Executive summary

On 28 June 2022, the Tanzanian Parliament passed the Finance Bill, 2022 (the Bill). On 30 June, the Bill was assented to by the President to become the Finance Act, 2022. All changes introduced by the Act are effective 1 July 2022, unless noted below.

This Alert summarizes the key changes included in the Act as well as modifications from the Bill.

Detailed discussion

Income Tax Act, CAP 332

Interpretation section

The general definition section is amended to include the following definitions:

Alternative financing arrangement: any financial arrangement approved by the Bank of Tanzania other than conventional financial arrangements.

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 marketplace: a platform which enables direct interaction between buyers and sellers of electronic services.

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:

• Websites, web-hosting, or remote maintenance of programs and equipment
• Software and the updating thereof
• Images, text, and information
• Access to databases
• Self-education packages
• Music, films, and games, including gaming activities
• Political, cultural, artistic, sporting, scientific, and other broadcasts and events including broadcast television.

Ministerial powers on income tax exemption

The Minister for Finance is granted powers 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 is to be treated as interest.

Thin capitalization rule

Equity is limited to paid-up share capital at the end of the year of income. Previously, equity was comprised of paid-up share capital, paid-up share premium, and retained earnings.

Transportation of passengers and goods by a resident person

General rules for determining chargeable income and deduction of expenses will apply to resident persons engaging in the business of transporting passengers and goods.

A resident person will be required to:

• Pay advance income tax based on specified rates.
• Issue receipts by electronic means as prescribed by the Commissioner General (CG) for the Tanzania Revenue Authority (TRA).

The Bill had proposed imposing income tax at a rate of TZS3.5 million (m) annually on 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.

Controlled foreign corporations

Distributions which are treated as not-distributable as determined by the Bank of Tanzania will be included in considering the total distributions made by a resident financial institution to a nonresident associate for purposes of the controlled foreign corporation rules.

Tax residency

A corporation is 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.

Tax credit for inter-union transactions

A resident person, other than a partnership, can claim a tax credit for income tax paid in relation to taxable income from a business or an investment carried out in Mainland Tanzania or Tanzania Zanzibar, as the case may be.

Source rule

The source rule has been expanded to include the following:

• "Natural resource payments" include payments made for harnessing, generating or utilizing land, air or water natural resources for generation of power or anything of value whether the respective natural resource is located alongside the border or within the country. Previously, the payments were restricted to payments made in respect of or calculated by reference to natural resources taken from land or the sea situated within Tanzania or its territorial waters.
• Payments made by an individual other than payments made in conducting business in respect of a service rendered by a nonresident through a digital marketplace.

Withholding tax by resident individuals

Resident individuals are now required 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 is 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, is required to pay income tax by way of single installment equal to 2% of gross payments received in a calendar month.

• "Gross payment" is defined to mean the payment made but excludes Value Added Tax (VAT).
• The nonresident is liable to pay income tax and file a return to the CG on or before the seventh day of the following month.
• The Minister for Finance has powers to issue regulations prescribing procedures for assessing and collecting income tax on digital services.

A nonresident who exclusively derives income from providing services through a digital marketplace is not required to file an annual income tax return for a year of income.

Income tax rates

Presumptive income tax

New tax rates for presumptive income tax are as follows:

Income derived by resident individuals who are independent professionals and providers of technical, management, construction, and training services is not subject to presumptive income tax.

The Minister for Finance is granted powers to determine the presumptive income tax rates applicable in Tanzania Zanzibar after consulting with the Minister for Finance in Tanzania Zanzibar.

Transportation business

A resident person who transports passengers or goods is required to pay advance income tax based on the following rates:

Royalty payments

Royalty payments for the use of, or right to use, a cinematography film, videotape, sound recording, or any other like medium are subject to withholding tax at a rate of 10% for both resident and nonresidents. The Bill had proposed rates of 10% and 15% for payments made to nonresidents and residents respectively.

