KEY POINTS
- Abolition of Export Levy on Raw Hides and Skins
- Introduction of Withholding tax on Holder of Primary Mining License, Artisanal Miners and Carbon Trading
- Extension of Period to have Primary Data Servers in Tanzania
- Reduction of Skills Development Levy (SDL) from 4% to 3.5%
- Clarity on the definition of Storage Facility excludes storage facility from warehouse, godown or other facility that is part of a shop, factory, industry or farm
- Exclusion of Individual Tenants to Pay Withholding Tax on Residential Premises
INTRODUCTION
The Finance Act, 2023 (Act No. 7 of 2023) has amended 18 revenue and other related laws in Tanzania with a view to imposing and altering certain taxes, duties, levies, and fees in order to enhance the collection and management of public revenues. The amended laws are, the Copyright and Neighbouring Rights Act Cap. 218, The Electronic And Postal Communications Act Cap. 306, the Excise (Management And Tariff) Act Cap. 147, the Export Tax Act Cap. 196, the Food Security Act Cap. 249, the Foreign Vehicles Transit Charges Act Cap. 84, the Gaming Act Cap. 41, the Income Tax Act Cap. 332, the Land Act Cap. 113, the Local Government Authorities (Rating) Act Cap. 289, the Local Government Finance Act Cap. 290, the Mining Act Cap. 123, the National Payment Systems Act Cap. 437, the Road And Fuel Tolls Act Cap. 220, the Tax Administration Act Cap. 438, the Tanzania Revenue Authority Act Cap. 399, the Value Added Tax Act Cap. 148, the Vocational Education and Training Act Cap. 82. The amendments set out in The Finance Act, 2023 are effective from 01st July 2023 unless specifically stated otherwise. This update reviews some of the emended laws to highlight the changes brought about these amendments with the view of enlightening important regulatory and compliance requirements as well as provide necessary general legal information to our esteemed clients and the general public.
FUNDAMENTAL AMENDMENT AND THEIR IMPLICAITON
Amendment of Copyright and Neighbouring Rights Act Cap. 218
Introduction of New Levy on Disks
The Finance Act, 2023 amended Section 48A of the Copyright and Neighbouring Rights Act Cap. 218 to introduce a levy of 1.5% on vinyl, mini disc, compact disk, digital versatile disk, and SD Memory for the purpose of enhancing the enforcement of Copyright protection and revenues in Tanzania.
Amendment of the Electronic and Postal Communications Act Cap. 306
Removal of Airtime Levy
Section 16A of the Electronic and Postal Communications Act, Cap. 306, was repelled so as to abolish airtime levy. In 2021, the Government had introduced Airtime levy on airtime at a rate ranging from TZS 5 to TZS 222.70 depending on the consumer’s ability to top up Airtime.
Amendment of the Excise (Management and Tariff) Act Cap. 147
Introduction of various duties and charges
Excise (Management And Tariff) Act Cap. 147 was amended among others under the Fourth Schedule by introducing excise duty rates on cement (TZS 20 per Kg), hybrid vehicles (10%); bituminous oil and other products made of bituminous material; and electronic cigarette, vape products and shisha (30%). The schedule is further amended in order to increase the excise duty rate on imported energy drinks.
Export Tax Act, Cap. 196
Abolition of Export Levy on Raw Hides and Skins
A new section 3(6) was added exempting export levy on Raw Hides and Skin to investors who export meat and operating under the Export Processing Zones
Amendment of Foreign Vehicles Transit Charges Act, Cap. 84,
Increase of Rates on Foreign Transit Vehicles
The Finance Act, 2023 amended Section 3 to allow charging higher rates on foreign transit vehicle in the event the host country of the foreign vehicle charges higher rates than those prescribed by regional integration including EAC, SADC or COMESA for the purpose of enhancing equity and safeguarding national interest.
