Kara Sears
Taxation in Tanzania is divided into two types: direct and indirect taxes. Direct taxes are levied on people's income from employment, business, property ownership, and investments. The incidence of these taxes falls directly on the taxpayer and cannot be shifted to another person. Indirect taxes, such as Value-Added Tax (VAT), are charged on the consumption of goods and services. Tanzania's tax laws and rates have undergone periodic reforms since the colonial era, with the most recent changes introduced by the 2023 Finance Act, which aims to boost economic recovery, address climate change, and enhance various sectors for improved livelihoods. Understanding Tanzania's tax laws is crucial for both residents and non-residents to comply with their tax obligations and avoid penalties.
| Characteristics | Values |
|---|---|
| Types of Taxes | Direct and Indirect Taxes |
| Direct Tax Examples | Corporate Tax, Pay-as-you-earn Tax (PAYE), Withholding Taxes |
| Indirect Tax Example | Value-Added Tax (VAT) |
| VAT Rate | 18% |
| Corporate Tax Rate | 30% |
| Corporate Tax Rate for New Assemblers of Vehicles, Tractors, and Fishing Boats | 10% for the First 5 Years |
| Corporate Tax Rate for New Manufacturers of Pharmaceutical or Leather Products with Performance Agreements with the Government | 20% for the First 5 Years |
| Individual Income Tax Rate | Progressive, from 8% to 30% |
| Non-Resident Individual Income Tax Rate | 20% on Total Income |
| Non-Resident Disposal of Investment Tax Rate | 30% |
| Taxing Authority | Tanzania Revenue Authority (TRA) |
| Recent Tax Law Changes | Tanzanian Finance Act, 2023 |
| Purpose of Recent Changes | Accelerating Economic Recovery, Climate Change Adaptation and Mitigation, Enhancing Certain Sectors |
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What You'll Learn
Direct and indirect taxes
Taxation in Tanzania can be classified into two types: direct and indirect taxes. Direct taxes are levied directly on income from employment, business, ownership of property, or investments. The burden of these taxes falls directly on the person or entity responsible for paying them, and they cannot be shifted to another person or entity. Examples of direct taxes in Tanzania include corporate tax, Pay-as-you-earn (PAYE) tax, and withholding taxes. Withholding taxes are applicable on certain payments to non-residents, such as employment income taxed at a flat rate of 15% for non-residents.
Indirect taxes, on the other hand, are levied on the production, distribution, or consumption of goods and services. One of the main forms of indirect taxation in Tanzania is Value-Added Tax (VAT). VAT is charged by registered traders on taxable goods and services at a standard rate of 18%. It is applied at each stage of production and distribution, including taxable imports. However, exports are zero-rated, meaning no VAT is charged on them. Businesses with a taxable turnover exceeding certain thresholds are required to register for VAT.
The disposal of investments with a Tanzanian source is also subject to taxation. Residents are taxed at a rate of 10% on the disposal of such investments, while non-residents are taxed at a rate of 30%. Additionally, the recently passed Tanzanian Finance Act introduced changes to VAT exemptions, specifically regarding the importation of aircraft and certain parts by local operators of air transportation.
Tanzania has a self-assessment tax system, where taxpayers are expected to assess and submit their estimated income for the upcoming year by March 31st. They are then required to pay their taxes in four equal instalments by the end of March, June, September, and December. The Tanzania Revenue Authority (TRA) is responsible for managing the assessment, collection, and accounting of all central government revenue, including taxes.
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Income tax laws
Taxation in Tanzania falls into two categories: direct and indirect taxes. Direct taxes are levied on people's income from employment, business, ownership of property, and investments. The incidence of such taxes cannot be shifted to another person, and examples include corporate tax, Pay-as-you-earn (PAYE) tax, and withholding taxes.
For companies, certain payments to non-residents are taxed at non-resident withholding tax rates. Additionally, gains from the disposal of investments in Tanzania are subject to income tax, with a rate of 10% for residents and 30% for non-residents. The Income Tax Act defines various terms related to taxation, such as "adjusted assessment," "alternative financing arrangement," "amount derived," and "foreign income tax."
Tanzania has periodically reformed its tax system since adopting the colonial tax structure in the early 20th century. Notable reforms include the introduction of sales tax in 1969, new income tax legislation in 1973, amendments to revise tax bases and rates, and the abolition of some excise and export duties. The Tanzania Revenue Authority (TRA) is responsible for managing the assessment, collection, and accounting of all central government revenue in the country.
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Value-added tax
Taxation in Tanzania falls into two categories: direct and indirect taxes. Value-added tax (VAT) is a type of indirect tax. It is a consumption tax charged on taxable goods, services, and immovable property. VAT is levied at each stage of production and distribution, including the final stage of sale, where value is added. The standard VAT rate is 18%.
