WITHHOLDING TAX 5 TH & 6 TH OCTOBER 2016 ITA, DAR ES SALAAM TRA - - PowerPoint PPT Presentation

TANZANIA REVENUE AUTHORITY TRA

TANZANIA REVENUE AUTHORITY ISO: 9001:2008 Certified SEMINAR PRESENTATION ON WITHHOLDING TAX 5TH & 6TH OCTOBER 2016 ITA, DAR ES SALAAM

TANZANIA REVENUE AUTHORITY TRA

Agenda



Introduction



Imposition of Withholding tax – Sec. 81, 82, 83 & 83A



Withholding Tax Base



Filing Returns and Payments



Consequences for failure to pay and file returns



Role of accountants and Supplies Officers



Conclusion

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TANZANIA REVENUE AUTHORITY TRA

1.0 Introductions

Your Facilitator Beatus Nchota Manager – Tax Audit Domestic Revenue Department – Head Office Email: bnchota@tra.go.tz Participants Introductions Who is who?

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TANZANIA REVENUE AUTHORITY TRA

Withholding Tax

 Is a tax that is required to be withheld by the person

making “payment” of certain amounts to another person in respect of goods supplied or services rendered

 It is a tax deducted at source because the person making

payment has an obligation to withhold

 Payment for these purposes is defined in the ITA 2004 as

follows: “Payment includes the transfer of assets or money, the transfer or decrease of a liability, the provision of services, the use or availability for use of money or asset and the creation of an asset in another person”

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TANZANIA REVENUE AUTHORITY TRA

Withholding Tax Concepts

 Withholdee- A person receiving or entitled to receive a

payment from which income tax is required to be withheld.

 Withholding Agent - A person required to withhold

income tax from a payment made to a withholdee.

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TANZANIA REVENUE AUTHORITY TRA

Types of Withholding Taxes

 Final Withholding Taxes are taxes in which the

withholdee cannot claim any tax credit when calculating the income tax payable for a year of income. (Sec. 86 of ITA, 2004)

 Non Final Withholding Taxes: are taxes which the

withholdee is entitled for a tax credit an amount equal to the tax treated as paid for the year of income in which the amount is derived.

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TANZANIA REVENUE AUTHORITY TRA

Imposition of withholding tax

 Payer must be resident  Payment should have a source in the URT (Sec. 68 & 69)

Note: For that all government institutions are resident corporations hence qualify for withholding taxes obligations

 In accordance of Section 81,82,83 and 83A of ITA, 2004

tax shall be withheld from the payment of the following;

 Employment income  Investment returns  Service fees  Goods and services

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TANZANIA REVENUE AUTHORITY TRA

Employment income – Sec. 81

 A resident employer is required to withhold tax when

making payment of chargeable income to an employee.

 Tax is deducted at the statutory personal income tax

rates, with a top marginal rate of 30% applying to amounts in excess of TZS 720,000 per month. For non- resident employees a flat rate of 15% applies (Refer TRA Tax Data Card)

 Directors’ fee (Non executive) - a flat rate of 15% applies

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TANZANIA REVENUE AUTHORITY TRA

Included Payments – Sec. 7(2)

 Payments of wages, salary, payment in lieu of leave, fees,

commissions, bonuses, gratuity or any subsistence travelling entertainment or other allowance received in respect of employment or service rendered

 Payments providing any discharge or reimbursement of

expenditure incurred by the individual or an associate of the individual

 Payments for the individual's agreement to any

conditions of the employment

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TANZANIA REVENUE AUTHORITY TRA

Included Payments - Sec. 7(2)…Cont

 Retirement contributions and retirement payments  Payment for redundancy or loss or termination of

employment

 Other payment made in respect of employment including

benefits in kind quantified in accordance with section 27

• f the ITA, 2004

 Other amounts as may be required to be included as per

the rules governing amounts used in calculating the income tax base

 Annual director’s fees payable to a director other than a

full time service director

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TANZANIA REVENUE AUTHORITY TRA

Excluded Amounts – Sec. 7(3)

 Exempt amounts and final withholding payments;  On premises cafeteria services that are available on a

non-discriminatory basis;

 Any subsistence, travelling, entertainment or other

allowance that represents solely the reimbursement to the recipient of any amount expended by him wholly and exclusively in the production of his income from his employment or services rendered;

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TANZANIA REVENUE AUTHORITY TRA

Excluded Amounts – Sec. 7(3)…Cont

 Medical services, payment for medical services, and

payments for insurance for medical services to the extent that the services or payments are:

