2019 Finance Act – Tax Highlights

General Overview

The Finance Act has been released. This sets out the changes in various laws with effect from 1 July 2019 (except for WHT exemption on government borrowings which has been given a retrospective application of 1 July 2017). There has not been much changes to the proposals in the budget apart from the exclusion of tax amnesty extension period which was intended to extend the time to make tax payments under tax amnesty to December 2019 instead of the original deadline i.e. 30 June 2019. This is contrary to taxpayers’ aspirations who had expected to manage their taxes within the extended period.

Finance Act 2019 (tax) changes in brief
Relevant Law Proposed Changes Commentary
Tax Administration Act, 2015 Confirmation of deferment of payment of first instalment tax on new business registration The taxes which have historically been paid over 4 instalments will now be paid over 3 instalments for the first year of business.
Definition of fiscal receipt to include a government bill (GEPG)
  • Government entities will not be required to maintain EFD if their bills are issued through GEPG system with a control number.
  • Possible challenges by TRA on use of GEPG bill as tax invoice for input VAT claims; WHT on GEPG payments subject to WHT, etc.
Establishment of the office of Tax Ombudsman Introduced to independently review and handle taxpayers’ complaints. We believe this will be bring in accountability and fairness in tax administration.
Tax amnesty payments extension period This has not been implemented.
VAT Act, 2014
  • Exemption on (i) imported refrigeration boxes for horticultural use (ii) Grain Drying Equipment (iii) aircraft lubricants including other facilities.
  • Zero rating supply of electricity to Zanzibar
  • Removal of VAT exemption on Sanitary Pads.
  • Same changes per the proposals in the budget. The main aim of the changes include:
    1. Boosting Agricultural sector
    2. Boosting airline industry and
    3. Containing VAT issues between Tanzania Mainland and Zanzibar.
  • Confirmation of removal of VAT exemption on sanitary pads remains a pain to the community.
Income Tax Act, 2004 Reduction of corporate income tax rate from 30 percent to 25 percent for new investors in the production of sanitary pads for two years up to 2021. Same per the proposals. Challenge remain the same that the proposed exemption period should have been at least 10 years for a positive impact to new businesses.
Withholding tax exemption on various fees charged to Government on loans received from foreign institutions. Same as proposed. Effective period from 1 July 2017.
Increase of threshold for individual income tax (presumptive tax regime) from TZS 20 M to TZS 100M with revenue of more than TZS 14 Million being taxed at maximum rate of 3.5%.
  • No change from the proposal.
  • This is great opportunity for entrepreneurs to benefit from reduced compliance costs.
  • WHT on services (5%) rent (10%) for individuals is likely to be higher than the maximum tax paid under this regime.
Stakeholder Expectations

Stakeholders have always expected to see reductions in corporate income tax rates (corporates and individuals). The Finance Act has not addressed this expectation so corporates and employees continue to pay tax at higher rates, up to 30%. This continues to make investments in Tanzania relatively expensive. Again we believe in step-by step approach so hopefully these changes will eventually materialize.

Our proposals

Whilst the Finance Act 2019 has been released, we believe changes can still be contemplated with a view of boosting economic growth. Against this, we continue to propose that the following areas be considered on next opportunity for changes in law:

  • Reduction of corporate income tax rates for corporate entities from the historical 30% to 25% – this is likely to result in additional investments and increased employment. This will also increase tax revenue due to multiplier effect.
  • Reduction of employment income tax rates from the current 30% to 25% – this will increase employment and so Government revenues. To align with other East African States, abolish SDL currently at 4.5% on cash cost of employment.
  • Providing100% VAT exemption on all Government Projects through Government Notices (GNs) to reduce costs to Government, with the effect of reducing borrowing costs to the Government. Such GNs be issued prior to commencement of projects with a view of cutting down delays in completion of projects.
  • More emphasis on acquisition and effective use of EFD Machines for all individuals and the private sector.
  • Amendment of section 86(1)(v) of the VAT Act 2014 to factor in the fact that a government bill where VAT is applicable should be recognized as a valid document for VAT input claim.
  • Government to clarify that Government bills be exempted from WHT requirements given the challenges around paying less than GEPG amounts, etc.
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John Shimbala, Director
Mobile: +255 766 798 508
Email: jshimbala@ark.co.tz

Godfrey Temba, Director
Phone: +255 767 810 970
Email: gtemba@ark.co.tz

Ark Associates Limited
369, Toure Drive
Oysterbay P O Box 23197
Dar es salaam, Tanzania
Tel +255 2222 96800

Email: info@ark.co.tz

This publication is intended to provide you with a general compliance guide and does not constitute a professional tax advice. Do contact us in case of any questions requiring a formal advice or position of the law.

© 2019 ark. All Rights Reserved. Ark Associates Limited is an independent entity incorporated and resident in Tanzania since 17 May 2016. The company is licensed to provide Professional Taxation and Accountancy Services.

For more information please visit us at www.ark.co.tz