
18%. The market fair value of the machine by July 2015 is TZS 6,000,000/= Exchange rate:

TZS/US $ 2,500

Required:

(a) Compute Net VAT Payable/refundable by A ltd for the last month of July 2015 before the
cancellation of registration according to Section 67 and Section 80 of the Value Added Tax Act.
(b) State the due date for the submission of VAT Return and Payment of VAT according to Section 66
and 67 of the VAT Act 2014

QUESTION TWO

B’s Ltd is a registered company for VAT purpose since 2008. B ltd is dealing with supplying both taxable
and exempt supplies. The followings are the information of purchases and sales for the twelve months
period of 2015.
Months Value of taxable Exempt Value of taxable Exempt
supplies (TZS) supplies (TZS) purchases only partly Purchases
for the purpose of (TZS)
making taxable
supplies (TZS)

January 20,500,000 5,600,000 7,000,000 3,900,000

February 18,550,000 5,200,500 5,330,000 4,000,000

March 22,500,000 7,400,000 9,400,000 5,540,000

 April 28,003,000 12,000,000 8,500,000 7,700,200

May 25,700,000 9,740,000 7,900,000 6,440,000

June 21,400,000 4,950,000 2,300,500 3,560,000

July 19,780,000 6,120,000 6,800,000 5,100,000

Aug 18,400,000 6,900,000 5,200,000 4,200,000

Sept 22,000,000 7,800,000 6,900,000 5,800,000

Oct 21,000,400 8,330,400 5,400,000 6,700,600

Nov 7,440,550 7,100,000 4,005,000 4,880,000

Dec 4,000,000 4,500,000 2,900,880 1,200,000

Total 229,273,950 85,640,400 71,636,380

In June 2016, the company made the following supplies

Standard rated supplies TZS 34,000,000

Exempt supplies TZS 2,800,000

Zero rated supplies TZS 3,500,000

Taxable purchases TZS 2,200,000 (Only partly for the purpose of making taxable supplies)

Taxable purchases TZS 18,000,000 (Full for the purpose of making taxable supplies)

Exempt purchases TZS 5,100,000

The above figurers are Considerations

In 20th June 2016 B’s ltd imported a new machine for loading and unloading goods purchased and sold.
The machine imported from USA at a price of US $ 2,000. Transport and insurance cost incurred to
transfer the machine from USA to the Dar es salaam sea port is US $ 600 and TZS 300,000 as transport
cost from the Dar es salaam sea port to the B ltd’s office. B’s ltd incurred assembling cost of US $ 400 in
order to put the machine in a condition to be used.

Note: The machine was imported in the course of the B’s economic activity.

Import duty rate 20%, Excise duty 10% Current

Exchange Rate: TZS/US $ 2,500

Required:

Compute the Net VAT Payable/Refundable for the month of June 2016 according to Section 67 of the
VAT Act 2014.

QUESTION THREE

ABC is a major supplier of unprocessed maize and processed fish. ABC registered for VAT purpose by the
Commissioner General on 1st January 2017 under Section 33 of the VAT Act 2014.

ABC ltd

Statement of Profit or loss for the month ending January 2017

TZS

Revenue 18,800,000

Cost of sales 13,440,000

Gross Profit 5,360,000

Other incomes 230,000

Total income 5,590,000

Expenses

Administrative expenses 1,060,000

Selling and distribution costs 340,000

Other expenses 1,780,000

Finance costs 200,000

Profit for the month 2,210,000

Notes

Revenue includes

Sales of unprocessed maize TZS 10,200,000 and processed fish TZS 8,600,000
Cost of sales

Value of opening stock; processed fish TZS 2,500,000 and unprocessed maize TZS 1,000,000

Value of closing stock TZS 1,500,000

Purchases of unprocessed maize TZS 8,340,000 and processed fish TZS 3,000,000

Purchases of bags for packing maize TZS 100,000

Other incomes

Interests from deposits account held by CK Plc of TZS 30,000

Rent TZS 200,000

Administrative expenses

Salaries TZS 1,000,000

Depreciation of motor vehicles and furniture TZS 60,000

Selling and distribution costs

Depreciation of motor vehicles TZS 40,000

Selling commissions TZS 300,000

Other expenses

Go down rent TZS 600,000

Electricity TZS 200,000

Transport costs TZS 500,000

Soft drinks and food for customers TZS 180,000

Wages TZS 300,000

Finance costs

Interest paid to NB Bank TZS 200,000 in respect of long term debt.

Other information:

On the date of registration the market value of open stock were; processed fish TZS 3,000,000 and
unprocessed maize TZS 1,500,000.
All the stock possessed at the date of registration was purchased within 3 months from October to
December 2016. ABC holds a tax invoice in respect of all goods possessed and the goods were acquired
in the course of an economic activity and for the purpose of resale.

On 15th January 2017 ABC imported consultancy service from Kampala Agricultural Products Processing
Company, and the company raised an invoice to ABC of the amount equivalent to TZS 2,500,000.

Required:

(a) Assume ABC ltd decided to make adjustment under Section 79 of the VAT Act 2014 in the VAT
Account of January 2017, Compute the Net VAT payable for the month of January 2017 according
to Section 67 of the VAT Act 2014.
(b) When the Value Added Tax becomes payable according to Section 15 of the VAT Act 204? Your
explanation must include the definition of Time of Supply as provided under Section 2 of the VAT
Act 2014.
(c) Explain the provision of compulsory registration as per Section 33 of the VAT Act 2014.

QUESTION FOUR

A ltd is company registered under the laws of the United Republic of Tanzania. The company’s year of
income is a calendar starts from January to December each year. During the year of income 2015 the
company filed its provision return on 15th May 2015 showing the estimated business income of TZS
23,000,000 and investment income of TZS 5,000,000 according to Section 88 and Section 89 of the
Income Tax Act Cap 332 2004 R.E 2014. On the same date A ltd paid all quarter installment income
taxes. On 20th Aug A ltd filed withholding statement according to Section 84(2) of the Income Tax Act
Cap 332 2004 R.E 2014 showing the total tax withheld of TZS 3,000,000 and filed another withholding
statement on 11th January 2016 showing the withheld tax of TZS 3,500,000.

After the end of the year of income, A ltd’s appointed auditors audited financial statements and then
the company prepared the Income Tax Return. On 14th July 2016 A ltd filed the Final Return of Income to
the Commissioner General declaring the Actual total income of TZS 45,000,000. BOT Statutory rate: 20%

Required:

Compute A ltd Income Tax Liability for the year of income 2015.
QUESTION FIVE

ABC trader has been doing business of supplying personal computers for 5 years now. On 1st Jan 2016
ABC became registered by the Commissioner General for the purpose of VAT and ABC possesses the
stock of the value of TZS 53,660,000 in store. The stock valuation methods used by ABC are First in First
out Method (FIFO).

