FINANCE AND TAX LAW UPDATE: OVERVIEW OF THE TAX AND NON-TAX CHANGES FOR TANZANIA AS PER FINANCE ACT 2024

• Fiscal receipt is a mandatory requirement for local purchases for income tax
• Rental of construction machinery and equipment attracts WHT at the rate of 10%
• Service of documents between the Commissioner General and Taxpayers by electronic means acceptable
• Admission of notices of objection made clearer
• Value of 1 currency point increased to TZS 20,000
• Supply of gold to the Bank of Tanzania and to a licensed refinery in Mainland Tanzania now zero-rated for VAT
• 60 days’ time limit provided for out-of-court settlement discussions in tax disputes
• Introduction of Industrial Development Levy on some imported goods for home consumption

Notable Reform on Tax and Non-Tax Laws

With the issuance of the Finance Act 2024 (“Finance Act”) which comes into operation on 1st day of July, 2024, there are various tax and non-tax changes to our laws that have been enacted. Below, we have looked into the changes that are worth noting for your business or investment at this point;

1.0 The Income Tax Act, Cap 332

1. 3-year exemption for tea processing companies facing losses from Alternative Minimum Tax
   The Finance Act has exempted tea processing companies which make losses for a period of three consecutive years, from a requirement to pay Alternative Minimum Tax (AMT) for a period of three years, that is from the 1st July 2024 to 30th June 2027. This is intended to reduce the cost of production in the tea industry which is currently occasioning losses due to declining market prices.

2. Requirement for fiscal receipts to support income tax deduction claims
   The Finance Act has required persons claiming deductions for income tax purposes to support claims on expenditure of goods and services with fiscal receipts. An exception has been provided where the supplier of the goods or service is;
   • A non-resident person with no physical presence in Tanzania; or 
   • Excluded from a requirement to issue fiscal receipts (such as suppliers with annual turnover of less than TZS 11 million). 

   This change aims to enhance tax compliance through the validity of taxpayer’s expenses and consequently increase Government revenue. This change might create operational challenges to most MSMEs who procure most of their goods and services from a large pool of service providers within the informal sector.

3. Adjustment on the limit to offset tax losses for loss-making companies after the fourth year
   The Finance Act has adjusted the limit to offset unrelieved tax losses for loss-making companies after the fourth year of unrelieved tax losses. The change now mandates that 60% of the current year’s taxable profits can be offset by the unrelieved tax losses. Previously, the limit was higher at 70%. This adjustment aims at increasing the Government revenue without affecting the person’s right to continue to claim unrelieved losses in subsequent years of income.

4. Clarity provided on the exclusion for allotment of shares under Section 56(5)
   The Finance Act has provided clarity on the exclusion to the change in control provisions resulting from the allotment of new membership interest (shares) in a “resident entity”. As per the changes that were introduced by the Finance Act 2023, the exclusion had only referred to the allotment of new membership interests of the entity. Therefore, this change brings in clarity that it has to be a resident entity. The aim is to align with the policy intention of taxing gains resulting in a change in underlying ownership of the entity due to the indirect disposal of shares and not as a result of an increase in share capital.

   We still plead that this provision still needs amendments in terms of totally excluding the direct disposal of shares in the resident entity which have already been taxed through Section 90 of the Income Tax Act to avoid double taxation.

5. Charitable Organization status definition extended
   The Finance Act has extended the definition of Charitable Organizations to include organizations dealing with advancement of health and environmental protection. The objective is to promote charitable services in the country on the advancement of health and environmental protection and to address the effects brought about by global climate changes.

6. Imposition and exemption to withholding tax payments
   The Finance Act has made a number of changes to the imposition and exemption to withholding tax (WHT) obligations as summarized in the table below: for the use of construction equipment and machinery. This is intended to increase efficiency of collection of tax and expand the tax base. 

