Tax Update on the Finance Act 2016
- Finance Act 2016 released
- Imposition of withholding tax on services rendered by non-residents from outside Tanzania that appeared in Finance Bill 2016 now deleted
- 100% deposit on tax appeal changed to 1/3
- Section 56 of ITA applicability reverted to 3 years
- As before tax returns to be filed in 6 months not 3 months as proposed by Finance Bill
- 5% monthly interest on unpaid tax deleted
- Major changes in the Income Tax Act for extractive industry players
- Local mobile players must list on DSE by December 2016
- Interest remission cannot exceed 50%
The much awaited Finance Act 2016, President Magufuli’s first budget since coming to power, has just been published.
Apart from the major changes for the mining and oil and gas players that we discussed in our last newsletter, the Finance Act 2016 has the following important provisions:
The Income Tax Act, 2004 (ITA)
a) Definition of Business (section 3 ITA as amended by section 16 of the Finance Act 2016): The earlier wide definition of the term “business” which was proposed in the Finance Bill to include transactions such as granting of gifts, benefits in kind or any other way as a source of income received by any person, has not been retained in the Finance Act, 2016.
b) Change of Control (section 56 ITA as amended by section 25 of the Finance Act 2016): Change of control of an entity by more than 50% at any time within 2 years which was introduced by the Finance Act 2015 has been reversed to 3 years as it was before.
c) Professional Service Fees (section 83(1)(c) ITA as amended by section 28 of the Finance Act 2016): A resident person hasa duty to withhold 5% for any payments made for professional services to a resident person.
d) Return Filing (section 91 ITA): The proposed reduction of duration within which to file tax returns of 3 months has not sailed through the Finance Act 2016 and the 6 months duration has been retained as it was before.
e) Withholding Tax on Imported Services (section 69(i)(i) ITA): The proposed charging of withholding tax for payment made to a non-resident person in respect of services rendered to a resident person regardless of the place of rendering/performance of the services has not been approved by the Parliament. Therefore, the old position still prevails meaning that the PanAfrican Energy decision of the Court of Appeal is intact and that no withholding tax is to be deducted against non-resident companies by resident companies for services rendered by the non-residents outside of Tanzania.
The Tax Administration Act, 2015 (TAA 2015)
a) 100% Deposit on Objection (section 51(5) of the TAA 2015 as amended by section 56 of the Finance Act 2016): The proposed 100% deposit of the assessed tax as a condition towards lodging an objection has not been approved by the Parliament. This part has been amended partly to include the requirement that one-third deposit or tax not in dispute has to be effected within 30 days from the date of service of the assessment.
b) Remission of interest and penalty (section 70 of the TAA 2015): remission of interest under tax law now must be made by the Commissioner General in consultation with the Minister for Finance, and such remission cannot be more than 50%.
c) Interest on Unpaid Due Tax (section 76 of the TAA 2015): The proposed amendment to introduce 5% interest monthly on tax that remains unpaid after the due date has not sailed through. The position remains the same as before the Finance Act 2016 (statutory rate).
d) More Offences on EFDs (section 86 of the TAA 2015): The Finance Act 2016 introduces 3 more offences in relation to the use of EFDs, namely, issuing false receipt/invoice, use of the EFD to mislead the Authorities, and tempering with the EFDs. Furthermore, the punishment has been increased from 100 as minimum and 150 as maximum currency points, to 200 as minimum and 300 as maximum currency points.
The Electronic and Postal Communications Act 2010
a) Local shareholding requirement (section 26):
|Type of licence
|Network facilities, network services or application services licence
||Minimum 25% local shareholding obtained through an IPO under the Capital Markets and Securities Act
|Content service licensee
||Minimum 50% local shareholding
|Pre 2016- network facilities, network services or application services licence holders
||Must offer shares to the public on or before 31 December 2016