INTRODUCTION
The Finance Act, 2021 (Act No. 3 of 2021) has amended 22 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 Companies Act, Cap. 212; The Electronic and Postal Communications Act, Cap. 306; The Excise (Management and Tariff) Act, Cap. 147; The Government Loans, Grants and Guarantees Act, Cap. 134; The Gaming Act, Cap. 41; The Higher Education Student’s Loans Board Act, Cap. 178; The Income Tax Act, Cap. 332; The Local Government Authorities (Rating) Act, Cap. 289; The Motor Vehicle (Tax on Registration and Transfer) Act, Cap. 124; The National Payment Systems Act, Cap. 437; The Non- Citizens (Employment Regulation) Act, Cap. 436; The Ports Act, Cap. 166; The Public Audit Act, Cap. 418; The Road and Fuel Tolls Act, Cap. 220; The Stamp Duty Act, Cap. 189; The Tanzania Communications Regulatory Authority Act, Cap. 172; The Tanzania Shipping Agencies Act, Cap. 415; The Tax Administration Act, Cap. 438; The Tanzania Revenue Authority Act, Cap. 399; The Tax Revenue Appeals Act, Cap. 408; The Value Added Tax Act, Cap. 148; and The Vocational Education and Training Act, Cap. 82.
The amendments set out in The Finance Act, 2021 are effective from 01st July 2021 unless specifically stated otherwise. This update therefore, reviews the changes brought about these amendments to highlight the important regulatory and compliance requirements as well as provide necessary general legal information to our esteemed clients and the general public.
FUNDAMENTAL AMENDMENTS AND THEIR IMPLICATIONS
1. Amendment of the Companies act, cap. 212
Prohibition of Issuance of Share Warrants. The Finance Act, 2021 has amended section 85 of the Companies Act with regard to issuance of share warrants. The new provision prohibits any company to issue share warrants with effect from 01st July 2021. The provision further directs that a bearer of a share warrant shall within 12 months from 01st July 2021 surrender to the company the issued share warrant for cancellation, and the company is obliged to cancel the same, enter in its register of members and beneficial owners the names of persons whose share warrants have been cancelled and notify the Registrar of Companies accordingly. Any share warrant not surrendered after the expiry of 12 months from 01st July 2021 shall be deemed to be cancelled. However, the Registrar has been empowered to allow surrender of share warrants after the expiry of 12 months if there are reasonable grounds of delay. The amendment has also expunged section 117 which provided for entries in register in relation to share warrants. The purpose of this amendment is to strengthen the transparency of beneficial owners of legal entities and restrict the issuance and circulation of share warrants.
2. Amendment of the Electronic and Postal Communications Act, Cap. 306
Introduction of Development Levy on Airtime. The Finance Act, 2021 has inserted a new section 164A into the Electronic and Postal Communication Act, Cap. 306 that imposes a new levy on airtime depending on the consumer’s ability to top up Airtime. This amendment comes amidst the government need to raise funds for implementation of development and strategic projects in Tanzania. The Levy is to be charged on airtime at a rate ranging from TZS 5 to TZS 222.70 as prescribed in the Regulations.
3. Amendment of the Excise (Management And Tariff) Act, Cap. 147
Introduction of Excise Duty (10%) on Imported Used Motorcycles. Section 124 of the Excise (Management And Tariff) Act has been amended to impose Excise duty at the rate of 10% on imported used motorcycles in Tanzania aged more than 3 years. The reason is to discourage importation of used motorcycles with a view to protecting the environment. Previously, imported motorcycles had no Excise duty.
4. Amendment of the Gaming Act, Cap. 41
Reduction of Gaming Tax on Winnings. The Finance Act, 2021 has also amended section 31A of the Gaming Act by reducing gaming tax on winnings from 20% to 15% with a view to encourage players to opt for local gaming activities instead of offshore gaming activities.
Allocation of 5% into Sports Development Fund (SDF). The 2nd Schedule to the Gaming Act, Cap 41 (Item 1) has been amended to provide that 5% of the gaming tax to be allocated to the SDF. As such, the Finance Act, 2021 has maintained the original 25% rate but provides that 5% of gain tax will be allocated into SDF.