   Impositions of WHT	Exemptions to WHT
   Rental of construction equipment or machinery WHT at the rate of 10% is applicable on rental payments made by a resident person for the use of construction equipment or machinery. A definition is provided for the term “construction equipment or machinery” to mean the equipment, machinery, structure, scaffolding, materials, tools, supplies or systems rented or leased by contractor or its subcontractors for use in accomplishing the construction works but not intended to form part of the structure to be built or for incorporation into the project	Exemption on interest paid by resident financial institutions to non-resident financial institutions There is an exemption to WHT to financial institutions that pay interest to non-resident financial institutions or non-resident funds having an agreement with the Government of the United Republic. This is applicable when the loan is provided to the resident financial institution at a lower interest rate and subsequently, the resident financial institution extends it to the beneficiaries at lower interest rates. However, it excludes the scenario when the loan is from related parties
   Industrial minerals (other than salt) and Metallic minerals (other than precious metals) WHT at the rate of 2% applicable on payment to a holder of primary mining licence or artisanal miner for Industrial minerals (other than salt) and Metallic minerals (other than precious metals) as defined in the Mining Act Furthermore, there is a limitation introduced of such WHT to be termed as final if the payment is made to individuals who own primary mining licences or artisanal miners. An artisanal miner has been defined as “a labourer in mining activities not holding a mining licence”	Verified Carbon Emissions A change has been introduced that only limits the payments made to local government authority as final WHT payment in respect of verified emission reductions. Previously, payments in relation to verified emission reductions made to all resident persons were classified as final WHT payment
   Resident digital content creators WHT at the rate of 5% for payments made by both resident and non-resident persons to resident digital content creators. Furthermore, a digital content creator is defined as “a person who produces digital content in formats that can be shared using a digital medium or platform over the internet” And a digital content means “any electronic content that may be downloaded, streamed or accessed in any other manner, including e-books, magazines, news, journals, periodical, database, music, movie, software, mobile phone applications, images, text, sound effects, website, webinar, webcast, which is not simultaneously broadcasted over any conventional radio or television network in the United Republic”
   Transfer of digital assets WHT at the rate of 3% for payment made to resident persons in respect of transfer of digital assets. This responsibility to withhold tax lays on both resident or non-resident persons owning digital asset exchange platforms or facilitating the exchange of such assets. Furthermore, a digital asset means “(a) anything of value that is not tangible including cryptocurrencies, token code, number held in digital form and generated through cryptographic means or any other means, by whatever name called, providing a digital representation of value exchanged with or without consideration that can be transferred, stored or exchanged electronically; or (b) a non-fungible token or any other”

7. Clarification on Capital Gain Tax (CGT) of 3%
   The Finance Act has clarified that the 3% rate of CGT on the sale of land and buildings for persons with no records of costs, only applies to individuals. Previously, as introduced by the Finance Act 2023, the applicability was construed to include both individuals and entities. The purpose for this is to promote record keeping by entities and improve voluntary tax compliance.
   
   
8. Extension of time for filing returns for Government entities
   The Finance Act has provided an extension of time for persons whose financial statements are being audited by the Controller and Auditor General (CAG) that they shall file their return of income for the year of income with the Commissioner not later than 9 months after the end of each year of income. This change is relevant to the Government entities which initially had only 6 months timeline to file their returns of income.
   
   
9. Exemption to file a return of income for non-resident employees
   The Finance Act has excluded non-resident individuals with income consisting exclusively from employment, from the obligation to file a return of income. This aims to enhance equity and reduce the compliance burden.
   

 

2.0 The Value Added Tax (VAT) Act, Cap 148

 

1. Intending traders registered for VAT has a requirement to notify the Commissioner General within 90 days in case they no longer fulfil the registration criteria
   The Finance Act has added a requirement for intending traders who have been registered for VAT to notify the Commissioner General in case they are no longer fulfilling which may include the production of taxable supplies. This notification should be done within a period of 90 days from the date that the intending trader had specified to start its production of taxable supplies.  It has further been highlighted that failure to notify the Commissioner General of such circumstance shall lead to the deregistration for VAT.

   The aim of this change is to ensure that compliance to the VAT regime is adhered to through deregistration of non-compliant traders.

