TANZANIA: FINANCE ACT 2021- HIGHLIGHTS
The Finance Act, 2021 (FA 2021/Act) was assented on 30 June 2021 and came into operation on 1 July 2021. This newsflash supplements our commentary on the Budget Speech delivered by the Minister for Finance (Minister) in June 2021 and highlights additional observations following our review of the FA 2021.
A. Tax amendments
1. Tax Administration
Tax Administration Act (CAP. 438)
The FA 2021 amends the Tax Administration Act as follows:
- introducing a requirement for employees to apply for a Tax Identification Number (TIN) within 15 days of commencing employment;
- amending sections 28A to 28D (Establishment of Tax Ombudsman) by:
- allowing persons that are not necessarily taxpayers to lodge complaints with the Tax Ombudsman office;
- introducing a requirement for the appointed Tax Ombudsman to have competent experience in tax administration matters;
- repealing section 28B(4) which limited the Tax Ombudsman’ decisions or recommendations from binding taxpayers; and
- excluding tax and objection decisions from being reviewed by the Tax Ombudsman.
- introducing a timeline of 14 days for submission of official translation of communication or documents to the Commissioner General - failure to comply with this requirement is an offence liable to fine and/or imprisonment under section 85;
- requiring taxpayers keeping documents in an electronic form to maintain a primary data server in the country which will be accessible to the Commissioner General. The FA 2021 provides a transition period of 12 months to 1 July 2022, however, the practicability of this requirement remains questionable considering factors such as associated costs of implementation. Failure to comply with this requirement is an offence liable to fine and/or imprisonment under section 85;
- providing clarity that an application for extension of time to file a tax return should be made 15 days before the due date or earlier;
- extending the applicability of section 44 (notice to obtain information by the Commissioner General) to persons liable for tax;
- amending section 51(7) to specify that a tax deposit is required for an objection against a tax decision on an assessment or notice of liability to pay tax - the wording of the provision prior to this amendment indicated that a tax deposit was required for all tax decisions;
- to specify that property rate for properties with electricity supply is payable at the time of paying for electricity;
- to explicitly include reference to ‘tax’ under section 74 which limits the powers of the Commissioner General to demand short-levied tax or erroneous refund after expiry of five years (except for cases of fraud) - previously, this section only referred to duty; and
- imposing a penalty of 100% of the tax shortfall for failure to use arm’s length prices on controlled transactions – previously, the penalty was 100% of the transfer pricing adjustment. Although the penalty is still punitive to taxpayers (because determining an arm’s length price is generally subjective), basing the penalty on the tax shortfall rather than an adjustment value is still a commendable amendment.
Tax Revenue Appeals Act, (CAP. 408)
The Act amends section 22 by allowing parties to the appeal to apply, at any stage of the proceedings before judgement is delivered by the Tax Revenue Appeals Board (TRAB) or Tax Revenue Appeals Tribunal (TRAT), for the appeal to be settled amicably through mediation. However, the parties will then be required to submit the outcome of the mediation to the TRAB or TRAT within the specified period after which a final order will be issued.
Tanzania Revenue Authority Act, (CAP. 399) (TRA Act)
The TRA Act is amended such that the TRA Board will now constitute two representatives from the Ministry of Finance who will be responsible for national policy and planning.
2. Income Tax
Income Tax Act, (CAP. 332)
The following amendments are made to the Income Tax Act:
- amending the definition of a ‘permanent establishment’ (PE) to specify circumstances where a dependent agent will be deemed to have created a PE in Tanzania, which include habitually:
- concluding contracts or issuing invoices on behalf the principal (except where his activities involve purchase of goods/merchandise on behalf of the principal);
- maintaining stock of goods/merchandise for delivery on behalf of the principal; or
- securing orders, wholly or almost wholly for the principal or the principal’s related parties.