Addition of Gaming tax rates and other Types of Gaming Activities. Further the amendment of the Gaming Act has introduced a gaming tax rate for Virtual games (10% of Gross Gaming Revenue) and also a gaming tax rate of 10% for Gross Gaming Revenue for Other Gaming products licensed under section 51. According to Section 51, the Gaming Board is allowed to issue license, authorize the promotion of gaming products other than those specified or contemplated under the Gaming Act. The license issued under Section 51 is valid for a period of 6 months but renewable.
5. Amendment of the Higher Education Student’s Loans Board Act, Cap. 178
Fettered Powers of the HESLB. Section 7 of the Higher Education Students Loans Board Act, Cap. 178 has been amended to restrain the Higher Education Student Loans Board (HESLB) to impose retention fee or any other fee, charges, penalty, or payments on repayment of the Student’s loan owed by former student loan beneficiary without approval of the Minister for Education in consultation with Minister responsible for Finance. The prupose of the amendment is to regulate the Board’s powers of imposing conditions on the loans issued to Higher Learning students.
6. Amendment of the Income Tax Act, Cap. 332
Expanding the Definition of Permanent Establishment (PE). The definition of Permanent Establishment under section 3 of the Income tax Act, Cap. 332 has been expanded to the effect that where an agent other than an independent agent is acting on behalf of another person, that other person will be deemed to have a permanent establishment if, one; the agent other than independent agent has and habitually exercises authority to conclude contracts or issues invoice on behalf of that other person, unless his activities are limited to the purchase of goods or merchandise for that other person two; the agent other than independent agent has no authority to conclude contracts, but habitually maintains stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of that other person, or three; the agent other than independent agent habitually secures orders, wholly or almost wholly for that other person or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that of that other person.
It should be noted that the legislative intent of expanding this definition is to comply with the scope of PE under the latest directives of both OECD and UN frameworks regarding the thematic scope of PE (see the United Nations Model Double Taxation Convention between Developed and Developing Countries, 2017 & OECD Action Plan on Base Erosion and Profit Shifting, 2013).
Minister’s Power to Grant Exemption without Cabinet’s Approval. Section 10 of the Income Tax Act, Cap. 332 is amended by empowering the Minister for Finance to grant tax exemption in respect of any strategic project with a total tax payable not exceeding TZS 1 Billion for the entire project period; or under any grant agreement, non-concessional or concessional loan agreement between the Government of the United Republic of Tanzania and a Donor or Lender where such agreement provides for income tax exemption. The Powers granted to the Minister allows the minister to exercise that discretion without prior Cabinet approval with a view to fast-track implementation of beneficial projects.
Expanding Deductions for Petroleum Rights on International Pipeline. The Finance Act, 2021 has amended section 65N of the Income tax Act, Cap. 332 to expand the scope of deductions for petroleum rights specifically on international pipeline. The new provision states that, assets owned and employed by a person on international pipeline shall be treated as depreciable assets of class 6 pool of depreciable assets.
The legislature has also made clear that international pipeline means a cross border pipeline for transportation of crude oil from a foreign country to a port facility in the United Republic in which such crude oil is exported to another foreign country. The rationale of this amendment is to enable computation of depreciation of assets involved in the construction of the international pipeline.
Withholding from Agricultural, Livestock and Fisheries Products. Section 83B has been introduced requiring a resident corporation dealing with agricultural, livestock and fishery products to withhold tax at a rate of 2% upon making payment to resident persons other than persons who sell agricultural, livestock and fishery products through agricultural marketing cooperative societies and cooperative unions. The legislative intent behind this amendment is for the purpose of expanding tax base and to enhance compliance.
Changes on Duration of Filing Monthly Withholding Tax returns. It should be noted that, the requirement to file a withholding tax return within 30 days after the end of each 6-month calendar period has now changed as per the amended section
84 of the Income tax Act, Cap. 332. Withholding tax return should now be filed within 7 days of the month following the month to which the tax relates, in the prescribed Form by every withholding agent. The return should include Tax Identification Number (TIN) of the withholdee along with other necessary details.
