No tax on lawmaker’s final perks

Shabu Maurus, Tax Partner, Auditax International.Tanzania’s 11th Parliament was dissolved last month to pave way for the General Elections in October, 2020. Assented by the President on June 15, 2020, the Finance Act, 2020 (“Finance Act”) is one of the very last legislations to be passed by the 11th Parliament. Among other things, the Act serves to legalize most of the tax reforms the minister for Finance announced through his Budget Speech a month ago. But, astonishingly, there is one thing that was not mentioned in that speech. Parliamentarians gratuities are now exempt from income tax. According to the Political Service Retirement Benefits Act (CAP 225 R.E. 2015), a gratuity is a payment granted to a leader upon cessation of service.

Section 38 of the Finance Act effectively exempts from income tax all the amounts paid to persons entitled to benefits granted pursuant to the provisions of Part V of the Political Service Retirement Benefits Act. And the exemption is deemed to have started four years back. From July 1, 2016 to be precise. Part V of the Political Service Retirement Benefits Act confers several benefits to former Speaker, former Member of Parliament and their dependents. The benefits include gratuity, winding-up allowance, and pension.

But to be honest, exemption of MPs final perks is not something new in Tanzania. Up to June 30, 2016, paragraph 1(r) of the Second Schedule to the Income Tax Act (CAP 332), read “1. The following amounts are exempt from income tax - (a)…; (r) gratuity granted to a Member of Parliament at the end of each term;”. This exemption was then removed from July 1,  2016 through the Finance Act, 2016. In a bid to end the exemption, the Minister of Finance said in his 2016/17 Budget Speech: “I propose to amend the Income Tax Act, CAP 332 as follows: (i) To remove the income tax exemptions on the final gratuity to members of parliament in order to promote equity and fairness in taxation to all individuals; …”. The removal of exemption was fiercely contested by some MPs. But based on equity, some MPs supported the move and the finance bill was passed.

As the reform was not in the Budget Speech nor was it in the first draft of the Finance Bill 2020 (available in the Parliament website), the rationale for such a U-turn is not immediately clear. Of course, the move would reduce tax revenue, just like other income tax exemptions. Some MPs, back in 2016, argued that gratuity is paid out of their earnings that have already been taxed. And so, to those MPs, taxing gratuity is unfair. Just like pensions to employees are not taxed. However, this might not be an entirely valid argument. Pension is different. MPs gratuity can, arguably, be likened to employee terminal benefits (amounts paid when employment contract ends or is ended). Terminal benefits to employees are not exempt from tax.

Perhaps what is striking is that the new exemption is broader. Arguably, the original exemption was limited to gratuity paid to MPs at end of each term. But the new exemption covers all the benefits (gratuity or otherwise) payable to former Speaker, former Deputy Speaker, former Member of Parliament, and their dependents under Part V of the Political Service Retirement Benefits Act. And the retrospective application from July 1, 2016 renders the earlier removal of exemption ineffective.

By Shabu Maurus, Tax Partner, Auditax International.

Bank agents’ earnings cut by 10 pc

The number of Tanzanians using formal financial services has quadrupled over the last decade. In 2009, only 16 per cent of adult Tanzanians had access to formal financial services. But the number grew to 65 per cent in 2017.  These stats on financial inclusion are in the FinScope Tanzania 2017 report published by the Financial Sector Deepening Trust (FSDT). Adoption of agency banking model by banks in Tanzania (agent banking), is one of the drivers of financial inclusion. The interplay of bank agents' services with mobile money services, mobile banking, ATMs, internet banking and digital payment systems could be another factor driving financial inclusion. The FinScope Tanzania 2017 says most financial service providers within a 5km radius of the surveyed areas were mobile money agents. But, over 60 per cent of the surveyed bank agents were also mobile money agents.

 In 2013, BOT issued agent banking guidelines which served to allow banks to subcontract agents on offering services like account opening, deposits, withdrawals, and loan applications on their behalf. This created a new form of business and a new source of income as agents earn commissions for their services. The number of agents has been booming. The Directorate of Banking Supervision of the Bank of Tanzania (BOT), reported 10,665 registered bank agents by December 2017, who facilitated over 4.6 trillion shillings in deposits and 1.1 trillion shillings in withdrawals in 2017. By end 2019, two major banks (CRDB and NMB) reported close to 21,000 agents. Going by the 2017 stats, the two banks accounted for almost 70 per cent of the registered bank agents.  

