Introduction

On 28 June 2024, the National Assembly passed the Finance Act, 2024 which came into force on 1 July 2024. The Act followed the proposal for amendment of the existing tax laws and other laws as proposed in the National Budget Speech delivered in Parliament on 13 June 2024 by the Minister of Finance, Hon. Mwigulu Lameck Nchemba Madelu. We highlight below the significant changes to the laws introduced by the Finance Act, 2024.

Amendments to the Income Tax Act (Cap 332 R.E. 2019)

Definition of assets modified: The definition of assets has been amended to include digital assets which implies that digital assets are now subject to withholding tax.

Exemption from paying alternative minimum tax (AMT): Tea processing companies with perpetual unrelieved loss for three consecutive years are exempted from paying AMT. The exemption shall apply from 1 July 2024 to 30 June 2027.

Fiscal receipts to support deduction of expenditure: It is now mandatory to support deduction of expenditure relating to production of income with fiscal receipts. In other words, when claiming for deduction of expenditure incurred during the year of income on goods or services relating to the production of income, it will be necessary to provide fiscal receipts to support the expenditure. This requirement applies where the expenditure relates to goods or services provided by a resident person. Fiscal receipts will not be required for any purchase from non-resident suppliers and persons not obligated to issue fiscal receipts.

Exemption on change in control rules: The deemed realisation arising from a change in underlying ownership of an entity by more than 50% does not apply where the change in the underlying ownership is as a result of allotment of new shares in the resident entity.

Charitable status extended: Organisations involved in health and environmental protection have now been included in the list of institutions that qualify for charitable status and can now apply to the Commissioner General of the Tanzania Revenue Authority to be recognised as charitable organisations for tax purposes.

Withholding tax on construction equipment or machinery: Rental payments made to a resident person in respect of the use of construction equipment or machinery is now subject to 10% withholding tax. The Finance Act, 2024 has also defined construction equipment or machinery to mean equipment, machinery, structure, scaffolding, materials, tools, supplies or systems rented or leased by a contractor or sub-contractor for construction work not forming part of the structure being built.

Withholding tax exemptions on interest payable by resident financial institutions to non-resident financial institutions: Interest payable by a resident financial institution to a non-resident financial institution or fund with an agreement with the government which provides for lower interest rates to a financial institution that has charged lower interest rates to resident beneficiaries of loans from non-resident financial institutions or non-resident funds are exempted from withholding tax. This exemption does not extend to interest payments payable to any loan taken by a resident financial institution from a related non-resident financial institution.

Withholding tax on industrial minerals: Payments made in relation to the purchase of industrial minerals except for salt and metallic minerals (other than precious minerals) are now subject to withholding tax at a rate of 2%. These were previously not subject to withholding tax.

Withholding tax on digital content creation and digital assets: Payments made to resident digital content creators are subject to 5% withholding tax, while payments made to a resident person who owns a digital asset exchange platform or facilitates the exchange or transfer of a digital asset are subject to 3% withholding tax. The term digital asset has been defined to include any intangible thing of value including cryptocurrency, token codes, numbers held in digital form and generated through cryptographic or other means providing a digital representation of value that can be stored or exchanged electronically.

Final withholding payments: Payments made to the holder of a primary mining licence or artisanal miner in respect of the purchase of minerals, as well as payments made to any local government authority, local community or any resident individual in respect of verified carbon emission reduction and to individual residents in respect of tour guiding and associated services such as chefs and porters are final withholding payments.

Returns by non-residents: Non-resident persons are exempted from filing returns provided that the income of the non-resident for the year of income consists only of income from their employment.

Amendments to the Tax Administration Act (Cap 438)

Definition of tax audit: The term tax audit has been defined to mean the examination of a taxpayer’s tax affairs for the purposes of checking compliance with tax laws, and includes a desk audit, issue-oriented audit and comprehensive tax audit.

Service of documents by email and other electronic means: Service of documents to the Commissioner General can now be carried out by email, fax or other electronic means in accordance with the laws governing electronic transactions.

Income tax returns by government-associated entities: Income tax returns submitted by parastatals or an entity that is substantially or wholly owned by the government must contain a declaration by the manager and head of finance or certified public accountant appointed or employed in the public service by the parastatal confirming the tax return to be complete and accurate.

Admission of tax objections: An objection to the decision of the Commissioner General shall be deemed to have been admitted on the date the taxpayer pays the higher of the amount of tax that is not in dispute or one third of the assessed tax within the prescribed 30 days from the date of the decision against which the objection relates.

Failure to use electronic fiscal device: The fine applicable for failing to use an electronic fiscal device, issue fiscal receipt or invoice, or issue a fiscal receipt or invoice that is false or incorrect in any material particulars has been fixed at 200 currency points (which is equivalent to TZS 4 million). Previously, the fine was pegged at a minimum of 200 currency points and a maximum of 300 currency points. Notably, the offender may also be subject to imprisonment for a term not exceeding three years, or to both a fine and imprisonment.

Amendment to currency points: A currency point is now set at TZS 20,000 from the previous TZS 15,000, the effect of which is an increase in any penalties imposed under the law that are based on currency points.

