Taxation in Tanzania: Types of Taxes Explained

Taxation in Tanzania: Types of Taxes Explained

It is somehow difficult to define a term tax because it has got several different meanings basing on to whom it is imposed, objectives for its collection and how it is payable. But a term tax can be generally defined to mean a compulsory financial charge or other levy imposed to a taxpayer (private individual or a legal entity) by government so as to collect money for the purpose to fund government spending and other public expenditures. Most of the governments worldwide depends on tax so as to collect funds to finance government projects and provision of social services to its civilians. Taxes may be levied from commodities, income, transactions, properties[1] etc, both private persons carrying business for gains and the legal business entities such as companies, are liable to pay income tax as provided under Income Tax Act.[2] 

Taxation

Is an actual activity or action of tax collection from taxpayers by the taxing authority. It is the implementation of tax laws in collecting taxes from all individuals or entities liable to pay tax basing on businesses carried. Most of taxes are collected yearly from the business entities such as corporates, institutions and organizations. Taxes are also collected per item especially on production and importation of goods. Monthly taxes are collected from employees who earn monthly salaries from private or government employments.

In Tanzania, taxes are of two kinds; direct and indirect tax. Direct taxes include income taxes, corporate taxes and property taxes while indirect taxes include value added tax (VAT) and excise duty. The groups of direct and indirect taxes are hereunder analyzed beginning with groups of direct taxes;

Income tax is the tax which is collected from the personal gain such as employment income, or income from conducting a business as a sole proprietor. Taxes from employment income are deducted direct from every portion of income that an employee earn but, taxes from conducting business as a sole proprietor are collected yearly basing on profit made by an individual who is conducting a business. Corporate tax is a tax levied annually from profits made by corporates, institutions or organizations such as clubs, societies, associations, charities, corporative and other bodies registered under laws of Tanzania. Property taxes are different from both income and corporate taxes. Property taxes are charges on real properties such as buildings and land. In Tanzania, property taxes are levied annually and the tax rate for valued properties vary depends on the property value and its location but for the unvalued properties the property tax is 12,000 TSH for normal buildings and 60,000 TSH for storey buildings.

Indirect taxes are divided into two; Valued Added Tax (VAT) and Excise Duty. Value Added Tax is a consumption tax charged on taxable goods, services, and immovable properties of any economic activity whenever value is added at each stage of production or manufacturing until the final stage of sale or consumption. VAT is charged to manufacturers and suppliers of commodities at all stages whenever the value of the commodity is added in process of production or supply chain. VAT is charged to both locally and imported goods and to the services at a rate of 18%. Not all taxpayers are liable to pay VAT unless they are registered to pay VAT basing on the nature of their businesses, products/commodities or services they offer.

Excise duty is another category of indirect tax which is charged on specific goods (cigarettes, spirits, soft drinks and beers) when they cross border. Not all imported commodities are liable for excise duty but they’re liable for custom duty. Excise duty may be confused with custom duty because they’re too relevant concepts but different. Excise duty is charged when goods are already in possession of a trader in receiving country while customs duty are charged prior excise duty when commodities are at the border awaiting permission to be allowed to cross border and be supplied in receiving country. Custom duty is a tax paid to import goods while excise duty is a tax to take possession and continue selling of the imported goods.

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[1] F.D.A. Luoga, A Sourcebook of Income Tax Law in Tanzania, (1st ed), Dar es Salaam University Press, Dar es Salaam, 2000, 10.

[2] Ibid