ST AUGUSTINE UNIVERSITY OF TANZANIA

SCHOOL OF LAW

TAX LAW II (SLW 328)

TOPIC THREE
TAX ADMINISTRATION IN TANZANIA

1. Introduction
This part deals with the tax system of Tanzania. There are several
categories of taxes which are levied on income.
1. Corporation tax, which applies to bodies incorporated in
Tanzania and foreign companies trading in Tanzania through a
branch or agency;
2. Income tax, which applies to individuals, is charged on a
graduated basis dependent on income
3. Other significant taxes include:
1. Capital gains tax
2. Sales tax
3. Customs and excise duties
4. Stamp duty and registration dues
5. Property tax
This gives a general outline only. If you are considering working or
investing in Tanzania you should seek professional advice at an
early stage so that the full taxation implications can be considered
and planning measures taken to maximize tax efficiency.
 2. Tax administration regime in Tanzania
Income taxes are governed by Parliament Statute and case law.
Every year Finance Act is passed introducing new provisions to
amend existing law. Case law is founded on the fundamental
principle of the binding authority of precedent and has evolved
and developed through the decisions of the judges in the Appeal
courts. The main agencies for the administration of various taxes
are the Income Tax, the Customs and Sales Tax Department and
the Internal Revenue Department responsible for stamp duty,
registration fees, excise duties and various license fees.
a) Corporate taxes
Corporate tax is levied on the profits of Tanzania resident
companies and foreign companies trading in Tanzania through a
branch or agency. A resident company in Tanzania is liable to tax
on its worldwide business profits and capital gains on premises.
i) Residence
All companies incorporated in Tanzania are treated as resident
companies. Foreign incorporated companies are non-residents for
tax purposes except if they are centrally managed and controlled
from Tanzania.
ii)Tax periods
The basis period is the calendar year, although a taxpayer's own
period other than the calendar year is accepted as the basis
period.

3. The concept of Tax Administration

4. Tax Administration structure in Tanzania

a) Three-Tier Tax Administration Structure

Tanzania has a three-tier tax administration structure, namely
1. Central Government tax administration– The Tanzania Revenue
Authority (TRA) administers the Central Government taxes–
Central Government taxes are the major revenue earner for the
Government which account for 90% of domestic revenue.
2. Tax administration in Zanzibar– Zanzibar Revenue Board
administers domestic consumption taxes in Zanzibar
3. Local Governments tax administration– Local Authorities
administers the various local imposts.
b) The Tanzania Tax Structure
1. Direct Taxes which account for 30% of total tax revenue and it
include
a. Personal Income Taxes
b. Corporate Income Taxes
c. Withholding Taxes on Capital incomes
2. Indirect Taxes which account for 70% of total tax revenue and it
include
a. Levied on international trade transactions and
b. domestically produced goods and services
c) The Tax Administration Authority
For effective and efficient implementation of fiscal policy, the
Government established an autonomous revenue agency, the
Tanzania Revenue Authority (TRA) which became operational in
July 1996. TRA is charged with the assessment, collection and
accounting of Central Government revenues. The United Republic
of Tanzania Constitution recognizes the two parties of the union,
namely Zanzibar and the Mainland Tanzania. Tax collection is
always performed by a government agency. The name differs
country to country. In Tanzania it is Tanzania Revenue Authority
(since 1995). In Canada it is called Canada Revenue Agency, in US
it is the Internal Revenue Service (IRS). In UK it is Her Majesty's
Revenue and Customs (HMRC).
d) The Tax Collection
The Constitution has identified union taxes and non-union taxes.
 TRA collects the Union taxes, UNION Taxes are taxes on income
imposed under the Income Tax Act 2004 and Custom duties
under the East African Customs Management Act 2004, while
the
 Zanzibar Revenue Board collects all non-union taxes in
Zanzibar. NON-UNION taxes are taxes on domestic
consumption, including the Value Added Tax, Excise Duties,
Hotel Levies, Stamp Duties, Motor Vehicles Taxes, and other
charges.

