Tanzania Revenue Authority (TRA):

Tanzania Revenue Authority (TRA)

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).

Establishment of the Authority

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.

Functions of the Authority

• The major functions of the Authority are to: -
• Assess, collect and account for all Central Government Revenue
• Administer effectively and efficiently all the revenue laws of the Central Government
• Advise the Government on all matters related to fiscal policy
• Promote voluntary tax compliance
• Improve the quality of services to the taxpayers
• Counteract fraud and other forms of tax evasion
• Produce trade statistics and publications

The Organization 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:

• The Chairman appointed by the president on the recommendation of the Minister for Finance.
• The Permanent Secretary of the Ministry of Finance of the Union Governments.
• The Permanent Secretary of the Ministry of Finance of the Zanzibar Government.
• The Governor of the Bank of Tanzania.
• The Commissioner General of the Authority.

Secretary of the Planning Commission

And 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: -

• The Value Added Tax (VAT) Department.
• The Income Tax Department
• 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: -

• Tax Audit and Investigation
• Finance and Human Resource
• Information Technology
• Research and Policy
• Publicity and Taxpayers Education
• Internal Audit
• 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: -

• 0% rate is applied on fertilisers, chemicals and pesticides for plants and animals.
• 5% rate is applicable for agricultural implements
• 10% rate for importation of raw materials and capital goods.
• 20% rate for importation of intermediary products
• 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: -

• 10% rate applicable to saloons and station wagon motor vehicles with engine capacity in excess of 2000cc.
• 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

• cigarettes
• wines and spirits
• Beer
• Soft drinks
• Petroleum products
• 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
• Diplomatic and consular mission
• Technical aid agreements
• Traveller’s personal effects
• The Government or its agencies to be used in the performance of their statutory functions
• The President of the United Republic

The list of imports exempted from payment of VAT includes the following: -

• Pesticides, fertilisers etc
• Health supplies
• Educational supplies
• 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 news papers 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 1^st 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 zero-rated 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.

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 and there are twelve income bands with a threshold of 20,000. The minimum marginal tax rate is 7.5% while the maximum marginal tax rate is 35% for incomes in excess of 700,000. The income tax bands for personal income tax purposes are given in Table1.

The personal income tax in Tanzania is collected using two methods. For salaried employees the tax known as PAYEE 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. 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, where as 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

Royalties Fees 20%

Pension for none residents 15%

Overland Transport (residents) 4%

Overland Transport (none residents) 15%

Shipping Tax 2%

Leased Aircraft 10%

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.

The department is headed by the Commissioner of Insurance