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  30 october 2006 / 30 2006
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TANZANIA REVENUE AUTHORITY

TAXATION AND INVESTMENT INCENTIVES IN TANZANIA

PRESENTATION BY THE COMMISSIONER GENERAL OF THE TANZANIA REVENUE AUTHORITY, MR. HARRY M. KITILLYA

  • INTRODUCTION
  • Tax administration in Tanzania has a three-tier structure, namely Central Government tax administration, tax administration in Zanzibar and Local Governments tax administration. The Tanzania Revenue Authority (TRA) administers the Central Government taxes, Zanzibar Revenue Board administers domestic consumption taxes in Zanzibar, while the Local Authorities administer the various local imposts. Central Government taxes are the major revenue earner for the Government, accounting for about 90% of domestic revenue.

  • THE TAX STRUCTURE
  • The Central Government taxes comprise direct and indirect taxes. The direct taxes account for around 30% of total tax revenue, while the indirect taxes account for 70% of total tax revenue. Direct taxes include the Personal Income Taxes (PIT), Corporate Income Tax (CIT) and Withholding Taxes on business, capital and investment incomes. The indirect taxes comprise taxes on international trade transactions and on domestically produced goods and services, namely the value added tax, excises and import duties.

    The tax base and rate structure of the Tanzanian tax system has been rationalized and streamlined with a view to instituting a fair, simple, equitable, efficient and taxpayer/investor-friendly tax regime. A number of nuisance taxes have been abolished, the regulatory framework has been harmonized, an incentive regime has been put in place and the rates have been gradually reduced. To attract investment the Government has abolished protectionist excises, replaced the distortionary Sales Tax with Value Added Tax and removed the two-tier Corporate Tax that provided for a reduced rate for residents and higher rate for non-residents for a single rate.

    Most rates are now in line with the internationally accepted best practice, requiring no more than fine-tuning. Corporate tax rate is 30%, while VAT is chargeable on goods and services at 20%. There are also specific-rate excises on mostly traditional excisable products viz. tobacco, alcoholic drinks, soft drinks and petroleum products while ad-varolem-rates are on non-utility motor vehicles and mobile phone service. Two non-zero import duty rates at 10% and 25% are applicable under EAC Customs Union on importation of goods and services, depending on Customs classification codes, but raw materials and capital goods are zero-rated. Withholding taxes on business and capital incomes such as dividends, interest and royalties are also applicable at the rates ranging between 10% to 20%. The tax rates for selected tax sources in Tanzania are as shown on the following Tables below:

    A. DIRECT TAXES

    RATES

     

    TAX SOURCE

    RESIDENT

    NON-RESIDENT

    1.

    Corporate Tax

    • Total Income of domestic permanent establishment

    • Repatriated Income of branch

    30%

    N/A

    30%

    30%

     

    10%

    2.

    Withholding Tax on:

    • Dividends to company controlling 25% shares or more.

    • Dividends from DSE listed company

    • Interest

    • Royalties

    • Technical services (mining)

    0%

     

    5%

    10%

    15%

    5%

    10%

     

    5%

    10%

    15%

    15%

     

     

    B. INDIRECT TAXES

    3.

    Value Added Tax (VAT)

    VAT Registration Threshold:

    Taxable turnover exceeding sh. 40.0 million per annum.

    VAT Rates

     

    Supply of taxable goods and services in Mainland Tanzania 20%

     

    Importation of taxable goods and services into Mainland Tanzania 20%

     

    Export of goods and certain services from United Republic of Tanzania 0%

     

    Supply of taxable goods and services to relieved persons 0%

  • THE TAX ADMINISTRATION
  • In order to effectively and efficiently implement fiscal policy the Government during 1995/96 established an autonomous revenue administration under the TRA Act No.11 of 1995, the Tanzania Revenue Authority (TRA), charged with the assessment, collection and accounting of Central Government revenues. Since then, TRA has to a larger extent increased the efficiency, effectiveness and transparency in revenue administration, features that were lacking under the regime that was replaced. Under the new tax administrative arrangement the government has achieved significant transformation in revenue mobilization through initiating several administrative measures aimed at streamlining it, modernizing systems and removing inefficiencies.

    The United Republic of Tanzania Constitution recognizes the two parties of the union, namely Zanzibar and the Mainland Tanzania. As such, the Constitution has identified union taxes and non-union taxes. While Tanzania Revenue Authority collects the Union taxes, the Zanzibar Revenue Board collects all non-union taxes in Zanzibar. Taxes on income imposed under the Income Tax Act 2004 and custom duties under the East African Customs Management Act 2004 are union taxes, whereas domestic consumption taxes including the Value Added Tax, Excise Duties, hotel levies, stamp duties, motor vehicle taxes, and other charges are non-union taxes.