e) Tax Incentives in Tanzania

Tanzania recognizes the importance of investment to stimulate
economic growth and create a potential for sustainable future
revenue generation. Tanzania offers tax incentives to investors as
provided for in the various tax laws including:
a) non-taxation of imports of capital goods and raw materials,
b) deferment of VAT on capital goods and
c) Capital allowances on investment goods for income tax
purposes.
Special attention in granting tax incentives is directed to lead and
priority sectors
Lead Sectors:
1. agriculture,
2. agro-based industries,
3. mining,
4. economic infrastructure,
5. tourism, and
6. Petroleum and gas sector.
Priority Sectors:
1. manufacturing,
2. natural resources such as fishing and forestry,
3. aviation,
4. commercial building,
5. financial services,
6. transport,
7. broadcasting,
8. human resource development and
9. Export-oriented projects.
Investors in these sectors enjoy zero import duty rate for
importation of capital goods and deferment of VAT thereon.
Investors in export processing through the Free Economic Zones
Authority and Export Processing Zones (EPZ) enjoy a wide range of
exemptions which are of range from long term tax holidays to full
tax remissions.
f) Reforms in tax structure on the line of international
taxes
Tax structure has undergone significant reforms for
1. fairness, simplicity, equity, efficiency and taxpayer
friendliness,
2. characterised by abolition of a number of nuisance taxes
3. Regulatory framework has been harmonised

There is a good incentive regime in place. Most rates are in line

with internationally accepted best practice as follows:
6. Direct Taxes
– Corporate Income Tax - 30%
– Withholding Taxes
– Dividends for company controlling 25% share or more - 10%
– Interest - 10%
– Royalties - 15%
7. Indirect Taxes
– Value Added Tax - 18%
– Import Duty - 0%, 10%, or 25%
8. Excise duties are also chargeable on specific rate basis for all
traditional excisable products and a few select goods and services
g) Reforms in tax administration
TRA has implemented a 5 year Corporate Plan for 2003/04 –
2007/08. The focus of the TRA Corporate Plan was to make it an
investor and taxpayer friendly machinery and collect revenue to
capacity levels
i) Set a Vision
“To be a Modern Tax Administration by the year 2008”

ii)Redefined Mission
“To be an effective and efficient tax administration which promotes
voluntary tax compliance by providing high quality customer
services with fairness and integrity through competent and
motivated staff”
iii) Set Strategic Goals
 To increase revenue collection in a cost effective way
 To integrate TRA operations
 To provide high quality and responsive customer service
 To promote tax compliance through a fair, equitable and
transparent application of tax laws
 To improve staff competence, motivation, integrity and
accountability
iv) Redefined the Core Values for TRA employees
 Business oriented and professional
 Fair and Accountable
 Prompt and accessible
 Dignity and respect
 Honest and integrity
 Committed and motivated
 Competent
v) Integration of TRA Operations
 Large Taxpayers Department Established 2001;
 handles 370 taxpayers;
 contributes 38% of TRA collections and
 70% of domestic revenue
 District One Stop Centers Operational in 71 Districts since
January 2004
 Integration of VAT and Income Tax Dept.
 Establishment of Domestic Revenue Dept. in July 2005
 h) Reforms on the Tax Refund Systems
The claims are classified into three categories of gold, silver and
non-gold silver based on risk analysis
 GOLD category for regular payment traders who meet the
qualifying criteria, their claims are settled within 30 days
from the date of lodgment;
 SILVER category get their 2 consecutive claims settled within
30 days with full scale audit as prerequisite for the third
claim settlement; and
 NON-GOLD SILVER category for claims requiring full audit
before settlement.
i) Foreign Tax Reliefs
A resident company is taxed on its worldwide income. Credit for
foreign taxes is given under the double taxation agreement with
certain Governments which have concluded tax treaties with
Tanzania. Tanzania has tax treaties with the following countries:
1. Denmark
2. India
3. Sweden
4. Italy
5. Zambia

i) Tanzania Revenue Authority (TRA)