The following is the list of total purchases for the last 12 months of 2015
Month Total Value of Fair market value Services
computers purchased incurred
in mainland Tanzania (TZS)
(TZS)

January 6,200,000 - 500,000

February 7,100,000 - 300,000

March 7,200,000 - 650,000

April 6,200,000 - 300,000

May 4,500,000 - 500,000

June 4,500,000 500,000 450,000

July 4,880,000 5,600,000 250,000

August 5,700,000 6,200,000 500,000

September 12,000,00 13,400,000 340,000

October 7,880,000 8,500,000 250,000

November 5,700,000 6,350,000 400,000

December 8,500,000 9,900,000 500,000

In Oct ABC imported HP laptops from United States of America at a price of US $ 6,000. The computers
were transported from USA to the Dar es Salaam Airport through an aircraft for a cost of US $ 1,500 and
insurance cost incurred was US $ 800. On the date of registration, all the imported HP laptops have not
yet sold with a trading cost and fair market value of TZS 5,000,000 and 15,000,000 respectively.
The goods were acquired and imported in the course of ABC economic activities and for the purpose of
resale.
The followings are the ABC January 2016 transactions

Item Value of Purchases Considerations of supplies

Computers 3,000,000 6,500,000

Electricity 200,000 -

Rent 800,000 -

Transport costs 400,000 -

Exchange rate: TZS/US $ 2,800 Required:

Compute ABC Net VAT payable/refundable for the month of January 2016 according to Section 67 and
79 of the VAT Act 2014.
 INTERNATIONAL TAXATION

There is no doubt that double taxation is partly due to international

cooperation.
International co-operation is of crucial importance in order to achieve rapid
economic and social development by: -

▪ Establishing bilateral and multilateral regional economic groupings

to promote trade and investment, e.g. COMESA, SADC, EAC.
▪ Formulation of competitive investment incentive packages in order
to attract both local and foreign capital.
▪ Concluding as many International double taxation relief agreements
as possible with major trading partner nations. These agreements are
intended to allow cooperation in training and tax administration to
promote:
✓ Free flow of capital
✓ Free flow of technology
✓ Free flow of skilled technical personnel.

Double taxation
Meaning
Phenomenon whereby the same income is taxed in two or more tax
jurisdictions in the same year of income and by the same tax payer.

Effect of Double taxation (Economically and Socially)

Economically:
 ➢ Discourages the free flow of resources and investment.
➢ Possibility of tax avoidance and evasion, resulting into loss of
government revenue.

Socially:
Financial hardship (disposable income becomes very small).

Circumstances under which International Double taxation arise:

a) Income partly earned in Tanzania and partly outside

Overlapping tax jurisdictions due to conflicting source rules among
different nations (different rules)

➢ Each country has the right to tax her nationals in whatever manner.
➢ Likewise, non-residents who derive income from another country are
taxed as well in that particular country.
➢ In case of URT – resident person is chargeable on his income accruing
or derived worldwide. Under such circumstances, double taxation
will arise.

b) Non – residents with Tanzania Income

All incomes which arise in URT are taxable whether it accrues to resident
person or nonresident person.
Therefore, where a non-resident person is liable to Tanzanian tax and also
liable to comparable tax in his country, double taxation will arise

c) Trust income
Case law has established that the source of a beneficiary’s share of the
trust income is the trust itself.
Therefore, share of the trust income from Tanzania trust could include
foreign sources of income, and thus attracting double taxation.

Approaches to problems of double taxation

a) Granting relief

(i) International Double taxation relief

(ii) Domestic Double tax relief

International Double Taxation relief

Refers to International tax relief granted through taxation agreement

negotiated between Tanzania and other countries. (being international calls
for a need of cooperation between these countries in granting relief).
The purpose is to give relief by way of exemption, credit and set offs, for tax
suffered on income originating in these countries. It is very important
because it may promote flow of trade, investments and encourage capital
formation

Domestic Double Taxation Relief

Relief which relates to double taxation within

the same tax jurisdiction/country.

➢ Relief mechanism is easier

➢ Does not require any international formal treaty or convention

Can be granted in the form of personal allowances or relief e.g. portion of

chargeable income being treated as free, reducing tax burdens of married
person by predetermined margin.

Note that both individuals and non-individual (i.e. persons) can claim
international double taxation relief while domestic relief is claimed and
granted to individuals only.

Significance of International cooperation and relief from double taxation:

Double taxation relief has positive impact to both, taxpayer and economy
Due to high rates in most countries, double taxation may give rise to
financial hardship, harmful effects on the exchange of goods and services,
and may affect movement of capital, technology and skilled personnel.

b) Alternative approaches

The Laissez Faire Approach:

Whereby a country avoids administrative difficulties by ignoring taxation
of international transactions.

Problem of the approach

➢ Loss of revenues, which deprive economy (financial and other
resources are lost)
➢ Adversely affects country’s investment pattern because local
investors will feel that they
➢ Are discriminated against foreign investors. ➢ Ignores equity
principle.

Agreement Relief and International cooperation

Unilateral Relief:
Granting relief for foreign tax without regard to whether the other taxing
country is prepared to do so in similar circumstance.
The relief is given by the country in which the claimant is resident.

Problems of the approach

➢ Not favoured because interferes with foreign tax jurisdiction and
national sovereignty.
➢ It may be very expensive and yet most ineffective e.g. it may force tax
official to travel outside the country to enforce tax legislations on
some defaulters who have escaped the country (loss of time, money).

Bilateral and Mutual Agreement Relief

 This is formal mutual international co-operation between different taxing
jurisdictions.

Treaty negotiation (Concluding international double taxation relief) It is

a complex and tedious but a necessary process in order to conclude efficient
treaties. It involves use of Organization for Economic Co-operation and
Development (OECD) and United Nations’ models as a basis for treaties

Criticisms and Comments (Problems arising in treaty)

a) Taxation of specific sources of incomes and persons should be

outlined
e.g. Rent, shipping, royalty, students,

b) Permanent Establishment (PE)

It should be noted that not all permanent establishments are subjected to
tax.
e.g. – PE for use of facilities for storage, a fixed place of business solely for
purchasing goods and collecting information.

c) The method of the foreign tax relief should be specified.

Two methods are available:
- Credit method
- Exemption method

d) Computation of the credit relief.

The computation may require information from the other state hence the
significance of the exchange of information clause.

e) Arbitration or resolution of disputes - Dispute is inevitable in any

treaty.
- Therefore, efficient machinery should be established in order to deal with
such disputes quickly and effectively.
Methods of Arbitration

(Machinery to solve disputes)

(a) The authority

(b) Technical standing committee.

The Authority

The Presidents of the two contracting states constitute the Authority.

Problem
➢ Presidents are unlikely to be experts in law and accountancy.
➢ Hence, not able to decide on technical issues, as a result they will tend
to delegate technical issues and causing delays in decision making.
➢ Presidents have limited time for regular nonpolitical meetings.
➢ Possibility of developing political ‘impasse’ that may paralyze and
cripple the whole process of arbitration.