VAT is charged on both locally produced and imported goods and services. For imports, the person paid the VAT imposed on the import or input tax paid under the VAT law applicable in Tanzania Zanzibar can claim an input tax credit. If goods are transferred to Mainland Tanzania, the Tanzania Revenue Authority (TRA) collects the VAT and remits it to the Zanzibar Revenue Authority.
In Tanzania, VAT registration is mandatory for businesses with an annual turnover exceeding TZS 200 million (TZS 200 million in Zanzibar). Government entities, professional service providers, and certain other entities must also register regardless of turnover if they engage in taxable economic activities. Foreign companies must also comply with local VAT regulations, including registering for VAT if their supplies meet the registration threshold.
VAT returns must be filed monthly by the 20th day of the following month, and payments should be made through TRA's electronic systems. A taxable person may apply for a refund if they have overpaid for a tax period. The refund is processed through the Interbank Settlement System (TISS) or the taxpayer's bank account.
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Corporate tax
Taxation in Tanzania falls into two categories: direct and indirect taxes. Direct taxes are levied on people's income from employment, business, ownership of property, and investments. One such example is corporate tax, which is paid from corporate profits.
All companies, regardless of residency, are required by the Income Tax laws to file an estimate of income within three months after the start of its accounting year. These accounts must be approved by authorised Auditors and Accountants recognised by both the NBAA and TRA before being submitted to the TRA on the prescribed accounting date.
The current corporation tax rate is 30%. However, there are some exceptions. For instance, new assemblers of vehicles, tractors, and fishing boats are taxed at 10% for the first five years from the commencement of operations. Similarly, new manufacturers of pharmaceutical or leather products with performance agreements with the Tanzanian government are taxed at 20% for the first five years. Companies newly listed on the Dar es Salaam Stock Exchange (DSE) are taxed at 25% for three consecutive years.
In addition to corporate taxes, businesses in Tanzania may also be subject to other taxes such as Value Added Tax (VAT) and withholding taxes. VAT is charged on all taxable goods and services at a standard rate of 18%. Withholding taxes are applicable on certain payments to non-residents, such as technical and management service providers to mining, oil, and gas entities, which are taxed at 5% of turnover.
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Tax law reforms
Taxation in Tanzania falls into two categories: direct and indirect taxes. Direct taxes are levied on income from employment, business, property ownership, and investments. Indirect taxes, such as Value Added Tax (VAT), are charged on the consumption of goods and services. The Tanzania Revenue Authority (TRA) is responsible for managing the country's taxation system and collecting government revenue.
Tanzania's tax system has undergone periodic reforms since the colonial era. Notable reforms include the introduction of sales tax in 1969, new income tax legislation in 1973, amendments to tax legislation in the 1980s, and the establishment of a Tax Commission in 1989 to address the system's shortcomings.
More recently, the Tanzanian government passed the Finance Act in 2023 to promote economic recovery, adapt to climate change, and enhance specific sectors for improved livelihoods. The Act made changes to VAT exemptions, storage facility definitions, and tax refund application time limits. It also introduced a reduced corporate income tax rate of 25% for newly listed companies on the Dar es Salaam Stock Exchange for three consecutive years.
To further attract foreign investment and promote specific industries, Tanzania offers tax incentives for certain businesses. For example, new assemblers of vehicles, tractors, and fishing boats enjoy a lower corporate tax rate of 10% for their first five years of operation. Similarly, new manufacturers of pharmaceutical or leather products with performance agreements with the government are taxed at a reduced rate of 20% for the initial five years.
Tanzania's tax laws also include provisions for individual taxpayers. Resident individuals are taxed on their worldwide income, while non-residents are taxed only on income from Tanzanian sources. The progressive individual income tax rate ranges from 8% to 30% for residents, while non-residents are subject to a flat rate of 15% on employment income. Self-assessment and timely filing of tax returns are essential to comply with Tanzania's tax regulations and avoid penalties.
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Frequently asked questions
There are two types of taxes in Tanzania: direct and indirect taxes. Direct taxes are levied on income from employment, business, ownership of property, and investments. Indirect taxes include Value Added Tax (VAT), which is charged on goods and services at a standard rate of 18%.
The Tanzania Revenue Authority (TRA) is the government agency responsible for managing the assessment, collection, and accounting of all central government revenue, including taxes.
For individuals, the tax rates vary from 8% to 30%, depending on their income level and residency status. Non-residents are taxed at a flat rate of 15% on employment income. For corporations, the standard tax rate is 30%, but there are reduced rates for certain industries and new businesses. For example, new assemblers of vehicles have a tax rate of 10% for the first five years.
