TANZANIA REVENUE AUTHORITY ISO: 9001:2008 ...entrepreneurs.or.tz/wp-content/uploads/2016/11/...TRA TANZANIA REVENUE AUTHORITY TANZANIA REVENUE AUTHORITY ISO: 9001:2008 Certified SEMINAR

TANZANIA REVENUE AUTHORITYTRA

TANZANIA REVENUE AUTHORITYISO: 9001:2008 Certified

SEMINAR PRESENTATIONON

WITHHOLDING TAX

5TH & 6TH OCTOBER 2016

ITA, DAR ES SALAAM


Agenda

Introduction

Imposition of Withholding tax – Sec. 81, 82, 83 &

83A

Withholding Tax Base

Filing Returns and Payments

Consequences for failure to pay and file returns

Role of accountants and Supplies Officers

Conclusion

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1.0 Introductions

Your Facilitator

Beatus Nchota

Manager – Tax Audit

Domestic Revenue Department – Head Office

Email: [email protected]

Participants Introductions

Who is who?

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mailto:[email protected]

TANZANIA REVENUE AUTHORITYTRA 4


Withholding Tax

Is a tax that is required to be withheld by the personmaking “payment” of certain amounts to another personin respect of goods supplied or services rendered

It is a tax deducted at source because the person makingpayment has an obligation to withhold

Payment for these purposes is defined in the ITA 2004 asfollows:

“Payment includes the transfer of assets or money, thetransfer or decrease of a liability, the provision ofservices, the use or availability for use of money or asset

and the creation of an asset in another person”

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Withholding Tax Concepts

Withholdee- A person receiving or entitled to receive apayment from which income tax is required to bewithheld.

Withholding Agent - A person required to withholdincome tax from a payment made to a withholdee.

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Types of Withholding Taxes

Final Withholding Taxes are taxes in which thewithholdee cannot claim any tax credit when calculatingthe income tax payable for a year of income.

(Sec. 86 of ITA, 2004)

Non Final Withholding Taxes: are taxes which thewithholdee is entitled for a tax credit an amount equal tothe tax treated as paid for the year of income in whichthe amount is derived.

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Imposition of withholding tax

Payer must be resident

Payment should have a source in the URT (Sec. 68 & 69)

Note: For that all government institutionsare resident corporations hence qualifyfor withholding taxes obligations

In accordance of Section 81,82,83 and 83A of ITA, 2004tax shall be withheld from the payment of the following;

Employment income

Investment returns

Service fees

Goods and services

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Employment income – Sec. 81

A resident employer is required to withhold tax when

making payment of chargeable income to an employee.

Tax is deducted at the statutory personal income tax

rates, with a top marginal rate of 30% applying to

amounts in excess of TZS 720,000 per month. For non-

resident employees a flat rate of 15% applies

(Refer TRA Tax Data Card)

Directors’ fee (Non executive) - a flat rate of 15% applies

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Included Payments – Sec. 7(2)

Payments of wages, salary, payment in lieu of leave, fees, commissions, bonuses, gratuity or any subsistence travelling entertainment or other allowance received in respect of employment or service rendered

Payments providing any discharge or reimbursement of expenditure incurred by the individual or an associate of the individual

Payments for the individual's agreement to any conditions of the employment

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Included Payments - Sec. 7(2)…Cont

Retirement contributions and retirement payments

Payment for redundancy or loss or termination ofemployment

Other payment made in respect of employment includingbenefits in kind quantified in accordance with section 27of the ITA, 2004

Other amounts as may be required to be included as perthe rules governing amounts used in calculating theincome tax base

Annual director’s fees payable to a director other than afull time service director

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Excluded Amounts – Sec. 7(3)

Exempt amounts and final withholding payments;

On premises cafeteria services that are available on a

non-discriminatory basis;

Any subsistence, travelling, entertainment or other

allowance that represents solely the reimbursement to

the recipient of any amount expended by him wholly and

exclusively in the production of his income from his

employment or services rendered;

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Excluded Amounts – Sec. 7(3)…Cont

Medical services, payment for medical services, and payments for insurance for medical services to the extent that the services or payments are:

Available with respect to medical treatment of the individual, spouse of the individual and up to four of their children; and

Made available by the employer (and any associate of the employer conducting a similar or related business) on a non-discriminatory basis;