Technical Standing Committee

More desirable because:

- Committee is composed of technical experts (lawyers, tax consultants,
accountants), hence competent in deciding on technical issues.
- They (technicians) have enough time to deliberate on the disputes
quickly (not constrained by political considerations).
-
The methods of granting relief a)
Credit Method (Set-off)

b) Exemption

Credit method:
A Relief is affected by way of deduction of set offs from the total tax liability.
Credit relief can only be granted to resident persons who have paid foreign
income tax or comparable tax on the same income which is derived from
another foreign country. The credit method is more preferred

REVISION QUESTIONS

1. What do you understand by the phenomenon 'double taxation?'

2. Identify two types of double taxation and their possible causes
3. It is argued that conclusion of many international double taxation
agreements is very important for the economic and social development
of a country
Required

Appraise this argument

4. Identify and discuss various approaches to the problem of double

taxation
5. Identify methods of granting double taxation relief, state which is more
preferred and why
6. Discuss two methods (machinery) of arbitration in the course of disputes
arising from treaty negotiation

THE EAST AFRICAN COMMUNITY

ACT SUPPLEMENT

TERMS OS SUGGESTED BY Sir D.MWAKA in class. approved place of

loading" and "approved place of unloading" mean

any quay, jetty, wharf, or other place, including any part of a Customs airport, appointed by the
Commissioner by notice in the Gazette to be a place where goods may be loaded or unloaded;

"boarding station" means any place appointed by the Commissioner by notice in the Gazette to be a
place for aircraft or vessels arriving at or departing from any port or place to bring to for the boarding by
or the disembarkation of officers;

"bonded warehouse" means any warehouse or other place licensed by the Commissioner for the
deposit of dutiable goods on which import duty has not been paid and which have been
entered to be warehoused;

"cargo" includes all goods imported or exported in any aircraft, vehicle or vessel other than such
goods as are required as stores for consumption or use by or for the aircraft, vehicle or vessel, its crew
and passengers, and the bona fide personal baggage of such crew and passengers;

"countervailing duty" means a specific duty levied for the purposes of offsetting a subsidy bestowed
directly or indirectly upon the manufacture, production or export of that product;

"countervailing measures" means actions taken to counter the effect of subsidies;

"Customs area" means any place appointed by the Commissioner by notice in writing under his or her
hand for the deposit of goods subject to Customs control;

"Customs laws" includes this Act, Acts of the Partner States and of the Community relating to
Customs, relevant provisions of the Treaty, the Protocol, regulations and directives made by the
Council and relevant principles of international law;

"customs warehouse" means any place approved by the Commissioner for the deposit of unentered,
unexamined, abandoned, detained, or seized, goods for the security thereof or of the duties due
thereon;

"duty drawback" means a refund of all or part of any import duty paid in respect of goods exported or
used in a manner or for a purpose prescribed as a condition for granting duty drawback;

"dutiable goods" means any goods chargeable with duty;

"duty" includes any cess, levy, imposition, tax, or surtax, imposed by any Act;

"export" means to take or cause to be taken out of the Partner States;

"export duties" means Customs duties and other charges having an effect equivalent to customs
duties payable on the exportation of goods;
"export processing zone" means a designated part of Customs territory where any goods
introduced are generally regarded, in so far as import duties and taxes are concerned, as being
outside Customs territory but are restricted by controlled access;

"foreign country" means any country other than a Partner State;

"foreign port" means any port in a foreign country;

"goods" includes all kinds of articles, wares, merchandise, livestock, and currency, and, where any such
goods are sold under this Act, the proceeds of such sale;

"Government warehouse" means any place provided by the Government of a Partner State,
and approved by the Commissioner, for the deposit of dutiable goods on which duty has not been paid
and which have been entered to be warehoused;

"green channel" means that part of the exit from any customs arrival area where passengers arrive with
goods in quantities or values not exceeding those admissible;

"import" means to bring or cause to be brought into the Partner States from a foreign country;

"import duties" means any customs duties and other charges of equivalent effect levied on
imported goods;

"manufacturing under bond" means a facility extended to manufacturers to import

plant, machinery, equipment and raw materials tax free, for exclusive use in the manufacture of
goods for export;

"master" includes any person for the time being having or taking charge or command of any
aircraft or vessel;

"officer" includes any person, other than a laborer, employed in the service of the Customs, or for
the time being performing duties in relation to the Customs;

"port" means any place, whether on the coast or elsewhere, appointed by the Council by notice in the
Gazette, subject to any limitations specified in such notice, to be a port for the purpose of the Customs
laws and, in relation to aircraft, a port means a Customs airport;

"postal article" includes any letter, postcard, newspaper, book, document, pamphlet,
pattern, sample packet, small packet, parcel, package, or other article whatsoever, in course of
transmission by post;

"Post Office" means a Partner State Posts body established in accordance with a Partner
States' Communication law;
"prohibited goods" means any goods the importation, exportation, or carriage coastwise, of which is
prohibited under this Act or any law for the time being in force in the Partner States;

"proper officer" means any officer whose right or duty it is to require the performance of, or to perform,
the acts referred to in this Act;

"Protocol" means the Protocol on the Establishment of the East African Community Customs Union and
any annexes thereto;

"re-exports" means goods, which are imported and are under Customs control for

re-exportation;

"restricted goods" means any goods the importation, exportation, transfer, or carriage
coastwise, of which is prohibited, save in accordance with any conditions regulating such
importation, exportation, transfer, or carriage coastwise, and any goods the importation,
exportation, transfer, or carriage coastwise, of which is in any way regulated by or under the
Customs laws;

"Smuggling" means the importation, exportation, or carriage coastwise, or the transfer or

removal into or out of a Partner States, of goods with intent to defraud the Customs revenue, or to
evade any prohibition of, restriction on, regulation or condition as to, such importation, exportation,
carriage coastwise, transfer, or removal, of any goods;

"stores" goods for use in aircraft, vessels and trains engaged in international transport for
consumption by passengers and crew and goods for sale on board;

"subsidy" means assistance by a government of a Partner State or a public body to the production,
manufacture, or export of specific goods taking the form of either direct payments, such as grants or
loans or of measures with equivalent effect such as guarantees, operational or support services or
facilities and fiscal incentives;

"sufferance wharf" means any place, other than an approved place of loading or unloading at which
the Commissioner may allow any goods to be loaded or unloaded;

"tons register" means the tons of a ship's net tonnage as ascertained and registered according to the
tonnage regulations applied in a Partner State;

"transfer" means the movement of goods from one Partner State directly or indirectly to
another Partner State, but shall not include goods in transit, goods for transshipment or goods for
warehousing
"transhipment" means the transfer, either directly or indirectly, of any goods from an aircraft, vehicle or
vessel arriving in a Partner State from a foreign place, to an aircraft, vehicle or vessel, departing to a
foreign destination;

"transire" means a certificate of clearance issued to any person under section 100 of this Act to carry
goods coastwise or to transfer goods;

"transit" means the movement of goods imported from a foreign place through the territory of one
or more of the Partner States, to a foreign destination;

"transit shed" means any building, appointed by the Commissioner in writing for the deposit of goods
subject to Customs control;

"uncustomed goods" includes dutiable goods on which the full duties due have not been paid, and
any goods, whether dutiable or not, which are imported, exported or transferred or in any way dealt
with contrary to the provisions of the Customs laws;
ILLUSTRATION: PARTNERSHIP INCOME

Elisha & Co. is carrying on the business of manufacturing furniture including leasing business since
1/1/2004. The business consists of three partners. Elisha, Eliah and Elizah, whose profit and loss sharing
in the business are 45%, 40% and 15%.