• Available with respect to medical treatment of the

individual, spouse of the individual and up to four of their children; and

• Made available by the employer (and any associate of

the employer conducting a similar or related business) on a non-discriminatory basis;

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TANZANIA REVENUE AUTHORITY TRA

Excluded Amounts – Sec. 7(3)…Cont

 Benefits derived from the use of motor vehicle where the

employer does not claim any deduction or relief in relation to the ownership, maintenance or operation of the vehicle;

 Benefit derived from the use of residential premises by

an employee of the Government or any institution whose budget is fully or substantially out of Government budget subvention;

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TANZANIA REVENUE AUTHORITY TRA

Excluded Amounts – Sec. 7(3)…Cont

 Payment providing passage of the individual, spouse of

the individual and up to four of their children to or from a place of employment which correspond to the actual travelling cost where the individual is domiciled more than 20 miles from the place of employment and is recruited or engaged for employment solely in the service

• f the employer at the place of employment;

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TANZANIA REVENUE AUTHORITY TRA

Excluded Amounts – Sec. 7(3)…Cont

 Payment that it is unreasonable or administratively

impracticable for the employer to account for or to allocate to their recipients.

 Allowance payable to an employee who offers intramural

private services to patients in a public hospital; and

 Retirement contributions and retirement payments

exempted under the Public Service Retirement Benefits Act

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TANZANIA REVENUE AUTHORITY TRA

Excluded Amounts – Sec 7(3)…Cont

 Housing allowance, transport allowance, responsibility

allowance, extra duty allowance, overtime allowance, hardship allowance and honoraria payable to an employee of the Government or an institution the budget of which is fully or substantially paid out

• f Government budget subvention.

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TANZANIA REVENUE AUTHORITY TRA

Important Note About Payroll Accounting

 Principles of deduction

• Taxable income

Do not deduct non allowable deductions such as loan repayment, health insurance, trade union contributions

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TANZANIA REVENUE AUTHORITY TRA

Illustrative examples on Terminal Benefits and Redundancy Payments

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TANZANIA REVENUE AUTHORITY TRA

Investment returns – Sec. 82

 Tax

is withheld from investment returns such as dividend, interest, natural resource payment, rent or royalty.

 The payment must have a source in the United Republic.  Based on the nature of payment, source rules are

expounded under section 68 & 69 of ITA, 2004

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TANZANIA REVENUE AUTHORITY TRA

Rates for withholding tax – Sec. 82

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Category of payment To resident To Non - resident Dividend  Where payer is listed on DSM Stock Exchange  Where a resident Company holds 25% shares or more  Dividend from other corporations 5% 5% 10% 5% N/A 10% Interest 10% 10% Rent  Land and buildings  Aircraft lease  Other assets 10% 10% N/A 10% 10% 15% Natural resource payment 15% 15% Royalties 15% 15%

TANZANIA REVENUE AUTHORITY TRA

Exemptions to Sec 82

 Payments

made by individuals unless made in conducting a business;

 Interest paid to a resident financial institution  Payments

that are exempt amounts (Exempt payments are expounded under the Second Schedule of the ITA, 2004)

 Rent paid to a resident person for the use of an asset

• ther than land or buildings or aircraft

 Interest payable to a non-resident bank by a strategic

investor

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TANZANIA REVENUE AUTHORITY TRA

Withholding Tax on Goods & Services – Sec. 83 and 83A

Tax is withheld on payments made in respect of:



Service Fee with a source in URT paid to a non resident



Service fee for provision of professional services paid to a resident person



Management and Technical Service Fee paid to a resident person by person engaged in extractive industry (Mining, Oil and Gas)



Insurance premium with a source in URT paid to a non resident



Money transfer commission to a money transfer agent



Payments made for the supply of Goods to the Government or its institutions whose budget is wholly or substantially financed by the Government budget subvention

TANZANIA REVENUE AUTHORITY TRA

WHT on Professional services

“Professional Service” means services rendered by a person licensed as a practitioner by any recognized professional body and shall include other services or activities of an independent business character including consultancy, legal, architectural, engineering, supervisory, accounting, auditing medical artistic, survey, theatrical performance, sports, exhibition, private security services, private investigation and consultancies in various disciplines or any entertainment held or given other than those for remuneration under contract of employment–Sec 83(3)

TANZANIA REVENUE AUTHORITY TRA

Rates for withholding tax – Sec. 83

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Category of payment To residen t To Non - resident

Supply of Goods to government or its institution 2% N/A Service Fee 5% 15% Management and Technical Service Fee (Mining, oil and gas) 5% 15% Money transfer commission 10% N/A Insurance Premium 0% 5%

