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.
Change in underlying ownership rules will not apply where the change is:
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.
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:
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.
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.
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.’
The Minister for Finance has powers to exempt from VAT the following:
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.
Supply
HS Codes for VAT exemption have been harmonised with HS Codes provided in the East African Community Common External Tariff 2022.
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.
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:
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.
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.
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 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.
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.
New definitions have been introduced:
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.
--
Read the original publication at Clyde & Co.