Amendment of Gaming Act, Cap. 41
Introduction of new definition “commercial gaming undertaking” and “gross gaming revenue”
The Finance Act, 2023 amended Section 3 by introducing various definitions of terms in order to provide the intended meaning of various provisions. New definitions are introduced as follows: “commercial gaming undertaking” means “any gaming activity which is subject to gaming tax”.
“gross gaming revenue” means “collective amount of wagering or staking placed by players minus the collective amount of winnings paid out to players”.
The Finance Act, 2023 amended section 13 by adding subsection (4) to impose a condition that the Gaming Board of Tanzania shall issue licences to companies in which citizens of Tanzania own at least 25% of the undivided shares. The amendment aims to increase investment by Tanzanians in commercial gaming undertakings. The Act has also amended section 26 to allow the introduction of not more than two table games on forty machines sites for the purpose of widening tax base. The Act has reduced the rate of gaming tax on forty machine sites from 25% to 18% of the gross gaming revenue (GGR) to promote fairness in taxation within the gaming industry.
Amendment of Income Tax Act, Cap. 332
Change in Control and Allotment of New Membership Interest of an Entity
The Finance Act, 2023 amended section 4 to provide tax rates of individuals engaged in transportation of cargo or passengers who are not required by law to file tax returns for the purpose of providing presumptive tax regime that will enhance tax compliance. The Act also amended section 56 to exclude from taxation allotment of new membership interest and transfer of resident membership interest to another resident person in order to attract investment.
The Act repealed Division VI of Part V of the Act and introduced a simplified procedure under section 4 for estimation of income tax for transporters of passengers and cargo by using indicative tax rates for individual taxpayers who are not obliged to prepare accounts and file tax returns.
Payment of e-services
The Finance Act, 2023 amended section 69 to include payment of electronic services in the list of payments that have source in United Republic of Tanzania for the purpose of protecting and widening the tax base.
The Finance Act, 2023 amended section 90A in order to enable taxation of electronic services whether or not rendered through a digital marketplace and extend the due date of submission of digital service tax. This aims to ease compliance and widen tax base.
Exclusion of Individual Tenants to Pay Withholding Tax on Residential Premises
The Finance Act, 2023 amended section 82 in order to remove obligation of individual to withhold tax on payment of rent in respect of residential premises for the purpose of removing burden to individual tenants of paying withholding tax on behalf of their landlords.
Introduction of Income Tax to the Holder of Primary Mining License and Artisanal Miners
The Finance Act, 2023 amended section 83 of the Act to introduce income tax to the holder of primary mining licence and artisanal minersfor the purpose of providing special arrangement of taxation of holders of primary mining licence and artisanal miners and resolve challenges existing in the collection of taxes in the mining sector. The amendment also has introduced income tax on payments made to transactions relating to verified carbon emission reduction transactions for the purpose of enhancing equity principle of taxation and widening tax base.
Moreover, the Finance Act, 2023 amended the First Schedule of the to the Income Tax Act by introducing tax rates for holders of primary mining license and artisanal miners, verified carbon emission reduction transaction and individuals engaged in transportation of passangers or goods.
Removal of Threshold of Five hundred Thousand shillings (TZS 500, 000/=) Rental Amount Liable to Withholding Tax
The Finance Acv, 2023 amended section 86 to include payments made to holder of primary mining licence or artisanal miner as well as payments made in respect of verified carbon emission reduction transactions in the list of final withholding payments and also to remove the threshold of five hundred thousand shillings as amount of rental liable to withholding taxfor the purpose of enhancing tax laws compliance.
Introduction of Three Percent (3%) Rates in Computation of Capital Gain Tax for Seller
The Finance Act, 2023 amended section 90(1) by introducing a tax rate of three percent of the incomings or approved value of the land for sellers of land who do not possess document evidence substantiating the costs. The amendment aims to simplify computation of Capital Gain Tax for sellers of land who do not possess supporting documents.
