Of recent, thing appear to be moving so fast in the tax space in Tanzania. My previous two articles discussed the new transfer pricing guidelines issued by the Commissioner –General of the Tanzania Revenue Authority (TRA) last month. But something bigger has just come.
No more paperwork for income tax filling in Tanzania! On August 6, 2020, TRA envied its new e-filing system. This article briefly highlights the pertinent issues for the new e-filing system for tax returns in Tanzania.
Just as a background, Tanzania generally follows a self-assessment system (SAS). Filing of a tax return by a tax payer is a key component in operating SAS. Under SAS a tax payer is expected to accurately self-assess his tax liability, declare it (file a tax return) and then settle the tax liability (make tax payment) within the time prescribed by the tax laws. The responsibility for proper accounting, assessment, and payment tax liability rest with the taxpayer. But this comes with risk and cost to the tax payer. A taxpayer needs resources and time to collect tax-relevant information, compute tax liability, prepare a return, submission of return to TRA and making payment.
And carries the risk of getting any or all these wrong. For example, making erroneous return, incorrect computation of tax (resulting into underpayment or overpayment of tax), late filing of return and late payment if tax, just to name a few, many attract interest and penalties.
Now a good e-filing system is particularly important and immensely helpful to both tax payers and the tax authority under the SAS. A good e-filing system should reduce both risk and cost associated with tax compliance, like those I just mentioned, so what is new in this new e-filing system? In the past with exception of VAT, customs, and withholding tax (certificates), the filing of all other taxes was manual. The new e-filing system covers income tax returns (estimates or final) for individuals and entities, PAYYE, and Skills and Development Levy.
This means that other taxes administered by TRA, such as excise duty, stamp duty, property tax, withholding tax (bi-annual returns), and advertisement fee are not coved by e-filing system. Some categories of tax payers are excluded from the requirement to use the new e-filing system. Individuals in business but under the presumptive income tax scheme (i.e. with less than sh100 million annual sales) are excluded.
For the e-filing system to operate as intended users of the system must be registered into the system. The regulation gives users 30 days (from the date TRA announced the system) to register and start using the e-filing system. Going by this user are expected to start using the e-filing system by September 5, 2020. The users include taxpayers, taxpayer’s auditors (audit firms and the auditors within those firms) and the representatives of the entities (e.g. directors, mangers or any other person) authorized to file the tax return on behalf of the entity. And having a taxpayer, identification number (TIN), national ID, an active phone number and an email address are some of the prerequisites for the users of the system. Interesting, e-filing of PAYE returns now requires employers to input the TINs of their employees. This means the all employees must now have TIN numbers. For employees currently without TIN, Employers have been advised to temporarily use TIN 999 999 999 but beyond December 31, 2020 9 as per recent TRA’s recent clarification).
The system is new and has several great features. There are a lot to learn about the new system. And this applies to all the users- the taxpayers and tax administrators. It is too early to predict how steep the learning curve will be for new system. But as always when it comes to tax, some errors can be costly. And so, learning fast about the new system is more prudent policy to follow.
By Shabu Maurus, Tax Partner, Auditax International.