The administration of tax and collections in Tanzania is handled through the Tanzania ReveTax Administration and Collections by the Tanzania Revenue Authority (TRA), which is under its Ministry of Finance. Municipal city councils or City Councils also administer and collect a city service levy.
The laws that apply are:
Income Tax Act, The Value Added Tax Act of 2014, Local Government Finance Act, Local Government Finance Bylaws, Social Security Regulatory Authority Act, Nation-
Al Social Security Fund Act, Workers Compensation Fund Act, Vocational EducationTraining Act, Stamp Duty Act, The East African Community Customs Management Act.
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Corporate tax is the tax on earnings for corporate entities. Corporate entities include
Companies that are incorporated with a Tanzanian address. Tanzania and branches of foreign corporations registered
in Tanzania Institutions or groups like societies, clubs, and associations.
Co-operatives, charities, and other non-incorporated organizations.
The taxable earnings (profits) to charge Corporation Tax include:
- Profits from business endeavors
- Gains from investing (except the dividends, which are taxed differently from the final taxes)
- Taxes paid out of the turnover of businesses that have perpetual non-relieved losses in three straight years
Value Added Tax (VAT)
The Value Added Tax (VAT) is managed and controlled by the Value Added Tax Act, 2014 (“the VAT Act 2014”) that replaced it with the VAT Act 1997. According to Section 3 of the VAT Act 2014. VAT can be charged and applicable on all tax-deductible supplies and all imports that are tax-deductible.
In general, all imports and supplies are tax-deductible unless included within the “Schedule of supplies and imports exempt from VAT.” Imported services are classified as sources of VAT and should be considered in the determination of eligibility in the VAT register.
Import duty rates on goods imported from other countries in EAC countries. East African Community (EAC) are zero for raw materials, 10 percent for intermediate goods, and 25 percent for finished products. Exports to EAC nations aren’t subject to a duty on imports as long as they comply with EAC customs union rules.
Excise duty can be applied to certain products. Specific rates are charged on spirits, wine, beer, soft drinks, petroleum products, and cigarettes. Ad-valorem rates are 7 % 10, 10 percent, 20%, 30% , and 120 percent.
The date for paying tax is contingent upon the item. Excise duty for imported goods is due before clearance through customs.
City Service Levy
City Service Levy is a tax imposed by the Local Government Finance Act and Local Government Bylaws. The levy is among the revenue sources for Local government bodies (i.e., municipal, city, and district councils).
Every quarter of the calendar year, every business must pay a City Service Levy. The levy is due to the district or municipal council in the city where the company is located.
Suppose a business has branches within the various district or municipal councils. In that case, the turnover for each branch must be identified clearly and the appropriate levy calculated and paid out to the relevant council in which the branch is located.
The levy is due on an annual basis, at 0.3 percent of the turnover for all business operations. In non-payment, it could result in a compounded charge of 1.5 percent per month or any portion of a month if the levy is not paid after the due date.
Stamp duty must be paid on all contracts made in Tanzania. Lease agreements are subject to stamp duty at 1 percent of the annual rent. Other instruments that trigger stamp duty obligations are shares transfers, issues, and debentures.
Taxes for payroll taxes for Tanzania are Pay as You Earn (PAYE), Skills and Development Levy (SDL), Workers Compensation Fund (WCF), and the statutory contributions to the social security fund (pension contribution).
Pay As You Earn (PAYE)
PAYE is a method of collecting income tax at the source, from income earned through employment. The
Employers calculate tax on employees’ salary and then remits the tax to the Tanzania Revenue Authority (“TRA”) based on a monthly.
Skills and Development Levy (SDL)
The skills and Development Levy is a levy that the employer pays. It’s determined at the current rate fixed at 4.5 percent of cash payments given by all employees. The SDL cost is for the employer, as opposed to the payment of PAYE, which is normally an expense for the employee.
Workers Compensation Fund (WCF)
Workers Compensation Fund (WCF) is a legal contribution to all employers. WCF is designed to pay workers (or their dependents if workers die) in the event of accidents or diseases contracted during work as stipulated by the Worker’s Compensation Law No. 20 of 2008. Employers from both the private and public sectors are obliged to contribute to the Fund.
Tanzania has two social security contributions schemes (pension schemes) that are both pension schemes. They are all administered and governed by the Social Security Regulatory Authority (SSRA). Two schemes exist:
- National Social Security Fund (“NSSF”) for employers working in the private sector and,
- Public Sector Social Security Fund (“PSSSF”) for employers in the public sector.
The contribution total in all plans is 20 percent of the gross pay, which is the amount that employers are required to pay. It is possible to pay entirely or ask the employee to contribute 10%. The standard method used for private companies is to have an equal percentage of 10% employer and 10 percent employer.
Shikana Group provides legal advice on tax and regulatory services in relation to all areas of tax in the geographies we operate. Our legal team helps turn our clients’ company’s tax challenges into strategic solutions that work for them and their businesses, both for today and long-term.
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