Tax on agent commissions

Using POS (Point-of-Sale) gadgets facilitation of "cash-in" and "cash-out" is one of the notable services of the bank agents. Starting from 1st July 2020, the commissions earned by agents for these and other agency services are subject to a 10 per cent withholding tax (WHT). Just like commissions earned by the mobile money agents from the telecoms. This is according to the Finance Act, 2020. But the agent banking business is, arguably, in its infancy-especially if one compares the numbers with those of mobile money agents. In its 2019 annual report, Vodacom Tanzania had over 106,000 M-Pesa agents countrywide:  five times the number CRDB and NMB combined.

 Similarly,  from July 1 2020, a 10 percent WHT applies on fees, commissions, or any other charges payable to digital payment agents, defined as a person who renders digital payment services at a fee, commission, or any other charges. Payment services by the likes of Selcom and MaxMalipo may fall under this category.

 Under WHT system, the obligation to remit the tax fall on the person making the payment. So, while the bank agents bear the WHT burden, banks are obliged to deduct the tax when paying the commissions and remit the same to TRA. Likewise, for the digital payment agents, the obligations to deduct and remit WHT falls on the person paying the commissions or fees. But WHT may present some practical challenges to banks. Dealing with a huge number of agents is one issue both in terms of WHT returns and issuance of WHT certificates -despite the existing online features. When to start 'withholding' is another nightmare. Normally the commissions are accrued monthly and get paid within the following month. So, commissions accrued in June (or earlier) are paid to the agents within July (or after). The question is, should WHT apply to commission earned by agents before July 1, 2020 but paid on or after July 1, 2020? It sounds simple but can be very tricky to decide “correctly”.

By Shabu Maurus, Tax Partner, Auditax international.

New tougher rules for tax dispute resolution

A fortnight ago, Tanzania’s Minister of Finance read his Budget Speech for the fiscal year 2020/21. Several tax reforms were announced and included in the bill to the Finance Act,2020 (“Finance Bill”). One of the areas that the Minister proposed to reform is the tax dispute resolution in the tax administration law. Part of a paragraph under the “Objects and Reasons” of the Finance Bill reads “the Bill proposes amendments to sections 50, 51 and 52 to ensure that there is efficient and effective procedure in the determination of tax objections”.

In exercising its statutory powers to administer tax laws in Tanzania, the tax authority (TRA) makes various decisions including decisions over the amount of tax that should be paid by a taxpayer. There are various good reasons as to why a taxpayer may disagree with a decision or decisions made by the tax authority against that taxpayer. It could be because the taxpayer believes that TRA's interpretation of the tax law is flawed. It could be a dispute on facts or the accuracy of TRA's tax calculation. It could be an incorrect application of the law or even in some cases, wrong tax law has been applied. Of course, there are also "bad" reasons a taxpayer may disagree with TRA's decision. A taxpayer may not fully understand the tax law, or he may not have money to pay the demanded tax. And yet, other taxpayers may not fully comprehend why the government should take away from them their hard-labored money.

Generally, if a taxpayer disagrees with the TRA’s decision he is entitled, as a first step, to object against the decision to TRA. If the tax dispute is not fully resolved at TRA level, the tax administration laws provide for a three-tier appeal system: The Tax Revenue Appeals Board (‘Board’), the Tax Revenue Appeals Tribunal and the Court of Appeal. But taxpayers could not exercise his right to appeal until TRA determines his objection.  But the tax administration laws, unfortunately, did not prescribe a specific time for TRA to determine objections. In fact, no time frame was set for resolution or decision of tax disputes at any level. And so, tax disputes can potentially take years to resolve at each level, sometimes to the detriment of taxpayers. Once a taxpayer has filed an objection or appeal within the prescribed time (usually 30 days for objections), there is so little that taxpayers can do to speed up a tax dispute resolution process.

