Microfinance company treated as financial institution

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Our company is registered as a Tier 2 non-deposit taking microfinance service provider and is licensed to provide lending services. We do not accept deposits from the public. Following a tax audit, the Tanzania Revenue Authority assessed us for excise duty on the basis that we are a financial institution. We objected to the assessment, but our objection was unsuccessful. Can a Tier 2 non-deposit taking microfinance company be treated as a financial institution for purposes of excise duty?

CT, Dodoma

Under the Excise (Management and Tariff) Act [Cap. 147 R.E. 2023] (the Act) excise duty is imposed on fees or charges payable to a financial institution for services provided by that institution. However, the Act does not define the term ‘financial institution.’ In practice, reference is often made to other financial statutes such as the Income Tax Act [Cap. 332 R.E. 2023], the Banking and Financial Institutions Act [Cap. 342 R.E. 2023], and the Bank of Tanzania Act [Cap. 197 R.E. 2023], which associate a financial institution with entities engaged in banking or financial services. In that context, the question has been whether a non-deposit taking microfinance service provider falls within that category.

The Court of Appeal has recently addressed this issue, where it held that the fact that an entity is classified as a Tier 2 non-deposit taking microfinance provider under the Microfinance Act, 2018 does not, by itself, exclude it from being treated as a financial institution for purposes of excise duty. The Court emphasised that the classification under the Microfinance Act is not determinative of tax liability, and that such entities may still fall within the scope of the excise law depending on their activities. On that basis, the Court upheld the imposition of excise duty on the microfinance company. Accordingly, a non-deposit taking microfinance company may still be treated as a financial institution for purposes of excise duty depending on the nature of its activities.