Changes on PAYE Rates. Further the Income tax Act has been amended to reduce the tax rate for lower income employees so as to relieve them from tax burden. Thus, the 1st Schedule to the Income Tax Act has been amended to reduce the income tax PAYE rate from 9% to 8%. Subsequently, the PAYE bands haves been revised accordingly.
7. Amendment of the Local Government Authorities (Rating) Act, Cap. 289
Changes on the Definition of Rateable Property for Purposes of Property Tax in District Councils. Before this amendment, the term rateable property in the case of a plot with more than one building – for purposes of property tax in district councils – meant/included only one building that was charged the highest rates in that plot. But, the Finance Act, 2021 has amended section 3 by inserting new definition to the effect that in the case of a plot with more than one building, all buildings in actual occupation in that plot including improvements on, in or under such buildings – are now regarded as rateable property for purposes of property tax in district councils. The reason for this broad definition is to expand the tax base and enhance compliance.
Increased Property Tax Rates. Section 6 has been amended to increase the property tax rates in the following latitudes:
In case of City Council, Municipal Council & Town Council Areas: –
| Nature of Building | Old Rates (TZS) | New Rates (TZS) |
| Ordinarybuilding | 10,000 | 12,000 |
| Each storey ina storey building | 50,000 | 60,000 |
In case of District Council Areas: –
| Nature of Building | Old Rates (TZS) | New Rates (TZS) |
| Ordinary building | 10,000 | 12,000 |
| Each storey in a storeybuilding | 20,000 | 60,000 |
Remittance of 15% to the Ministry responsible for Local Government Authorities. Similarly, section 2A has been amended directing the Minister responsible for finance to cause 15% of the monies collected to be remitted to the Ministry responsible for local government authorities.
8. Amendment of the Motor Vehicle (Tax on Registration and Transfer) Act, Cap. 124
Reduction of Personalized Plate Number Registration Tax. The Finance Act, 2021 has equally amended paragraph 3 of the 1st Schedule of the the Motor Vehicle (Tax on Registration and Transfer) Act, Cap. 124 to reduce the tax for personalized plate number registration from TZS 10,000,000 to TZS 5,000,000 renewable after every 3 years. The reason is to reduce cost for personalized plate number registration and increase Government revenue.
9. Amendment of the National Payment Systems Act, Cap. 437
Introduction of Money Transfer Levy. Section 46A of the National Payment Systems Act has been added establishing a levy to be charged on mobile money transfer transactions depending on the value of the money sent or withdrawn at a rate ranging from TZS 10 to TZS 10,000. The Regulations made under the act prescribe the manner and modality on how the levy on mobile money transfer transactions may be collected and accounted for. The reason behind the changes is to raise funds for implementation of development and strategic projects.
10. Amendment of the Non- Citizens (Employment Regulation) Act, Cap. 436
Penalty for Late/Failure to Submit Returns on Employment of Non- Citizens. Section 16 of the Non-Citizens (Employment Regulation) Act is amended to impose a penalty of TZS 500,000 to employers for late submission or failure to submit to the Labor Commissioner returns on employment of non-citizens (foreigners). The objective of the amendment is to encourage timely submission of returns by employers and deter non-compliance. It should be noted that the employer is required to submit a non- citizen employment return to the Labour Commissioner twice a year, i.e. on 30 June and 31 December. The Amendment introduces a penalty of TZS 500,000 for any late submission or failure to submit for each month or part of a month delayed.
11. Amendment of the Stamp Duty Act, Cap. 189
Revised Stamp Duty Rates. The Finance Act, 2021 amended the Schedule to the Stamp duty Act to prescribe new stamp duty rates to reflect the current value of Tanzania shilling. However, the amendment did not affect the usual stamp duty rate applicable on conveyance i.e 1%.