Amendments to the Value Added Tax Act (Cap 148) (VAT Act)

New definitions under the VAT Act: Some new definitions have been introduced to the VAT Act including: gaming supply which means the supplying of gaming activities under the Gaming Act; online data services which means any form of monetisation 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; and serviced apartment which means a furnished apartment or similar establishment, available for short or long-term stay, providing amenities for daily use, housekeeping and a range of other services all included within the rental price.

VAT exemptions on water sanitation and treatment chemicals: The Minister of Finance has the power to grant VAT exemption on importation or supply of water sanitation and treatment chemicals imported or supplied by a water supply and sanitation authority upon approval from the Ministry responsible for water.

Notice on failure to commence production of taxable supplies: It is now a requirement for every trader who fails to commence production of taxable supplies to notify the Commissioner General within 90 days after the expiry of the period in which he was to commence production of taxable supplies. Where the intended trader fails to notify the Commissioner General, the trader will be deemed to be deregistered for VAT.

Zero-rating of certain supplies: Supply of gold to the Bank of Tanzania (BOT) and refineries in mainland Tanzania is zero-rated. This also applies to locally manufactured goods by a local manufacturer where the goods are supplied to a taxable person registered under VAT in Zanzibar and locally manufactured garments made from locally grown cotton.

Other VAT exemptions: Goods, including material supplies, equipment, machinery and motor vehicles for official use of armed forces as certified by the Minister responsible for defence are exempted from VAT. The same applies to imports of blended tea or fermented teas from locally grown tea leaves; aircraft and aircraft maintenance provided to a local operator of air transportation; aircraft engines and aircraft parts imported by a local manufacturer or assembler of aircraft, or a local operator of air transportation; and video assistant referee (VAR) technology equipment and accessories, upon approval by the Minister responsible for sports.

Amendments to the Tax Revenue Appeals Act (Cap 408)

The Finance Act, 2024 requires any attempted amicable settlement of tax disputes to be concluded within 60 days from date of the issuance of order by the Tax Board or the Tax Tribunal. The 60-day period may, upon application by a party, be extended for a further period not exceeding 10 days to allow parties to finalise settlement. Where the appeal is not settled amicably within this time frame, the Tax Board or the Tax Tribunal shall treat the settlement as having failed and proceed with determination of the appeal.

Amendments to the Vocational Education and Training Act (Cap 82)

The Finance Act, 2024 has amended the Vocational Education and Training Act to exempt water supply and sanitation authorities from payment of skills and development in respect of payments made to casual labourers engaged in the implementation of water and sanitation projects.

Amendments to the Mining Act (Cap 123)

Withholding minerals for processing, smelting, refining and trading: Mineral rights holders other than those in agreement with the government are required to set aside a certain percentage (to be determined by the Minister responsible for minerals) of minerals for processing, smelting, refining and trading in Tanzania. The amount to be withheld shall not be less than 20%.

Exemption of the BOT to hold a dealer’s licence: The BOT is exempted from the requirement to obtain a dealer’s licence when dealing with gold.

Royalty on gold sold to the BOT: A royalty of 4% on the gross value shall be payable in respect of gold supplied to the BOT. Additionally, one third of the royalty payable to the government shall be paid by depositing refined minerals equivalent to the ascertained royalty into the National Gold and Gemstone Reserve.

Assessment of royalties: Provisional royalty payments made by the BOT shall be final and the BOT shall not be required to pay any balance or excess amount of royalty.

Amendments to the Excise (Management and Tariff) Act (Cap 147)

Imposition of excise duty on gaming: 10% excise duty is now applicable to betting and gaming lotteries carried out through print media, television or radio broadcasting. This does not apply to non-commercial advertisement of promotions, national lottery and licensed trial games.

Remission of excise duty on undenatured ethyl alcohol: The Commissioner General may, upon approval of the Minister responsible for finance, grant remission of excise duty payable on undenatured ethyl alcohol used in the production of industrial energy, or for medical or laboratory use.

Imposition of excise duty on certain food products: Excise duty is now applicable on importation of certain food products, including sauces and preparation thereof, mixed condiments and seasonings, mustard flour and meal, tomato ketchup and other tomato sauces (other than tomato paste).

Amendments to the Bank of Tanzania Act (Cap 197)

The Finance Act, 2024 has amended the Bank of Tanzania Act by making it an offence for any person to transact using currency other than the Tanzanian shilling.

Conclusion

The amendments that have been introduced by the Finance Act, 2024 significantly reflect the consideration by the government towards technological advancement, especially by the introduction of digital assets and its taxation within the Income Tax Act. The amendments also paint a clear picture of continued emphasis towards transparency and tax compliance through strict requirement for fiscal receipts to support expenditures. The Finance Act, 2024 also encourages health and environmental activities in society by expanding the charitable status to include health and environmental organisations.

It is also a positive move to amend the Tax Revenue Appeals Act to set a time frame within which out-of-court settlement should be concluded by parties aiming to settle their disputes amicably. This will greatly assist in settling disputes between the revenue authority and taxpayers. It is also important to embody the spirit of negotiation within the law to allow flexibility in decision-making to foster a good relationship between both the taxman and taxpayers which is key to the continuity of business in Tanzania. On the other hand, with the introduction of new tax bases, the system already in place needs to be updated to facilitate smooth compliance.