Although this amendment seems to adopt guidance provided in Article 5 of the OECD Model Tax Convention on Income and on Capital (OECD Model Tax Convention), it contains the following additional criteria which are debatable:
- issuance of invoices on behalf of the principal - this condition is not necessarily in the OECD Model Tax Convention and may inadvertently affect industries where the dependent agents issue invoices to customers on behalf of principals, such as the marine industry where it is a common practice for agents to issue invoices on behalf of liners despite not being part of the contractual arrangements; and
- securing orders for the principal or the principal's related parties – further guidance may be required on this part of the definition because according to the OECD Model Tax Convention, merely promoting and marketing goods or services of an enterprise in a way that does not directly result in the conclusion of contracts should not necessarily create a PE, even though the sales may significantly increase as a result of the marketing activities.
- amending section 65N(1) by classifying assets owned and employed in an international pipeline (such as EACOP) under class 6 of pool of depreciable assets with a depreciation rate of 5%;
- introducing a requirement for resident corporations (except agricultural marketing cooperative societies and cooperative unions) to withhold tax at the rate specified under paragraph 4(c) of the First Schedule, when making payment for agricultural, livestock or fishery products to resident persons. The Budget Speech, however, indicated that the obligation to withhold this tax would be limited to processing industries, millers, and Government agencies. Further, the FA 2021 does not amend paragraph 4(c) of the First Schedule to include the applicable withholding tax rate, however, it is understood from the Budget Speech that the applicable rate is 2%;
- amending the deadline for filing withholding tax returns to seven days after the end of each month – previously, such returns were due for filing within 30 days of the end of each six-month period;
- requiring withholding tax returns to specify withholdee’s TIN; and
- including under exempt amounts, ‘interest derived by a person from government bonds of not less than three years issued and listed on the Dar es Salaam Stock Exchange from 1 July 2021’. The wording of this exemption is ambiguous and may be interpreted to mean the exemption (i) will not cover interest earned from bonds issued prior to 1 July 2021 and (ii) for bonds issued post 1 July 2021, the exemption will only apply on interest earned after the third year of acquisition. However, we understand from the Budget Speech that the exemption was intended to cover interest derived from 1 July 2021 on all Government bonds, regardless of the date of issue and listing.
Individual small-scale miners with annual turnover of less than TZS 100 00 000
Proposed changes including introduction of 3% income tax, 0.6% deemed PAYE and 4% SDL have been reversed.
Employment – Workers Compensation Fund (WCF)
The proposed reduction of WCF rate from 1% to 0.6% for the private sector has not been reflected in the FA 2021.
The proposed increase of tax on Gross Gaming Revenue from 25% to 30% has not been passed, however, 5% of the tax will still be allocated to the Sports Development Fund.
3. Value Added Tax Act (CAP. 148)
The changes to the Value Added Tax Act include:
- amendment of section 3 by adding provisions in respect of VAT charged on goods supplied and transferred between Tanzania Mainland (Mainland) and Tanzania Zanzibar (Zanzibar) such that:
- no VAT is payable on transfer of goods from Zanzibar to Mainland provided that VAT was already paid in Zanzibar at the rate equal to that applicable in Mainland;
- additional VAT will be payable if VAT was paid in Zanzibar at a rate lower than that applicable in Mainland; and
- the Tanzania Revenue Authority (TRA) to collect VAT charged in Mainland on goods supplied to a recipient who is taxable (VAT registered) in Zanzibar and remit the same to the Zanzibar Revenue Board (ZRB) - the manner for remission of this VAT will be prescribed in Regulations made by the Minister for Finance.
The preceding VAT legislation (VAT Act 1997) contained similar provisions, however the mandate for TRA to collect and remit VAT to ZRB was limited to goods manufactured in Mainland.
