Tanzania has introduced a digital service tax for non-resident service providers that operate in Tanzania. The new tax proposals were tabled on June 14, 2022, by the Minister of Finance and Planning Dr. Mwigulu Nchemba in the readout of the national budget for the 2022/2023 financial year.
On 30 June, 2022 the Bill was assented to by President Samia Suluhu Hassan to become part of the Finance Act of 2022 (“the Finance Act”).
The introduction of Digital Tax on the Income Tax Act, Chapter 332 of 2019 and the Value-Added Tax Act, Chapter 148 of 2019.
The Finance Act has amended the Income Tax Act, Chapter 332 of 2019 (“the Income Tax Act”) by imposing income tax on a non-resident who receives a payment that has a source in Tanzania from an individual conducting business and/or services rendered through a digital marketplace.
The Finance Act also amended the Value-Added Tax Act, Chapter 148 (“the Value-Added Tax Act”) by requiring a non-resident supplier who has no presence in Tanzania but makes taxable supplies for which value-added tax (“VAT”) is payable to apply to the Commissioner General of the Tanzania Revenue Authority (“TRA”) for registration.
Despite the non-resident supplier's inability to appoint a VAT representative due to business circumstances, the Finance Act has empowered the Minister for Finance to create regulations for evaluating and gathering income tax on digital services. Currently, the regulations for assessing and collecting VAT have already been established. Therefore, as a way to increase the tax base in Tanzania, the Minister for Finance issued the Income Tax (Non-Resident Electronic Services Provider) Regulations of 2022 ( “the Income Tax Regulations”) and the Value Added Tax (Registration of Non-Resident Electronic Service Suppliers) Regulations of 2022 (the “the Value Added Tax Regulations”), effective from 1 July, 2022 in line with the amendments introduced by the Finance Act to guide the administration of income tax and VAT from non-resident electronic service providers and outline how entities will comply.
The Income Tax Act, Chapter 332
The Finance Act amended section 90A of the Income Tax Act, by introducing income tax on services rendered through a digital marketplace at 2% of the gross payments. The electronic services covered include websites, web-hosting, software, images, access to databases, self-educational packages, music, films, and games among others.
Registration Application
Regulation 4(1) of the Income Tax Regulations requires a non-resident who provides electronic services to a resident individual to apply for registration to the Commissioner General. A non-resident provider of electronic services shall be required to make an online application for registration to the Commissioner General.
Source of payment
Payment for electronic services shall be deemed to have a source in Tanzania, where the recipient of the service is in Tanzania. The recipient of the service shall be deemed to be in Tanzania if[1]:-
Remittance of Tax
A registered non-resident is required to: -
Value Added Tax
Regulation 4(1) of the Value Added Tax Regulations requires a non-resident supplier of electronic services to Mainland Tanzania, who does not appoint a representative is required to apply for registration as a taxable person. The application shall be made online to the Commissioner General in a form prescribed in the Schedule to the regulations.
The information required for the registration and de registration process is similar to the requirements in the Income Tax Regulations as pointed out above.
Furthermore, the scope of electronic services, filing of returns and source of payment of VAT shall be similar to those stated in the Income Tax Regulations as pointed out above.
Electronic Fiscal Device Exemption:
Both Regulations exempt a registered non-resident to acquire or use an EFD machine.
Penalty and Offenses
False, misleading or omission of facts in statements shall be liable to a penalty as follows: -
Failure to pay tax on the due date shall be liable to interest at the statutory rate compounded monthly.
By Charles Kivugo - Finance and Administration
Joel Kimale - Advocate
Note: This is not a legal opinion and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
[1] Regulation 5(1) of the Income Tax Regulations, 2022
