June 23, 2022 Tanzania’s Parliament passes Finance Bill 2022 Executive summary On 14 June 2022, Tanzania's Minister for Finance and Planning presented the 2022/23 fiscal budget. The Tanzanian Parliament passed the Finance Bill, 2022 (the Bill) on 15 June. The Bill is now subject to the President's assent to become a law. This Alert summarizes the key changes included in the Bill. All proposed changes would be effective from 1 July 2022, unless indicated otherwise. Detailed discussion Income Tax Act, CAP 332 Interpretation section The general definition section is amended to include the following definitions: Business: a transaction or activity carried out through the internet or electronic means including an electronic service or transaction conducted in the digital marketplace regardless of the manner in which such transaction is carried out. Digital market place: a platform which enables direct interaction between buyers and sellers of goods and services through electronic means. Electronic service: defined to have the meaning ascribed to it under Section 51 of the Value Added Tax Act, CAP 148. Section 51 defines an "electronic service" to mean any of the following services provided or delivered through a telecommunications network:
Ministerial powers on income tax exemption The Bill proposes to empower the Minister for Finance to exempt from tax, income accruing from special strategic investments that are approved by the National Investment Steering Committee under the Tanzania Investment Act. Recharacterization of income Margin payable on a cost-plus margin alternative financing arrangement approved by the Bank of Tanzania will be treated as interest. Tax residency A corporation will be considered tax resident for a year of income if management and control of its affairs are exercised in Tanzania whether physically or through any electronic means. Source rule The Bill proposes to expand the source rule as follows:
Withholding tax The Bill proposes to require resident individuals to withhold tax on interest, natural resource payments, rent and or royalties. However, the budget speech proposed this requirement on rent payments only. Interest paid to a holder of corporate or municipal bonds issued and listed on the Dar es Salaam Stock Exchange shall be excluded from withholding tax with effect from 1 July 2022. Income tax by way of single installment Digital services A nonresident who receives a payment that has a source in Tanzania from an individual, other than in conducting business, for services rendered through a digital marketplace, will be required to pay income tax by way of single installment equal to 2% of gross payments received in a calendar month.
Petroleum products A wholesaler of bulk petroleum products who sells petroleum products to a retailer will be required to charge the retailer income tax equal to TZS20 per liter of the product sold. The wholesaler will also be required to:
Failure to charge and remit the tax as required will be subject to interest and penalties. The tax charged shall be advance income tax for the retailer. Income tax rates Presumptive income tax The Bill proposes to introduce new tax rates for presumptive income tax as follows:
The Bill also proposes to exclude from presumptive income tax, resident individuals who are professionals or who derive income from technical management, construction and training services. Small scale mining operations A resident individual with small scale mining operations whose turnover does not exceed TZS100m annually and who does not have a regular income, to pay income tax at the rate of 2% of the sale value of minerals. The tax is payable at the time of selling minerals at Mineral and Gem Houses or buying stations designated by the Mining Commission under the Mining Act. The Mining Commission shall collect and remit the tax to the CG. Trucks and passenger buses A resident individual who is engaged in long distance transportation of passengers with a bus of a carrying capacity of 40 passengers and above, or long distance transportation of goods with a lorry having above three axles and whose turnover does not exceed TZS100m annually to pay income tax at a rate of TZS3.5m annually. "Long distance transportation" is defined to mean carriage of passengers or goods from one region to another inside or outside Tanzania. Royalty payments Withholding tax on royalty payments for the use of, or right to use, a cinematography film, videotape, sound recording, or any other like medium shall be charged at the rates of 10% and 15% for payments made to nonresidents and residents respectively. Income tax exemption The Bill proposes to exempt from income tax the following amounts:
Value-Added Tax, CAP 148 Discretionary powers to grant VAT exemption The Bill proposes to empower the Minister for Finance to grant an exemption from VAT, upon approval by the Cabinet and by order published in the Gazette, on goods or services for implementation of special strategic investment approved by the National Investment Steering Committee. Further, the Bill proposes to empower the CG to grant an exemption from VAT on importation by or a supply of goods or services to a non-governmental organization (NGO) having a financial agreement (which provides VAT exemption on goods and services) with the Government solely for projects implemented by the respective NGO or an NGO duly appointed to implement the project. Currently, the exemption from VAT is restricted only to the NGO that has concluded the agreement with the Government. VAT deferment on capital goods Capital goods eligible for deferment of VAT to include goods classifiable under:
Zero-rated supplies The Bill proposes to zero rate a supply of double refined edible oil or fertilizer by a local manufacturer for a period of one year from 1 July 2022 to 30 June 2023. VAT registration by nonresidents A nonresident supplier who has no presence in Tanzania but makes taxable supplies for which VAT is payable must apply to the CG for registration where it is impracticable for the nonresident supplier to appoint a VAT representative because of business circumstances. VAT on financial products The Bill proposes to empower the Minister for Finance to issue regulations prescribing the manner and procedure of dealing in loans, including alternative financing products approved by the Bank of Tanzania. VAT exemptions Imports and supplies The Bill proposes to exempt from VAT, imports and supplies of the following items:
The VAT exemption is to be abolished on the following items:
Supplies The Bill proposes to exempt from VAT a supply of sisal ropes (HS codes 5607.21.00 and 5607.29.00). Further, the VAT exemption is to be abolished on the following supplies:
Imports A VAT exemption to be granted on the importation of the following items:
The VAT exemption is to be abolished on importation of the following items:
Tax Administration Act, CAP 438 Taxpayer Identification Number (TIN) The CG is to be empowered to issue a TIN to every Tanzanian citizen aged 18 years or above who has been registered and issued with a National Identification Number (NIN). Each TIN issued shall be used in every transaction involving sales or purchases, whether made electronically or manually. The proposed amendment shall come into operation on 1 July 2023. Tax consultants The Bill proposes to empower the CG to license an individual to act as a tax consultant. An individual, other than an employee or manager of a person, who is not licensed is restricted from acting as a tax consultant or communicating with the CG on pretext of representing another person. Electronic filing of tax returns Taxpayers are to file returns electronically on or before the due date as prescribed by the specific tax law. The change gives effect to the already rolled out e-filing system. The CG is to have discretionary powers to grant, by a written notice and under special circumstances, filing of a tax return manually or by any other means. Registration of storage facilities Any person who establishes a storage facility for business or investment purposes to store goods whose value exceed TZS10m will be required to register the facility with the CG. The owner of the registered storage facility is obliged to keep records of all stored goods and report to the CG on a monthly basis in a prescribed manner. Failure to register a storage facility or report the stored goods to the CG attracts a penalty of 300 currency points and payment of any detected loss of revenue occasioned by reason of such undisclosed goods, whether the goods are owned by the storage facility owner or not. 1 currency point is equivalent to TZS15,000. Liability of managers of entities A manager of an entity or a person who was a manager of an entity at the time an entity fails to pay tax shall only be jointly and severally liable with the entity in instances of fraud as proven in a court of law. Previously, a manager was not jointly and severally liable if they exercised a degree of care, diligence, and skill to prevent the failure to pay tax. Remission of interest and penalties The Bill proposes to revert to the Minister for Finance the power to remit interest and penalties, in whole or part, upon recommendation by the CG. Offenses Tax invoices The time of occurrence of an offense to be changed in relation to the following:
Registration under a tax law Failure to apply for registration or licensing within the prescribed period under a tax law will be an offense. Upon conviction, the person is subject to a penalty of 500 currency points or imprisonment for a term not exceeding one year, or both. Excise duty The Bill proposes offenses relating to excise duty including but not limited to the manufacturing of excisable goods without a license, failure to abide to conditions of a license, failure to obey an order for suspension or revocation of a license, and failure to keep records of manufacture, storage or delivery of excisable goods at a factory or place of work. The offenses attract sanctions as follows:
The Excise (Management and Tariff) Act, CAP 148 Pay-to-view television services The Bill proposes to widen the scope of excise duty at the rate of 5% on the dutiable value for pay-to-view television services to include such services provided by a licensed cable, terrestrial, satellite or other technology operator. Currently, excise duty is imposed on pay-to-view television services provided by a licensed cable television network or cable operator. Excise duty rates The Fourth Schedule to the Act is to be amended to adjust rates for excise duty on a variety of goods including sugar confectionary, chocolates, and electric accumulators, among others. Changes in other laws The Bill proposes the changes to the following laws: Business Names (Registration) Act, CAP 213 Harmonization of the definition of "beneficial owner" with the definition provided in the Anti-Money Laundering Act, CAP 423 (AML Act). The AML Act defines a "beneficial owner" to mean any natural person who ultimately owns or controls the customer, the natural person on whose behalf a transaction or activity is being conducted, a person who exercises ultimate effective control over a legal person or legal arrangement or the beneficiary of an insurance policy or other investment linked insurance policy and provides: If the customer is a legal person:
If a customer is a trust:
If a customer is any other legal arrangement, the natural person holding the equivalent or similar positions to those referred to in the case of a trust. The Bill proposes introduction of a requirement to furnish information and particulars relating to the beneficial owners during registration of a partnership. Failure to provide or update information on the beneficial owners shall be an offense. Upon conviction, a person is subject to a minimum fine of TZS1m and up to a maximum fine of TZS5m. Companies Act, CAP 212 Harmonization of the definition of "beneficial owner" with the definition provided in the AML Act. Imposition of penalties on a company and every officer of a company as follows:
"Officer" of an entity is defined to include any person in accordance with whose directions or instructions the directors of the company are accustomed to act. Electronic and Postal Communications Act, CAP 306 Imposition of a fee on television decoder subscriptions at a rate ranging from TZS1,000 to TZS3,000. Export Tax Act, CAP 196 Imposition of export tax on copper waste or scrap metals under Headings 72.04 and 74.04 at a rate of 30% of the free-on-board value of the commodity or US$150 per ton, whichever is greater. Foreign Vehicles Transit Charges Act, CAP 84 Reduction of transit charges for foreign vehicles exceeding three axles from US$16 per 100 kilometers to US$10 per 100 kilometers to align the charges imposed in the country and those imposed in the East African Community (EAC), the Southern African Development Community (SADC), and the Common Market for Eastern and Southern Africa (COMESA). Transit charges on the use of foreign vehicles on public roads in Mainland Tanzania to be limited to round trips to a destination within Mainland Tanzania. Gaming Act, CAP 41 Imposition of gaming tax at a rate of 5% of monthly gross gaming revenue on internet gaming or virtual games under an internet casino license. The provisions of the Tax Administration Act relating to maintenance of documents, tax liability, collection and recovery of tax, imposition of interest, tax enforcement, objection and appeal to apply to gaming tax. A licensee of a gaming activity will be required to withhold gaming tax on winning prizes at the time of payment of winning prizes. A licensee will also be required to:
Failure to withhold gaming tax as required will be subject to interest and penalties. Insurance Act, CAP 394 Imposition of mandatory insurance to cover commercial buildings, operation of public markets, imported goods, marine vessels, ferries and pontoons. Land Act, CAP 113 Accrual of interest on outstanding land rent proposed to commence after 12 months of default. Previously, interest would accrue after 6 months. Local Government (District Authorities) Act, CAP 287 Each district authority will be required to establish a one-stop center for co-coordinating, encouraging, promoting and facilitating business within its area of jurisdiction. Local Government (Urban Authorities) Act, CAP 288 Each urban authority will be required to establish a one-stop center for co-coordinating, encouraging, promoting and facilitating business within its area of jurisdiction. Local Government Finance Act, CAP 290 Reduction of the hotel levy from 10% to 5%. Further, requiring entities, corporate bodies or individuals paying service levy to pay produce cess at the local government authority where the agriculture or other produce is purchased. Mining Act, CAP 123 Royalty rates on the following to be reduced:
Ports Act, CAP 166 To revert the power to collect wharfage charges to the TRA from the Tanzania Ports Authority (TPA). Tanzania Investment Act, CAP 38 Fiscal incentives approved by the National Investment Steering Committee (NISC) to special strategic investors to be issued under the respective tax laws. Trustee Incorporation Act, CAP 318 Harmonization of the definition of "beneficial owner" with the definition provided in the AML Act. Trustees to be required to notify the Administrator General within one of change where:
Failure to notify the Administrator General as required shall be an offense. Upon conviction, a person is subject to a minimum fine of TZS200,000 and up to a maximum fine of TZS1m. Vocational Education and Training Act, CAP 82 Payments made to intern students from universities who are under the Tanzania Employment Service Agency Program are proposed to be exempt from the Skills and Development Levy. East African Community Customs Management Act (EACCMA), 2004[i] The Ministers for Finance from the East African Community (EAC) Partner States agreed to effect changes in the Common External Tariff (CET) for the financial year 2022/23 and to continue to implement some measures that were implemented in the financial year 2021/22 as follows: The proposed changes include:
The proposed measures that took effect in the financial year 2021/22 which will continue to be implemented in 2022/23 are as follows:
_________________________________________ For additional information with respect to this Alert, please contact the following: Ernst & Young (Tanzania), Dar es Salaam
Ernst & Young Société d'Avocats, Pan African Tax – Transfer Pricing Desk, Paris
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP (United States), Pan African Tax Desk, New York
_________________________________________ ENDNOTE 1 Changes to the EACCMA are not in the Finance Bill 2022 but are proposed by the Council of Ministers for the EAC Partner States. | |||||||||||||||
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