TANZANIA REVENUE AUTHORITY WITHHOLDING TAX PRESENTATION MAY, 2017 Morena Hotel Presented by: Taxpayer Services and Education Department

AGENDA Introduction Imposition of withholding taxes Withholding tax base Filing returns and payments Challenges

INTRODUCTION Withholding Tax as provided for under Income Tax Act Cap 332, is the deduction of the tax at source from payment made to a taxable person in respect of income derived from services, goods or investments. WHT can be utilized as tax credit against income tax liability of the year to which the income relates. TID

DEFINITION OF KEY TERMS Withholding tax Withholding tax is a tax payment arrangement by which income tax is deducted at source by a withholder making a payment to another person who is eligible to pay income tax. The law requires a resident person who makes payment to another resident or non-resident person with a source in the United Republic of Tanzania to withhold income tax from the payment at the rate specified under Paragraph 4(c) of the First Schedule to the Act. Withholder/withholding agent A person required to withhold income tax from a payment made to a withholdee. TID

DEFINITION OF KEY TERMS…….. Withholdee A person receiving or entitled to receive a payment from which income tax is required to be withheld Professional services Services rendered by a person licensed as a practitioner by any recognized professional body and shall include other services or activities of an independent business character including consultancy, legal, architectural, engineering, supervisory, accounting, auditing, medical. Artistic, survey, theatrical performance, sports, exhibition, private security services, private investigation and consultancies in various disciplines or any entertainment held or given other than those for remuneration under contract of employment. TID

TYPES OF WITHHOLDING TAXES Final Withholding Taxes are taxes in which the withholdee cannot claim any tax credit when calculating the income tax payable for a year of income. (Sec. 86 of ITA, Cap 332) e.g. withholding on dividend Non Final Withholding Taxes: are taxes which the withholdee is entitled for a tax credit an amount equal to the tax treated as paid for the year of income in which the amount is derived.

PAYMENTS SUBJECT TO WITHHOLDING The Income Tax Act provides the types of payments for which the payer (withholding agent) has legal obligation to deduct tax and pay to the Commissioner upon making payment to the withholdee. Currently the types of payments subject to withholding are:- Income of an employee (emoluments) from the employment by an employer.(Sec. 81)

PAYMENTS SUBJECT TO WITHHOLDING (b)Payment made by a resident person, including a permanent establishment of a non-resident person, (Sec. 82) arising from investment income. Dividend Interest Natural resource payment Royalty Retirement payment by a unapproved retirement fund  

PAYMENTS SUBJECT TO WITHHOLDING (c) Payments of service fee and contract payment Payment by the Government for goods procured (Sec.83A) Payment of insurance premium Sec. 83 Payment of directors annual fees ( Para 4(a) of 2nd Schedule) Money transfer commission. Payment of service fees with source in URT(Sec.83) Payment of service fees for provision of professional services

PAYMENTS SUBJECT TO WITHHOLDING ... The following are final withholding payments (Sec. 86) Dividends paid by a resident corporation Dividends paid by non-resident corporation to a resident individual Interest paid by a financial institutions to a resident individual in respect of deposits held Rent paid to an individual under lease of land or building other than individual conducting business Technical services paid by a person conducting extractive industry in mining, oil and gas Payment which are subject to withholding made to non-resident persons, Interest paid to Unit Trust, Annual directors fees

PAYMENTS SUBJECT TO WITHHOLDING…….. The following payments are not subject to withholding:- Payments that are exempt from tax (Sec. 82) Payments made by individuals unless made in conducting a business;(Sec, 82 and 83) Interest paid by a strategic investor to a non resident (foreign) bank; (Sec. 82) Rent paid to a resident person for an asset other than interest in land or buildings.(Sec.82)

Withholding Tax Base Withholding Tax shall be computed on the gross amount paid without deduction of expenses or allowances The amount shall be exclusive of VAT Where services are provided and payments are made to the withholdee of cash plus provision of benefits and facilities the withholding tax base shall include the amount paid for the benefits or facilities

Example 1 Magembe consult limited(MCL)invoice in relation to Consultancy services provided to Bunda town Council has the following amount: W/Tax will be charged on TSZ 10,000,000/= W/Tax is 5%*10,0000,000/= = 500,000/= DESCRIPTION AMOUNT Service Fee 10,000,000/= VAT 1,800,000/= Total 11,800,000/=

Example 2 Mjenzi Consultants were hired by Nkasi District Council to carry consultancy work. The contract terms involved payment of accommodation in a hotel for 4 staff of Mjenzi for 20 days by the client. The contract price was quoted at TZS 150,000,000/=. The Client Paid a total of TZS 16,000,000/= as Accommodation for Mjenzi Consultantants’s staff stay at Mkombozi Hotel. After completion of work, Mjenzi Consultants raised an Invoice with the following amount:

Example 2 - Cont… W/Tax Base Consultancy fee 150,000,000/= Accommodation to staff 16,000,000/= W/Tax Base 166,000,000/= Description Amount Consultancy Fee 150,000,000/= VAT 27,000,000/= Total 177,000,000/=

Withholding Tax Base for Mixed Supplies (Goods & Services) If the invoice raised involves both supply of Goods and Services, a separation must be made for value for Goods and Services If payment involves Construction Works, the payment subject to WHT shall be based on the ratio of 3:2 for Materials and Services respectively

