INTRODUCTION
The growth influence of digital economy has made many countries globally adopt and improve their tax systems and regimes. Appreciating the implications of the current tax system in the digital economy, the Government has identified the need to reform the taxation of digital services to address international tax issues influenced by digital economy.
Responding to the growing concern of digital economy the Government of Tanzania through the Ministry of Finance and Planning has issued the Income Tax (Registration of Non-Resident Electronic Service Providers) Regulations, 2022 (Government Notice No. 478U of 01 July 2022) and the Value Added Tax (Registration of Non-Resident Electronic Service Suppliers) Regulations, 2022 (Government Notice No. 478Q of 01 July 2022) which came in operation on 01st July 2022 to prescribe the procedure for assessing and collecting Income Tax and Value Added Tax (VAT) from Non-Resident Electronic Service Providers and Suppliers in Tanzania.
INCOME TAX (REGISTRATION OF NON-RESIDENT ELECTRONIC SERVICE PROVIDERS) REGULATIONS, 2022
The Income Tax Act Cap. 332 under Section 90A, as amended by the Finance Act, 2022 introduced tax on Non-Resident Electronic Services Providers at the rate of 2%.
Following this amendment, the Minister for Finance and Planning issued new regulations on Income Tax (Registration of Non-Resident Electronic Service Providers) Regulations, 2022 (Government Notice No. 478U of 01 July 2022) to prescribe the procedures for assessing and collecting income tax from Non-Resident Electronic Services Providers.
SCOPE OF ELECTRONIC SERVICES
The scope of the Regulations includes various services provided and delivered through, websites, web-hosting or remote programs and equipment, software, software updates, images, texts or information, access to database, self-education packages, music, films, and games, as well as political, cultural, artistic, sporting, scientific and other broadcasts and events including broadcast television. This has been seen to have targeted services on digital platforms.
APPLICATION FOR TAX REGISTRATION
According to the Income Tax (Registration of Non-Resident Electronic Service Providers) Regulations, 2022, a Non-Resident Person who provides electronic services to a resident individual as provided for under section 90A (1) of the Income Tax Act, Cap. 332 is required to make an application to the Commissioner General for tax registration in a prescribed Form. The application must contain the following information: –
- Name of the business including the business trading name. Certificate of incorporation.
- Name of the contact person for tax matters.
- Registered address of the business.
- Telephone number of the contact person.
- Email address of the contact person Website or uniform resource locator of the supplier through which the business is conducted; and
- Any other information the Commissioner General may require.
Upon being satisfied with the information provided by the applicant, the Commissioner General shall register and issue the applicant with a Tax Identification Number (TIN) for the purpose of filing returns and tax payment.
DEREGISTRATION
Under the Regulations, where a non-resident ceases to render electronic services permanently, they should inform the Commissioner General via a prescribed Form. Thus, the Commissioner General shall deregister a person who ceases to provide services or upon his discretion to do so.
REGISTRATION FOR PREVIOUSLY EXISTED NON-RESIDENT SERVICES PROVIDERS
The Regulations require a non-resident person who supplies electronic services in Mainland Tanzania prior to the coming into effect of these Regulations is required to register within six months from the date of coming into effect of these Regulations.
SOURCE OF PAYMENT
Under the Regulations, payment for electronic services shall be deemed to have source in Tanzania, where the recipient of the service is in Tanzania. Specifically, in the following circumstances:
- The payment proxy including credit or debit card information and bank account details of the recipient of the electronic services is in Tanzania; or
- The resident proxy including the billing or home address or access proxy including internet address, mobile country code of the SIM card of the recipient in Tanzania.
FILING OF RETURNS
Returns for tax on electronic services shall be filed online. The return shall be in a prescribed Form and accompanied with the tax payable in respect of electronic services rendered in the tax period. Tax shall be paid to a bank account designated by the Commissioner General, in Tanzanian Shilling or its equivalent as per the Bank of Tanzania’s prevailing exchange rate on the date of payment.
EXEMPTION FROM USING ELECTRONIC FISCAL DEVICE AND PENALTY FOR FALSE OR MISLEADING STATEMENTS AND PAYMENT OF INTERESTS.
A non-resident person registered under these Regulations shall not be required to acquire and use an electronic fiscal device.