12. Amendment of the Road and Fuel Tolls Act, Cap. 220
Increased Fuel Levy. The Finance Act, 2021 has amended section 4A and the 2nd Schedule of the Road and Fuel Tolls Act with a view to increasing fuel levy in order to support the construction and maintenance of rural roads in Tanzania. The amendment states that TZS 363 per litre is imposed on petrol and diesel. It is further directed that, out of this levy i.e TZS 363, TZS 100 per litre should be allocated to Tanzania Rural Roads Agency and the remaining TZS 263 per litre should be distributed amongst the Roads Fund (established under section 4) and the Tanzania Rural Road Agency.
13. Amendment of the Vocational Education And Training Act, Cap. 82
Skill Development Levy – Change in Threshold Limit. Before this amendment of section 14, the Employer was required to pay Skill Development Levy (SDL) when number of employees were 4 or more at the rate of 4%. The amendment brought by the Finance Act, 2021 has increased the threshold limit for payment of SDL from 4 to 10 employees.
Therefore, SDL is payable when the employer has 10 or more employees in a particular month. The reason of this amendment is to reduce the burden of levy for employers with fewer employees. More importantly, Section 19 is also amended to remove SDL to institutions that provides public health.
14. Amendment of the Tax Revenue Appeals Act, Cap. 408
Introduction of ‘Out of Court’ Mediation pending Appeals of Tax Disputes. The Finance Act, 2021 has amended section 22 of the Tax Revenue Appeals Act to provide an avenue to the parties to the Tax dispute may at any stage of the proceedings before the judgement is delivered by the Tax Revenue Appeal Board or Tax Revenue Appeal Tribunal to apply for the appeal to be settled amicably through Mediation. In view of this, the Board or Tribunal is directed to: (a) require the parties to report the outcome of the Mediation within a specified time and the same shall issue a final order with respect to such Mediation; (b) issue the final order upon submission of a written settlement agreement duly signed by both parties; and (c) not entertain an issue which has been settled amicably by parties under this section. The aim of introducing mediation procedure on Tax disputes is to speed up resolution of tax disputes and reducing backlog of Tax cases,
15. Amendment of the Tax Administration Act, Cap. 438
Obligation to Apply for Taxpayer Identification Number (TIN). Through the amendment of section 22 of the Tax Admnistration Act, it now mandatory for a person who becomes potentially liable to tax by reason of carrying a business, investment, or employment to apply for a Tax Identification Number (TIN) within 15 days from the date of commencing the business, investment, or employment.
The reason of this amendment is to facilitate proper accounting of tax and enhancing compliance. Further, the 3rd Schedule to the Tax Administration Act is amended adding institutions and transactions for which TIN is required such as Workers Compensation Fund – for Employee’s registration; Occupational Safety and Health Authority – for Employee’s registration; and Government, Company or individual – for Employment. It is therefore clear that employees are now required to apply for TIN as well. The reason is to facilitate proper accounting of tax on employment income. Besides, it also appears that the essence of this amendment is that the monthly statement of tax withheld for employees (PAYE return – filed under the e-filing system) now requires the inclusion of a TIN for each employee. TIN is thus a necessary requirement for Employees.
The Tax Ombudsman’s Office. It should be noted that the provisions dealing with the Tax Ombudsman’s Office were first introduced by the Finance Act, 2019 that amended the Tax Administration Act, Cap. 438 (the Act). However, since the inception of these provisions – there is no any notable development as to the full- fledged launching of the Tax Ombudsman’s Office. The Finance Act, 2021 has further amended the Act through sections 28A, 28B, 28C and 28D purporting to enhance effective implementation of the functions of the Tax Ombudsman’s Office. Among others, section 28B has been amended to add the ‘experience’ qualification of a Tax Ombudsman in addition to competent knowledge on matters of tax administration.
Obligation to Maintain a Primary Data Server in Tanzania for Storage of Documents in Electronic Form. Section 35 of the Tax Administration Act is amended to require every taxable or liable person who maintains documents in electronic form to maintain in the United Republic of Tanzania a Primary Data Server (Primary Data Server means a server which stores data that is created or collected by a taxable or liable person in the ordinary course of business) for storage of documents in electronic form. The said server must be accessible by the Tanzania Revenue Authority Commissioner General (CG) for purposes of tax administration. However, this obligation is effective after 12 months from 01st July 2021. It is thus important to note that, taxpayers will have a period of 12 months (from 1 July 2021 to 30 June 2022) to honour the obligation and non-adherence to this obligation constitutes an offence.
