1.1 Withholding Tax Exemption on Interest Payments

Change:

Section of 82 of the Income Tax Act has been amended to grant exemption of the withholding tax chargeable on interest when resident Financial Institutions make payments to foreign non-residents Financial Institutions and Funds which has agreement with the Government of the United Republic of Tanzania with lower interest rates to dispense concessionary loans to resident banks and Financial Institutions. Interest payable on loans from related non-resident person does not apply.

Implication:

This measure will prompt economic growth through availability of affordable credit financing facility to citizens and enable domestic banks to get concessionary loans from foreign banks abroad. Facilitate obtaining cheap loans for lending.

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 Return on Profit

Change:

Amendment of sections 32(2)(b); 35(1); 41 and 42(2) of the Bank of Tanzania Act CAP.197; section 24(g)(iv) of the Banking and Financial Institutions Act, CAP 342; and section 4(3) of the Microfinance Act CAP 407, by adding the words ‘return’ or ‘profit’ in the said sections.

Implication:

To enhance banks and financial institutions that do not charge interest to access opportunity the same way as other conventional banks and financial institutions. To enhance banks that do not charge interest to operate with their accounts or their customers’ accounts to access Government Bonds. To enhance institutions or companies that gives microfinance services to issue the said services without charging interest.