A person who makes a false or misleading statement or omits to include material facts in a statement made to a tax officer shall be liable to a penalty prescribed under Section 79 of the Tax Administration Act, Cap. 438 (i.e., payment 50% of the tax shortfall where the statement is made without reasonable excuse or 75% of the tax shortfall where a statement is made knowingly or recklessly).
Further, a person registered under the Regulations who fails to pay tax on the due date shall be liable to pay interest at the statutory rate compounded monthly.
OFFENCE AND PUNISHMENT FOR NON-COMPLIANCE
Failure to comply with the regulations is an offence and attracts a fine of not less than 200 currency points and not more than 300 currency points or imprisonment for a term not exceeding 3 years.
VALUE ADDED TAX (REGISTRATION OF NON-RESIDENT ELECTRONIC SERVICE SUPPLIERS) REGULATIONS, 2022
Like the Income Tax Regulations, the Ministry of Finance also issued the Value Added Tax (Registration of Non-Resident Electronic Service Suppliers) 2022 regulations to prescribe the way VAT will be assessed and collected for non-resident electronic services. The Regulations also were issued for the purpose of guiding the Commissioner in registration of Non-Resident Electronic Service Suppliers.
The Regulations have categorized the electronic services rendered through the internet or any other electronic means in different groups. For websites: web- hosting or remote programs and equipment; for software and updating; for images, texts, or information; access to database; for self-education packages; music, films and games including gaming activities; and political, cultural, artistic, sporting, scientific and other broadcasts and events including broadcast television.
APPLICATION FOR VAT REGISTRATION FOR NON-RESIDENT ELECTRONIC SERVICE SUPPLIERS
The Regulations require a non-resident person who supplies electronic services to an unregistered person based in Mainland Tanzania, who does not appoint a tax representative, to apply for registration as a taxable person to the Commissioner General regardless of registration threshold. The application shall be made online in the prescribed Form. The application is done online and must contain the following information:-
- Name of the business including the business trading name.
- Certificate of incorporation.
- Name of the contact person for tax matters.
- Registered address of the business.
- Telephone number of the contact person.
- Email address of the contact person.
- Website or uniform resource locator of the supplier through which the business is conducted; and
- Any other information the Commissioner General may require.
If the Commissioner General is satisfied by the information supplied by the applicant, he or she will register and issue the applicant with a VAT Registration Number.
PLACE OF SUPPLY
The supply of electronic services shall be treated to have been delivered in mainland Tanzania when supplied to unregistered person in the following circumstances: –
- The payment proxy including credit or debit card information and bank account details of the recipient of the electronic services is in Mainland Tanzania; or
- The resident proxy including the billing or home address or access proxy including internet address, mobile country code of the SIM card of the recipient is in the mainland Tanzania.
FILING OF RETURNS
Returns for tax on electronic services shall be filed in a prescribed Form and accompanied with the tax payable in respect of electronic services rendered in the tax period. Tax shall be paid and return to be filed to the Commissioner General on or before the seventh day of the month following the month to which the return relates.
The tax shall be paid to a bank account designated by the Commissioner General, in Tanzanian Shilling or its equivalent as per the Bank of Tanzania’s prevailing exchange rate on the date of payment.
CORRECTION OF ERRORS CLAIM OF INPUT TAX
Correction of errors on return submitted in accordance with these Regulations shall be made through the normal VAT process in accordance with section 78 of the Value Added Tax Act Cap. 148. A person registered under these regulations shall not be allowed to claim any input tax.
EXEMPTION FROM USING ELECTRONIC FISCAL DEVICE AND PENALTY FOR FALSE OR MISLEADING STATEMENTS AND PAYMENT OF INTERESTS
A non-resident person registered under these Regulations shall not be required to acquire and use an electronic fiscal device. Also, a person who makes a false or misleading statement or omits to include material facts in a statement made to a tax officer shall be liable to a penalty prescribed under section 79 of the Tax Administration Act, Cap. 438 (i.e., payment 50% of the tax shortfall where the statement is made without reasonable excuse or 75% of the tax shortfall where a statement is made knowingly or recklessly).
Further, a registered person who fails to pay tax on the due date shall be liable to pay interest at the statutory rate compounded monthly.
OFFENCE AND PUNISHMENT FOR NON-COMPLIANCE
Failure to comply with the regulations for non-resident persons registered under the regulations is an offence and attracts a fine of not less than 200 currency points and not more than 300 currency points or imprisonment for a term not exceeding 3 years.