2. Online data services provided by non-resident traders now included under electronic services with are subjected to VAT
   The Finance Act has added online data services provided by non-resident traders into the scope of VAT. Furthermore, a definition of what entails online data services has been provided to mean “monetization of user data including the sale or licensing of, or access to user data or information collected through user engagement with an online platform, whether sold or licensed directly or indirectly, aggregated or disaggregated, anonymised or used in any other form”.

   The aim of this change is to bring into the taxable net, much broader electronic services that are offered and to keep pace with the ever evolving technological transformations.

3. Zero-rating of VAT on various taxable supplies
   The Finance Act has continued to zero rate the below local supplies with the spirit of making such supplies cheaper to the consumers/ buyers and fostering trade among them. These include: 
   • Extension of an additional year to 30 June 2025 for locally manufactured fertilizer.
   • Extension of an additional year to 30 June 2025 for locally manufactured garments made from locally grown cotton. 
   • Supply of gold to the Bank of Tanzania.
   • Supply of gold to a licensed refinery in Mainland Tanzania.

   This is a positive change for the relevant taxpayers because the seller of zero-rated supplies can recoup the input VAT incurred by claiming the purchases.

4. Supplies that have now been exempted from VAT
   The Finance Act has also exempted from VAT the following supplies:
   • Blended tea or fermented tea from locally grown tea leaves.
   • All goods, including material, supplies, equipment, machinery and motor vehicle for official use of armed forces as certified by the Minister responsible for defense.
   • Extension of an additional year to 30 June 2025 on the supply of double refined edible oil from locally grown seeds by a local manufacturer.
   • Supply of aircraft engine and aircraft parts to a local manufacturer or assembler of
     aircraft.
   • Supply of video assistant referee (VAR) technology equipment and accessories upon approval by the Minister responsible for sports.
   • Supply of sewerage services by a water supply and sanitation authority.

   The aim of such changes is to make the supply cheaper in the hands of the consumer. However, the is a risk of this goal not being met as explained above, because exempting a supply, creates additional costs in operations due to the fact that businesses supplying exempt supplies are not eligible for input VAT deduction (hence absorbing the VAT cost). The VAT exemption on the supply of VAR technology equipment is timely as the Government is preparing to host the Africa Cup of Nations (AFCON) in 2027.
   

3.0 The Tax Administration Tax Act, Cap 438

 

1. Service of documents by electronic means acceptable
   The Finance Act has acknowledged that a document is considered to be served on the Commissioner General or a person when that document is duly sent by email, fax or any other electronic means in order to ease administration and reduce compliance costs. This is a commendable move that matches the trend in technological changes and in line with the government’s goal of preserving the climate and environment by becoming more paperless.

2. Admission of notices of objection made clearer
   The Finance Act has clarified the date that objections can be deemed as being admitted, which is the date when payment of the amount of tax which is not in dispute or one-third of the assessed tax decision whichever amount is greater is made.

   Previously, there was no clarity on the time for admission of notices of objection. Such vagueness was hindering the proper accounting of the 6-month time limit that the Commissioner General has in power for determination of an objection. However, this change still brings interpretational issues as the required payment for admitting a notice of objection can actually be made even before the due date for filing such an objection.

3. Compliance with laws governing cargo deconsolidation
   The Finance Act requires a cargo consolidator to comply with customs and other laws and procedures governing the deconsolidation of cargo to its owners at the time of importation of goods in the country. Failure to do that constitutes an offence and upon conviction, the consolidator will be liable to a fine equal to 30% of the customs value of imported cargo. This will create some operational challenges in case the owners of the cargo are multiple and some are based in distant regions from the port.

4. Declaration and signing of income tax return that is complete and accurate for parastatals and Government entities
   The Finance Act has guided on the responsibility of the required declarants and signatories to declare the completeness and accuracy of income tax returns in parastatals or entities which is wholly or substantially owned by the Government to be a manager and head of finance or certified public accountant appointed or employed in the public service by the parastatals or such entities for that purpose.