    4.0 WHY TAX INCENTIVES

    Tax incentives may well not be the most important factor in determining investment flows. However, given low levels of savings and hence high savings-investment gap Tanzania has always considered tax incentives as an integral part of investment incentives package, to attract foreign direct investment. The granting of tax-based investment incentives thus has centered around the conventional wisdom of reducing cost of capital, compensating for other deficiencies in the investment climate and provision of visible political cover on the States commitment to investment promotion. Typically the incentives schemes in Tanzania have targeted promotion of such areas as mining, gas and petroleum exploration, infrastructure development, tourism, exports, manufacturing, agriculture, economic diversification and employment creation. The Tanzania Tax Incentive Regime is competitive enough within the region.

  • TAX INCENTIVES REGIME OF TANZANIA
  • Tanzania recognizes the importance of investment to stimulate economic growth and create a potential for a sustainable future revenue generation. Consequently, the government has offered a tax incentive regime conducive to investment provided for in the various tax statutes, i.e. the Income Tax Act of 2004, Value Added Tax Act of 1997 and the East African Customs Management Act 2004. Tanzania is a member of the East African Community Customs Union involving three countries, viz. Kenya, Tanzania and Uganda. As a result, incentives provided for under the East African Customs Management Act 2004 must be negotiated and agreed at a tripartite meeting of the EAC Partner States.

    In recognition of the significance of investment, the Tanzania Investment Act, Mining and Petroleum Acts are also used to facilitate the granting of tax incentives. The incentives cut across a broad spectrum of investment goods including non-taxation of imports of capital goods and raw materials, deferment of VAT on capital goods and capital allowances on investment goods for income tax purposes. Also in place are exonerations and exemptions of goods and services specifically for investment purposes.

    Tanzania offers economy-wide tax incentives. Special attention is directed to the lead and priority sectors. The lead growth sectors are agriculture, agro-based industries, mining, economic infrastructure, tourism, and petroleum and gas sector. For all these sectors, except petroleum and gas sector, acquisition of all capital goods and parts are zero rated for import duty purposes and VAT thereon deferred. Research expenses for agriculture are allowable for income tax purposes, while capital acquisitions are 100% expensed. To attract productive investment in the petroleum and gas sector petroleum legislation was enacted. Equipment and materials used in exploration are tax-exempt.

    The priority sectors include manufacturing, natural resources such as fishing and forestry, aviation, commercial building, financial services, transport, broadcasting, human resource development and export-oriented projects. Investors in these sectors enjoy zero import duty rate for importation of capital goods and deferment of VAT thereon. There is also a set of exemptions granted on those investing in export processing through the Free Economic Zones Authority (FREZA) and Export Processing Zones (EPZ). Time may not be our best ally to mention all the incentives under this cluster but they range from long term tax holidays to full tax remissions.

     

     

  • REFORMS IN TAX ADMINISTRATION
  • In order to have a taxpayer/investor friendly environment to revenue mobilization the Tanzania Revenue Authority is implementing a Second 5-year Corporate Plan, envisioning itself to become a modern tax administration by the year 2008. The mission that supports achievement of the vision is To be an effective and efficient tax administration which promotes voluntary tax compliance by providing high quality customer service with fairness and integrity through competent and motivated staff.

    The Corporate Plan outlines five key strategic goals that have to be realized so as to achieve the vision. These are:

  • To increase revenue collection in a cost effective way
  • To integrate TRA operations
  • To provide high quality and responsive customer service
  • To promote tax compliance through a fair, equitable and transparent application of tax laws.
  • To improve staff competence, motivation, integrity and accountability
  • Additionally the core values for TRA employees include:

    • Business oriented and professional in appearance and approach
    • Fair and Accountable for the decisions they make in their areas of responsibility
    • Prompt in the delivery of services and accessible
    • Treat taxpayers, colleagues and stakeholders with dignity and respect
    • Honest and have integrity in their dealing
    • Committed and motivated to the achievement of TRA goals and objectives
    • Competent in the delivery of high quality services

    6.1 Integration of TRA Operations

    TRA aims at providing services at the shortest time possible at the least cost possible with minimal inconveniences to the taxpayer. The departments are now organised on functional basis rather than by tax type, as was the case previously.

