Project Financing the Development of a Mine in Tanzania
Tanzania: Key highlights of the Finance Act of 2023
Legal Development 11 July 2023 11 July 2023
The Finance Act is a key piece of legislation which supports the fiscal measures proposed by the government in the annual national budget. In this article we highlight the key changes introduced by the Finance Act of 2023, which came into effect on 1 July 2023, unless indicated otherwise.
Income Tax Act, CAP.332
Change in underlying ownership
Change in underlying ownership rules will not apply where the change is:
- a result of allotment of new membership interest of the entity; or
- a sole result of transfer of membership interest of a resident entity to another resident person.
A non-resident who receives a payment that has a source in Tanzania from an individual, other than in conducting business, for an electronic service, is required to pay income tax by way of single instalment equal to 2 per cent of gross payments received in a calendar month. Previously, the payment had to be for “services rendered through a digital marketplace”.
Payments received by a non-resident in respect of an electronic service consumed by or attributable to an individual in Tanzania are sourced in Tanzania regardless of the place of payment, provided that the consumption of the service by an individual is not made during the course of doing business. Payments for electronic services made whilst conducting business would be subject to withholding tax.
The monthly compliance deadline for filing of a tax return and paying income tax is on or before the 20th day of the following month. Previously, the deadline was on the seventh day of the following month.
Realisation of an interest in land or building
A resident seller of an interest in land or building who does not have records of the cost of assets will pay income tax at a rate of 3 per cent of the higher of the incomings from the realisation or the approved value.
A resident buyer of precious metals, gemstones, and other precious stones supplied by a primary mining licensee, or an artisanal miner is obliged to withhold income tax at the rate of 2 per cent. This tax is final.
A resident person who pays another resident person in respect of verified carbon emission reduction is obliged to withhold income tax at the rate of 10 per cent. This tax is final.
Individual tenants are no longer obliged to withhold tax on rental payments for residential premises.
The following amounts are exempt from income tax:
- Gains derived from the internal restructuring of mining companies pursuant to the requirement of a framework agreement entered between the government and an investor to form a partnership entity.
- Amounts derived by the National Health Insurance Fund from investing in fixed deposits, treasury bonds, treasury bills or dividends.
Entities engaged in the business of transporting passengers or goods are no longer required to pay advance income tax per vehicle.
Resident individuals who engage in transporting passengers or goods via trucks and passenger vehicles and having a turnover of less than TZS 100 million are required to pay presumptive income tax at revised rates.
Value-Added Tax (VAT) Act, CAP.148
The definition of a ‘fiscal receipt’ is aligned with the definition in the Tax Administration Act, CAP.438. Thus, a fiscal receipt is a receipt or invoice issued by or using a fiscal device, government electronic payment gateway system or any other electronic system approved by the Commissioner General (CG) for Tanzania Revenue Authority.
A fiscal receipt that does not disclose customer details (i.e., name, address, taxpayer identification number, value-added tax registration number) where the supply value exceeds TZS 100,000 can support a claim for input tax credit or refund. Previously, non-disclosure of the customer details restricted claiming of input tax credit and a refund.
Deferment of VAT on capital goods
VAT registered persons can apply for VAT deferment on imported or locally manufactured capital goods. Previously, VAT deferment applied only on specified imported capital goods and on certain tractors, trailers, and semitrailers that were locally manufactured or assembled in a customs bonded warehouse.
Deferment of VAT on imported capital goods shall cease on 30 June 2026.
VAT on a supply of locally manufactured capital goods or on imported capital goods shall be treated as output tax and input tax in the tax period in which the goods are supplied or entered for home consumption.
Online intermediation and online advertisement services are included in the definition of ‘electronic services.’
Discretionary ministerial powers to grant VAT exemption
The Minister for Finance has powers to exempt from VAT the following:
- Imported raw materials (Heading 39.02 and 39.07) for manufacture of packaging materials of pharmaceutical products.
- Heading 39.02: Polymers of propylene or of other olefins, in primary forms
- Heading 39.07: Polyacetals, other polyethers and epoxide resins, in primary forms; polycarbonates, alkyd resins, polyallyl esters and other polyesters, in primary forms.
- Imported prefabricated structures or supply of locally manufactured prefabricated structures (HS code 9406.20.90) to be used solely in poultry farming.
The Minister’s powers to grant VAT exemption apply only if the local manufacturer of packaging materials or poultry farmer has concluded a performance agreement with the Government of Tanzania.
A supply of locally manufactured garments made from locally grown cotton is zero rated for a period of one year from 01 July 2023 to 30 June 2024.
Zero rating of a supply of locally manufactured fertilizers is extended for a period of one year until 30 June 2024.
- Importation and supply
- Raw materials (benzalkonium chloride and glutaraldehyde) of HS Code 2916.32.00 for manufacturing insecticides and acaricides which have been approved by the relevant Minister.
- Sale of a house of a value not exceeding TZS 50 million by a real estate developer.
- Double refined edible oil from locally grown seeds by a local manufacturer until 30 June 2024.