Exemption on Gain Derived from Internal Restructuring of Mining Companies
The Finance Act, 2023 amended the Second Schedule by adding exemption on gain derived from internal restructuring of mining companies as agreed in the framework agreement between Government and investor for the purpose of streamlining the implementation of Government commitment of Framework Agreements.
Further, the Finance Act, 2023 amended the Second Schedule to introduce exemption of investment return in respect of fixed deposit, treasury bills or treasury bonds or dividend derived by the National Health Insurance Fund (NHIF) in order to expedite the implementation of joint venture projects between the Government and mining investors and to empower NHIF to provide wider health services to the public.
Amendment to the Local Government Authorities (Rating) Act, Cap. 289
Increase of Property Tax Rates
The Finance Act, 2023 has amended section 6 to include all the areas within a district council as ratable areas for the purpose of ensuring equity in payment of property tax. Also, section 7 is amended by widening the scope of ratable areas in District Councils and include in the list of exempt properties mud huts, thatched houses, mud houses and such other similar houses used for residential purposes in order to enhance equity in taxation.
Section 16 is amended to increase the property rate from 12,000 shillings to 18,000 shillings for an ordinary building and from 60,000 shillings to 90,000 shillings for each storey building to ensure that tax is payable with the actual value of the property. The section is further amended to make provisions for remittance to the local government authorities of 20% of the rate collected in order to facilitate administration and collection of the property rate.
Amendment to the Local Government Finance Act, Cap 290
Incorporation of Rates Remitted to Local Government Authorities
The Finance Act, 2023 has amended sections 6(1) and 7(1) by incorporating 20% of the property rate and land rent remitted to local government authorities as sources of revenue for urban authorities and district councils. This amendment is subsequent to the amendments to the Local Government Authorities (Rating) Act, Cap. 289 to enable remittance of 20% of property rate.
Payment of Service Levy to Minister of Local Government
Section 9A has been amended to include holders of electronic money issuing licenses among companies required to pay service levy to the Minister responsible for local government. This amendment intends to reduce administrative costs.
Shifting Mandate from TRA to PO-RALG
Further amendment has been done to Section 31A by shifting the mandate to collect advertisement fees on billboards, posters and hoarding from the Commissioner General of Tanzania Revenue Authority to the President’s Office Regional Administration and Local Government for the purpose of increasing efficiency in collection of the fees. The shifting of mandate from TRA to PO-RALG intended to provide more effective mechanism in management and monitoring.
Amendment to the Mining Act, Cap 123
The Finance Act, 2023 has amended section 90A to exempt refineries from paying inspection fee of 1 percent (1%) for the purpose of stimulating the growth of mineral refining sub-sector in the country, attracting investment, promoting employment as well as increasing Government revenue.
Amendment to the Tax Administration Act, Cap. 438
The Finance Act, 2023 has amended section 35, subsection (9) by widening the scope of the definition of the term “primary data server” to include physical or virtual data server”. This amendment intends to recognize other forms of data servers created by a taxable person or other person liable under the section. Further, subsection (10) has been amended by extending the period for which the requirement under the Act shall take effect. The purpose of this amendment is to reduce the costs associated with installation of servers and to provide sufficient preparation time for taxpayers to effect measures under section 35.
Definition of Terms
Section 36(1) has been amended by deleting the words “by using electronic fiscal device” in order to allow issuance of receipt by devices other than electronic fiscal device for the purpose of recognizing other approved devices or technology that can issue fiscal receipts. Further amendment has been made to Section 45A by adding subsection (4) to provide definition of terms as used under the section in order to provide for clarity and ease of tax administration.
Introduction of Timelines and Dates for Various Tax Decisions
Section 44A (1) has been amended in order to provide for a time frame for disclosure of information to the Commissioner General on contracted services so as to enhance tax compliance.
Admission or Refusal of Objection: Procedure
Section 51 is amended by adding new subsection (13) so as to prescribe a time frame for admission or refusal of notice of objection in order to ensure effective administration of tax objections and ensure feedback is communicated to objectors.