An Audited Income Statement for the year ended 31st December, 2005 is as follows:

Tshs. Tshs.
Gross Profit 1,800,000
Less: Operating costs
Salaries and wages 125,000
Brokerage fees 128,000
Interest on equity capital 130,000
Interest on debt capital 124,000
Utilities 136,000
Reserve for gratuity 124,000
Bad debts reserve 112,000
Depreciation 190,000
Income tax 125,000
General establishment charges 250,000
Profit
After thorough examination of accounts, the following additional information was revealed in the same
period:

a. Salaries scheme was made for Elisha Tshs. 30,000; Eliah Tshs. 25,000; Elizah Tshs. 20,000 and Mrs.
Elisha who is a secretary Tshs. 35,000.
b. Brokerage fees included payments to partners in the following arrangements; Elisha Tshs. 10,000;
Eliah Tshs. 5,000 and Elizah Tshs. 14,000.
c. The interest on equity capital includes the payments to patriot Elisha Tshs. 15,000 and Elizah Tshs.
21,000.
d. The interest on debt capital includes the payments to Elisha Tshs. 15,000 and Eliah Tshs. 25,000.
e. Utilities include an additional sum of Tshs. 35,000 paid to the landlord of the shop for structural
alterations made to the shop by him in April 2005. The rent was not increased by the landlord
after this alteration.
f. The Partnership owned machinery costing Tshs. 350,000 which was sold at Tshs. 230,000.
g. The Partnership leased the machinery to XYZ Co. Ltd costing Tshs. 30,000,000 for which it received
Tshs. 7,000,000 per annum; the amount has not been included in the assessment.
h. The Partnership paid excise duty on fuel Tshs. 1,000,000 that has been transferred to Tanzania
Zambia Railways in Lusaka to be consumed by TAZARA in which the partnership hold a contract
to acquire goods on behalf. The amount has not been included in the assessment.
i. The amount of general establishment charges include 2% contribution to the Tanzanian Education
Authority

Required:

Compute the total taxable income of all partners in that period with particular reference to the Income
Tax Act, 2004.

Feedback

Adjustable partnership income

Tsh Tsh
After tax profits 356,000
Income Tax 125,000
Profits before Tax 481,000
Add: Non – Allowed Expenditures
Reserve for Gratuity 124,000
Bad Debts reserve 112,000

Salaries (30,000+25000+20,000) 75,000

Brokerage fees 29,000

Interest on capital 36,000

Interest on debt capital 40,000

Capitalized expenditure 35,000

Tanzania Education Authority 5,000 456,000

937,000
Add: Other incomes
Profits on disposal ( 230+190-350) 70,000

Leased income 7,000,000 7,070,000

Adjustable partnership income 8,007,000

Statement of Appropriation income

Tsh
Adjustable partnership income 8,007,000
Less: Salaries (30,000+25000+20,000) 75,000

Brokerage fees 29,000

Interest on capital 36,000

Interest on debt capital 40,000 180,000

Distributable income 7,827,000

Statement of Distributable income

Elisha (Tsh) Eliah (Tsh) Elizah (Tsh)
Partnership income 3,522,150 3,130,800 1,174,050
Salaries 30,000 25,000 20,000
Brokerage Fees 10,000 5,000 14,000
Interest on capital 15,000 - 21,000
Interest on debt capital 15,000 25,000 -
Taxable income 3,592,150 3,185,800 1,229,050
Topic 3: ASSESSMENT OF INCOME TAX

Meaning:

This is self examination of a tax payer to pay tax on or before due date in order to pay tax as required by
law. ITA sect90-101 & Tax administration Act,sect 70-75.

IMPORTANT TERMS TO CONSIDER

Due dates: These are the specific dates for the assessment or returns.

Return of income : These are the assessed tax to be paid within the year.

Final return : These is the difference between the actual amount at the end of the YOI and the assessed
tax already paid.

TYPES OF ASSESSMENT

1.Statement of estimated tax (Provisional assessment).

The estimate is based on the previous financial records of the tax payer.

(ITA,sect 89)

2.Self assessment

Mostly promoted type of assessment.

Meaning : The type of assessment where taxpayers assess themselves (ITA,sect 94)

3.Jeopardry/Accelerated assessment

This is an emergency assessment conducted for a person who is about to leave URT or who is about
being bankruptcy.( ITA,sect 95)

4.Adjusted Assessment

Altering the original assessment (ITA,sect 96)

Occurs when you make changes of the original assessment.

5.Base judgement assessment

This is the kind of assessment where commissioner for income tax make judgement on the assessment
on behalf of the tax payer who failed the self or provisional assessment.

DUE DATES

"A "for normal business

I} Filling a return of income (submission of estimated income)

Three months after the start of YOI.

II} Payments of estimated/return of income

Three months (Four quarters)

E.g normal calendar year 31 march,30 June,30 September,31 December.

III} Payments of Final returns

Due dates is Six months after the end of YOI

"B"For Agricultural business

I} Filling a return

Six months after the start of YOI

II) Payments of returns of income

Space of six months (2 installments)

III) Payments of Final returns

Due dates is Six months after the end of YOI.

Illustration: Tax Assessment - BBA III, BEDCOM III, BCOM FIN III, BCOM ACC III

Assume the usual accounting period of the Great Co. Ltd ends on 31st December of each year. During
the year of income 2015, the company fails to file/furnish the statement of estimated income on the
due date. However, on 30/9/2015, the company files the estimated income of shs. 10,000,000.
Unfortunately, the company also, delayed the submission of the return of income which is submitted on
30/9/2016 showing an income tax amounting to shs. 4 million. The corporation tax rate is 30%.

Required: Compute Great Co. Taxable liability

Solution:

Convert Taxable income 10,000,000 into Tax liability; 10,000,000 x 30% = 3,000,000

Determine installment payment; (A- B)/C; 3,000,000/4 = 750,000

Determine Due Dates; 1st Installment: 31/3/2015

2nd installment: 30/6/2015

2nd installment: 30/9/2015

2nd installment: 31/12/2015
Due Date of Final Return: 2nd installment: 30/6/2016.