Power of the Commissioner General and Objection of Non-assessment Tax Decision. The Tax Administration Act is also amended at section 44, 51 and 74 to expand the scope of persons from whom the Commissioner General of the Tanzania Revenue Authority may access information. Further, amendment also allows filing of objection of non-assessment tax decision without payment of tax deposit. The Amendment also empowers the Commissioner General to demand tax which was erroneously refunded – the purpose is to enable the Tanzania Revenue Authority (TRA) to recover refunds of tax if subsequently found to be incorrect, But the refund is limited to 5 years time limit.
Timing of Payment of Property Tax. It is interesting to point out that, section 56 of the Tax Administration Act has been amended to enable payment of property rate at the time of payment for electricity, and this has the effect of turning TANESCO a tax collector. The reason advanced by lawmakers is to simplify collection of property rate and reduce compliance cost.
16. Amendment of the Value Added Tax Act, Cap. 148
Timing of Payment, Refund and Remittance of VAT between Mainland Tanzania and Zanzibar. The Finance Act, 2021 has amended sections 3 and 55A of the Value Added Tax (VAT) Act with a view to enabling the refund of VAT between Mainland Tanzania and Tanzania Zanzibar for goods purchased in one part of the Union by persons registered for VAT and consumed in another part of the Union. The object of this amendment is to increase efficiency of the refund of VAT between the two parts of the Union. The current law directs that, regarding taxable supplies when VAT is already paid in Zanzibar under the laws of Zanzibar at the same rate as applicable in Tanzania Mainland, it would thus be deemed that the said tax is paid in Tanzania Mainland and no further tax shall be payable on transfer of goods to Mainland
Equally, regarding taxable supplies when VAT is already paid in Zanzibar at the lower rate as applicable in Tanzania Mainland, it would as well be deemed that the difference tax is not paid in Tanzania Mainland and differential tax shall be payable on transfer of goods to Mainland. In the event of supply of taxable supplies from Mainland to taxable recipient in Zanzibar then VAT should be collected by Tanzania Revenue Authority (TRA) on behalf of Zanzibar Revenue Board (ZRB) and remit to Tanzania Zanzibar Treasury.
General Exemption from VAT. It is equally interesting to note that the Schedule to the VAT Act has been mended to exempt VAT on importation of smart phones, tablets, modems, aluminium and stainless-steel milk cans, crude oil, minerals and mineral concentrates, Contactless Smart Cards and Consumables, cold rooms and artificial grass for football pitches located in city council. ON the other hand, VAT exemption has been removed on solar lights.
Exemption of VAT by Commissioner General. Section 6 has been amended to empower the Commissioner General to grant VAT exemption on importation or supply of goods and services for implementation of strategic projects with a view to increase efficiency in administration and monitoring of VAT exemptions – such as importation of raw materials to be used solely in the manufacture of long-lasting mosquito nets, or importation by or supply to a Government entity of goods or services to be used solely for implementation of a project funded by, among others, the Government. The same has been further amended to exempt VAT on importation by or supply of goods or services to a non- governmental organization on implementation of projects through Agreement(s) with the Government of the United Republic which provides for such exemption (s).
Harmonization of the Definition of Capital Goods and Zero Rating of Transportation of Crude Oil. The Finance Act, 2021 has amended section 11 in order to harmonize the definition of capital goods available in various tax laws for the purpose of preventing loss of Government revenue. It should be noted that the amendment has just adopted the definition of ‘capital goods’ as defined/classified under Chapters 84, 85, and 90 of Annex 1 to the Protocol on the Establishment of the East African Community Customs Union – provided that the said goods are not imported for the purpose of resale in the ordinary course of carrying on the person’s economic activity, whether or not in the form or state in which the goods were imported. Section 59 has equally been amended to allow zero rating of transportation of crude oil through an international pipeline and incidental services. The legislature has defined international pipeline to mean a cross border pipeline for transportation of crude oil from a foreign country to a port facility in the United Republic in which such crude oil is exported to another foreign country