i) Establishment of the Authority

During the 1996/97, the Government fiscal policy was set to
enhance revenue collection and improve expenditure management
through expenditure control measures aiming at restraining the
fiscal deficit. On the revenue side the measures that were
implemented included the strengthening of tax administration
through the establishment of the Tanzania Revenue Authority
(TRA).
The Tanzania Revenue Authority Act, 1995 established the
Authority as a semi-autonomous agency of the Government, under
the general supervision of the Minister for Finance.
ii)Functions of the Authority
The major functions of the Authority are to: -
1. Assess, collect and account for all Central Government Revenue
2. Administer effectively and efficiently all the revenue laws of the
Central Government
3. Advise the Government on all matters related to fiscal policy
4. Promote voluntary tax compliance
5. Improve the quality of services to the taxpayers
6. Counteract fraud and other forms of tax evasion
7. Produce trade statistics and publications
iii) The Organizational Structure
Board of Directors
The Board of Directors is the governing board of the Authority
responsible for formulation and implementation of the policy of
the Authority. The Board consists of six ex-officio members
namely:
a) The Chairman appointed by the president on the
recommendation of the Minister for Finance.
b) The Permanent Secretary of the Ministry of Finance of the Union
Government.
c) The Permanent Secretary of the Ministry of Finance of the
Zanzibar Government.
d) The Governor of the Bank of Tanzania.
e) The Commissioner General of the Authority.
f) Secretary of the Planning Commission
g) Four other members appointed by the Minister for Finance, with
the professional knowledge and experience in finance,
commerce, economics or law from among institutions of
financial, commercial, legal or economic nature having vested
interest in the Authority.
The Commissioner General
The Commissioner General is the Chief executive of the Authority.
Subject to the general supervision and control of the Board he is
responsible for the day to day operations of the authority,
management of funds, property and business of the Authority and
for administration, organisation and control of other officers and
staff of the Authority.
Revenue Departments
The Authority consists of three Revenue Departments responsible
for mobilising revenue through
administration of the respective tax laws. They are: -
1. The Value Added Tax (VAT) Department.
2. The Income Tax Department
3. The Customs and Excise Department
The Revenue Commissioners who are appointed by the Board lead
the departments. Deputy
Commissioners responsible for Dar es Salaam and other regions
assists the Revenue
Commissioners. The Regional Revenue Officers report to the their
respective Deputy
Commissioners.
Support Departments
The Authority has seven support departments namely: -
1. Tax Audit and Investigation
2. Finance and Human Resource
3. Information Technology
4. Research and Policy
5. Publicity and Taxpayers Education
6. Internal Audit
7. Legal Affairs
TAXES ADMINISTERED BY THE AUTHORITY
Taxes in International Trade
The Customs and Excise Department administers all taxes on
international trade. The taxes include
Import Duty, Excise Duty and Value Added Tax (VAT) on imports.
Import Duty.
Import duty is a tax levied on imported goods. The duty is usually
calculated as an ad-valorem rate
on C.I.F value of goods imported into the country, and is collected
before goods leave the entry
point into the country and/or bonded warehouses.
There are five applicable import duty rates: -
1. 0% rate is applied on fertilisers, chemicals and pesticides for
plants and animals.
2. 5% rate is applicable for agricultural implements
3. 10% rate for importation of raw materials and capital goods.
4. 20% rate for importation of intermediary products
5. 30% rate for importation of finished goods for mass
consumption and consumer durable.
The Harmonised Tariff System is used to classify goods for tax
purposes as well as for trade
statistics compilation. To encourage trade within COMESA
member states, imports from COMESA
are generally charged duties at lower rates compared to imports
from none COMESA member
states.
Excise Duty on Imports
Excise duty is levied on certain consumer goods on importation.
The traditionally excisable goods
are goods whose consumption is seen by the society as immoral
i.e. beer and cigarettes, and goods
whose consumption creates negative externalities to the society
i.e. petroleum. In Tanzania apart
from the traditional excisable goods soft drinks and motor vehicles
are excisable for revenue
generation purposes.
Excise duty is charged on specific or ad-valorem rate, and the tax
base for the ad-valorem rate is the
C.I.F value plus the import duty. The applicable ad-valorem excise
duty rates are: -