The reform proposed by the Minister come to partially change this anomaly. The law now sets a time limit for TRA to resolve taxpayers’ objections. Six months at a maximum. If TRA fails to determine an objection within the six months window, the aggrieved taxpayer is free to exercise his right to appeal. But apart from setting the time limit for TRA, the amendments also set some stringent restrictions and conditions to taxpayers. For example, if TRA request information or documents from any person (even if not liable to tax), such person needs to submit the requested information within 14 days. If such person fails to submit the requested information or documents within that time, then the law restricts that person from using such document or information as evidence at objection or appeal stage. Also, taxpayers must now submit all documents or information they indent to use as evidence against TRA’s decision (e.g. an assessment) at the time of lodging objection. Short of that, such documents or information cannot be relied upon at the time of appeal. There is also an amendment to the effect that a taxpayer cannot object or appeal on any matter decided under any tax law on account of agreement, consent, or admission.

By Shabu Maurus, Tax Partner, Auditax International.

PAYE reforms, laudable!

Last week, the Minister of Finance unveiled Tanzania’s 34.9tr shillings budget for the fiscal year 2020/21. Through the budget speech, several tax reforms were announced by the Minister. Tax revenue will fund almost 60 per cent of the budget. This is going to be uphill for both the tax administration and the taxpayers in Tanzania. Especially if one considers the negative economic impacts of the pandemic, COVID-19. Nevertheless, this time around, employees will see a big relief as the PAYE tax bands are reformed. 

For most employees, PAYE that makes the biggest chunk of the statutory deductions. In aggregate, employees in Tanzania pay more income tax than all businesses combined (corporations and sole proprietors). The average PAYE contribution (to the total tax collections) for the past ten years or so stands at around 16 per cent while the average for businesses is around 12 per cent. The average PAYE collections are even higher than the average for domestic VAT (i.e. excluding VAT on imports), with the latter being around 15 per cent. Looking at these statistics, it is indeed logical to relieve employees of the income tax burden. Hence reforms to reduce PAYE timely and welcome. 

PAYE stands for Pay-As-You-Earn. It is a tax on employment income payable to the government by way of a withholding system. Under this system, an employer is required by law to deduct income tax progressively from employee’s taxable income at various rates from 9 to 30 per cent depending on the prescribed ranges of income (i.e. bands). In recent years, the focus appears to have been only on the tax rates and not bands. Especially the tax rates for the lower bands. Over the past 12 years, the tax rate for the second-lowest band has gone down from 15 per cent (in the year 2008) to the current 9 per cent. However, most of the employees may not have felt any relief because the rates for the other bands remained unchanged and also the bands themselves remained unchanged. The bands have not been significantly restructured since 2008 despite the changes in inflation rates and the depreciation of our currency (shilling). For example, the highest taxable band (taxed 30 per cent) started at the monthly taxable income of 720,000. In 2008, the amount 720,000 shillings was equivalent to around USD 600. But today, USD 600 is close to 1,400,000 shillings. So, the band structure was outdated and needed some reforms to provide some relief to employees. If you have followed this column for the last three years, you may recall this as one of the areas I have repeatedly written on. 

With the current tax reforms, the five bands structure is changing. For example, from 1st July 2020, the first 270,000 shillings of employee monthly income will not be taxed at all. Before the reforms, only 170,000 was not taxed. The second band, taxed at 9 per cent, will now range from 270,001 to 520,000 shillings. The third band will start from 520,0001 shillings to 760,000, taxed at 20 per cent. Taxed at 25 per cent, the fourth band will now start from 760,001 to 1,000,000 shillings. The fifth band, with the highest tax rate of 30 per cent, now starts from 1,000,001. Previously, the upper band started from 720,000 shillings. 

Although cumulatively, with these changes the monthly tax savings for individuals is around 50,000 shillings (about 600,000 shillings annually), in aggregate this is a significant reduction from the government coffers. Think of all the employees in Tanzania, both in the public and private sectors. It is indeed a very bold move and laudable.

By Shabu Maurus, Tax Partner, Auditax International. 

Uplifting VAT registration cutoff amidst COVID-19

Today, the Minister of Finance unveils Tanzania’s 2020/21 budget. The pandemic, COVID-19, makes this year’s budget incredibly unique. Undoubtedly, the pandemic has affected the economy. Most businesses have been affected in one way or the other. Businesses need tax policies that will make resuscitating easy. Significant reduction of the tax burden is probably the expectation of many. But the government also needs more money to provide public goods and services. More so as it needs to address the challenges COVID-19 has exposed. So, balancing these conflicting priorities becomes very delicate.  