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Benefits derived from the use of motor vehicle where the

employer does not claim any deduction or relief in

relation to the ownership, maintenance or operation of

the vehicle;

Benefit derived from the use of residential premises by

an employee of the Government or any institution whose

budget is fully or substantially out of Government budget

subvention;

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Payment providing passage of the individual, spouse of

the individual and up to four of their children to or from

a place of employment which correspond to the actual

travelling cost where the individual is domiciled more

than 20 miles from the place of employment and is

recruited or engaged for employment solely in the service

of the employer at the place of employment;

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Payment that it is unreasonable or administratively

impracticable for the employer to account for or to

allocate to their recipients.

Allowance payable to an employee who offers intramural

private services to patients in a public hospital; and

Retirement contributions and retirement payments

exempted under the Public Service Retirement Benefits

Act

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Excluded Amounts – Sec 7(3)…Cont

Housing allowance, transport allowance, responsibility

allowance, extra duty allowance, overtime allowance,

hardship allowance and honoraria payable to an

employee of the Government or an institution the

budget of which is fully or substantially paid out

of Government budget subvention.

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Important Note About PayrollAccounting

Principles of deduction

Taxable income

Do not deduct non allowable deductions such as loan

repayment, health insurance, trade union contributions

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Illustrative examples on

Terminal Benefits

and

Redundancy Payments

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Investment returns – Sec. 82

Tax is withheld from investment returns such as

dividend, interest, natural resource payment, rent or

royalty.

The payment must have a source in the United Republic.

Based on the nature of payment, source rules are

expounded under section 68 & 69 of ITA, 2004

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Rates for withholding tax – Sec. 82

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Category of payment To resident

To Non -resident

Dividend Where payer is listed on DSM Stock

Exchange Where a resident Company holds 25%

shares or more Dividend from other corporations

5%

5%

10%

5%

N/A

10%

Interest 10% 10%

Rent Land and buildings Aircraft lease Other assets

10%10%N/A

10%10%15%

Natural resource payment 15% 15%

Royalties 15% 15%


Exemptions to Sec 82

Payments made by individuals unless made inconducting a business;

Interest paid to a resident financial institution

Payments that are exempt amounts (Exemptpayments are expounded under the SecondSchedule of the ITA, 2004)

Rent paid to a resident person for the use of an assetother than land or buildings or aircraft

Interest payable to a non-resident bank by a strategicinvestor

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Withholding Tax on Goods & Services – Sec. 83 and 83A

Tax is withheld on payments made in respect of:

Service Fee with a source in URT paid to a non resident

Service fee for provision of professional services paid to a resident

person

Management and Technical Service Fee paid to a resident person by

person engaged in extractive industry (Mining, Oil and Gas)

Insurance premium with a source in URT paid to a non resident

Money transfer commission to a money transfer agent

Payments made for the supply of Goods to the Government or its

institutions whose budget is wholly or substantially financed

by the Government budget subvention


WHT on Professional services

“Professional Service” means 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–Sec 83(3)


Rates for withholding tax – Sec. 83

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Category of payment To resident

To Non -resident

Supply of Goods to government or its

institution

2% N/A

Service Fee 5% 15%

Management and Technical Service Fee

(Mining, oil and gas)

5% 15%

Money transfer commission 10% N/A

Insurance Premium 0% 5%


Exemptions to Sec 83

Payments made by individuals unless made inconducting a business; or

Payments that are exempt amounts (Exemptpayments are expounded under the SecondSchedule of the ITA, 2004)


Exempted Government Institutions

(Second Schedule of the ITA, 2004)

Amounts derived by the Government (includingExecutive Agency established under the ExecutiveAgencies Act, 1997) or any local authority of the UnitedRepublic or by the Revolutionary Government ofZanzibar or any local authority of Zanzibar exceptamounts derived from business activities thatare unrelated to the functions of government;

Therefore it follows that amounts derived by governmentinstitutions on business related activities are subjected toWHT

Refer detailed list of exempt amounts under theSecond Schedule of the ITA, 2004)


Withholding Tax Base

Withholding Tax shall be computed on the amount

exclusive of VAT without deduction of expenses or

allowances

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

ABC Limited invoice in relation to Consultancy services provided to Dar es Salaam City 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

FLG Consultants were hired by Kinondoni District

Council to carry consultancy work. The contract terms

involved payment of accommodation in a 5 star hotel for

4 staff of FLG 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 FLG

staff stay at Serena Hotel.