S.98 Penalty for late filling/submission of return

(2.5% x n x P) or (15CP x n); (2.5% x 6 x 3,000,000) or (15 x 15,000 x 6)

= 450,000 or 1,350,000; therefore the penalty will be the great number 1,350,000

S.100 Interest for late payment of installment taxes: P ( (1+r/12)n – 1)

1st installment: 750,000 ((1+0.16/12)6 – 1) = 1st

installment: 750,000 ((1+0.16/12)3 – 1) =

S.99 Testing for under-estimation and interest for under-estimation

Testing under-estimation: 3,000,000/4,000,000 = 75%

There is under-estimation; therefore, there is under-estimation interest. P ((1+r/12)n – 1)

(4,000,000 – 3,000,000) ((1+0.16/12)15 – 1) =

Late Payment of Final return (due date 30/6/2016, payment 30/9/2016), 3 months

S.98 Penalty for late payment of final return

(2.5% x n x P) or (15CP x n); (2.5% x 3 x 1,000,000) or (15 x 15,000 x 3)

S.100 Interest for late payment of installment taxes: P ((1+r/12)n – 1)

1,000,000 ((1+0.16/12)3 – 1) =

Total Tax Liability

Estimated Tax =

S.98, Penalty for late submission =

S.100, Interest for late payment of two installment =

S. 99, Interest for under-estimation =

S.98, penalty for late payment of final return =

S.100, Interest for late payment of final return =

Total =

ASSESSMENT AND RETURNS OF INCOME

Introduction

Subdivision ‘A’ of Division IV of Part VII of the Act consisting of sections 91 TO 93 (both inclusive) deals
with returns of income

The term 'return of income' is defined in section 3 of the Act to mean the 'meaning' ascribed to it by
section 91
Returns of Income [section 91]

This section requires (subject to sections 92, 93, and 95) every person to file with the Commissioner a
return of income for the year of income not later than six months after the end of each year of
income. This is the final or regular or actual return of income, i.e. after the end of the accounting period
and final/books of accounts are completed

Section 88 of the Act deals with Income tax payable by quarterly installments (whether from a
business, investment or employment provided employer is not required to withhold tax under section
81). This necessitates the first type of return of income which should be submitted as ‘provision’
before the final return. This is what is called ‘statement of estimated tax payable/provisional
return’ as required under section

89 (1). Note that, once a taxpayer furnishes provisional return of income, he is automatically assessed
and therefore the due dates for submitting provisional return and paying provisional tax are the same.

Due date(s) for submitting/paying Provisional return/tax excluding withholding taxes by employees:
(i) Where a year of income of a person is twelve month period and coincides with the calendar year:
▪ On or before the third, sixth, ninth and twelfth months of the year of income (i.e. 31st March,
30th June, 30th September and 31st December)

(ii) In any other case (where does not coincide with calendar year):
▪ At the end of each three-months commencing at the beginning of the year of income

Note:
▪ Year of income for every person means 'calendar year' [section 20]
▪ Provisional return is submitted as the total estimated chargeable income for the year of income
but provisional taxes for the year of income are payable on four (quarterly) equal installments

Returns of Income Requirements [s.91 (2)]

A return of income of a person for a year of income is required to specify:

(i) Chargeable income (employment, business and investment)
(ii) Total income and the income tax payable with respect to that income
(iii) For domestic permanent establishment of a non-resident person, the permanent establishment’s
repatriated income and the income tax payable
(iv) Any income tax paid by withholding, installment or assessment for which a tax credit is available
under sections 87, 88, 90, or 95
(v) Amount of tax still to be paid calculated from above as [(ii) + (iii)] – (iv)
(vi) Any information as may be prescribed by the Commissioner

Notice by the Commissioner [s. 91 (3)]

A Commissioner may, by notice in writing serve a notice on the person requiring him to file a return of
income by the date specified in the notice for the year of income or the part of the year of the income

This occurs where, prior to the date for filing a return of income the following situations exists:
- A person becomes bankrupt, is wound up or goes into liquidation;
- Person is about to leave URT indefinitely;
- A person is about to cease activity in URT;
- Commissioner otherwise considers it appropriate

Return of Income excludes:

(i) An income of resident individual who has no income tax payable;
(ii) Income of resident individual whose income is either from employment (where employer is
required to withhold tax under s.81) or derives a gain in conducting an investment from the
realization of an interest in land or buildings situated in URT [“Single installment at time of
realization or receipt”-sections 90(1) and 92 (a) (bb)]
(iii) A return of income of a non-resident person (other than one with a domestic permanent
establishment) who has no income tax payable under s. 4 (1) (a) or consists exclusively of gains
under s.90 (1)

Extension of time to file a return of income (s.93)

Subject to a written application from the taxpayer, Commissioner may grant multiple extensions but the
extensions shall not in total exceed 60 days from the original date where the estimate/returns were
to be filed

Assessment of tax

Introduction

Subdivision B of Part VII of the Act consisting of sections 94 to 97 (both inclusive) deals with
assessments. The term 'Assessment' is defined in section 3 of the Act to mean "an assessment under
sections 94, 95, 96 or 103 of the Act"
Note however that the term assessment is capable of several interpretations. It may mean:

• Computation of income of a taxpayer; or

• Determination of the amount of income tax payable; or
• Entire procedure for imposing liability on the taxpayer as laid down in the Act

But briefly, in widest sense the term assessment covers the whole process of scrutiny of the return of
income, if any, submitted by the taxpayer, examination of his books of account, if necessary, and if any,
up to the last step of issuing a notice of assessment showing the income assessed, the tax payable and the
due date for payment

Thus, entire procedure for imposing liability on the taxpayer requires three (3) steps to be completed:

(i) Computation of the income assessable /taxable income;

(ii) Computation of the income-tax payable by taxpayer on the basis of computed income in (i) and
the appropriate rate; and
(iii) To issue a notice of assessment intimating the fact of assessment made on him (this notice shows
details of income assessed, gross tax payable, the reliefs, if any, given the set-off or credit of tax
deducted at source or already paid, net amount of tax payable and the due date of payment)

Types of Assessment under the Act

a) Statement of estimated tax payable or Provisional assessment [Section 89]

b) Self-assessment [Section 94]
c) Jeopardy or Accelerated assessment [Section 95]
d) Adjusted assessment [Section 96]
e) Best judgment assessment [Section 94 (4) (a)]

Basis of Classification

Types of assessments may be classified on the basis of the following:

(i) Assessments by the Commissioner and assessment by taxpayer himself; or
(ii) Returns submitted by the taxpayer or without such returns; or
(iii) Acceptance of the income returned or amendment (or rejection) of the income returned by the
taxpayer, i.e. best judgment assessments; or
(iv) Assessments made to save possible loss of revenue on account of the occurrence of some event
or accelerated due to certain peculiar circumstances of the taxpayer (i.e. Jeopardy or accelerated
assessments); or
(v) Regular assessments made for the first time; or
(vi) Exceptional or irregular assessments made after completion of the original assessments (i.e.
additional or amended assessments)

(a) Statement of estimated tax payable (Provisional Assessment)

The statement of estimated tax payable (provisional assessment) is required to be submitted by a

taxpayer under sub-section (1) of section 89 of the Act

When a taxpayer has furnished a statement of estimated tax payable he is automatically deemed
to have been provisionally assessed on the basis of estimates contained in such in such
statement as provided in sub-section (3) of section 89 of the Act.