Application For a Tax Refund
Section 71(3) has been amended to provide for the dates or time within which applications for tax refund can be made in order to ensure fairness in tax administration.
Penalties on Default to Issue Receipts
Further, Section 86(1) and (4) has been amended to provide proportionate tax penalties to sellers who fail to issue receipts and buyers who fail to demand receipts. This amendment intends to prescribe an appropriate penalty for offence committed for purposes of enhancing compliance of the law.
Amendment to the Value Added Tax Act, Cap. 148
VAT Exemption and Deferment
The Finance Act, 2023 has amended section 2 in order to provide for the intended meaning. Section 6 has been amended to exempt raw materials solely used in the manufacture of packaging materials of pharmaceutical products as well as pre-fabricated structures of HS Code 9406.20.90 to be used solely in poultry farming. This amendment intends to reduce costs to producers and promote the growth of the sectors. Further amendment has been made to Section 11 in order to include deferment of value added tax on locally manufactured capital goods to attract new investment, promote domestic production and increase employment opportunities in the country.
Taxation of Other Electronic Devices
Section 51 is amended in order to widen the tax base by including other electronic services in the list of taxable electronic services. Previously the taxable electronic devices only meant any of the following services provided or delivered through a telecommunications network-
(a) websites, web-hosting, or remote maintenance of programmes and equipment;
(b) software and the updating thereof;
(c) images, text, and information;
(d) access to databases;
(e) self-education packages;
(f) music, films, and games, including gaming activities; and
(g) political, cultural, artistic, sporting, scientific, and other broadcasts and events including broadcast television.
Zero Rated Supplies
Section 55A has been amended to zero rate VAT on supply of fertilizers manufactured locally for a period of one year for the purpose of providing relief to farmers and consumers. Section 55B has been added in order to zero rate the supply of locally manufactured garments made from locally grown cotton in order to promote domestic production and reduce costs to consumers.
Recognition of Other Devices Used to Issue Fiscal Receipt
Section 86 has been amended in order to recognize fiscal receipts issued by devices other than electronic fiscal devices.
Other Amendments to VAT
The Finance Act, 2023 has amended Section 69 to ensure proper application of tax provision and ease tax administration.
The Schedule to the Value Added Tax Act has been amended to align the H.S Codes with the current version of H.S Codes as per East African Community Customs External Tariff Book, 2022. The Schedule has also been amended by exempting low cost houses in order to enable citizens to have access to affordable houses and promote their living standards.
Amendment Relevant to Various Strategic Sectors
Aviation Sector
The finance Act, 2023 has amended the Schedule to the Value Added Tax Act, Cap. 148 to include exemption on the lease and supply of aircraft, aircraft engines and aircraft parts in order to reduce costs to operators and promote the growth of the aviation sector.
Mining Sector
The Schedule is further amended in order to exempt value added tax on supply of precious metals, gemstones, and other precious stones at refineries, buying stations or at mineral and gem houses for the purpose of promoting the sale of minerals in the markets and increase the sector’s contribution to the Government revenue.
Amendment to the Vocational Education Training Act, Cap. 82
Reforms on Skills Development Levy Distribution
The Finance Act, 2023 has amended section 14 by reducing the Skills Development Levy (SDL) rate from 4 per centum to 3.5 per centum for the purpose of reducing operational costs to employers.
Section 15 has been amended to provide distribution of Skills Development Levy, whereby 1/3 of the levy shall be remitted to the Ministry responsible for employment, 1/3 to the Higher Education Students’ Loans Board and 1/3 to VETA. This amendment intends to enable the implementation of work based skills and training initiatives and to achieve the objectives of the Fund.
Section 16 has been amended to remove the obligation of filing returns from employers who are not required to pay the Skills Development Levy. Further, Section 19 has been amended to empower the Minister responsible for finance after consultation with the Minister responsible for education to exempt payment of levy where the exemption is for the public interest in order to provide distribution of the skills.
