Tanzania’s tax system includes a variety of direct and indirect taxes, including income tax, Value-added Tax (VAT), import duty, excise duty, and stamp duty. Taxes are also imposed by local governments, whereas the Tanzanian Revenue Authority is in charge of all central government taxes (TRA).
Domestic Revenue, Customs and Excise, and Large Taxpayers are the three tax departments of the authority (in respect of all taxes). A Commissioner General is in charge of revenue collection and day-to-day administration at the TRA. The tax policy is overseen by the Ministry of Finance.
Tanzania follows a self-assessment system with the obligation of filing a tax return at the end of the year. Taxes are due every three months. Individuals with primarily employment-based income (PAYE) and non-resident taxpayers with Tanzania-sourced income are both subject to the withholding tax structure. VAT is reported monthly. Here are some of the taxes that Tanzania’s taxation system administers.
Tax categorization
Taxes in Tanzania are broadly categorized into four, which are: direct, indirect, personal, and miscellaneous taxes. The components of each category are explored below
Direct Taxes
Below are the tax structure under the direct category
Corporate taxes
Tanzania’s tax base is still quite limited. Consumption taxes (customs and VAT) continue to account for the majority of tax revenue. Employment income is severely taxed, and tax exemptions and evasion jeopardize businesses’ tax contributions. As a result, the TRA is increasingly using sector-specific tax collection techniques to boost income.
Residents are subject to income tax on a worldwide basis, whilst non-residents are only taxed on income earned in Tanzania. For income tax purposes, people who have been in Tanzania for at least six months are considered residents. Residents include companies incorporated in Tanzania or whose management and control are exercised from Tanzania.
The corporate tax rate is set at 30%. (25 percent for Dar es Salaam stock exchange-listed firms). This rate is comparable to those of the vast majority of East African Community nations. Also taxed at 30% is the branch income of foreign-based firms. Repatriated income of foreign corporations’ branches is subject to an additional 10% tax.
For corporations in a perpetual unrelieved loss for three consecutive years related to tax advantages, there is additionally an “Alternative Minimum Tax” of 0.3 percent of turnover for the third year of perpetual unrelieved loss.
Capital gains taxes
Tanzania discontinued a separate capital gains tax in 2004. A realized capital gain is now included in the overall income brought to charge at the year’s conclusion. However, there is a single installment tax on the realization of interests in property, shares, and securities held in a Tanzanian resident company or structure. For citizens and non-residents, the applicable rates are 10% and 20% of the gain, respectively.
Indirect Taxes
Taxes categorized as indirect are explained below
VAT
The regular rate of 18 percent VAT is applied. Exports of products and services are tax-free if they meet the “export criterion.” The registration threshold is higher than TZS 40m (approximately USD 25,000). Tanzania has two VAT regimes: one for mainland Tanzania and another for Tanzania Zanzibar. Taxpayers must submit their VAT returns by the final business day of the next month. Import VAT, as well as the customs charge, is paid at the time of purchase.
Excise duty
Excise duty is another indirect tax that is imposed on certain goods and services, whether imported or locally produced. Mobile phone airtime and pay-per-view television are two examples of excisable services. Fuel, beer, bottled water, cigarettes, alcohol and wines, and motor vehicles with engines larger than 1000cc are all subject to excise duty.
Customs (import) duty
For items imported from countries outside the EAC, the import tariff rate is 0% for raw materials, capital goods, agricultural inputs, and purebred animals; 5% to 10% for intermediate goods; and 25% for finished goods. Furthermore, mining equipment and supplies imported by mining operators are taxed at 0% until production begins, then at 5% after one year. Imported equipment and supplies by gas and oil explorers are tax-free.
Personal Taxes
Only Social security is categorized under the personal tax
Social security/national insurance payments
Many social security funds cater to both the public and private sectors. Employees are required to contribute up to 10% of their base wage. Employers must contribute up to 10% of basic income to approved pension systems, making the total contribution 20% of basic salary.
Miscellaneous taxes
Payroll tax is categorized as miscellaneous because it does not apply to all workers
Taxes on payroll
Tanzania’s payroll tax is made up of the Skills Development Levy (SDL), which is set at 6% of gross compensation, and contributions to social security funds (up to 10% of an employee’s basic wage). This is at the employer’s expense. SDL is used in vocational training to increase skill development.
