DIGITAL TAX IN TANZANIA

The increase in online and digital platform transactions has affected tax design systems and administration in Tanzania. This influenced the government of the United Republic of Tanzania, to introduce the Digital tax system through the Finance Act, 2022 which amended among other laws, the Income Tax Act, CAP 332, and the Value-Added Tax Act, CAP 148.

1. Amendment of the Income Tax Act, CAP 332, and the Value-Added Tax Act, CAP 148 on the introduction of digital tax.

1. The Finance Act, 2022 amended section 3 of the Income Tax Act, 2004 (hereinafter referred to as ITA), by adding the definition of the term ‘business’ to include a transaction or activity carried out through the internet or an electronic means including an electronic service or transaction conducted in the digital market place regardless of the manner in which such transaction is carried out.
2. The Finance Act amended section 3 by introducing a definition of the term ‘digital market place’ as a platform that enables direct interaction between buyers and sellers of electronic services.

‘electronic service’ is accorded with meaning as ascribed to it under section 51 of the Value Added Tax Act, 2014 hence harmonizing the definition of electronic service as applies for both ITA and Value Added Tax Act, 2014 (hereinafter referred to as VATA) purposes.

Section 51 of VATA, defines an "electronic service" to mean any of the following services provided or delivered through a telecommunications network:

v Websites, web-hosting, or remote maintenance of programs and equipment

v Software and the updating thereof

v Images, text, and information

v Access to databases

v Self-education packages

v Music, films, and games, including gaming activities

v Political, cultural, artistic, sporting, scientific, and other broadcasts and events including broadcast television.

3. The Finance Act also amended section 90 of the ITA by imposing an obligation on a non-resident person who receives a payment that has a source in the United Republic from an individual, other than a payment made in the course of conducting business, in respect of services rendered through a digital market place, such person shall pay income tax for payments received in a calendar month by way of single installment equal to 2% of the gross payment.
4. Non-resident suppliers are also required to file returns, to the Commissioner on or before the seventh day of the month following the month to which the payment relates.
5. Non-resident suppliers are further required to pay DST monthly.
6. Section 90A (3) of the ITA as amended, empowers the Minister to make regulations and prescribe procedures for assessing and collecting income tax or giving effect to tax payment on income realized through the digital market place. Under such power, the Income Tax (Registration of Non-Resident Electronic Service Providers) Regulations, 2022, came into operation.

What has been introduced in the regulations?

(the Income Tax (Registration of Non-Resident Electronic Service Providers) Regulations, of 2022 and Value Added Tax (Registration of Non-Resident Electronic Service Suppliers) Regulations, 2022.)

Most of the aspects of both Regulations are harmonized to facilitate compliance.

1. Application for tax registration

Regulation 4(1) of the Income Tax (Registration of Non-Resident Electronic Service Providers) Regulations, 2022. Requires a non-resident who provides electronic services to a resident individual to apply for registration to the Commissioner General.

Regulation 4(1) of the Value Added Tax (Registration of Non-Resident Electronic Service Suppliers) Regulations, 2022. Requires a non-resident person who supplies electronic services to an un-registered person in Mainland Tanzania who does not appoint a tax representative, regardless of the registration threshold to apply for registration as a taxable person to the Commissioner General.

Application for registration shall be made online using a prescribed form attached (Form No. 1) in each Regulation and must contain the following information:

a)    Name of the business including the business trading name

b)    Certificate of incorporation

c)    Details of the contact person for tax matters (name, telephone number, email)

d)    Email and registered address of the business

e)    Website or uniform resource locator of the supplier through which the business is conducted

f)      Any other information the Commissioner General may require.

The Commissioner General upon being satisfied with the information provided in the application, shall in case of an application made under Income Tax, register, and issue the applicant with a Taxpayer Identification Number for the purpose of filing returns and tax payments.  

In case of an application made under the Value Added Tax Act and Regulation register and issue the applicant with a Value Added Tax Registration Number for the purpose of filing returns and payment of tax.

