TANZANIA: FINANCE ACT 2022 – HIGHLIGHTS
The Finance Act, 2022 (FA 2022/Act) was passed by the National Assembly on 30 June 2022 and came into operation on 1 July 2022. The FA 2022 follows the 2022/23 National Budget Speech (Budget Speech) delivered by the Minister of Finance (Minister) in Dodoma, Tanzania on 14 June 2021.
The following overview supplements our commentary on the Budget Speech delivered by the Minister in June 2022 and highlights additional observations following our review of the FA 2022.
A. Tax amendments
Tax Administration Act (CAP. 438)
The FA 2022 amends the Tax Administration Act as follows:
- There is a mandatory requirement to file returns electronically, except where the Commissioner has approved otherwise in writing.
- Persons establishing storage facilities for business purposes are now required to register the facility with the Commissioner. Further, the owners of these storage facilities are required to keep records of all stored goods and report to the Commissioner on a monthly basis. Failure to do so, results in a penalty of 300 currency points (i.e. TZS 4.5 million).
- The requirement to maintain a primary data server in Tanzania has been postponed to 1 July 2023.
- Other electronic systems used to generate electronic receipts and invoices are now recognised.
- From 1 January 2023, the Commissioner General must register and issue a Taxpayer Identification Number to every Tanzanian citizen who has been registered and issued with a National Identification Number (NIDA).
- Individual tax consultants are required to be licensed by the Commissioner General. Regulations will be issued prescribing conditions to be fulfilled for licensing purposes.
- A fine not exceeding 500 currency points (i.e., TZS 7.5 million) or imprisonment of not more than one year, or both, has been introduced for persons failing to register or obtain a licence as required under any applicable tax law.
- Failure to issue a fiscal invoice or receipt at the time of the supply of goods or the rendering of services is now an offence. Previously, the offence was committed only by receiving payment for goods or services.
- Fines and imprisonment terms have been introduced for offences committed contrary to the Excise (Management and Tariff) Act. In addition, the Court may order the forfeiture of assets, goods or materials that are connected to these offences.
Income Tax Act (CAP 332)
The FA 2022 amends the Income Tax Act as follows:
- Digital Service Tax (DST) – In order to introduce the tax regime for digital services, the definition of the term ‘business’ has been widened to include transactions or activities that take place through the internet or electronic means including transactions conducted in digital marketplaces. Further, the FA 2022 has introduced definitions of the terms ‘digital marketplace’ and ‘electronic services’. Newly introduced sections 69(m) and 90A impose an obligation on non-resident suppliers of digital services to pay DST of 2% of their turnover on payments received from individuals. Non-resident suppliers are required to file returns and pay DST on a monthly basis. Regulations will be issued to prescribe procedures for the assessment and collection of tax in this regard.
- Special tax regime for the transportation sector - A resident person (individual or entity) engaged in transportation of passengers or goods is required to pay an advance tax in accordance with the rates prescribed in paragraph 2(5) of the First Schedule to the Income Tax Act.
- Financial services sector – the following amendments have been passed by the FA 2022:
- The inclusion of ‘distributions which are treated as not-distributable as determined by the Bank of Tanzania’ when determining the unallocated income of a resident financial institution for the purpose of taxation of Controlled Foreign Corporations under Division II of the Income Tx Act.
- The margin payable on alternative financing arrangements (i.e., ‘financial arrangement approved by the Bank of Tanzania other than conventional financial arrangements’) will be treated as interest.
- The Definition of the term ’equity’ – has been amended to only include paid up share capital at the end of the year of income – previously, it was defined to include paid up share premium and retained earnings. This amendment is likely to impact the 7:3 ration for thin capitalisation purposes.
- Resident corporations – a corporation will be treated as a resident corporation for a year of income if at any time during the year of income, the management and control of the affairs of the corporation are exercised in Tanzania, whether physically or through electronic means. Previously a company incorporated oversees could only be a resident if management and control was exercised in Tanzania.
