Income Tax changes in the Tanzania Budget 2016/2017

Income Tax Changes in Tanzania Budget 2016/2017

Reduction of the lowest PAYE marginal tax rate to 9%

The employment income taxable bands remain unchanged but the tax rate has been reduced from 11% to 9% on the lowest taxable band (monthly income from TZS 170,000 to TZS 360,000). The new PAYE rates are as shown below:

Taxable Income (TZS)

Tax

Up to 170,000

NIL

170,001 to 360,000

9% of the amount in excess of TZS170,000

360,001 to 540,000

TZS 17,100 + 20% on excess of TZS 360,000

540,001 to 720,000

TZS 53,100 + 25% on excess of TZS 540,000

Over 720,000

TZS 98,100 + 30% on excess of TZS 720,000

The Minister also stated that this measure is aiming at reducing the tax burden. With this change, however, employees will only achieve a maximum tax saving of TZS 3,800 per month.

Remove Exemption on Non-investment Assets (shares)

The Minister has also proposed  in the Tanzania Budget 2016/2017 to remove exemptions on gains from non-investment assets (shares) to remove the 5% reduced tax rate on dividend. This advantage is currently applying to shares or securities listed in the Dar es Salaam Stock Exchange (DSE) . The shares are those owned by resident or non-resident who (alone or with associates). They control less than 25% of the controlling shares issued by the company.

Given the small size of DSE, this measure is step backward in terms of ensuring a strong stock market for a robust financial sector.

Impose Withholding Tax on Payments to Approved Retirement Funds

The Minister has proposed to impose withholding tax on payments to approved retirement funds. These are  from investment incomes (from leasing and lending) . It is line with the equity and fairness taxation principle. Thus rent, dividend and interest payments to approved retirement funds will now be subjected to withholding tax.

Remove Income Tax Exemptions on Final Gratuity to members of Parliament

The Minister proposes also in the Tanzania Budget 2016/2017 to remove the income tax exemptions. This is on the final gratuity to members of parliament in line with the equity and fairness taxation principles.

Grant Power to the TRA Commissioner General on Rental Income

The TRA Commissioner General has been granted powers to determine rental income on the basis of the minimum market value. He shall use the value to charge withholding tax on rental income. They may be administrative challenges on this measure. These include for instance the mechanisms to be used. Also the legality of the adjustments of the rental income (if any) by the Commissioner General. Other income tax administrative measures proposed by the Minister are:

  • Developing a comprehensive compliance programme to improve  revenue collection;
  • Establish various units in Dar es Salaam Tax Regions. Also new tax payer’s service centers for registration of more new tax payers.

Overall there were few changes on Income Tax in the Tanzania Budget 2016/2017