1. 10% rate applicable to saloons and station wagon motor
vehicles with engine capacity in
excess of 2000cc.
2. 30% rate on importation of consumer luxuries and cosmetics.
There are various specific rates and the items liable for excise duty
at fixed rates include
1. cigarettes
2. wines and spirits
3. Beer
4. Soft drinks
5. Petroleum products
6. Cement
VAT on Imports
The tax is imposed on scheduled imports into the mainland
Tanzania at a single positive rate of
20%. The taxable value for VAT on imports is the CIF value plus
customs duty, excise duty and
any other import tax applicable.
Imports for the following beneficiaries have special relief from VAT
1. Diplomatic and consular mission
2. Technical aid agreements
3. Traveller’s personal effects
4. The Government or its agencies to be used in the performance
of their statutory functions
5. The President of the United Republic
The list of imports exempted from payment of VAT includes the
following: -
1. Pesticides, fertilisers etc
2. Health supplies
3. Educational supplies
4. Books and newspapers
All commercial exports to the United Republic of Tanzania with a
value over USD 5,000 are
subject to pre-shipment inspection. The company contracted for
this purpose is Societe Generale de
Surveillance S.A (SGS) The company is responsible for ensuring
that quantity, quality, value and
tariff classification are correctly declared for all exports to
Tanzania.
A few selected products, which are prone to tax evasion, are
subjected to pre-shipment inspection
regardless of the threshold.
Gold, precious stones and metals, objects of art, explosives,
ammunition and implements of war,
fresh animals and perishables, current newspapers and
periodicals, household and personal effect
are exempted from pre-shipment inspection. Also exempted are
imports for use by Diplomatic and Consular Missions Religious
and Charitable organisations and imports of new motor vehicles
by franchise holders.
Consumption Taxes:
Value Added Tax (VAT) on local supplies
VAT is an indirect tax on consumption levied on a wide range of
supplies of goods and services.
VAT is a multistage tax charged on value added to goods and
services by producers and traders at
each stage of production and/or distribution. Registered traders
are the collecting agents for the
Government. VAT was introduced in Tanzania on July 1st 1998
and replaced sales tax on goods
and services, receipts based stamp duty, hotel levy and
entertainment tax applicable to VAT
registered businesses.
VAT is charged at a single positive rate of 20%. The taxable value
for local supplies is the amount
of money the customer has to pay for the goods and services, or
the open market value of the goods
and services.
Exports are zero-rated meaning that no tax is charged on exports
but a registered trader supplying
goods and services for export can reclaim tax on inputs. Zero-
rating exports ensures that they enter
the international market tax-free thereby making them
competitive.
Supplies of most basic goods and services, which accounts for
disproportionately high percentage
of low-income household spending have been exempted from VAT.
For exempted supplies of
goods and services, the trader supplying them does not charge
VAT to his customers and he is not
entitled to a refund on taxes paid on his purchases.
Some supplies of goods and services have special relief from VAT.
They include supplies to the
Government or its agencies to be used in the performance of their
statutory functions. Like zerorated supplies, these supplies are
taxable but the tax is fully remitted. Traders supplying goods and
services to such institutions are allowed tax credit on their
purchases.
Excise Duty on locally manufactured goods
Excise duty is also levied on certain locally manufactured goods.
The traditionally excisable goods
include beer and cigarettes, and other goods whose consumption
creates negative externalities to the
society. In Tanzania apart from the traditional excisable goods soft
drinks are excisable for revenue
generation purposes. Excise duty is charged on specific and/or
ad-valorem rate. The minimum
excise duty rate is 10% and the maximum rate is 30%.
Stamp Duty
Stamp duty is levied at the rate of 2% of the turnover for the
traders with composition agreement
with the TRA while those using adhesive stamps affixed on cash
receipt pay 3.6% of the sale value.
The duty is paid by businesses, which are not VAT registered.
Motor Vehicle taxes
Apart from taxes on importation, motor vehicles have other
various taxes collected by the Value
Added Tax (VAT) Department as follows;
Registration Tax.
This is a tax collected on the first registration of motor vehicles in
the country. The tax is levied at a
flat rate of TZS 95,000/= per registration for motor vehicles and
TZS 32,000 for motor cycles.
Transfer Tax
On transferring the ownership of a motor vehicle the new owner
pays a transfer fee of TZS
