Taxation of NGOs

NGO’s has been defined to covers different types of Civil Society Organizations (CSOs) including Faith Based/ Religious Organizations, Trusts, Associations, Community Based Organizations, Cooperative Societies, Legal Aid providers, Philanthropic Organizations. They are set out to support good causes for particular groups of persons - in most cases the poor, women, elderly and children, and with the main focus areas including health, education, environment, social and political welfare - and without a profit motive.

NGO’s mainly operates for purposes other than deriving profit or gain and they does not allow any distribution or deemed distribution of profit generated out of its undertakings. Its profit must be ploughed back and used solely for improving or expansion of the original organization purpose or function. Its constitutive documents prohibit profits or assets distribution for the benefit of particular persons.

NGO’s Tax Obligation

Like any other tax payers, nonprofit organizations are required to comply with various tax laws such as;

1.    To acquire Taxpayer Identification Number (TIN), immediately after their formation and commencement of business. This is provided so under Section 22 (1) of Tax Administration Act, 2015.

2.    To obtain VAT Registration number,

a.    If the turnover (from vatable supplies, not grants and donations) is equal to or greater than the registration threshold of 50 Million in the period of six months or 100 Million in the period of twelve months under Sections 28 & 29 of VAT Act Cap 148 RE 2019, and Section 90 of TAA 2015.

b.    If it offers professional/consultancy services (Section. 29 of VAT Act Cap 148 RE 2019) e.g. consultancy, training.

c.     To file a return under section 66 of the Value Added Tax Act on the 20th day of a month after the end of the tax period to which it relates, whether or not that person has a net amount of value added tax payable for that period. section 78 of the Tax Administration Act, R.E 2019.

3.    To acquire and use an EFD machine, to issue and demand a focalized receipt for every transaction made. This is until and upon the Non-governmental organization which conduct economic activity with a turnover of TZS 14 million and above. Section 36 and 86 of TAA Act, 2015).

4.    Timely Payment of Taxes as and when they fall due, and failure to comply with such an obligation results to interest, penalty and fine. Section 76,78 and 83 respectively of the Tax Administration Act, R. E 2019)

5.    Filing of tax returns within the prescribed time Section 37 to 41 of TAA Act, 2015.

6.    Keeping of all records relating to tax matters for a period of five years from the relevant date or for a further period or until a final decision is made on the documents. Section 89(1) of the VAT Act, 2014 read together with Section 35(3) of the TAA 2015

7.    To notify the Commissioner of any change of particulars (e.g. office location, contact numbers, amendments to constitutive documents etc.). In case of any uncertainty of which information need to be updated, it is advisable to contact the nearest TRA office

8.    To disclose to the Commissioner all matters relating to business activities.

Payment of Taxes

NGO’s i.e. charitable organizations are not exempt from taxes. The organizations are required to pay or remit all the relevant taxes timely as they may be required by the law to avoid penalties and/or interest prescribed under the law.

a)    Corporate taxes

b)    Pay As You Earn

c)    Skills and Development Levy

d)    Stamp duty

e)    Value Added Tax

f)      Customs Duty

g)    Withholding tax on rent

h)    Withholding tax on services

i)      Return on investment

Tax Relief for NGO’s

Charitable status

NGOs can apply to become charitable organizations after being issued by a private ruling by the commissioner general under section11 of the Tax Administration Act following his satisfaction under section 64(8) of the Income Tax Act.

Eligibility of charitable status

The organization must be an entity of public character, which was established and functioning solely for;

      i.         The relief of poverty or distress of the public

     ii.         The advancement of education; or

    iii.         The provision of general public health, education, water or road construction or maintenance

*Public character means an entity established and functions solely for the public purpose and its operations entails that;

      i.         Its membership is open to the general public or a group of people in the community with common interest;

     ii.         It is operations are entirely charitable;

    iii.         It does not allow distribution or deem distribution of profits out of its charitable business; and

   iv.         Its profit is ploughed back and used solely for improving or expansion of the original or charitable purpose or function.

Determination of Taxable Income from A Charitable Organization

The taxability of a charitable organization is calculated based on the requirement of section 64(2) of the income Tax Act as follows;

      i.         The amounts to be included in calculation of income shall be; all gifts, contributions, investment, donations and any other amounts received by the organization;

     ii.         The deductible amounts include; any amount deductible under the act, the amounts applied in pursuit of the organization functions by providing reasonable benefits to resident persons or persons resident anywhere provided that such expenditure has a source in the URT and 25% of the organization’s income from its charitable business calculated without deduction of the amounts applied in pursuit of its functions and any investment.

Exemptions under VAT Act

Under VAT Act, 2014, nonprofit organization means Religious or Charitable organizations.

A non-profit organization becomes charitable organization after it has been issued with the Commissioner’s private ruling under Section 11 of the Tax Administration Act Cap 438 following his satisfaction that, the establishment, objectives and functions of the entity are of the nature described under Section 64(8) of the income Tax Act Cap 332.

In principle, charitable organizations in the context of Section 64 of the Act are treated as conducting charitable business, when they fulfil conditions provided under Section 64(8) of the Income Tax act. As such they are not exempted from Income tax, rather their chargeable income is determined in accordance with the provision of section 64(2) of the Income Tax Act Cap 332.

Therefore, the difference between taxing the normal entity and entity with charitable status rest on items constituting to chargeable income and that of allowable expenditure in arriving at taxable income.

Exemptions of import duty, excise duty and VAT

Charitable organizations implementing projects relating to health, water, education and infrastructure are the only NGOs eligible for exemption.

Except Excise Duty on aged motor vehicles (8 years and above from the date of manufacture) on imported goods by non-profit organizations is granted in accordance with Government Notices (GN) number 205 and 206 of year 2016 respectively

Exemptions of VAT granted to non-profit organizations is circumstantial in accordance with item 6, 7, and 8 of Part II of the schedule of the VAT Act, 2014. Exemptions would be granted either 19 on imported food, clothing or other goods e.g. shoes for free distribution to orphanages or to schools for children with special needs; or on imported emergency goods for disaster relief; or in case of religious organization, on goods imported for free provision of health, water, education, or religious services and in case where there is any consideration it should not be more than fifty percent of fair market value.

An organization that is eligible for exemption would make an application for exemption by writing to Commissioner for Customs and Excise before imported goods are cleared through customs.

The application will be supported with the following documents; ·

i.               An application letter by the head of the organization or the one acting on behalf

ii.              An introduction letter from District Commissioner (DC) where the project is implemented

iii.             An introduction letter from a Ward Executive Officer (WEO) where the project is implemented

iv.            Registration Certificate of the respective NGO (Religious/Charitable Organization) from the Registrar of NGO’s

v.              TIN Certificate, and

vi.            Commercial documents for imported goods (i.e. invoice, bill of lading, packing list) · Organization’s annual procurement plan 20

vii.           Organizations utilization report accounting for the remission granted during the previous year (if any)

viii.          Donation certificate in case of donated goods

ix.            Distribution plan on the imported goods (especially when imported goods are in a form of general merchandise:

Conclusion

It should be understood that the tax reliefs offered to NGOs do not release the organization from complying with the tax laws. The organization shall still be required to file returns including annual returns without fail. It should also be noted that failure of compliance shall result to penalties under the Tax Administration Act, 2015. Therefore, organizations whether charitable, religious or commercial are required to religiously comply with all the tax laws of the land without fail unless permitted to.

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.