Impact of the Tanzania Finance Act, 2024 to Construction Companies

1.1 Withholding Tax to apply on rental payments for the use of construction equipment or machinery

Change:

Section of 82 of the Income Tax Act has been amended to require withholding tax to apply on rental payments to residents for construction equipment or machinery.

Implication:

10% withholding tax will now apply to payment for the use of construction equipment or machinery. Currently it only covers payments for the use of aircraft, land or buildings and mineral rights.

Construction Equipment has been broadly defined to mean “the equipment, machinery, structure, scaffolding, materials, tools, supplies or systems rented or leased by contractor or its subcontractors for use in accomplishing the construction works but not intended to form part of the structure to be built or for incorporation into the project”.

1.2 A requirement to have Electronic Fiscal Receipts (EFDs) receipts to support Expenditure Deduction

Change:

Section 11 of the Income Tax Act, Cap 332 has been amended by adding a requirement to use electronic fiscal receipts to authenticate purchases made in a particular year of income. The measure will exclude sellers of goods or suppliers of services who are foreign citizens with no permanent establishment in Tanzania or any person who is not required to issue electronic receipts as per section 36(2) of the Tax Administration Act.

The government objective is to emphasize the issuing of electronic receipts and protect government revenue.

Implication:

Financial Institutions will need to ensure purchases are supported by EFDs and a robust record keeping system is in place. However, disputes could arise with the tax authority when only electronic fiscal receipts are recognised. These could arise from expenses recognised through accrual accounting, those whose suppliers cannot issue receipts, quality of receipts etc. Taxpayers can apply for private or class rulings for TRA to provide clarity on the challenges. TRA can also consider issuance of a practice note to provide more guidance to taxpayers.

1.3 Illegal to transact in other currencies

Change:

Section 26 of the Bank of Tanzania Act has been amended to make transactions using any other currencies other than the legal tender issued by the Bank, illegal except as prescribed by the Minister in the regulations.

Implication:

This implies that all transactions within Tanzania must be done in Tanzania shillings. The regulations will provide more guidance.

 

1.4 Definition of Serviced Apartment

Change:

A definition of “Serviced Apartment” has been included in Section 2 of the Income Tax Act.

Serviced apartment means “a furnished apartment or similar establishment, available for short or long-term stay, providing amenities for daily use, housekeeping and a range of other services all included within the rental price”.

Implication:

This provides clarity by differentiating serviced apartments which are vatable (taxable supply) and non-serviced apartments which are not vatable (not taxable supply) for the purpose of VAT.