- Payments that have a source in Tanzania – The Act widens the scope of payments that have a source in Tanzania to include payments for harnessing, generating or utilising land, air, or water for the generation of power or anything of value, whether the respective natural resource is located alongside the border or within the country.
- Payment of tax credits – A resident person, other than a partnership with a business or investment in both Mainland and Zanzibar can claim a tax credit for tax paid in either of the jurisdictions.
- Withholding tax –
- The FA 2022 abolishes Section 82(2)(a), meaning that any payment made by an individual in relation to rent, interest, natural resources or royalty, shall be subject to withholding tax.
- The FA 2022 introduces an exemption from withholding tax on interest paid on corporate and municipal bonds issued and listed on the Dar es Salaam Stock Exchange with effect from 1 July 2022.
- The FA 2022 reduces the rate of withholding tax applicable on the use of, or right to use of, a cinematography film, videotape, sound recording or any other like medium from 15% to 10%.
- Presumptive income tax – The following amendments have been made in relation to the presumptive income tax regime:
- The regime will not apply to independent professionals and providers of technical, management, construction and training services.
- An income tax rate of 3.5% of turnover will apply to taxpayers with a turnover of between TZS 11 million and TZS 100 million. Previously, the 3.5% rate was applicable to taxpayers with a turnover of between TZS 14 million and TZS 100 million.
- The Minister (in consultation with the Minister of Finance of Zanzibar) may determine presumptive tax rates applicable in Zanzibar.
- Tax exemptions – The Act exempts from income tax, gain on realisation or transfer of:
- mineral rights and mineral information to a partnership entity formed between the Government and an investor;
- free carried interest shares from a partnership entity to the Government; and
- shares to the Government through the Treasury Registrar.
The Vocational Education and Training Act (CAP 82) has been amended to introduce a Skills and Development Levy (SDL) exemption for intern students from higher learning institutions or technical and vocational education and training institutions that are under the Tanzania Employment Service Agency Program.
Value Added Tax Act (CAP 148)
The FA 2022 amends the Value Added Tax Act as follows:
- Section 6 is amended to grant powers to the Minister to grant VAT exemptions on goods or services acquired in the implementation of special strategic investments upon approval by the National Investment Steering Committee (NISC) and the Cabinet.
- The exemption from VAT for non-governmental organisations under section 6 of the VAT Act will require approval by the Minister.
- To expand the definition of ‘capital goods’ to include goods of Heading 87.16 and HS Code 8701.20.90 that are locally manufactured or assembled in a customs bonded warehouse.
- Provide that regulations may be issued to allow the registration of non-resident suppliers of digital services without the appointment of VAT representatives.
- The Minister of Finance is given powers to issue regulations prescribing the manner and procedure of dealing in loans, including alternative financing products approved by the Bank of Tanzania.
- The introduction of exemptions on the supply of double refined edible oil from locally grown seeds by a local manufacturer, certain raw materials and packaging materials, for one year up to 30 June 2023. Previously, the Minister had proposed to zero-rate double refined edible oil that is locally manufactured.
- Ex-factory sales of fertilizer manufactured locally will continue to be exempted as the proposed zero rating has not been included in the FA 2022.
- The exemption from VAT for air charter services has been maintained for a further six months up to 30 December 2022.
Excise (Management and Tariff) Act (CAP 147)
The FA amends the Excise (Management and Tariff) Act as follows:
- Certain excise duty offences have been removed from the Excise Act and included in the Tax Administration Act.
- The scope of the 5% duty on pay-to-view services has been expanded to apply to operators of cable, terrestrial infrastructure, satellite or other technology. Previously the Act referred to ‘cable, television network or cable operator’.
Gaming Act (CAP 41)
The FA 2022 amends the Gaming Act as follows:
- The introduction of the following new definitions:
- winning - means the receipt of an amount of payment or other consideration including a prize, award or reward given by way of money, assets, goods or property in kind to a person after having participated in a gaming activity recognised under this Act; and
- withholding agent - means a person required to withhold gaming tax on winnings from a payment under this Act and remit the amount withheld to the Commissioner.
