Legal UpdateThe Finance Act, 2019 –Tanzania Tax Implications From The New Budget 2019/2020

Introduction

Following the tabling of the Annual budget for the financial year 2019/2020 before the parliament on 13^th June, 2019, the parliament passed the Finance Act, 2019. It become operative on 01^st July 2019. The Finance Act, 2019 amends nine laws namely; The Airport Service Charge Act (Cap. 365), The Excise (Management and Tariff) Act (Cap. 147), The Income Tax Act (Cap. 332), The Port Service charge Act (Cap. 264), The Road Traffic Act (Cap. 168), The Standards Act (Cap. 130), The Tanzania Food, Drugs and Cosmetics Act (Cap. 219), The Tax Administration Act (Cap. 438) and the Value Added Tax Act (Cap. 148). The key drive to these amendments has been driven by the Country’s vision 2025 to enhancing economic growth particularly in agriculture, manufacturing, employment and improvement in tax administration. It also aims to enhance collection, management of public revenues and improving business environment. This update highlights the key amendments and their impact to the business in general.

Amendment of the Excise (Management and Tariff) Act, Cap. 147

By virtue of Section 6 of the Finance Act, the new Section 135A was introduced in the Excise (Management and Tariff) Act which provide exemption from duty on aircraft lubricants. The amendments now allows the importation or supply of aircraft lubricants to a local operator of air transportation or a designated airline under a bilateral air service agreement between the Government of the United Republic of Tanzania and a foreign Government to be exempted from liability to pay the duty.

Of the most lauded amendment is the introduction of excise duty on locally manufactured or imported Human Hair (wigs). Effectively, an Excise duty of 10% and 25% shall be charged for locally manufactured or imported Human Hair (wigs) respectively.

Amendment of the Income Tax Act Cap. 332

Section 9 of the Finance Act, amends the first and second schedule of the Income Tax Act to reduce the corporate tax for entities dealing in the manufacture of sanitary pads 30% to 25% for two consecutive years from 1^st July 2019 to 30^thJune 2021. But the said entities must enter into a performance agreement with the Government of the United republic of Tanzania to qualify for the reduced tax rate.

To facilitate Government borrowing and reduce borrowing expenses, Income tax has been amended to grant exemption of withholding tax on interest, fees or other financing charges paid by the Government to a nonresident bank, financial institution, other Government or representative of other Government arising from a loan agreement that entitles such nonresident entity to a tax exemption for purposes of financing Government projects.

Furthermore, the amendment raised the turnover threshold required to comply with the filing Annual Financial Accounts from Tanzania Shillings 20M to Tanzania Shillings 100Million. Moreover, Small vendors with annual turnover of less than Tanzania Shillings 4Million are relieved from paying income tax but, must purchase the designated Vendor’s identity Cards.

Amendment of the Tax Administration Act, Cap. 438

• Tax Deferment for Newly registered Business: Through Section 43 of the Finance Act the amendment was made to Section 22 of the Tax Administration Act to the effect that, where a person is registered and issued with a taxpayer identification number (TIN) for the first time and for the purpose of carrying on a business or investment, then the requirement to pay instalment tax shall be deferred for a period of six months from the date when the tax identification number was issued.
• Registration of Small Vendors: The Finance Act has amended the Tax Administration Act by empowering the Minister for Finance to make regulations providing for prescribed fees, the manner of recognizing and registration, and any other matter relating to small vendors. In February, 2019 the President introduced the annual compulsory Identity Cards that are sold at TZS 20,000 (eqv to US$10) to small vendors as a measure to collect revenue from businesses in the informal sector, mainly the small vendors
• Establishment of Tax Ombudsman Office: Section 45 of the Finance Act amend the tax administration Act by establishing the office of tax Ombudsman within the Ministry of Finance. The said office shall be responsible for reviewing and addressing any complaint by a taxpayer regarding service, procedural or administrative matters arising in the course of administering tax laws by the authority, the commissioner general or a staff of the Tanzania Revenue Authority. Briefly the following are the obligations of the Tax Ombudsman
• Appointment of the Tax Ombudsman: The Finance Act empowers the Minister for Finance to appoint a person with competent knowledge in tax administration matters to be a Tax Ombudsman for a renewable period of three years. The Tax Ombudsman shall be incharge to carry out the functions of the Office independently and impartially without interference from any institution, agency or department of the Government or any other person. Tax Ombudsman findings shall directly be submitted to the Minister for Finance as recommendations for the Minister’s deliberations and directives. The decisions or recommendations of the Tax Ombudsman shall not bind a taxpayer whose complaint or matter formed the subject matter of such decision or recommendation.
• Section 28C of the Finance Act provides for the Duties of the Tax Ombudsman to be:
  • To review complaints and resolve the same amicably through mediation or reconciliation where necessary;
  • To act independently and impartially when reviewing complaints;
  • To follow informal, fair and cost effective procedures in resolving complaints;
  • To provide taxpayer’s education on the Tax Ombudsman functions and procedures for making complaints;
  • facilitate access by taxpayer to dispute resolution processes within the Tanzania Revenue Authority; and
  • identify and review tax administrative issues related to customer service, or procedures and behaviours which impact negatively on taxpayers.