Thus, the responsibility of the taxpayer is over once he submits a statement of estimated tax
payable. The Commissioner is not required to inquire into the correctness or accuracy of the
estimates of the income stated by the taxpayer though he will obvious watch the payment of tax
required from such statement of income. As such, no formal order of assessments is required
to be made by the Commissioner in these types of assessments, i.e. where the taxpayer
submits a Statement

Section 89 (5) gives room to person who has submitted a statement of estimated tax payable to
revise/amend a previously submitted statement of estimated tax payable under section 89 (1)

Where, however, the taxpayer fails to comply with section 89(1) of the Act and fails to submit a
statement of the estimated tax payable, sub-section (8) of section 89 of the Act authorises
(empowers) the Commissioner to estimate the income of such person and tax payable accordingly.
Note that the Commissioner makes such assessments when he considers that such taxpayer has or
will have income chargeable to tax for such year of income, and such estimate is based on the best
judgment of the Commissioner

(b) Self- assessment

Sub-section (1) of section 94 of the Act deals with self-assessments. Where an entity (individuals are
excluded) files a return of income for year of income an assessment shall be treated as made on the
 due date for filing the return of the income tax payable on total income (in this case, business
income and investment income) and repatriated income.

Entities are therefore required to include in the return and accounts submitted to the Commissioner
the computation of tax payable from the taxable income reflected in such returns. Note that the
said tax computation is referred to as a self-assessment for income tax purpose, and the amount of
tax shown as payable in the return is referred to as the tax payable on the assessment

The concept of self-assessment, however, does not apply to individuals. Section 94 (4) requires the
Commissioner to assess an individual upon filing the return of income. If he has accepted the return,
then he should assess such person basing on such return. Here the Commissioner will make the
normal add back disallowable and deduct allowable by using the return figures

c) Best judgment assessment

If Commissioner is satisfied that the return of income submitted by an individual is true and correct,
he may accept the income returned and make an assessment under section 94 (4) (a)

If the Commissioner is not satisfied that the return of income is correct and complete, he has the
power to estimate income of the taxpayer to the best of his judgment and make an assessment
accordingly

A best judgment assessment under the Act can be made with or without a return of income; with or
without the regular books of accounts; with or without the irregular or incomplete books of
accounts; or with or without the presence of the taxpayer. A best judgment assessment is
comparatively easy when the taxpayer has submitted a return of income and it is necessitated due
the omission on the part of the taxpayer or due to return not being true and correct. A return
may not be true and correct if the taxpayer has not maintained any books of accounts at all, or
even if he has maintained them, they are not reliable or acceptable to the Commissioner

Note further that sub-section (5) of section 94 of the Act also deals with regular assessments,
which are made on a best judgment assessment basis. It deals with those cases of individuals
who do not submit returns of income as required under section 91 of the Act. According to this
provision, it is immaterial whether the Commissioner has required the taxpayer to submit a return
of income or not. Once the Commissioner is satisfied that an individual has income which is
chargeable to tax and it is proved that the individual has defaulted in submitting his return of
 income in the year of income, Commissioner has the right to estimate his income to the best of his
judgment and make an assessment accordingly

d) Jeopardy or Accelerated Assessment

Section 95 of the Act deals with persons (both, individuals and entities), who are about to leave the
United republic permanently; be bankrupt, wounding up or going into liquidation; or cease an
activity in the United Republic, and sometimes if the Commissioner considers it appropriate

The section is specifically enacted to safeguard revenue by authorising the Commissioner to make
an accelerated assessment

Note that if normal time for filing return is allowed and normal procedures are followed (as
specified under section 94 of the Act), it will be very difficult for the Income Tax Department to
locate the taxpayer or collect the due income tax from a taxpayer who has already or is about to
leave the jurisdiction of the United Republic (e.g. follow up may be restricted by general principles
of private internal law)

e) Adjusted Assessment

Section 96 of the Act empowers the Commissioner to adjust any assessment made under section 94
and 95, that is, self-assessment, regular assessment made to an individual and jeopardy assessment
in such manner as, according to the Commissioner's best judgment and information reasonably
available

To adjust here, implies that the Commissioner may amend or issue an additional assessment
where there is existing assessment made to any person. The section is giving powers to the
Commissioner to lower or increase the already existing tax liability of any person

Section 96 (2) limits the time of making adjustment to be within three years after the due date
of filing the return to which the assessments relate or in those cases where the Commissioner has
required the submission of those returns

Sub-section (3) of section 96, however, empowers the Commissioner to adjust any assessment even
after the expiry of three years if the person whose assessment is being adjusted failed to file a
 return of income as required under section 91 where the Commissioner believes that the
assessment to be adjusted is inaccurate by reason of fraud by or on behalf of the assessed person

Cases which will be the subject of additional assessment

(i) Gains or profits from any source of income liable to income tax should have been under-assessed;
or
(ii) Have been assessed at too low a rate of income tax; or
(iii) Have been made the subject of excessive relief; or
(iv) Excessive deficit(loss) has been computed; or
(v) Excessive deductions under the third schedule of the Act have been allowed

Non-Compliance Introduction

The provisions on non-compliance are found in Part XIII of the Income Tax Act 2004, which runs
from section 98 through section 124. The scope of our discussion is on Divisions I and II of this part
of the Act which deal with interest and penalties, and offences for non-compliance. These divisions
run from section 98 through section 109

Types of failure or non-compliance

a) Failure to maintain proper documents or file a statement of estimate for year of income or file a
return of income as per sections 80, 89(1) and 91 (1);
b) Understating tax payable by installment;
c) Failure to pay tax on or before due date;
d) Making false or misleading statements;
e) Aiding and abetting

Interest and Penalties [Division I of Part XIII]:

Penalty for failure to maintain proper documents or file statement or return of income [S.
98]

For each month and part of a month during which such failure continues the HIGHER of:
▪ 2.5% of the difference between the income tax payable for year of income and the amount
of that tax that has been paid at the start of the month; OR
▪ Tshs. 10,000 in the case of an individual or Shs. 100,000 in the case a corporation
Understating tax payable by installment [S. 99]

In instances where a taxpayer pays taxes in installments, and that his estimate of income tax
payable for a year of income under section 89 (which will be used to calculate income tax
installments payable under section 88) is less than 80% of the income tax payable for a year of
income as 'correct amount', such taxpayer will be liable for interest for each month or part of the
month from the date the first installment for the year of income is payable until the due date by which
the person is required to file a return of income under section 91 (1)

Amount of interest payable is calculated as statutory rate, compounded monthly applied to the
excess of-
▪ Total amount that would have been paid by way of installment to the start of the period on 'correct
amount' basis; over
▪ Amount of income tax paid by installments to the start of the period

Failure to pay tax on or before due date [S. 100]

Liable for interest for each month or part of a month ('the period') for which tax remain outstanding
at the start of the period, calculated as the statutory rate, compounded monthly applied to
the amount outstanding at the start of the period

Penalty for making false or misleading statements [S. 101 (1)]

▪ Where a statement or omission is made without reasonable excuse:
50% of the underpayment of the tax that, in the CIT's view would have resulted if the
inaccuracy had gone undetected
▪ Where a statement or omission is made knowingly or recklessly:
100% of the underpayment, where the views of CIT are as above

Penalty for aiding and abetting [S. 102]

Where a person willfully or negligently aids, abets, conceals or induces another person to commit
any offence under Division II of Part XIII of the Act, in the first place, itself is an offence
▪ Penalty equal to 100% of the underpayment given similar view as in (d) above
Assessment of Interest and Penalties

The imposition of interests and penalties is in addition to any other tax imposed by the Act. Under S. 103
(3) a person is not relieved from criminal proceedings under Division II of Part XIII, which deals with
offences.