One area that needs some reforms is VAT. Specifically, the VAT registration threshold. Generally, this is the point in terms of annual taxable turnover, at which VAT registration becomes compulsory. Businesses with taxable turnover below the threshold are not obliged to register for VAT. The threshold, therefore, effectively acts as a form of VAT exemption. This is because goods and services supplied by unregistered businesses do not explicitly bear VAT. The level of turnover at which registration for the VAT becomes compulsory is, therefore, a critical choice in the design and implementation of the VAT. It is an important policy issue. More so as the impacts of COVID-19 need to be addressed.

When VAT was introduced in Tanzania in 1998, the threshold was set at 20 million shillings. This was later on increased to 40 million shillings in 2004. And to 100 million shillings when the new VAT Act, 2014 came into force in 2015. This means that traders with average daily gross taxable sales of 280,000 shillings are obliged to register. There have been calls for the 100 million shillings threshold to be revised upwards. The current threshold may be too low for the structure of the economy where SMEs and the informal sector are dominant. It is not surprising that some people have proposed a threshold as high as 500 million shillings. Given the relatively poor performance of our VAT system, these calls cannot be ignored.

The VAT registration threshold determines the administrative efficiency in the operation of the VAT. Low threshold tends to include many small businesses into the VAT system which may exceed the administrative capacity of TRA. The VAT revenue should exceed the administrative cost of collections. The cost of collecting VAT from many small traders, if the threshold is set too low, is likely to exceed the VAT revenue. VAT registration entails additional compliance burdens to the registrants. Most notably are the costs related to managing the tax invoices, VAT returns, VAT payments and the financial cost if customers delay in paying their bills and VAT is due to TRA. These VAT compliance costs tend to be relatively more burdensome to small traders than to large businesses. EFDs is a typical example of this. Smaller traders tend to complain more about the cost of devices. 

On the other hand, setting a high threshold would eliminate many businesses from the VAT system and increase administrative efficiency. But the increased efficiency may come at the expense of revenue loss as the VAT base narrows if the threshold is set too high. VAT is a multiple-stage tax and only tax on value-added on each stage, so simply exempting traders below the threshold may not necessarily mean a 100 per cent revenues loss. Unregistered traders cannot claim input taxes. This also means that the removal of small traders from the VAT system will reduce the problem of bogus input tax claims that are difficult for TRA to trace.  The VAT threshold, therefore, needs an appropriate balance between reducing administrative and compliance burdens and avoiding competitive distortions.

By Shabu Maurus, Tax Partner, Auditax International.

Resuscitating the tourism sector

The pandemic, Covid-19, continues to hit almost all economic sectors in Tanzania. This is despite the official reports that the pandemic is now subsiding in Tanzania. Tourism is among the worst-hit sectors so far. The United Nations World Tourism Organization (UNWTO) estimates a decline of between 20-30 per cent in global international tourist arrivals in 2020. Before the pandemic, a 3-4 per cent growth was estimated for 2020. According to UNWTO, this may mean a loss of US$30-50 billion in spending by international visitors.

Early May 2020, the government (through the Minister for Natural Resources and Tourism) projected that 76 per cent (i.e. from 623,000 to 146,000 jobs)  of the total direct employment in tourism will be lost as the number of tourists estimated to visit Tanzania during that Covid-19 period declines to 437,000 (from 1.9 million tourists recorded by end of 2019). The earnings from the sector are expected to shrink from US$2.6 billion to US$598 million by the end of 2020. The sector is the leading foreign exchange earner for Tanzania’s economy. It has been a positive contributor to economic growth and employment. With tourism’s multiplier effect, several related sectors or subsectors are, by implication, also severely affected. Think of tourists spending on, for example, hunting, accommodation, meals and drinks, shopping, transportation (charters, car hire), tours, communication, travel agency business, recreation, cultural and sporting activities. These have all been affected.