- amendment of section 6 as follows:
- granting powers to the Commissioner General (instead of the Minister for Finance) to exempt goods and services acquired under section 6;
- introducing a VAT exemption on importation of raw materials used solely for the manufacture of long-lasting mosquito nets where a performance agreement with the Government is in place - it is unclear how the term ‘long-lasting mosquito nets’ should be interpreted in this context as the FA 2021 does not provide a definition;
- in order for grant agreements between local governments and donors to enjoy exemption under section 6, such agreements must specifically provide for VAT exemption;
- introducing a VAT exemption on entities with agreements with the Government for the operation or execution of strategic projects, to the extent that the agreements provide for such exemption (a strategic project is defined as a project that has been so determined by the Cabinet);
- re-introducing VAT exemption for non-governmental organisations having agreements with the Government, to the extent that the agreements provide for such exemption; and
the Minister may make regulations prescribing the manner of application, granting and monitoring of exemptions granted under section 6 - previously, section 6 required the Minister to appoint a technical Committee for advice on these matters and thereafter prescribe procedures to be followed.
- amending the definition of capital goods for the purpose of VAT deferment to now mean ‘goods classifiable 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 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.’
- amending section 59 by introducing a zero rate for supply of transportation and incidental services to an international pipeline and including a similar definition of international pipeline as that included in the Income Tax Act.
- amending item 7 of Part I of the Schedule to the VAT Act by removing the proviso to the exemption such that packaging materials used for packing pharmaceutical products are no longer required to bear the name of the local manufacturer.
- Approval for exemption of artificial grass under HS Codes 5703.30.00 and 5703.20.00 to be granted by the National Sports Council of Tanzania – the Budget Speech proposed the approval to be granted by the Tanzania Football Federation (TFF).
4. The Excise (Management and Tariff) Act, (CAP. 147)
The following amendments are made to the Excise (Management and Tariff) Act:
- introducing under section 124 (6A), 10% excise duty on charges or fees payable by a person to a payment system provider licensed under the National Payment Systems Act for money transfer and payment service; and
- amending the Fourth Schedule to the Excise Act by increasing excise duty on spirits under Heading 22.08 by 20%.
5. Levy on telecommunication
- The Electronic and Postal Communications Act, (CAP. 306) is amended by introducing section 164A which imposes a development levy between TZS 5 to TZS 222.70 on airtime. Although the Budget Speech proposed the levy to be charged per day, the FA 2021 amendment does not explicitly provide for this - the manner and modality for collection of this levy will be prescribed in Regulations; and
- The National Payments Systems Act, (CAP. 437) is amended by introducing section 46A which imposes a money transfer levy of between TZS 10 to TZS 10 000 on mobile money transactions - the manner and modality for collection of this levy will be prescribed in Regulations.
6. Property rate
The Local Government Authorities (Rating) Act, CAP 289 has been amended to:
- impose property rate on all buildings on a single plot – previously, in the case of a plot with more than one building, property tax was imposed on one building only;
- increase property rate on city council, municipal council and town council areas from TZS 10 000 to TZS 12 000 and TZS 50 000 to TZS 60 000 for ordinary buildings and each storey in a storey building respectively;
- increase property rate on district council areas from TZS 10 000 to TZS 12 000 and TZS 20 000 to TZS 60 000 for ordinary buildings and each storey in a storey building respectively; and
- specifying that 15% of property rate collections will be remitted to the Ministry responsible for Local Government Authorities (LGA) – prior to this change, the allocation was based on the LGAs budget.
B. Other amendments
7. The Companies Act, (CAP. 212) (Companies Act)
The FA 2021 repeals and replaces section 85 of the Companies Act, therefore, prohibiting the issuance of share warrants by companies.
A company shall not, effectively from 1 July 2021 (Effective Date), issue warrants in respect of any shares. A bearer of a share warrant (either on or before the Effective Date) shall within 12 months from the Effective Date, surrender to the company the issued share warrant for cancellation. The company is then required to do the following:
- cancel the share warrant;
- 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 (Registrar) at the Business Registrations and Licensing Agency (BRELA) of any changes in the register of members and beneficial owners effected pursuant to section 85 of the Companies.