S. 103 (4) provides for notice requirements where assessment for interest or penalty is made. The
Commissioner is required to serve a written notice of assessment on the person setting out the
assessment, the mode of calculation of the assessment, reason for the assessment, date of payment,
and the time, place and manner of objecting to the assessment

Offences [Division II of Part XIII] Introduction

The Act, apart from providing for interests and penalties as sanctions for contravention, it also
criminalizes certain conduct. Thus, one may be liable for interest/penalty and criminal proceedings for
the same failure or offence

Offences
a) Failure to comply with the provisions of the Act is an offence under section 104, and the provision
provides for the penalty for the person being summarily convicted

b) Failure to pay tax on or before due date without a reasonable excuse is an offence and such person
will become criminally liable upon summary conviction as stipulated in section 105The section also
provides for the penalties

c) The offence of making false or misleading statements is provided for section 106, which also provides
for the punishment upon summary conviction

d) Impeding tax administration is an offence under section 107. The offence is committed by obstructing
or attempting to obstruct an officer of the TRA to carry out his/her duties under the Act or through
failure to comply with a notice issued under section 139 (which empowers the Commissioner to
inquire any information from the taxpayer)

e) Section 108 creates offences on the part of TRA officers, other authorized and unauthorized officers.
The section deals with asking or taking any payment or reward (bribe/corruption) by officers in the
course of their duties and conduct that may cause the Government to be defrauded such as
concealing information, etc. in the case of unauthorized officers. The section also deals with
unauthorized offices who collect or attempt to collect taxes
 Section 108 (2) creates an offence out of breach of confidentiality, i.e. reveling information contrary
to section 140 (requires authorized officers under or instructed with the Act to keep official secrecy)

f) Aiding, abetting, concealing, aiding or inducing a person willfully or negligently to commit an offence
under the Act is an offence

Illustration

Assume the usual accounting period of the Great Co. Ltd ends on 31st December of each year. During the
year of income 2015, the company fails to file/furnish the statement of estimated income on the due
date. However, on 30/9/2015, the company files the estimated income of shs. 10,000,000.

Unfortunately, the company also, delayed the submission of the return of income which is submitted on
30/9/2016 showing an income tax amounting to shs. 4 million. The corporation tax rate is 30%.

Required
Compute penalties if any payable under section 98(1) of the ITA 2004.

Feedback

Year of income: 1/1/2015 to 31/12/2015

Due date for filing estimate: 31/3/2015

Date the estimate filed: 30/9/2015, (there is failure)

Due date for filing the return of income: 30/6/2016

Date the return filed: 30/9/2016 (there is failure as well)

Type of Failure and its penalty:

Failure to file statement of estimated income

Due date: 31/3/2015

End of failure: 30/9/2015

Duration: 6 months

Income tax payable on the income as per s. 4(1) (a) and (b)

= shs. 10,000,000 x 30% = shs. 3,000,000

Income tax paid at the start of the month = NIL

Penalty:

= (3,000,000-0) x 2.5% x 6 months = 450,000 or 15 x15000x6. whichever is greater.

The greater (penalty) is shs. 1,350,000

Failure to file the return of income:

Due date: 30/6/2016

End of failure: 30/9/2016

Duration: 3 months

Income tax payable shs. 4,000,000.

Tax paid out of it at te start of month: - NIL

Penalty:

Shs. (4,000,000 – 3,000,000) x 2.5% x 3month = shs. 75,000

Compare with shs. 15x15000x3 take the greater.

Penalty = shs. 675,000

Penalty for Making False or Misleading Statements

Interest payable on under-estimation of estimated tax (s. 99)

If estimated income tax payable for a year of income is less than 80% of the income tax payable (correct
amount of final tax), the installment payer (taxpayer) shall be liable for interest for each month or part
of a month (the period) from the date the first installment for the year of income is payable until the
due date by which the person must file a return of income for that year of income. The rate of interest is
the statutory rate compounded monthly on the difference between the correct final tax and the amount
of income tax paid by installment during the year of income to the start of the period.
Example

Assume the same facts as for example 7 except that the BOT discount rate 1st January, 2005 is 14.6%,
which is equivalent to a monthly rate of 1.22%.

Is there interest payable for under-estimation of estimated tax as per s. 99?

Feedback

Correct (final) tax = shs. 4,000,000

Income tax paid by installment = shs. 3,000,000

80% of correct tax i.e. 80% x 4,000,000 = shs. 3,200,000.

Since shs. 3,200,000 is less than shs. 3,000,000, then interest will be computed as follows:

Date of 1rst installment = 31/3/2015

Date of filing return of income 30/6/2016,

Duration = 15 months (periods)

Difference of tax: 4,000,000 – 3,000,000 = shs. 1,000,000

Interest:

1st period, shs. 1,000,000 x 1.22% = shs. 12,200.00

2nd period(month) (1,000,000 + 12,200) x 1.22% = 12,348.84

3rd period…

Etc. to 15th period

Or

FVn = PV (1+i) n

Where:
FVn = Future value at the end of periods
n PV = Present value i = interest rate
per period n = number of periods

If you use the table, the following formula is applicable:

FVn = PV (FVFi,n)

FVFi,n = Future Value Factor for interest, i, and periods, n.

Therefore the interst may be computed as follows:

FV = ?

PV = shs. 1,000,000

n = 15 months i = 14.6%/12 months =

1.22% per month.

FV15 = shs. 1,000,000(1+0.0122)15

= 1,000,000 x 1.199485 = 1,199485

Interest = shs. 1,199,485 – shs. 1,000,000 = shs. 199,485

Illustration 2

Assume the usual accounting period of the Precious Co. Ltd ends on 31st December of each year. During
the year of income 2015, the company fails to file/furnish the statement of estimated income on the
due date. However, on 30/9/2015, the company files the estimated income of shs. 10,000,000.

Unfortunately, the company also, delayed the submission of the return of income which is submitted on
30/9/2016 showing an income tax amounting to shs. 4 million. The corporation tax rate is 30%.

Required
Compute penalties if any payable under section 98(1) of the ITA 2004
Feedback

Year of income: 1/1/2015 to 31/12/2015

Due date for filing estimate: 31/3/2015

Date the estimate filed: 30/9/2015, (there is failure)

Due date for filing the return of income: 30/6/2016

Date the return filed: 30/9/2016 (there is failure as well)

Type of Failure and its penalty:

Failure to file statement of estimated income

Due date: 31/3/2015

End of failure: 30/9/2015

Duration: 6 months

Income tax payable on the income as per s. 4(1)(a) and (b)

= shs. 10,000,000 x 30% = shs. 3,000,000

Income tax paid at the start of the month = NIL

Penalty:

REVIEW QUESTIONS

Question one

A Commissioner may by notice in writing serve a notice on the person requiring him to file a return of
income by the date specified in the notice for a year of income or the part of the year of income

Under what circumstances is the Commissioner for ITA allowed to exercise this power?

