Tanzania: who has to pay taxes in Tanzania, am I liable for taxes in the host country?

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This article summarizes the basic understanding of income tax in Tanzania as of the date of its publication, it highlights the main features of income tax and the main tax knowledge that every Tanzanian should know about the income tax.

This is not a new question to many of my readers.

Albert Einstein once noted that “I have had a hard time trying to figure out how much I owe Internal Revenue Services this year.” What’s funny and outrageous about this quote is the identity of the person who apparently said it.

Albert Einstein once said, “The hardest thing in the world to understand is income tax. It is not abnormal to be faced with the same dilemma.

Nonetheless, the truth remains that intellectually most of us understand the importance of paying taxes and the need for voluntary compliance which is a necessary component of good citizenship.

Paying taxes is important because the government needs the taxes to fund the construction of our roads, fund our national defense, support our health care and education system, and other government social services. But in our hearts, practically many people across the world and Tanzanians included the hatred of paying taxes.

It seems punitive. It is therefore important to understand the imposition of income tax and who is responsible. Along with the government’s efforts of the Sixth Phase to ensure that every Tanzanian and Tanzanian company pays its legitimate taxes to ensure the growth of the country, the Tanzania Association of Accountants felt it was important to provide basic legal information. on income tax in Tanzania.

The payment of tax on income earned in the country is an obligation of every individual or entity that earns income in the country. Therefore, it is necessary to provide basic tax knowledge and information on the subject, in order to ensure compliance and avoid unnecessary fines and penalties. In order for a person to be required to pay any form of tax, a tax liability must arise.

The Income Tax Act of 2019 describes what is subject to income tax under the laws. For all taxable income, tax must be paid. It should be noted that there are no assumptions or intentions in a tax.

What is a tax obligation?

In a simple definition, a tax liability can be defined as a payment owed by an individual, business or other entity to the government through the tax authority. In principle, a tax is incurred when the income is earned and when the income is generated.

People may not be subject to income tax if their total tax owed was zero or if their income was below the level that would require them to pay tax. It is important to note that individuals and businesses can reduce their tax obligations by claiming allowable deductions, exemptions, and tax credits. It is therefore important to understand what deductions and exemptions are allowed under the Income Tax Act.

Imposition of income tax Under Article 4 of the Income Tax Act, which is the main taxable article but not the only one, the article imposes an income tax on the following:

– Total income for a year of income – Anyone who has total income in a year of income or who is a corporation that has a perpetual uncompensated loss in that year of income and the two consecutive years of income previous ones are subject to tax.

It should be noted that companies whose losses have not been compensated will be subject to the turnover tax of 0.3%. Special consideration should always be given to uncompensated losses as determined by the Income Tax Act to ensure optimal tax payments;

– Repatriated Income from a national permanent establishment in the year of income: and

– Final withholding tax collected during the year of income. The term total income is defined in the Law and means the sum of the taxable income of the person for a year of income from each employment, business and investment less any reduction authorized under section 61 regarding pension contributions to the funds. approved retirement plans.

The income tax payable on the various categories highlighted above is calculated by applying the relevant income tax rates, which are determined by the Income Tax Act 2019, to total income or to the turnover of persons for the year of income. It should always be remembered that a person can claim a tax credit on the total tax payable for the year of income.

Note that the credit is for resident persons other than partnerships and the credit is for the foreign tax credit for that income year for any foreign income tax paid by the person to the extent that it is paid in respect of the taxable foreign income of the person for that year of income.

A person can also benefit from a tax credit for the payment of non-definitive withholding tax. The total income of a corporation, trust, unregistered pension fund or national permanent establishment of a non-resident person is taxed at the rate of 30% in any year of income . However, it should be noted that there are special considerations for some entities like below:

– Companies newly listed on the Dar es Salaam Stock Exchange in which at least 30% of their shares are issued to the public are taxed at a reduced rate of 25% for three consecutive years from the date of listing.

– Companies with a newly created factory for the assembly of motor vehicles, tractors, fishing boats or boat engines and having a performance agreement with the government are taxed at a reduced rate of 10% for five consecutive years from the year of the start of production.

– Newly established entities specializing in the manufacture of pharmaceuticals or leather goods and having a performance agreement with the Government of the United Republic of Tanzania are taxed at a reduced corporate tax rate of 20% for five consecutive years from the year of the start of production.

It should be noted that companies with uncompensated perpetual losses for three consecutive years are taxed 0.5% of their turnover in the third year of uncompensated perpetual losses.

Income repatriated from a national permanent establishment of a non-resident person is taxed at 10%. To be taxable, income must come from one or more sources. They are gains or benefits of one or the other “

– Business

– Investment

– Payment having a source in the United Republic of Tanzania.

Tax is levied on a year of income. An income year is defined as a calendar year, that is, a 12-month period starting on January 1 of a calendar year and ending on December 31 of the same calendar year.

It should be noted, however, that a taxpayer can request the establishment of his accounts for the standard period of twelve months but ending on any date other than December 31.

In such a situation, the taxpayer’s fiscal year is considered the income year.

Tax exemption

It should be noted that all sources of income are not taxable.

For various economic and social considerations, for example to encourage investment, charity or to learn about the reciprocity of other countries, some income may be exempt from tax.

The Income Tax Act under Section 10 and the Second Schedule to the Act provide details on the exemptions.

Taxation at source

Under the withholding tax system, certain income must be paid net to beneficiaries after deduction of tax.

The system minimizes tax evasion and makes tax collection easy and economical.

As part of the system, the payer remits to the Tanzania Revenue Authority the amount deducted within 30 days of the deduction or payment along with the payment details.

A good example of withholding tax is, for example, salary as you earn (PAYE), this is a form of income tax that is collected by the employer as a as a government agent to the employee and paid directly to the government without first being paid to the employee.

There are other forms of withholding taxes deducted from payments, such as rental income, interest charges, and service charges. In our next article, we’ll focus on frequently asked questions.

– The writer, Godvictor Lyimo is the president of the Tanzania Association of Accountants (TAA) reachable via [email protected], phone: 0787514014


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