5. Non-usage of EFD fine capped at TZS 4 million
   The Finance Act has introduced a cap of 200 currency points which is equivalent to TZS 4 million as the maximum fine for failure to use a fiscal device.

6. Increase in the value of currency points to TZS 20,000
   The Finance Act has increased the value of 1 currency point from TZS 15,000 to TZS 20,000. The purpose of this change is to preserve the depreciated value of the currency point accorded to the fines and penalties imposed in the Act.

4.0 The Excise (Management and Tariff) Act, Cap 147

 

1. Introduction of 10% excise duty on commercial advertisements on betting, gaming, and lotteries
   The Finance Act imposed excise duty at the rate of 10% on commercial advertisements on betting, gaming, or lotteries, which excludes non-commercial advertisement of promotions, national lottery and licensed trial games. The amendment aims to raise revenue to compensate for the externalities caused by excessive gaming.

2. Offsetting of excise duty payable on finished goods
   The Finance Act has introduced the treatment of double payment of the excise duty. Such that, in respect of excisable goods classified under HS Code 2207.10.00 (i.e., undenatured ethyl alcohol of an alcoholic strength by volume of 80% vol or higher), imported into or locally manufactured in Tanzania by a licensed manufacturer which has been used as a raw material in manufacturing other excisable goods of heading 22.04 or 22.08 (i.e., wine of fresh grapes including fortified wines, grape must, spirits, liqueurs and other spirituous beverages), the excise duty paid on the raw material shall be offset against the excise duty payable on the finished goods.

3. Change on the due date for submission of the excise duty returns
   The Finance Act has changed the due date for submission of excise duty returns from the last working day of the month to the 25th day of the month following the month to which the return relates.

4. Remission on denatured ethyl alcohol
   The Finance Act has introduced excise duty remission on undenatured ethyl alcohol of used in: 
   • The production of industrial energy where the person produces the undenatured ethyl alcohol or 
   • Used for medical or laboratory purposes 

   This aims at enhancing the production of local industries and availability of goods produced.

5. Reduced excise duty on locally produced bottled water
   The Finance Act has reduced the excise duty on locally produced bottled water from TZS 63.80 to TZS 56 per litre. This aims to reduce production costs, support the growth of small-scale factories and promote the use of clean and safe water.

6. Introduction of excise duty on imported solvent paints, tomato ketchup, and beers
    In order to increase Government revenue and compensate for the negative effects caused by the consumption of some products, the Finance Act has introduced excise duty on;
   • Imported solvent paints at TZS 500 per kilogram 
   • Imported tomato ketchup and tomato sauce at TZS 300 per kilogram
   • Imported opaque beer and other imported beer made of mixed fruits, TZS 963.90 and TZS 2,959.74 respectively.

   Also, the Act has introduced excise duty at TZS 5,000 and TZS 7,000 per litre on locally produced and imported undenatured ethyl alcohol with alcohol by volume of more than 80 percent respectively in order to expand the tax base.

5.0 Other notable tax and non-tax changes

 

1. Exemption of casual labourers employed in the execution of water projects from SDL
   The Finance Act included casual labourers employed in the execution of water projects managed by water authorities in the scope of the exemption for payment of SDL. The measure intends to lower project costs, streamline workforce management and improve efficiency in water supply initiatives.

2. Requirement for a portion of gold to remain in-country for processing under the Mining Act, Cap 123
   The Finance Act has introduced a requirement for gold owned by a mineral right holder or a licensed dealer, other than those having agreement with the Government to be set aside for processing, smelting, refining and trading in Tanzania. Additionally, the Ministry for Mining will provide guidance of such percentage which shall not be less than 20% of the amount of gold.

   This change aims at ensuring that there is an adequate supply of gold to our local refineries and the Bank of Tanzania to enhance growth of national gold and foreign currency reserve.

3. Reduction of royalty rate from 6% to 4% on the supply of gold to be sold to the Bank of Tanzania under the Mining Act, Cap 123
   The Finance Act has reduced the royalty rate from 6% to 4% on the supply of gold to be sold to the Bank of Tanzania and furthermore, making any provisional royalty paid by the Bank of Tanzania as final and shall not be required to pay balance or excess amount of
   royalty.