Question Two
What is the distinction between terms “charge” and “assess” as used under ITA 2004?
Question Three
Discuss different types of assessments under ITA 2004

Question Four

Under what circumstances will the Commissioner for ITA issue the following assessment?
An additional assessment
An amended assessment

Question Five
a. Why the employees are generally exempt from being formally issued with notices of assessments?
b. State the circumstances under which an assessment may be raised on an employee

Question Six

The twelve months accounting period of the Mwagalla Trading Company normally ends on the 31ST
October of the calendar year. For the year of income 2004, the company did not furnish its provisional;
returns despite repeated reminders from the Commissioner.

The company finally decided to furnish the final returns for 2004 on 15th June 2005 for income of Tshs.
200 million. The Commissioner made best judgment assessment for the year on 30th September 2005 of
an income of Tshs 400 million

Assuming the company intends to liquidate the full liability for the year of income 2004 on the 8 th
November 2005

Required:
Compute the total tax due and payable on that date (Quote the relevant sections of the ITA 2004 in
answering the questions)

Question Seven

ABC Ltd was provisionally assessed to tax of shs.5, 850,000 on the 15th April 2011 for the 2011 year of
income, after having failed to furnish such a return despite having been required to do so by the
Commissioner. The company’s twelve months accounting period normally runs from 1st September of
each Calendar year
On 1st December 2011 the Commissioner served the Company with notice requiring it to furnish the
regular return of income for the year 20101 within 40 days of that date

The company paid the full taxes on the provisional return for the year 2011 on 15th June 2011. However,
it furnished the final return for the year on the 20th may 2012, which declared an income attracting tax
of shs. 12,000,000

On 30th July 2012 Commissioner made an assessment on the Company for the year 2011 of shs.
26,540,000

Required:
On the basis of ITA 2004 provisions, calculate the tax payable by the Company (including the penalties)
for the year of income 20101 (Ignore section 100 interest in respect of the provisional taxes)

Question Eight

Managua Company Limited (‘MCL’), a resident corporation conducting the business of rendering of
construction, returned an estimate of tax payable of shillings 50,000,000 starting December 1, 2005. The
final accounts of the business are made up to November 30 each year. The company has also properties
leased to third parties and that withholding tax applies on payment of rentals.

For the same YOI, MCL received the gross amounts of rental income as follows: -

January 2006: shillings 3,000,000.00; March 2006: shillings 4,500,000.00 and October 2006: shillings
600,000.00.

All rentals were subjected to withholding tax at the prevailing WHT rates.

On the October 1, 2006, MFL filed a revised estimate of tax payable reflecting reduction of tax payable
of shillings 13,500,000.00

The tax officer in charge of returns refused to accept such amendment on account that the law does not
give room for reducing tax estimate.

Required
1. Determine the due date for filling the estimate of tax payable; and
2. Compute the amount of each installment and respective due dates;
3. Advice both the tax officer and taxpayer as regards to rights to revise the estimated tax payable.
Question nine

Manero Mango Farms (‘MMF’) is resident company conducting agricultural business and producing raw
palm oil in its plantations in Kisarawe, Tanzania. For the YOI ending on March 30, 2007 the company
returned an estimated tax payable of shillings 5,000,000.00.

Due to favorable market conditions, MMF filed a revised estimate of taxable income to shillings
21,000,000.00 on December 1, 2006. During the month of February 2007, the MMF realized the market
conditions were not in their favour and filed a revised estimate of tax payable to 5,200,000.00.

Required
1. Determine the date filling the statement of tax payable; and
2. Tax installments along with respective due dates

Question Ten

Chaganyikeni Investments (KI) is tuition provider registered in Tanzania. KI accounts are made up to 31
December each year. Joti, the company accountant who studied accountancy at Kariakoo Business
School, realized that the ITA, 2004 requires each company to file with CIT estimated tax payable for each
YOI and in accordance to section 58 of the ITA 1973. On April 13, 2006, Joti filed a statement of tax
payable showing taxable income of shillings 45,000,000.00.

On August 1, 2006 the company filed a revised estimate of tax payable reflecting a tax payable of TShs
16,200,000.00. KI paid required installments as required by section 88 of ITA 2004.

KCL has paid taxes in Kenya and Malawi as follows:

February 2006: TShs 250,000.00; July 2006: TShs 340,000.00

On October 4, 2007, Masanja the company director received a notice from the CIT informing him of his
failure to file an estimate of tax payable in accordance with section 89 (1) (b) of the ITA 2004. The notice
also revealed that the CIT has estimated the tax payable of KI as shillings 20,000,000.00.

Required
1. Compute amounts paid by KI before receiving the notice for the CIT,
2. Determine the due dates for the payment of the above installments;
3. The respective shortfall the CIT may demand at each installments due date.
Question Eleven

Oceania Television Network (‘OTN’), a television network operating in Zanzibar, filed a return of income
with LTD offices in Dar. The company makes it accounts up to September 30 each year. For the years of
income 2005 and 2006, OTN filed return of income on July 2006 and August 2007 respectively. The
chargeable income as determined by the CIT on October 5, 2007 is TShs 245 million for 2005 and TShs
456 million for 2006.

For both years of income, OTN paid tax installments amounting to TShs 156 million and 219 million for
2005 and 2006 respectively. The statutory rate for 2005 and 2006 were 18% and 15% respectively.

Required
Determine the due dates for filling such returns and compute interest if any

Question Twelve

Tragic Motorways (‘TM’) is a company dealing with transport and logistics. For the year of income 2005,
TM filed a statement of tax payable of TShs 240 million. A month before the year end TM revised its
estimated tax payable to TShs 220 million. Up to the year-end TM had paid taxes in form of withholding
tax and installment payments amounting to TShs. 180 million.

On January 31, 2007, the CIT issued an adjusted assessment depicting a tax payable equal TShs 310
million. The Statutory rate applicable for the whole period of failure is 18% per annum.

Required

Determine total tax liability as at January 31, 2007

The following issues were discovered during the review in

march
i. The client pavs extra Tsh after tax value.
ii. The Taxes and charges involved were 12%
import duty, 7% Excise duty, 2% wharf charges and
20% VAT. Required:
Calculate tax involved and correct transactional value to be
paid by client.
QUESTION THREE (20 Marks)
Macho ya1MwendokasiCompany ltd Financial Year ends
on 31 August each year. For lhe of income 2014/15 the
company submit the estimated income on 31st May 2015
showing the Taxable income of the company
pays all the due taxes and charges for the Financial year
2014/15 on 1 st July 2015. At the end of the Financial Year
the company financial statemtT.t shows that the company
earn a net profit of 700,000,000, and they pay the final
return on January 2016.

Required: determine Tax liability to be paid by the

company including all charges.