UNWTO claims that tourism is a sector with a proven capacity to bounce back and multiply recovery to other sectors of economies. But obviously, some measures need to be taken. Measures that would attract again tourists and stimulate their spending while in Tanzania. Also, measures that would encourage most players in the sector to revive their businesses and attract new investments into the sector. Tax is among the areas that can be reformed to help the sector resuscitating.  Even before COVID-19, already, tax was one of the most problematic areas in the tourism sector in Tanzania. Both, from the perspectives of taxpayers as well as tax administration (TRA). In 2015, Jacques Morisset, the World Bank lead economist for Tanzania, in his report a report titled “The Elephant in the Room: Unlocking the Potential of the Tourism Industry for Tanzanians” identified several challenges in the sector. Morisset argued that multiple taxes and levies inhibit tourism, discourage investors, and create room for corruption. In 2018, similar sentiments were echoed by the Blueprint for Regulatory Reforms to Improve Business Environment, a report authored by the Ministry of Industry and Trade.  

So, as we near the Budget day for 2020/21, one would reasonably expect some tax stimulus for the tourism sector. The economic outlook suggests the need for policies that would stimulate the tourism sector in the short run. But, the long-run revenue impact of stimulus policies should be projected and limited, to avoid exacerbating long-term fiscal challenges.

Any thoughts? As a short-term measure, operators (employers) in the tourism sector can be exempted from both the Skills and Development Levy (SDL) and Workers Compensation Fund (WCF), say, for up to three years. Currently, SDL rate stands at 4.5 per cent and WCF is 1 per cent of the employment cost. The exemption will reduce the cost to employers in the sector and may encourage new jobs, job retention and probably also translate into even better pays to employees.  Another area is the VAT. VAT is a tax on consumption. Reduction of this tax is likely to stimulate consumption. If the VAT refund system could be made to work, one option would be to zero-rate some services that are supplied to international tourists. Another option is to exempt the services, although this is less likely to reduce prices. But given the current complexities and controversies in accounting for the VAT by most players in the sector, the exemption will be received with jubilation. Also, income tax reforms can be made to encourage new investments. Temporary provisions can be made to provide accelerated depreciation allowance, expensing, or tax credits for new investments in the tourism sector.

By Shabu Maurus, Tax Partner, Auditax International.

Tough rules for remission of tax penalties

Shabu Maurus, Tax Partner, Auditax International.A fortnight ago (8th May 2020), the Minister of Finance and Planning issued new tax regulations to govern remission of tax-related interest and penalties in Tanzania. The regulations have been issued to operationalize section 70 of the Tax Administration Act, Cap 438. The regulations may partly clear the lacuna tax existed in this area for some time now. The tax administration law (the Tax Administration Act, Cap 438) gives powers to the Commissioner-General of TRA to waive interest and penalties subject to the regulations made by the Minister. And the relevant regulations were lacking since 1st December 2018.

Remission of interest and penalties is one of the useful tax administration tools. This is especially so for a self-assessment tax administration system where taxpayers are expected to self-assess their tax liabilities and pay their tax dues to the tax authority. The self-assessment system implies that taxpayers can make mistakes in determining their tax liabilities. After all, tax laws have never been a cup of tea to everybody! Also, the self-assessment tax administration system is premised on the expectation that most taxpayers are likely to be faithfully most of the time. But there are unfaithful taxpayers or the would-be taxpayers.

Remission interest and penalties give honest taxpayers relief when they, for example, inadvertently have failed to abide by some provisions of the tax laws. Non-compliance with tax laws could be due to financial hardship, either temporary or long term. Non-compliance could also be due for reasons beyond the taxpayer's control. Take for example the social and economic impacts of the current pandemic facing Tanzania and the world, the COVID-19. Under the current environment, it may not surprise me if some taxpayers fail to fulfil some of their tax compliance obligations.

Remission of interest and penalties can cautiously be used to appeal to the noncompliant taxpayers. Think of the tax amnesty tax was offered back in the year 2018. It helped collect taxes. Taxes that, I think, could not have been collected in the absence of the firm assurance that voluntary disclosure of tax liabilities is something that is welcomed by the tax authority. The amnesty assured taxpayers that no interest or penalties would be charged if they voluntarily disclosure their “hidden” tax liabilities. With the prevalence of the informal sector in Tanzania, the remission can be a good bargaining tool for the tax administration.