Example 3 Morogoro Constructions Company was hired to conduct a Survey for Ministry of Education. The contract involved also supply of office furniture and fittings. After completing the work, the company raised an invoice with the following details DESCRITION AMOUNT Survey Fee 70,000,000/= Office furniture and fittings 30,000,000/= VAT 18,000,000/= Total 118,000,000/=

Example 3………………. Withholding tax base will be; Tshs 118,000,000 – 18,000,000 = Tshs 100,000,000 distributed as follows: W/Tax on Goods (2%*30,000,000/=) Tshs = 600,000/= W/Tax on Service (5%*70,000,000/=) Tshs = 3,500,000/=

Example 3…Cont Note: Failure to separate the figures in respect of the value for goods and services attracts WHT at the rate of 5% on the entire amount. (5%*100,000,000) = 5,000,000/=

Example 4 Mgeni Contractors were awarded a contract to construct a new office for Ministry of Finance in Dodoma. One of the invoice raised based on percentage of completion had the following amount: DESCRIPTION AMOUNT Value of work 600,000,000/= VAT 108,000,000/= Total 708,000,000/=

Example 4…… W/Tax Base 600,000,000/= W/Tax on Goods (2%*360,000,000/=) = 7,200,000/= W/Tax on Services (5%*240,000,000/=) = 12,000,000/= Material Service 3 2 3/5*600,000,000/= 2/5*600,000,000/= 360,000,000/= 240,000,000/=

WITHHOLDING TAX RATES:- WITHHOLDING TAX ON RESIDENT NON RESIDENT Dividends from resident corporation to another resident corporations where the corporation receiving the dividends holds 25% or more of shares in the corporation 5% NA ii) Dividends from DSE listed company iii) Dividends from other corporations 10% iv) Other withholding payments 15% v) Interest vi) Royalties vii) Technical Service fee (Mining)

WITHHOLDING TAX RATES WITHHOLDING TAX ON RESIDENT NON RESIDENT viii) Transport (Non resident operator/chatter without permanent establishment) NA 15% ix) Rental Income : Land & building 10% : Aircraft lease :Other Assets 0% x) Insurance Premium 5% xi) Natural Recourses payment xii) Service fee xiii) Payments for goods supplied to Government & Institutions 2% of Gross payment ix) Commission on Money transfer ( Bank/Mobile phones)

HOW THE WHT TAX SYSTEM OPERATES Time of Deduction of tax Tax is deducted (withheld) when the payer (withholding agent) makes payment to the payee (withholder) of a taxable amount. For Income Tax purposes, Payment includes creation of an asset in another person. Time of Payment of tax withheld Every withholding agent has the obligation to pay to the Commissioner the amount of tax withheld within seven (7) days after the end of the calendar month during which the payment was made. Withholding tax rates are prescribed in the Act for each type of income payment.

HOW WHT TAX SYSTEM OPERATES… Liability on failure to withhold tax A withholding agent who fails to withhold income tax shall be jointly and severally liable with the payee for payment of the defaulted tax and is required to pay the defaulted tax in the same manner and at the same time as tax that is withheld. However, the withholding agent may recover the tax paid from the respective payee. Payment of tax made by the agent on default shall be treated as paid by the payee for tax credit purposes.

ACCOUNTING FOR WITHHOLDING TAX A withholding agent shall account for tax withheld as follows:- Withholding Certificates The law requires a withholding agent to prepare and serve the withholdee a certificate stating the amount of payment made to the withholdee and income tax withheld during the period covered by the certificate. The certificate shall be prepared and served separately for each calendar month and shall be served by 30th of the month subsequent to that of withholding.  

ACCOUNTING FOR WITHHOLDING TAX … Withholding Statements Every withholding agent shall file with the Commissioner within thirty (30) days after the end of each six month calendar period a withholding statement specifying the following information: Payments made during the period that are subject to withholding; The name and address of the withholder; Income tax withheld from each payment; and Any other information that the Commissioner may require.

ACCOUNTING FOR WITHHOLDING TAX …. Disclosure of information on contracted services S.44A TAA,2015 Any entity engaged in the construction and extractive industry shall disclose to the CG the names of all persons contacted and sub-contracted in the course of performance of their duties or business or carrying out of any project. Entity shall disclose, names of the persons and nature of the sub contracted work together with the duration of carrying out the work NOTE: Any entity which fails to comply with provision of this section shall be liable to a fine not exceeding 25% of the quantum payable under the project or a fine not exceeding 4000 currency points whichever is greater.

TIME FOR PAYMENT AND FILING Deadlines for payments/filing return: Section 84 of ITA, Cap 332 and Section 76 & 78 of the TAA , Cap 432 Payment 7 days after the end of the month of deduction Filing return 30 days after the end of each 6-month calendar period

CHALLENGES Key challenge include: The withholder may fail to withhold The withholder may withhold but not remit the tax to tax authorities The withholder may remit withholding tax late to the tax authorities Withholding tax may be calculated using incorrect tax rate

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Q&A?

Tanzania Revenue Authority Postcode: 28 Edward Sokoine Drive Contacts TRA Call Centre 0800 750075 0800 780078 huduma@tra.go.tz services@tra.go.tz Tanzania Revenue Authority Postcode: 28 Edward Sokoine Drive 11105 Mchafukoge Ilala CDB P.O. Box 11491 Dar - es -Salaam. Website: www.tra.go.tz Email: info@tra.go.tz

To unearth tax evaders Call: For any misconduct by TRA officials: Contacts cont… To unearth tax evaders Call: +255 22 2137638 +255 784 210209 For any misconduct by TRA officials: call: +255 689 122 515 SMS: +255 689 122 516

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