- Aircraft, aircraft engine, aircraft parts and aircraft maintenance to a local operator of air transportation.
- Automobile accessories used in the conversion of motor vehicle fuel system to natural gas or electricity system to persons engaged in the conversion of such motor vehicles.
- Precious metals, gemstones, and other precious stones at refineries, buying stations or mineral and gem houses designated by the Mining Commission.
- Moulds by a local manufacturer of pharmaceutical for exclusive use in manufacturing pharmaceutical products in Mainland Tanzania.
- VAT exemption on importation of aircrafts, aircraft engines, or parts by a local operator of air transportation has been abolished.
Harmonisation of Harmoised System (HS Codes)
HS Codes for VAT exemption have been harmonised with HS Codes provided in the East African Community Common External Tariff 2022.
Tax Administration Act, CAP.438
Primary data server
A “primary data server” means a physical server in the country, virtual or any other server which stores data that is created or collected by a taxable or liable person in the ordinary course of business. Previously, a primary data server was defined as a server which stores data that is created or collected by a taxable or liable person in the ordinary course of business.
The implementation date for maintaining a primary data server in Tanzania has been pushed from 1 July 2023 to 1 January 2024.
Extractive and Construction sectors
Entities engaged in the construction and extractive sectors are obliged to disclose to the CG the names of all contractors and subcontractors in the course of performance of their duties or business or carrying out of any project. The disclosure deadline is 30 days from the date of execution of a contract. The ‘date of execution of a contract’ is not defined.
Introduction of definitions as follows:
- ‘Storage facility’ means a warehouse, go-down or any other storage facility, which is used to keep own or other persons’ goods for business purposes, provided that such warehouse, go-down or other facility is not part of a shop, factory, industry, or farm; and
- ‘Owner’ means a person who establishes or operates and is in control of the facility and possession of the storage facility or a person to whom the storage facility has been leased or sub-let to.
The above terms were not defined when the Finance Act of 2022 introduced the obligation of owners of storage facilities to register such facilities with the CG.
Time limit for tax refund applications
The statutory time limit for making an application for a tax refund is extended to apply to three years from the date a tax decision or other decision giving rise to a tax overpayment is made. Previously, the time limit was limited to three years from the date of payment of tax in excess.
Fines for fiscal receipt and fiscal devices
Failure to acquire and use a fiscal device or failure to issue a fiscal receipt attracts a fine of 20 per cent of the value of goods sold or services rendered, or TZS 1.5 million, whichever is greater.
Failure to demand a fiscal receipt attracts a fine of 20 per cent of the tax evaded or TZS 30,000, whichever is greater.
The Vocational Education and Training Act, CAP.82
The rate for skills and development levy (SDL) has been reduced from 4 per cent to 3.5 per cent.
Employers who are not obliged to pay SDL are not obliged to file monthly SDL returns.
The Minister for Finance in consultation with the Minister for Education has powers to exempt any employer from paying SDL provided the exemption is in the public interest.
The Excise (Management and Tariff) Act, CAP.147
Excise duty rates may be adjusted after every three years commencing from 2023/24 financial year. Previously, excise duty rates were subject to adjustment annually to cater for inflation and other key macro-economic indicators.
Specific excise duty rate for various products have been adjusted for inflation.
Excise duty has been introduced on certain products including, but not limited to, cement, electronic cigarettes and personal electric vaporising devices, water pipe tobacco, motor vehicles for transportation of ten or more persons.
The Gaming Act, CAP.41
New definitions have been introduced:
- “Commercial gaming undertaking” means any gaming activity which is subject to gaming tax.
- “Gross gaming revenue” means collective amount of wagering or staking placed by players minus the collective amount of winnings paid out to players.
Gaming licenses for commercial gaming undertakings will be granted to companies with a minimum paid-up shareholding of 5 per cent owned by Tanzanian citizens.
Other legislative changes
- The Copyright and Neighbouring Rights Act, CAP.218 - Vinyl, mini discs, compact discs, digital video discs, and Secure Digital (SD) memories are subject to copyright levy at the rate of 1.5 per cent.
- The Local Government Authorities (Rating) Act, CAP.289 - Property tax rates have been increased from TZS 12,000 to TZS 18,000 for ordinary single-storey buildings, and from TZS 60,000 to TZS 90,000 for multi-storey buildings.
- The Export Tax Act, CAP.196 - An exporter of raw hides and skin with an Export Processing Zone license is not liable to pay export levy.
- The Mining Act, CAP.123 - The royalty rate for salt has been reduced from 3 per cent to 1 per cent. Refineries are no longer required to pay 1 per cent inspection fee.
- The Road and Fuel Tolls Act, CAP.220 – Road and Fuel toll for petrol and diesel raised to TZS 513 per litre from TZS 413 per litre.
- The National Payment Systems Act, CAP.437 - Electronic money transfer levy on sending and receiving money has been abolished.
If you have any questions about the Tanzania Finance Act of 2023, please contact us.