• Limitation of powers of the Tax Ombudsman: In Discharging its duties the Tax Ombudsman is limited and shall not review the following:
  • Legislation or tax policy;
  • TRA’s policy or practice unless it relates to service, administrative or procedural matter that relates to administration of tax laws; and
  • A matter subject to objection or appeal save for an administrative matter relating to such tax objection or appeal.

• Confidentiality Requirement: The Tax Ombudsman and any other person who acts on his behalf is obliged to maintain confidentiality and not to disclose any information received from the taxpayer in the course of performing his duties. Notwithstanding section 21 of the Tax Administration Act, on confidentiality, The Revenue Authority shall allow the Tax Ombudsman access to information in the possession of the Revenue Authority, which relates to the Tax Ombudsman’s powers and duties.

Amendment of the Value Added Tax Act, Cap. 148

The Finance Act through Section 47 has amended the Value added Tax Act by adding Section 61B which allow for a supply of electricity services by a supplier of electricity service in mainland Tanzania to another supplier of electricity service in Tanzania Zanzibar to be zero rated. This means, electricity supplied to Zanzibar from Tanzania will be VAT zero rated.

Also the Act through Section 51 has amended part I and II of the schedule to the Value Added Tax Act by allowing exemption of value added tax on a supply of aircraft lubricants to a local operator of air transportation. This has been adopted to boos airline industry, particularly the rising Air Tanzania which has recently acquired about 5 new flights.

Furthermore, to enhance the investment in Agricultural sector, Value Added Tax has been exempted for an import of refrigerated containers by a person engaged in horticulture for exclusive use in horticulture in mainland Tanzania. In addition to that, an import of grain drying equipment by a person engaged in agriculture for exclusive use in agriculture in mainland Tanzania have also been exempted from payment of value added tax.

Other Notable Amendments

• Driving License: The Finance Act has amended section 25(2) of the Road Traffic Act, to increase driving license expiration period from three years to five years.
• The re-designation of the Tanzania Foods and Drugs Authority (TFDA) into Tanzania Medicines and Medical Devices Authority (TMDA): The Tanzania Food, Drugs and Cosmetics Act, Cap 219 was amended to redesignate the activities that were done by the Tanzania Foods and Drugs Authority relating to food, drugs, medical devices, cosmetics” to only “medicines, medical devices”. Consequently, the Tanzania Foods and Drugs Authority (TFDA) has been changed to become the Tanzania Medicines and Medical Devices Authority (TMDA). Thus, all activities that were conducted by TFDA relating to quality assurance and safety of food and cosmetics products, have now been transferred to Tanzania Bureau of Standards (TBS) effective 01^st July, 2019. Specifically, TBS will handle all activities relating to registration of production premises for food and cosmetics products and registration and certification of locally produced and imported food and cosmetics products.

FIN & LAW -Client Update, August 2019 -TAX LAW

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