The new regulations (the Tax Administration (Remission of Interests and Penalties) Regulations, 2020) now provides some guidelines on how remission interests and penalties should work. The regulations set out the manner for applying for the remission. A specific (prescribed) form must be used and a taxpayer shall disclose the reasons for the imposition of interest or penalty and justification for the remission. There are five eligibility criteria that all must be met by the taxpayers seeking remission. The Commissioner-General (“CG”) can accept or reject an application for remission. But the regulations require the CG to adduce reasons for rejection.  Unlike in the tax amnesty where remission was 100 per cent, the regulations gives the CG discretion on the amount of remission. The regulations put very stringent criteria to prove financial hardship. This is essentially akin to excluding prove financial hardship as one of the reasons for the CG to grant remission. The CG can remit the whole or only part of the interest and/or penalty. Also, the regulations disqualify several categories of interest or penalty. No remission if non-compliance is deliberate (fraudulent evasion of tax) or is in respect of VAT, withholding taxes, EFDs or failure to keep documents. Also, no remission if the interest or penalty arises from tax liability established as a result of tax audit or investigation. I will discuss these regulations in detail in my next articles.

By Shabu Maurus, Tax Partner, Auditax International.

Taxpayers should Undergo Tax Health Checks

Introduction

Straton Makundi, Managing Partner, Auditax International.Matters related to someone’s survival and paying taxes have historically drawn comparison.  For instance, in his letter to Jean-Baptise Leroy, 1789, Benjamin Franklin earmarked that “in this world nothing can be said to be certain, except death and taxes”.

The importance of regular medical check-ups to track someone’s health has been told over and over again by doctors and other health experts. These check-ups enable identification of potential health problems at early stages and ensure prevention of long-term health illness which can sometimes lead to loss of life. Similarly, regular tax health checks can ensure the survival of a taxpayer’s business or organization.

Tax health check refers to the review of taxpayer’s tax and accounting records to establish the degree of compliance with applicable tax laws. Tax health check can lead into a number of benefits to a taxpayer which are discussed below.

Why Tax Health Checks?

With the increased tax risks i.e. (audit risk, compliance risk, operational risk etc.); frequent changes in tax laws, complexities of tax laws; ambitious revenue targets by the Government; recent rulings on tax cases etc. the need for tax health checks cannot be overemphasized.  Tax health checks can help taxpayers to achieve the following:

i) Preparation for a Potential TRA Audit

Taxpayers can undertake a tax health check as part of preparation for a potential tax audit by the revenue authority. This is a house keeping exercise to identify areas of non-compliance with tax laws e.g. returns not filed, taxes not paid, reconciliations not being done etc. and correct them before a visit by tax officers to avoid interests and penalties or manage cash flows on tax payments. For instance, the recently issued Tax Administration (Remission of Interest and Penalties) Regulations, 2020 exclude interest or penalty established from a tax audit or investigation from remission. Thus, identifying areas of non-compliance before a TRA audit may enable application of remission of qualifying interest or penalty.

ii) Identification of Tax Risks and Instituting a Robust Tax Risk Management Framework

Tax risks refers to the risk of losses resulting from overpayment of taxes (principal taxes, interest and penalties) or failure to take advantage of tax savings opportunities in the tax laws. Tax health check can identify areas of high-risks so as controls can be instituted to mitigate the risks. These can be on areas of non-compliance with tax laws e.g. on corporate income tax, withholding taxes, VAT, excise duty etc.  weak tax controls on tax management e.g. lack of policies, adequate staff etc. This can provide an opportunity to strengthen tax internal controls by evaluating the effectiveness of the existing tax risks management framework and instituting a robust framework. This will enable systematic identification, assessment and mitigation of tax risks.

iii) Opportunities for Tax Savings

Tax health check can identify areas where the organization is not fully exploiting tax saving advantages. These can for instance be failure to take advantage of tax benefits in tax laws e.g. on incentives, allowances etc.

iv) Done as part of Tax Due Diligence

Tax health check can save as a tax due diligence for cases where a potential investor is intending to acquire an entity. It will help to identify potential tax liabilities of the acquiree business and form one of the considerations in deciding whether to acquire the entity or not.

v) Assist in VAT and other Tax Refunds

Tax health checks can be undertaken as part of a process to obtain tax refunds. The health check will confirm whether the amount the entity expects to be refunded is genuine in terms of being fully supported and in compliance with the requirement of tax laws regarding refunds. Measures can be taken to ensure missing evidences are obtained to ensure appropriate refund is obtained.