Example 2 - Cont…

…After completion of work, FLG raised an Invoice with the following amount:

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

XYZ was hired to conduct a Survey for Ministry ofEducation. The contract involved also supply of Booksand Stationeries where there was a need. Aftercompleting the work, XYZ raised an invoice with thefollowing details

DESCRITION AMOUNT

Survey Fee 70,000,000/=

Books and Stationeries 30,000,000/=

VAT 18,000,000/=

Total 118,000,000/=


Example 3…Cont

W/Tax will be charged as follows:

W/Tax on Goods (2%*30,000,000/=)

= 600,000/=

W/Tax on Service (5%*70,000,000/=)

= 3,500,000/=

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 constructa new office for Ministry of Finance in Dodoma. One ofthe invoice raised based on percentage of completion hadthe following amount:

DESCRIPTION AMOUNT

Value of work 600,000,000/=

VAT 108,000,000/=

Total 708,000,000/=


Example 4…Cont

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/=


Time for Payment & Filing – Sec. 84

Payment 7 days after the end of the month ofdeduction

Filing of returns

30 days after the end of each 6-monthcalendar period


Filing Statement of Taxes Withheld – Sec. 84Every withholding agent shall file to TRA within 30 daysafter the end of every each six month calendar period astatement of taxes withheld on

Goods

Service fee

Interest

Employment taxes – PAYE

Dividends

Rent

Royalty

Money transfer commission


Tax Return - Statement of Taxes Withheld

All tax return forms can be downloaded through

www.tra.go.tz

http://www.tra.go.tz/


Withholding Certificates – Sec. 85

A withholding agent is required to prepare and serve a

withholding certificate to all withholdee’s separately for

each month within 30 days after the end of the month of

deduction


Consequences for failure to withhold – Sec. 84 A withholding agent who fails to withhold income tax in

accordance with the law must nevertheless pay the tax

that should have been withheld in the same manner and

at the same time as tax that is withheld together with

interest

A withholding agent who fails to withhold income tax but

pays the tax that should have been withheld to TRA shall

be entitled to recover an equal amount from the

withheldee


Consequences for failure to file returns – Sec. 78 of TAA,2015

A withholding agent who fails to file a tax return

(statement of taxes withheld and paid ) on due date shall

be liable for a penalty for each month or part of the

month during which the failure continues calculated as

the higher of

2.5% of the amount assessable per tax return less the amount of

tax paid at the start of the period towards that amount or

Tshs 225,000 in case of a body corporate or Tshs 75,000 for an

individual


Submission of Contract Documents to TRA

In compliance with regulation 109 of The Public

Procurement Act No. 7 of 2011 published through GN. No.

446 of 2013 which states that

“The Accounting Officer shall ensure that copies of all

contracts are sent to the Authority, Attorney General,

Controller and Auditor General, Internal Auditor General or

Government Asset Management Division as the case may be,

and the Tanzania Revenue Authority within thirty days

from the date of signing the contract”


Conclusion

Accountants and Procurement

Officers play a key role in

enforcing compliance to tax

laws

Accountants are urged to work

in collaboration with vote

holders to enforce W/Tax

requirements

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Key Issues to Remember Ensure all payments are made upon

submission of fiscalisedInvoices/Receipts

Submission of contract documents toTRA

Payment of WHT (Both PAYE andOther W/Taxes) to TRA within 7 daysafter the end of the month ofdeduction

Submission of WHT Certificatessigned by withholdee and withholderto TRA evidencing payment and servea copy of certificate to the withhloldee

Filing WHT returns within 30 daysafter the end of every six calendarmonths

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Q&A?

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TANZANIA REVENUE AUTHORITYTRA 47

Together We Build Our NationExpectation of the Government is to increase revenue, to fully fund its budget through domestic funding to carter for national development. We are all obliged to pay tax and ensure compliance to tax laws as a sign of patriotism. Let’s play our part.


“Light Tomorrow with Today”

Thank You

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Note: These slides were prepared and presented for illustration purposes and do not represent the opinion of the Authority nor override the provisions of the laid tax laws. Revisit the provision of the tax laws for clear interpretation of the tax laws

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