   The aim of the amendment is to incentivize the supply of gold to Bank of Tanzania and also reduce associated cost to enhance growth of national gold and foreign currency reserve.

4. One-third of the royalty payment for gold and gemstones should be paid by depositing refined gold and gemstones under the Mining Act, Cap 123
   The Finance Act has introduced a requirement for one-third of the royalty payable to the Government in respect of gold or gemstones to be paid by depositing refined gold or gemstone equivalent to the ascertained royalty into the National Gold and Gemstone Reserve. This means that the royalty payer, should be able to set aside a portion of his refined gold or gemstone for facilitating such payment. This change aims to incentivize the supply of gold and gemstone to the Government and also enhance growth of national gold and foreign currency reserve.

5. Exemption from payment of inspection fees to gold sold to Bank of Tanzania under the Mining Act, Cap 123
   The Finance Act has exempted a person selling gold to Bank of Tanzania from paying the inspection fee of 1%. This is an additional fee that is payable by the traders when selling their gold. This change aims to incentivize the supply of gold to Bank of Tanzania and also reduce associated cost to enhance growth of national gold and foreign currency reserve.

6. Registered or licensed industries who are enjoying tax incentives should enter into performance agreement with the Minister for Finance under the National Industries (Licensing and Registration) Act, Cap 46
   The Finance Act has introduced a requirement for industries who are registered or licensed under the Act or with certificate under the Tanzania Investment and having tax incentives to enter into performance agreement with the Minister for Finance. Such tax incentives mentioned include, exemption or zero rate under the Value Added Tax Act, duty remission under the East African Community Customs Management Act or a stay of application of East African Community Common External Tarriff.

   The Minister for Finance is responsible to making regulations for the proper implementation of this requirement.

7. Increase of Railway Development Levy from 1.5% to 2% of CIF value under the Railways Act, Cap. 170
   The Finance Act has increased the railway development levy from 1.5% to 2% of the CIF value. This increment is aimed at collecting for funds for maintenance of the existing road and railway infrastructures.

8. 60 days’ time limit provided for out-of-court settlement discussions under the Tax Revenue Appeals Act, Cap 408
   The Finance Act has now provided a time limit for matters that have been requested by the parties to be settled amicably out-of-court (i.e., at the TRAB or TRAT). This time limit is restricted to 60 days and upon showing good reasons, an extension not exceeding 10 days can be offered.

   It is noted that failure to finalize this amicable settlement within the prescribed time results to the appeal being returns to either the TRAB or TRAT for determination. This change is aimed at expediting the process in settling tax disputes through amicable settlement.

9. Goods are now subjected to Industrial Development Levy under the Import Control Act, Cap 276
   The Finance Act has introduced a new levy known as Industrial Development Levy charged on customs value of the goods (highlighted in the table below) imported for home consumption except goods originating from East African Community Partner States that meet the East African Community Rules of Origin. The goods mentioned are those which are mostly produced in country and thus this levy aims to influence and protect national economy by enhancing local production and making such importation more expensive.

    

   Goods	Industrial Development Levy Rate
   Wire rod	10%
   Beer	5%
   wine	10%
   Energy drink	5%
   Non-alcoholic beer	5%
   Other organic surface-active agents, whether or not put up for retail sale	10%
   Cement Clinkers	10%
   Portland Cement	10%

10. Introduction of export levy on sunflower produce under the Export Act, Cap 196
    The Finance Act has introduced a 10% export levy based on FOB value on Crude Sunflower Oil and Sunflower Seeds when they are exported outside Tanzania. The measure is intended to protect local sunflower oil producers by making export of raw produce expensive.
    

 

Our team can assist you in further explaining the various implications that the changes in the Finance Act 2024 can have on your business or investment in Tanzania. Feel free to reach out to us via info@breakthroughattorneys.com for such an engagement.

 

Important Notice:

This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.