2. Manner of submitting simplified returns and remittance of taxes

Under Income Tax Compliance

Under Regulation 6(1) and (2) of the Income Tax (Registration of Non-Resident Electronic Service Providers, Regulations, 2022. A registered non-resident is required to file a return online in form no. 3 as prescribed in the schedule, accompanied with tax payable in respect of electronic services rendered in the tax period.

Under Value Added Tax Compliance

Regulation 6(1)(2)(3) of the Value Added Tax (Registration of Non-Resident Electronic Service Suppliers, Regulations of 2022 requires a registered non- resident to file a return online form no. 3 as prescribed in the schedule. The return shall be accompanied with tax payable in respect of electronic services.  Return to be filed to the Commissioner General on or before the seventh day of by month following the month to which the return relates.

Correction of errors on the return submitted in accordance with these Regulations shall be made in accordance with section 78 of the Value Added Tax Act.

3. Source of payment for income tax purposes

Regulation 5(1) and (2) of the Income Tax (Registration of Non-Resident Electronic Service Providers) Regulations provides that payment for electronic services is deemed to be sourced in Tanzania where the recipient of the services is in Tanzania.

A recipient is deemed to be in Tanzania if:

• The payment proxy including credit or debit card information and bank account details of the recipient of the electronic services is in Tanzania
• The resident proxy including the billing or home address or access proxy including internet address, mobile country code of the SIM card of the recipient is in Tanzania.

4. Mode of payment and currency

For purposes of payment of VAT and Income Tax by registered non residents, the said taxes are to be paid to a bank account designated by the Commissioner General in Tanzanian shilling or its equivalent convertible currency at the Bank of Tanzania’s prevailing exchange rate on the date of payment.

5. Exemption from using the electronic fiscal device

Both Regulations exempt a registered non-resident from acquiring or using an electronic fiscal device.

6. Can a registered non-resident person claim input tax?

Regulation 8 of the Value Added Tax (Registration of Non-Resident Electronic Service Suppliers, Regulations provides that a person registered under VAT regulations shall not claim input tax.

7. Penalty for false or misleading statements

Both Regulations provide for a penalty in case of false, omission, or misleading statement made by a taxpayer to a tax officer, in line with section 79 of the Tax Administration Act, Cap 438 R.E 2019. Under sections 79(2) and (3) of the Act, the penalty is as follows.

a)    Where the statement or omission is made without reasonable excuse, fifty percent of the tax shortfall.

b)    Where the statement or omission is made knowingly or recklessly seventy-five percent of the tax shortfall.

The penalty shall be-

a)    Increased by ten percent for the second or subsequent application of this section to the person, and

b)    Reduced by ten percent if the person voluntarily discloses the statement prior to its discovery by the tax officer or the next tax audit of the person.

8. Payment of Interest for late tax payment

Under both Regulations failure, to pay tax on the due date attract interest at the statutory rate compounded monthly to the Commissioner General.

9. What if non-residents do not comply? Is it an Offence?

Failure to comply with regulations is an offence that renders a registered person liable on conviction to a fine of not less than 200 currency points and not more than 300 currency points or to imprisonment for a term not

exceeding three years or to both. And where the non-compliance results to tax evasion, in addition to the fine set out above, a fine of twice the amount of tax evaded or imprisonment for a term not exceeding three years.

2. Conclusion

The introduction of the digital tax is a good move to keep pace with rapid growth in the digital economy. However, one must wonder if it can be implemented by the Tanzania Revenue Authority. For failure to comply, will TRA, request TCRA to ban the availability of services in Tanzania? What will be the social economic consequences of this new law? what is certain is if the non-resident suppliers do comply with the new law, consumers in Tanzania will endure additional charges for the supplies.

Disclaimer-

This publication has been prepared on matters of interest only, and does not qualify as professional advice. Please do not act upon the information contained in this publication without attaining precise professional advice. No representation or warranty (express or implied) is given as to the accuracy or comprehensiveness of the information contained in this publication, and, to the extent permitted by law, KEMI Advocates, its members, employees and agents do not take any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.