Income tax exemption

The following are exempted from income tax:

• Gains on the realization or transfer of mineral rights and mineral information to an entity formed between the Government and an investor
• Gains on the realization or transfer of free carried interest shares from an entity to the Government
• Gains on the realization or transfer of shares to the Government through the Treasury Registrar

Amendments not included in the Act

The Bill had proposed the following amendments which have not been included in the Act:

• Imposition of income tax at the rate of 2% of the sale value of minerals on a resident individual with small scale mining operations whose turnover does not exceed TZS100m annually and who does not have a regular income.
• Imposition of advance income tax equal to TZS20 per liter of petroleum product sold by a wholesaler of bulk petroleum products to a retailer.

Value-Added Tax, CAP 148

Discretionary powers to grant VAT exemption

The Minister for Finance is granted powers 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.

The CG is granted powers to grant an exemption from VAT on importation or supply of goods or services to a non-governmental organization (NGO) having an agreement (which provides VAT exemption on goods and services as duly approved by the Minister for Finance) with the Government solely for projects implemented by the respective NGO. Previously, ministerial approval was not mandatory. The Bill proposed the exemption to apply to an NGO that has concluded the agreement with the Government, or an NGO duly appointed to implement the project.

VAT deferment on capital goods

The following capital goods are eligible for deferment of VAT if locally manufactured or assembled in a customs bonded warehouse:

• Goods under Heading 87.16: trailers and semi-trailers; other vehicles, not mechanically propelled; parts thereof
• Goods under HS code 8701.20.90: tractors

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 Minister for Finance has powers 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

Imports and supplies of the following items are exempt from VAT:

• Ear tags (HS code 3926.90.90)
• Ear tag applicators (HS code 8456.90.00)
• Automatic turning table (HS code 8207.30.00)
• Stunning box (HS code 8438.50.00)
• Laser beam machines (HS code 9402.90.90)
• Agro net (HS code 56.08)
• Unpasteurized or pasteurized cow milk or goat milk with additives and long-life milk (HS code 04.01)
• Vanilla (HS code 0905.10.00)
• Standing tree (HS code 06.02)
• Fishing nets (HS code 3926.90.10)
• Fishing hooks, reels and lines (HS codes 9507.20.00; 9507.90.00; and 9507.30.00)
• Dairy packaging materials (HS codes 3923.30.00; 4819.10.00; 4819.20.00; and 4819.20.90)

Imports and supplies of the following items are taxable at the standard rate:

• Smart phones (HS code 8517.12.00)
• Tablets (HS codes 8471.30.00 and 8517.12.00)
• Modems (HS codes 8517.62.00 and 8517.69.00)

Supplies

Supplies of the following are exempt from VAT:

• Air charter services supplied up to 30 December 2022. The Bill did not propose a deadline for the exemption.
• Double refined edible oil from locally grown seeds by a local manufacturer for a period of one year from 1 July 2022 to 30 June 2023.
• Disodium carbonate (HS Code 2836.20.00), sodium bicarbonate (HS Code 2836.30.00), calcium carbonate (HS Code 2836.50.00), and packaging materials solely and directly used by a local manufacturer of double refine edible oil from locally grown seeds for a period of one year from 1 July 2022 to 30 June 2023.
• Sisal ropes (HS codes 5607.21.00 and 5607.29.00)

Supplies of the following are taxable at the standard rate:

• Supplies of arms and ammunitions, parts and accessories thereof, to the armed forces.

Imports

Importation of the following items is exempt from VAT:

• Arms and ammunition, parts, and accessories thereof, equipment and machineries for the official use of the armed forces as certified by the Ministry for Security and Defense.
• Machinery (HS codes 8438.50.00 and 8453.10.00) by a local manufacturer of hides and skins; and a registered abattoir for exclusive use of skinning, dehiding and leather processing in Mainland Tanzania duly certified by the Ministry responsible for livestock or fishery. Previously, the exemption applied to machinery (HS code 8453.10.00) by a local manufacturer of hide and skins for exclusive use in manufacturing leather in Mainland Tanzania.
• Cold rooms (HS codes 9406.10.20, 9406.20.20, and 9406.90.20) and refrigerated trucks (HS codes 8704.21.90; 8704.22.90, 8704.23.90, 8704.31.90, 8704.32.90, and 8704.90.90) by a person engaged in livestock, fishery or agriculture duly certified by the Ministry for Livestock, Fishery or Agriculture. Previously, the exemption applied to cold rooms (HS codes 9406.10.10 and 9406.90.10) by a person engaged in horticulture.
• Raw materials (HS codes 2528.00.00, 2710.99.00, and 3505.20.00) and equipment and machineries (Chapters 84 and 85) solely and directly used in manufacturing of fertilizers duly certified by the Ministry for Industries.
• Soil testing equipment (HS codes 9031.80.00, 9027.81.00 and 9027.89.00) as certified by the Ministry for Agriculture.
• Moisture meter (HS code 9031.80.00), rain gauge for weather stations of HS code 9015.80.00), PH meters (HS code 9031.80.00), tissue culture equipment (HS code 8419.89.00), and tension meters (HS code 9031.80.00) as certified by the Ministry for Agriculture.
• Meteorological equipment and machinery by the Tanzania Meteorological Authority.
• Raw materials (HS codes 7208.39.00, 3810.90.00, 3401.19.00, 7904.00.00, 4016.93.00, 8481.10.00 and 8309.90.90) by a manufacturer of gas cylinders upon signing a performance agreement with the Government of Tanzania.

Tax Administration Act, CAP 438

Taxpayer Identification Number (TIN)

The CG has powers 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).

A registered person with a branch in Tanzania Zanzibar shall use the Zanzibar Registration Number (ZRN) issued by the Zanzibar Revenue Board.

This amendment shall come into operation on 1 July 2023.

Tax consultants

The CG has powers 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.

Primary data server

The effective date for physically maintaining in Tanzania a primary data server for storage of documents in electronic form has been extended from 1 July 2022 to 1 July 2023.

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 has discretionary powers to permit, 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 keeping goods for business purposes must 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, irrespective of whether the goods are owned by the storage facility owner. 1 currency point is equivalent to TZS15,000.

The Bill proposed registration of storage facilities for business or investment purposes used to store goods whose value exceed TZS10m.

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 liable if they exercised a degree of care, diligence, and skill to prevent the failure to pay tax.

Offenses

Tax invoices

The time of occurrence of an offense has been changed in relation to the following:

• Failure to issue a fiscal receipt or fiscal invoice; from receipt of payment to the time of supply of goods, rendering a service or receiving payment for goods or service.
• Failure to demand or report a denial of issuance of a fiscal receipt or fiscal invoice; from upon payment to upon payment or receipt of goods or services.

Registration under a tax law

Failure to apply for registration or licensing within the prescribed period under a tax law is 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 following are offenses relating to excise duty:

• Manufacturing any excisable good without a license.
• Non-compliance with or breaching of any condition under a license.
• Disobeying suspension or revocation of a license by the CG and any condition thereof.
• Failing to keep records in the prescribed manner with respect to manufacturing, storing, and delivering of excisable goods at a factory or place of work.
• Denaturing spirits for sale without being licensed or without adopting the prescribed formula.
• Failing to enter or declare, before commencing manufacturing of excisable goods, each building, room, place, machinery or equipment, item of plant for the manufacturing, preparing for sale, or storing of excisable goods.
• Using any building, room, place, machinery or equipment or item of plant for manufacturing, preparing for sale, or storing of excisable goods without a valid entry.
• Using a building, room, place, machinery or equipment or item for manufacturing, preparing for sale, or storing of excisable goods for purposes other than that declared in the approved entry.
• Altering the shape, position, or capacity of a building, room, place of manufacturing, preparing for sale, or storing of excisable goods without prior permission of the CG.

The offenses attract sanctions as follows:

• A maximum fine of 330 currency points or imprisonment for a term not exceeding three years, or both
• For a subsequent offender, a minimum fine of 330 currency points but not exceeding 3,500 currency points or imprisonment for a term of not less than 5 years but not exceeding 20 years, or both.
• A court order of forfeiture of a plant, excisable goods or materials connected with commission of the offense.

The Excise (Management and Tariff) Act, CAP 148

Pay-to-view television services

Services provided by a licensed cable, terrestrial, satellite or other technology operator are subject to excise duty at a rate of 5% of the dutiable value. Previously, excise duty was imposed on pay-to-view television services provided by a licensed cable television network or cable operator.