Conclusion

Just as regular medical checkups for a person before illness is important, proactive regular tax health checks for taxpayers to avoid or minimize the costs associated with financial losses and missed tax savings opportunities are as important. The recently issued Tax Administration (Remission of Interest and Penalties) Regulations, 2020 which exclude interest or penalty established from a tax audit or investigation from remission has also raised the importance for taxpayers to regularly undertake tax health checks to avoid paying unnecessary interest and penalties among other advantages.

Mr Straton Makundi is a Partner with Auditax International

The Bank of Tanzania announces monetary policy measures to respond to impact of COVID-19 in Tanzania

The Bank of Tanzania (BOT) has announced monetary measures to be taken to offset the impact of corona virus and boosting the economy of the country. These measures come after the central bank’s monetary policy committee met and approves various policy measures to cushion the economy from adverse effects of COVID-19 to safeguard the financial sector stability. The measures taken includes the following:

  • Reduction of statutory discounting rate from 7% to 5% with effect from 12th May 2020.
  • Lowering statutory minimum reserves requirements from 7% to 6% to be applied effective from 8th June 2020.
  •  Allowing banks to borrow from the Bank of Tanzania with less collateral by reducing haircuts on government securities by 50% effective from 12th May 2020.
  • Allowing commercial banks to consider restructuring of loans and loan repayment rescheduling after having thorough discussion with their borrowers who are adversely affected by COVID-19 impact.
  • Encourage the usage of digital payment system by allowing Mobile money operators to increase daily transaction limit to their customers to TZS 5 million and daily balance to TZS 10 million. This is about 50% uplifting of maximum limit.

Conclusion

With these measures at place, BOT expect banks to have increased liquidity, additional space for banks to borrow from them, reduces congestion of customers in banking premises and increase usage of digital payment system and hence neutralize the impact of COVID-19.

Read more here.

COVID-19 Tax Measures: A case for tax return delays

As the coronavirus (COVID-19) crisis continues to ruin economies around the world, countries are implementing various emergency tax and non-tax measures to support their economies during this crisis and ease the impact on both the businesses and individuals. Apart from the various administrative measures that TRA are taking, there are no emergency tax reforms that I am aware of in Tanzania (so far!). But what sort of tax relief measures other countries are taking? Various measures are being taken to suit individual countries situation. Some may seem overly expensive to implement and yet some are quite simple.

In response to the pandemic one of our closest neighbours, Kenya, has taken bold steps in reducing the tax rates for taxpayers. There is a 100 per cent tax relief for taxpayers earning a gross monthly income of up to KES 24,000 (around TZS 500,000). The upper band employment income tax (PAYE) rate has been reduced from 30 per cent to 25 per cent. Similarly, the resident corporate income tax rate is reduced from 30 per cent to 25 per cent. And the VAT rate from 16 per cent to 14 per cent.

Some countries have taken simpler steps but certainly helpful such as extending the time for filing tax returns. In Ghana, for example, the time for filing annual income tax return has been extended by 60 days. Also, Nigeria has extended the deadline for filing VAT and withholding tax returns from the 21st day to the last working day of the month, following the month of deduction. In Mauritius, taxpayers that are unable to submit returns or pay their tax due to the lockdown will not be charged any penalty or interest for late submission or payment. Amid the COVID-19 crisis, the extension of time to file returns makes a lot of sense.

It is no longer business as usual. There is a slowdown in business and processes. Given the various preventive measures that are taken to fight COVID-19 such as the full or partial lockdowns, it is likely to take longer for some business and individuals to get their tax returns prepared on time. In Tanzania, for example, monthly VAT returns are due 20 days after the month-end. What if this time is extended to 30 days (or to the last working day of the month)? Due to the pandemic, the collection of VAT from customers takes longer. An alternative to a blanket extension, reform can be made to allow those severely affected to apply for an extension - say up to some 90 days.

Also, the annual income tax return is due 6 months after the year-end. But annual income tax returns (for companies at least), must be accompanied by audited financial statements. statutory audits are likely to take longer than normal. There is already a provision to allow the extension, but this is currently capped at only 30 days. Probably 90 days cap would be much more helpful. 

By Shabu Maurus, Tax Partner, Auditax International.

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