- The introduction of an explicit requirement for internet casinos to pay gaming tax on monthly gross gaming revenue.
- The introduction of a gaming tax of 10% on the amount or value of winnings.
- The licensee of a gaming activity is required to withhold gaming tax on winnings made and paid for. In this case, the licensee is the withholding agent who is required to:
- Remit the tax withheld on or before the seventh day of the month following the month of payment of the winnings; and
- Submit a return or certificate of payment of tax withheld within 15 days after the end of each calendar month.
- The provisions of the Tax Administration Act to apply to gaming taxes.
National Payment Systems Act
- The money transfer levy has been renamed to ‘electronic money transactions levy’ and the scope of the levy has been expanded to cover electronic money transactions, whereas previously the levy applied to mobile money transactions.
- The maximum amount of the levy has been reduced from TZS 10 000 to TZS 4 000.
- Exempting from this levy, transactions involving payment of salaries by employers.
The Tax Revenue Appeals Act
- Section 22 of the Act has been amended to allow for the settlement of tax disputes through amicable settlement by deleting the word ‘mediation’ wherever it appears in subsection (7) and (8).
B. Other amendments
The Electronic and Postal Communications Act
- The Act imposes a fee on television decoder subscriptions paid at the rate ranging from TZS 500 to TZS 2 000. The Minister will make regulations prescribing the manner and modality under which such a fee will be collected and accounted.
Business Names (Registration) Act (CAP 213)
- Section 2 is amended to harmonise the definition of a ‘beneficial owner’ with the definition provided in the Anti-Money Laundering Act (CAP 423).
- A requirement to provide particulars of the beneficial owners during registration of a partnership has been introduced.
- Failure to provide or update information on the beneficial owners of a partnership is now an offence and, upon conviction, a person will be liable to pay a fine not less than TZS 1 million but not exceeding TZS 5 million.
- Information on the beneficial owner of a business held by the Registrar will be accessible to competent authorities responsible for combating, investigating, and prosecuting anti-money laundering and terrorist financing, such as the Financial Intelligence Unit, the Tanzania Revenue Authority or any other competent national authorities.
Companies Act (CAP 212)
- Section 2 have been amended to harmonise the definition of a ’beneficial owner’ with the definition provided in the Anti-Money Laundering Act (CAP 423).
- Sections 115(5) and 116(4) have been amended to introduce a fine of not less than TZS 100 000 but not exceeding TZS 1 million for failure to keep registers of beneficial owners and of members.
- Section 393 has been amended to require liquidators to maintain accounting records and documents related to the dissolution of a company for a period of at least 10 years.
Copyright and Neighbouring Rights Act (Cap 218)
The FA amends various provisions of the Copyright and Neighbouring Rights Act including:
- The Act introduces a copyright levy charged at the rate of 1.5% on the value of radio/tv sets enabling recording, analogue radio recorders, CD/DVD copiers, digital jukeboxes, and MP3 players. The Minister responsible for Finance will prescribe the modality for the collection and accounting of the levy.
- The ‘Copyright Society’ will now be known as the ‘Copyright Office’.
- The Act introduces a regime for the collective management of copyright and related rights through ‘collective management organisations’ which will act on behalf of copyright owners.
Land Act (CAP 113)
- The Land Act is amended to modify the rate and mechanism for the accrual of interest on land rent arrears.
Tanzania Shipping Agencies Act, (Cap.415)
- Section 7 is amended to reduce the exclusive mandate of the Tanzania Shipping Agency Corporation (TASAC) on carrying out of certain clearing and forwarding functions. Following this amendment TASAC no longer has exclusive mandate for the clearing and forwarding of minerals, mineral concentrates, machineries, equipment, products or extracts related to mining and petroleum activities.