Taxation in Tanzania
|An aspect of fiscal policy|
Taxation is one of the oldest functions of the Tanzanian government in running her affairs. By definition, a tax is a compulsory contribution from a person to the state to defray the expenses incurred in the common interest of all without any reference to the special benefits conferred. It is a compulsory contribution or payment for the support of governmental or other public purposes. The Tanzania Revenue Authority (TRA) is the government agency of Tanzania, charged with the responsibility of managing the assessment, collection and accounting of all central government revenue in Tanzania.
Brief History of Taxation in Tanzania
Tanzania adopted and periodically reformed the colonial tax systems starting with the poll tax which was introduced by the British in the early 20th century. Reforms that were done post-colonial era include introduction of sales tax in 1969, enacting of new income tax legislation in 1973, amendment of the existing tax legislation to revise the tax bases and rates, abolition of some excise duty in 1979 and export duty in 1985/86, re-introduction of previously abolished excise duty in 1989.
In recognition of the continued poor functioning of the tax system and the need to look at the tax system as a whole, the Government appointed a Tax Commission in October 1989. The Commission's primary task was to study and review the central and local government tax system and its administration, and make recommendations to the government. Specifically, it was to recommend changes to the existing tax system to widen the tax base, enhance revenue collections, and promote greater efficiency of production in the economy. The Commission's report was presented to the Government in December 1991.
The commission recommended, among other things, broadening of tax bases by taxing fringe benefits and improve compliance by more effective enforcement, reduction of individuals' and companies' income tax rates and apply the rates on broader bases, making adjustments for the effects of inflation, replace a multiple-rate structure of sales and excise taxes by a value-added-tax (VAT) and a limited number of excises on traditional excisable goods and luxury items, simplifying the customs duties by reducing the number of rates, and reducing exemptions from both customs and sales taxes.
This "low-rate, broad-base" strategy was considered to be more consistent in practice with both efficient resource allocation and equity than the "high-rate, narrow-base" pattern that had dominated the Tanzanian tax system in the past.
Current Tax Regime
Basically Taxation in Tanzania is in form two types of taxes. Each type is classified according to the legal and effective incidence to the final payer. These two types are direct and indirect taxes.
These are taxes levied directly on people’s income from employment, business or ownership of property and an investment. The impact and incidence of the tax falls on the same person i.e. incidence cannot be shifted to another person e.g. Corporate tax, Pay As You Earn (PAYE) and withholding taxes.
This is a tax, which is paid from corporate profits. Companies or entities have to prepare final accounts, which must be approved by authorized Auditors, and Accountants recognized by both NBAA and TRA. These accounts are submitted to TRA on the prescribed accounting date. All companies whether resident or non-resident are required by the Income Tax laws to file an estimate of income within three months after the start of its accounting year. The firm is supposed to pay tax based on four installments. Six months after the accounting period, the firm must file a final tax return to TRA. The current corporation tax rate is 30% and 10% for new assemblers of vehicles, tractors and fishing boats for the initial 5 years from commencement of operation
Individual Income Tax
Individuals include sole traders and salaried people who are taxed at progressive individual income tax rate, which varies from the lowest marginal rate of 9% to the top marginal rate of 30%. However, for a non-resident individual the applicable rate is 20%, which is charged on the total income. The table below shows the current resident individuals tax rates. Sole traders are also required by the law to file estimate of income within 3 months of the new accounting year. they are taxed based on presumptive tax system, where the tax payable on estimates depends on annual turnover/sales, and not profit.
These are taxes, which are based on consumption. Examples of such taxes are like Import Duty, Excise Duty, and Value Added Tax (VAT), etc. By definition the legal incidence of the tax falls on the trader who acts as a collection agent of the government while the effective incidence falls on the final consumer of goods or services who eventually pays the tax.
Value Added Tax (VAT)
Value Added Tax is a consumption tax charged by VAT registered traders on all taxable goods and services at a standard rate of 18%. The VAT is a multistage tax levied at each stage of production and distribution up to the retail stage. The tax is also levied on taxable imports made by persons whether or not registered for VAT. All exports are renovated (0%).
VAT Registration requirements
1. All traders or businesses whose taxable turnover exceeds Shs. 100 millions per annum or 50 million in period of six months ending at the end of the previous months.
2. Professional service providers such as accountants, lawyers, Engineers, and related consultancies irrespective of their turnover.
all the above are obliged to apply for registration to the Commissioner for Domestic Revenue within thirty (30) days of becoming liable to make such application.
Application for VAT registration is done by filling the application form online or manually and TRA inspect the business site before approving any registration. One registered, the taxpayer is required to submit monthly VAT returns either with payment, repayment or a nil return before 20th of the month following the month of business.
Some persons and institutions are relieved from the payment of VAT on supplies or on importation of taxable goods and services, while some goods services are specifically exempted from VAT.
- Braütigam Deborah, Odd-Helge Fjeldstad & Mick Moore (2008). "Mass taxation and state-society relations in East Africa" (PDF). Taxation and State-Building in Developing Countries : Capacity and Consent. Retrieved 10 August 2015.
- Osoro, N. E (1992). "Revenue productivity of the tax system in Tanzania, 1979-1989". Journal of African Economies. 1 (3).
- United Republic of Tanzania (URT). 1991. Report of the Presidential Commission of enquiry into public revenues, taxation and expenditure. Dar es Salaam
- Odd-Helge Fjeldstad. Taxation and Tax Reforms in Tanzania: A Survey. WP 1995. Michelsen Institute. Development Studies and Human Rights. Bergen Norway
- World Bank. 1992. Tanzania. An agenda for tax reform. Public Economics Division. Washington D.C.
- Tanzania Revenue Authority
- Income Tax Calculator
- Ministry of Finance and Economic Affairs
- Tax Laws in Tanzania
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