55,000/= in addition to ensuring that all taxes on importation
have been correctly paid.
Car Benefit tax.
All commercial private companies not involved in transport
business have to pay TZS 100,000/=
per vehicle owned per annum.
Foreign Motor Vehicle Permit and Transit Charges.
All none commercial foreign motor vehicles temporally imported
into Tanzania pay a fee of USD
20 per vehicle for every 30 days stay in the country. Foreign
commercial vehicles of up to three
axles are charged in addition a transit charge of USD 6 per 100
km covered.
Taxes on Income, Profit and Net Wealth:
Corporation Income Tax
Corporation Income Tax is levied on corporation taxable profit for
all companies registered and/or
carrying business in Tanzania. The applicable corporation income
tax rate is 30% usually paid in
two stages. The provisional tax is paid based on taxpayer’s own
estimates at the beginning of the
business year; and final tax is paid after the official assessment of
the total income in the respective
year of income.
In arriving at taxable gains or profits a deduction is allowed for all
expenditure incurred in such
year of income wholly and exclusively for the production of such
income.
Also annual wear and tear deductions are allowed for machinery
owned and used for the business.
The linear method of depreciation is used and the following rates
are applicable. 37.5% for class
one machinery, which includes tractors, combine harvesters,
heavy earth moving equipment and
such other heavy self-propelling machines of a similar nature.
25% for class two machinery which
is other self-propelling vehicles including aircraft. 12.5% for all
other machinery including ships
Depreciation allowances for buildings are 4% and 6% for
industrial and hotel buildings
respectively. Also a 20% bonus investment allowance is allowed
for expenditure on industrial and
hotel buildings and machinery installed therein. In the
agricultural sector 20% allowance is allowed
for construction of all farm works.100% allowance for capital
expenditure on cultivation and
planting of permanent crops and 100% allowance for capital
expenditure on prevention of soil
erosion over agricultural land.
Income Tax on Individuals
Fiscal Year for Tax Payment
The income tax fiscal year runs from July 1 to June 30. Income
tax is payable by individuals
resident in Tanzania on their worldwide income and by non-
residents who receive income from
Tanzania sources. The incomes of married persons is taxed
separately except where the income of
the married woman is derived from employment in any business
carried on by her husband or with
any partnership firm of which her husband is a partner.
What is Residence and ordinary residence?
Briefly, an individual is regarded as a resident in Tanzania in any
tax year if;
1. He/she has a permanent home in Tanzania and visits in any
one year
2. He/she has no permanent home but either visits the country
for 183 days in any one year or
averages 122 days per year over a period of 3 years.
Taxation of income from employment
In general, individuals who are resident in Tanzania are liable to
tax on their worldwide
employment income. However double taxation relief applies as
above.
Taxable income will include salary and the value of any benefits in
kind arising from the
individual’s employment. Subject to certain exceptions, expenses
incurred wholly and exclusively
in the performance of employment duties are deductible. The
taxable measure of non-cash benefits
is generally the cost to the employer of providing the benefit. There
are special rules for taxing the
provision of living accommodation.
Personal Income Tax
Personal income tax is a tax on resident person’s annual income
obtained world-wide and on the
Tanzania source income for non-residents. The income includes
any gains or profits from business,
employment or services rendered; dividend income or interest
earned from any bank operating in
the United Republic. The Personal Income tax is charged on
progressive rates.
The personal income tax in Tanzania is collected using two
methods.
1. PAYE
For salaried employees the tax known as PAYE (Pay- As- You- earn
basis) is withheld by
employers, using the above schedule on payroll preparation. The
withheld tax is submitted on
monthly basis to the Commissioner of Income Tax.
Personal income tax is often collected on a pay-as-you-earn basis,
with small corrections made soon
after the end of the tax year. These corrections take one of two
forms: payments to the government
by taxpayers who did not pay enough during the tax year; and tax
refunds from the government to
those who overpaid. Income tax systems often have deductions
available that lessen the total tax
liability by reducing total taxable income. They may allow losses
from one type of income to be
counted against another. For example, a loss on the stock market
may be deducted against taxes
paid on wages. Other tax systems may isolate the loss, such that