Any share warrant which is not surrendered after the expiry of a period of 12 months from the Effective Date shall be deemed to be cancelled. However, the Registrar may, on reasonable grounds, allow for surrender of share warrants beyond the expiry of 12 months from the Effective Date.
The Companies Act is further amended by deleting reference to the words ‘share warrant’ in section 86. Section 117 of the Companies Act on entries in register in relation to share warrants is also repealed.
8. The Government Loans, Grants and Guarantees Act, (CAP. 134)
The Act is amended such that the Government, subject to approval by the Cabinet, will be able to issue a guarantee of not more than its shareholding in a borrowing institution or company, provided that this institution or company is operating a strategic project.
9 .The Higher Education Student’s Loans Board Act, (CAP. 178) (HESLB Act)
The FA 2021 amends section 7 of the HESLB Act by introducing subsection 2 with the effect of restricting the Higher Education Students’ Loans Board (HESLB) from imposing a retention fee or any other fee, charges, penalty, or payments on repayment of a loan owed by a former student loan beneficiary without the approval of the Minister responsible for Higher Education and the Minister of Finance.
10. The Non-Citizens (Employment Regulation) Act, (CAP. 436) (Non-Citizens Employment Act)
The Budget Speech had proposed two measures to encourage compliance with the requirement to file monthly returns to the Labour Commissioner as follows:
- applying a penalty of TZS 500 000 per month for an employer with foreign employees who fails to submit monthly returns containing information of these foreign nationals including their salary information; and
- in addition, implementing a 12-month prison sentence or a fine of TZS 10 000 000 on the same failure.
However, the FA 2021 has only retained the TZS 500 000 penalty and does not reflect the proposed imprisonment or fine.
11. The Ports Act, (CAP. 166)
The FA 2021 amends the Ports Act by repealing and replacing section 67(3) which now requires that all funds of the Tanzania Ports Authority (TPA) be deposited in a bank account opened by the Bank of Tanzania (BOT) and that TPA’s expenditure be disbursed by the Paymaster General as per TPA’s approved budget.
12. The Public Audits Act, (CAP. 418)
The Public Audit Act is amended to expand the Controller and Auditor General’s (CAG) audit mandate and authority to audit public authorities or bodies which is now defined to include a company in which the government controls more than 50% of the shares. This amendment is a result of the new definition of the term ‘public authority or body’ which is now defined as ’a body of persons, whether or not corporate, established under any written law, whose functions are of public nature and are exercised in furtherance of the public policy, and shall include authority or bodies:
- which is in receipt of a contribution from, or the operations of which may, under the law or instrument relating thereto, impose or create a liability upon, public funds;
- where the government controls more than fifty per cent of the shares in that body or authority;
- whose accounts are, by or under any written law required to be audited or are open to inspection, by the Controllers and Auditor-General; or
- which has, in any of its financial year, received more than half of its income from public funds.’
13. The Tanzania Communications Regulatory Authority Act (CAP. 172) (TCRA Act)
The FA 2021 amends section 49 of the TCRA Act by adding subsection 8 which stipulates that all funds to the Tanzania Communications Regulatory Authority (TCRA) shall be deposited in a bank account opened at the BOT, and TCRA’s expenditure shall be disbursed by the Paymaster General according to TCRA’S approved budget.
14. The Tanzania Shipping Agencies Act (CAP. 415)
Similar to the amendments made to the Ports Act and the TCRA Act, the FA 2021 amends the Tanzania Shipping Agencies Act to the effect that all the money and income of the Tanzania Shipping Agencies Corporation (TASAC) shall be deposited into a bank account opened at the BOT, and TASAC’s expenditure shall be disbursed by the paymaster general according to its approved budget.
Article by Wilbert Kapinga, Fabiola Ssebuyoya, Kelvin Mosha and Mohammed Zameen Nazarali