Excise duty rates

Excise duty rates have been adjusted on a variety of goods including sugar confectionary, chocolates, and electric accumulators, among others.

Changes in other laws

The Act has amended the following laws:

Business Names (Registration) Act, CAP 213

The definition of "beneficial owner" has been harmonized 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:

• The natural person who ultimately owns or controls the legal person through direct or indirect ownership of a majority shares or voting rights or ownership interest in that legal person and such ownership, ownership interest or control also includes possession of bearer shares, the ability to appoint or remove the majority of board members, the chief executive officer or senior management.
• A shareholding of 5% or more in the legal person or an ownership interest of 5% or more in the legal person held by a natural person shall be an indication of direct ownership or a sufficient percentage of the shares or voting rights or ownership interest in that legal person, or a shareholding of 5% or more or an ownership interest of 5% or more in the legal person held by a legal person, which is under the control of a natural person, or by multiple legal persons, which are under the control of the same natural person, shall be an indication of indirect ownership.
• If, after having exhausted all possible means and provided there are no grounds for suspicion of money laundering, terrorist financing and proliferation financing, no natural person is identified, or if there is any doubt that the natural person identified is the beneficial owner, the natural person who holds the position of senior managing official.

If a customer is a trust:

• The settlor, trustee or the protector
• The beneficiaries, or where the natural person benefiting from the trust has yet to be determined, the class of natural persons in whose main interest the trust is set up or operates
• Any other natural person exercising ultimate control over the trust by means of direct or indirect ownership or by other means

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.

Information and particulars relating to beneficial owners must be provided when registering a partnership.

Failure to provide or update information on the beneficial owners is an offense. Upon conviction, a person is liable to a minimum fine of TZS1m and up to a maximum fine of TZS5m.

Every firm having a place of business in Tanzania must register its business name with the Tanzania company registry. Previously, the registration requirement applied to every firm having a place of business in Tanzania and carrying on business under a business name which does not consist of the true surnames of all partners who are individuals and the corporate names of all partners who are corporations without any addition other than the true names of individual partners or initials of such names.

The Register of Beneficial Owners is accessible by national authorities responsible for combating money laundering and terrorism financing, tracing, seizing, freezing and confiscating criminal assets, the Financial Intelligence Unit, and the TRA.

Companies Act, CAP 212

The definition of "beneficial owner" has been harmonized with the definition provided in the AML Act.

A company and every officer of a company is liable to a penalty for the following:

• Failure to keep a register of members or beneficial owners or deliver such registers to the company registry within the legal deadlines; a minimum penalty of TZS100,000 up to a maximum penalty of TZS1m.
• Failure to keep an index of the names of members by a company with more than 50 members; a minimum penalty of TZS100,000 up to a maximum penalty of TZS1m.

A liquidator is obliged to maintain accounting records and underlying documentation relating to the dissolution of a company for a minimum period of 10 years from the date of dissolution.

The Bill proposed a daily penalty of TZS100,000 and an additional daily penalty of TZS10,000 for failure to file annual returns with the Tanzania company registry.

Copyright and Neighboring Rights Act, CAP 218

A copyright levy at a rate of 1.5% is chargeable on the value of radio/TV set enabling recording, analogue audio recorders, analogue video recorders, CD/DVD copier, digital jukebox and MP3 players.

Electronic and Postal Communications Act, CAP 306

Television decoder subscriptions are subject to a minimum fee of TZS500 and a maximum fee of TZS2,000. The Bill proposed a minimum fee of TZS1,000 and a maximum fee of TZS3,000.

Export Tax Act, CAP 196

Copper waste or scrap metals under Headings 72.04 and 74.04 are subject to export tax at a rate of 30% of the free-on-board value of the commodity or US$150 per tonne, whichever is greater.

Foreign Vehicles Transit Charges Act, CAP 84

Transit charge for foreign vehicles exceeding three axles is US$10 per 100 kilometers. Previously, the charge was US$16 per 100 kilometers.