    • Large Taxpayers Department (LTD)

    LTD was established in October 2001, started with 100 taxpayers. The number of taxpayers was increased to 370 in July 2006. The department currently contributes about 70% of domestic revenue and 38% of overall TRA collections. The aim is to ensure that the department collects about 80% of domestic revenue hence the department will have additional taxpayers in line with strengthening the operational capacity of the department.

    • District One Stop Centres have been established in 71 districts. These offices provide all tax related services under one roof at district level.

    • Integration of VAT and Income Tax Department

    With effect from July 2005, TRA has integrated VAT and Income Tax Departments to form the Domestic Revenue Department. In these offices, a taxpayer makes one visit for all type of taxes at one TRA office. It should be noted that risk based management is being implemented and the reward for compliant taxpayers is expedited services. Hence TRA has one integrated regional office in each upcountry region and Zanzibar while Dar es Salaam has three tax regional offices.

    • Reform on the Tax Refund System

    In order to improve efficiency in VAT refunds repayment claims, all claims are now classified into three categories namely, gold, silver and non-gold silver with effect from 1st October 2004. The Gold category covers regular payment traders who meet the qualifying criteria and their claims are settled within 30 days from the date of lodgment. The Silver category is for regular payment traders not meeting the gold criterion. Claims are settled within 30 days from the date of lodgment for two consecutive claims but full-scale audit is prerequisite for the third claim settlement. The Non-Gold Silver category is for the claimants who require thorough audit before affecting their refund claims. This system has to a very large extent solved the problem of delayed tax refunds.

    6.2 Information Systems

    We are aware of the fast moving trends in technology including e-government and e-commerce, TRA is bracing itself for that to enable it to accept electronic filing (e-filing) and other forms of modern business conduct. TRA has prepared and is implementing an ICT strategy that will guide TRA in embracing the technology trends. TRA has established its own website at www.tra.go.tz where all information regarding its operations is posted.

    • Payment of Taxes through Banks

    In order to reduce the cost of tax collection to both TRA and the taxpayers, TRA is implementing a system of collecting taxes through commercial banks since July 2004. The realised benefits include lower cost of revenue collection to TRA and move to one bank account per region.

    • The Tanzania Interbank Settlement System (TISS) has been introduced at the Large Taxpayers Department as well as the Dar es Salaam Customs Service Centre (for payments more than Shs 10 million or USD 10,000) as well as for refund payments. This has led to the elimination of revenue float between commercial banks and the Bank of Tanzania.

    6.3 Customs Modernisation

    The Customs Administration is undergoing a major reform to ensure that the operations are conducted in a modern and transparent way and clearance time at ports and airports is reduced substantially.

    • A mobile scanner has been acquired and is operational since 1st July 2004 to complement the introduction of Destination Inspection in July 1st 2004. The Computerised Risk Management System (CRMS) is being used whereby all containerized cargo are categorised as red, yellow and green channel. The yellow channelled containers are sent for scanning and if there any discrepancies with the declaration, the same is forwarded for physical inspection.
    • ASYCUDA++ system is in operation since June 2005 and is now operational in four centres. Average clearance times have been reduced significantly in these centres. Additionally, the Direct Trader Input (DTI) is being implemented since May 2005. This has facilitated efficient import processes and allows smooth electronic flow of data to ASYCUDA++.
    • Streamline Overall Trade Facilitation Arrangements and Requirements

    The clearance of goods at customs involves a number of stakeholders who in totality limit the speed of the clearance process. In view of this a Time Release Study (TRS) was undertaken in 2005. TRS recommended measures for faster clearance and monitoring of the release of goods, which are being implemented by all the stakeholders involved in the clearing process.

    6.4 Stakeholders Forum

    TRA has established this forum with the aim of providing a dialogue between TRA and its major stakeholders. The first forum was conducted on 19th March 2004 and since then; the forum has been meeting on quarterly basis with an agreed agenda. Additionally, the Taxpayers Charter is being implemented with the objective of enabling taxpayers to clearly understand their tax obligations on the one hand and for the TRA to offer transparent and consistent services on the other hand.

     

  • CONCLUSION
  • Tanzania has put in place a tax regime conducive to investment. The incentives are fully supported by a sound macroeconomic stability. The policy has witnessed significant growth in both foreign and local investments in the country. Working hand in hand with other stakeholders the tax administration is committed to expediting this process by functioning efficiently and effectively. Taxpayers at large and investors in particular are among our stakeholders whose expectations we are committed to meet and transcend as we transform Tanzania Revenue Authority into a Modern Tax Administration. Tanzania is therefore your best investment destination.

    Come and Invest in Tanzania.

    Karibu Tanzania

    Thank you for your attention.

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