business losses can only be
deducted against business tax by carrying forward the loss to later
tax years.
2. Pay Personally
The second method is used for sole traders and self-employed
individuals where assessment of their
annual incomes is made based on filed returns. They are then
required to pay personal tax on
quarterly instalments.
Housing (Payroll) tax
This is a tax on the gross wage bill of private employers with four
or more employees. Currently the
tax is levied at the rate of 4% of gross wage bill. This tax is not
explicitly deducted from
employees’ salaries.
Withholding Taxes:
Withholding is a scheme of tax payment administered by Income
Tax Department whereby taxes
are withheld at source. The taxes withheld are off set against final
personal and corporation income
taxes on resident tax payers, whereas such taxes are final charges
in respect of non-resident
taxpayers. In the case of Interest, dividends and rental income the
withheld taxes are final for both
residents and none residents.
Interest:
Any person earning interest income exceeding TZS 150,000/= is
liable for withholding tax on
interest. The applicable rate is 15% of the liable income for both
residents and none residents. The
financial institutions are withholding agents for this tax.
Dividends:
A dividend income paid to a resident from a company listed in the
Dar es Salaam Stock Markets is
liable to a dividend tax at the rate of 5% and 15% for unlisted
companies. Dividend income paid to
none resident is charged at 20% regardless of the listing status of
the paying company. Dividend tax
withheld at source is a final tax. In the mining sector dividends
paid to none residents attract
withholding tax at the rate of 10%. The companies declaring
dividends are the collecting agents.
Rents:
Rental and lease income in excess of TZS 500,000/= per annum is
liable for a withholding tax,
which is also a final income tax for this category of income. Rental
income is charged at 15% for
residents and 20% for none residents.
Management and Professional Fees
A payment made to a none resident person, other than payment
made to an employee by his
employer, as a consideration for any services of managerial,
technical or professional nature is
liable for a withholding tax at 20%. For the mining sector a
withholding tax of 3% is charged on
subcontracts and management payable fees if and only if the
management fees do not exceed 2% of
the operation costs.
Goods and Services
Charges on provision of goods and services, excluding VAT
charges, attracts a withholding tax of
2% per transaction for all transactions equal to or in excess of TZS
100,000/=. The purchasers of
such goods and services are the withholding agents of the
government. Holders of mining
certificates are exempted from payment of domestic withholding
tax on goods and services
although they have to withhold the tax from their suppliers.
Other Withholding taxes
Other withholding taxes include
Tax Source Rate
1. Royalties Fees 20%
2. Pension for none residents 15%
3. Overland Transport (residents) 4%
4. Overland Transport (none residents) 15%
5. Shipping Tax 2%
6. Leased Aircraft 10%
7. Insurance Commission 7.5%
User Charges:
Airport Departure Service Charges
Airport departure service charge is levied on resident and none
resident passengers boarding aircraft
at the United Republic of Tanzania airports. Travellers within the
United Republic of Tanzania pay
TZS 2,000/= per trip while passengers travelling outside the
country pay USD 20 per trip. The
airport departure service charge is included in the price of the air
ticket and the travelling agents are,
therefore, the collecting agents for the government. Transit
passengers and children under the age of
2 years are exempted.
Port Departure Service Charge.
Port departure service charge is levied to passengers travelling
within or outside the United
Republic of Tanzania by shipping vessels. Resident passengers
pay TZS 500 while none residents’
passengers sailing using the United Republic of Tanzania ports
pays UDS 5 per trip. This charge is
also included in the price of the ticket.
Insurance Supervision Department
The Insurance Supervision Department is an agency of the
Government of the United Republic
established under section 5 of the Insurance Act. No. 18 of 1996
to licence and regulate all forms of
insurance business in Tanzania.
Questions on Chapter 5 (Tax Administration)
1 Explain the structure of tax administration in Tanzania
2 Explain the functions and organisational structure of Tax
administration authority of
Tanzania
3 What are the tax incentives in Tanzania and how they operate
with reference to certain
sectors?
4 Explain the reforms initiated in Tanzania with respect to in tax
structure on international line
and tax administration
j) Tax Payment Procedures and Tax Recovery Measures

k) Tax Dispute Institutions and Procedures in Tanzania