Gaming Act, CAP 41

The general definition section is amended to include the following definitions:

Winning: receipt of an amount of payment or other consideration including a prize, award or reward given by way of money, assets, goods or property in kind to a person after having participated in a gaming activity.

Withholding agent: a person required to withhold gaming tax on winning from a payment under the Gaming Act and remit the amount withheld to the CG.

Gaming tax is chargeable on the following:

• Land-based casino: 12% on the amount or value of winnings
• Sports betting: 10% on the amount or value of winnings

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 is required to withhold gaming tax.

A licensee is required to:

• Issue notifications for collection of gaming tax on winnings and withhold gaming tax at the time of payment of winnings.
• Remit the withheld gaming tax to the CG no later than seven days of the following month.
• Submit a return or certificate of payment of the withheld tax to the CG no later than 15 days of the following month.

Failure to withhold gaming tax as required is subject to interest and penalties.

Insurance Act, CAP 394

Insurance must be obtained for commercial buildings, operation of public markets, imported goods, marine vessels, ferries and pontoons.

Land Act, CAP 113

Land arrears shall attract interest at the rate of 0.5% per month until payment is made and an additional interest at the rate of 1% per month after 12 months. Previously, interest was imposed at a rate of 1% where land rent remained unpaid for a period of 6 months after the due date.

The Bill proposed accrual of interest on outstanding land rent to commence after 12 months of default.

The Minister for Finance has been granted powers to exempt the whole or part of interest accrued from land rent arrears, upon consulting the Minister for Lands.

Local Government (District Authorities) Act, CAP 287

Each district authority is 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 is 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

Forest produce cess rate reduced from 5% to 3% of farm gate price on purchase of timber, charcoal, logs, firewood, poles and thieses.

The Bill had also proposed a reduction of the hotel levy from 10% to 5%.

Mining Act, CAP 123

Royalty rates reduced as follows:

• Gold sold at refinery centers from 6% to 4%
• Coal used as industrial raw material from 3% to 1%

National Payment Systems Act, CAP 437

Maximum electronic money transaction levy reduced from TZS10,000 to TZS4,000.

Transactions involving salary payment by employers not subject to electronic money transaction levy.

Occupational Safety and Health Act, CAP 297

The Occupational Safety and Health Authority (OSHA) must issue a Compliance License within seven days upon an applicant fulfilling the application requirements. Previously, no timeframe was specified.

Ports Act, CAP 166

TRA to collect wharfage charges to be deposited in a bank account at the Bank of Tanzania. Previously, the charges were collected by the Tanzania Ports Authority (TPA).

Tanzania Investment Act, CAP 38

Respective tax laws are applicable when granting fiscal incentives approved by the National Investment Steering Committee (NISC) to special strategic investors.

Trustee Incorporation Act, CAP 318

The definition of "beneficial owner" has been harmonized with the definition provided in the AML Act.

Trustees are obliged to notify the Administrator General within one month of change where:

• A person ceases to be a trustee, or a new trustee is appointed
• A new beneficial owner is appointed, or an existing beneficial owner changes their names, residence or postal address.

Failure to notify the Administrator General as required is 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 exempt from the Skills and Development Levy.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young (Tanzania), Dar es Salaam

• Silke Mattern | silke.mattern@tz.ey.com
• Grace Mulinge | grace.n.mulinge1@tz.ey.com
• Beatrice Melkiory | beatrice.melkiory@tz.ey.com
• Eliya Nkerebuka | eliya.nkerebuka@tz.ey.com
• Fredy Rugangila | fredy.rugangila@tz.ey.com

Ernst & Young Société d'Avocats, Pan African Tax – Transfer Pricing Desk, Paris

• Bruno Messerschmitt | bruno.messerschmitt@ey-avocats.com
• Alexis Popov | alexis.popov@ey-avocats.com

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

• Kwasi Owiredu | kwasi.owiredu@uk.ey.com
• Byron Thomas | bthomas4@uk.ey.com

Ernst & Young LLP (United States), Pan African Tax Desk, New York

• Brigitte Keirby-Smith | brigitte.f.keirby-smith1@ey.com
• Dele Olagun-Samuel | dele.olaogun@ey.com