TANZANIA REVENUE AUTHORITY TRA

Exemptions to Sec 83

 Payments

made by individuals unless made in conducting a business; or

 Payments

that are exempt amounts (Exempt payments are expounded under the Second Schedule of the ITA, 2004)

TANZANIA REVENUE AUTHORITY TRA

Exempted Government Institutions (Second Schedule of the ITA, 2004)

 Amounts

derived by the Government (including Executive Agency established under the Executive Agencies Act, 1997) or any local authority of the United Republic

• r

by the Revolutionary Government

• f

Zanzibar or any local authority of Zanzibar except amounts derived from business activities that are unrelated to the functions of government;

 Therefore it follows that amounts derived by government

institutions on business related activities are subjected to WHT

 Refer detailed list of exempt amounts under the

Second Schedule of the ITA, 2004)

TANZANIA REVENUE AUTHORITY TRA

Withholding Tax Base

 Withholding Tax shall be computed on the amount

exclusive of VAT without deduction of expenses or allowances

 Where services are provided and payments are made to

the withholdee of cash plus provision of benefits and facilities the withholding tax base shall include the amount paid for the benefits or facilities

TANZANIA REVENUE AUTHORITY TRA

Example 1

 ABC Limited invoice in relation to Consultancy services

provided to Dar es Salaam City Council has the following amount:

 W/Tax will be charged on TSZ 10,000,000/=  W/Tax is 5%*10,0000,000/=

= 500,000/= DESCRIPTION AMOUNT Service Fee

10,000,000/=

VAT

1,800,000/=

Total

11,800,000/=

TANZANIA REVENUE AUTHORITY TRA

Example 2

 FLG Consultants were hired by Kinondoni District

Council to carry consultancy work. The contract terms involved payment of accommodation in a 5 star hotel for 4 staff of FLG for 20 days by the client. The contract price was quoted at TZS 150,000,000/=. The Client Paid a total of TZS 16,000,000/= as Accommodation for FLG staff stay at Serena Hotel.

TANZANIA REVENUE AUTHORITY TRA

Example 2 - Cont…

…After completion of work, FLG raised an Invoice with the following amount:

 W/Tax Base

Consultancy fee 150,000,000/= Accommodation to staff 16,000,000/= W/Tax Base 166,000,000/= Description Amount Consultancy Fee 150,000,000/= VAT 27,000,000/= Total 177,000,000/=

TANZANIA REVENUE AUTHORITY TRA

Withholding Tax Base for Mixed Supplies (Goods & Services)

 If the invoice raised involves both supply of Goods and

Services, a separation must be made for value for Goods and Services

 If payment involves Construction Works, the payment

subject to WHT shall be based on the ratio of 3:2 for Materials and Services respectively

TANZANIA REVENUE AUTHORITY TRA

Example 3

 XYZ was hired to conduct a Survey for Ministry of

• Education. The contract involved also supply of Books

and Stationeries where there was a need. After completing the work, XYZ raised an invoice with the following details DESCRITION AMOUNT Survey Fee 70,000,000/= Books and Stationeries 30,000,000/= VAT 18,000,000/= Total 118,000,000/=

TANZANIA REVENUE AUTHORITY TRA

Example 3…Cont

 W/Tax will be charged as follows:

• W/Tax on Goods (2%*30,000,000/=)

= 600,000/=

• W/Tax on Service (5%*70,000,000/=)

= 3,500,000/= Note: Failure to separate the figures in respect of the value for goods and services attracts WHT at the rate of 5% on the entire amount (5%*100,000,000) = 5,000,000/=

TANZANIA REVENUE AUTHORITY TRA

Example 4

 Mgeni Contractors were awarded a contract to construct

a new office for Ministry of Finance in Dodoma. One of the invoice raised based on percentage of completion had the following amount: DESCRIPTION AMOUNT Value of work 600,000,000/= VAT 108,000,000/= Total 708,000,000/=

TANZANIA REVENUE AUTHORITY TRA

Example 4…Cont

 W/Tax Base 600,000,000/=

• W/Tax on Goods (2%*360,000,000/=)

= 7,200,000/=

• W/Tax on Services (5%*240,000,000/=)

= 12,000,000/= Material Service 3 2 3/5*600,000,000/= 2/5*600,000,000/= 360,000,000/= 240,000,000/=

TANZANIA REVENUE AUTHORITY TRA

Time for Payment & Filing – Sec. 84

Payment 7 days after the end of the month of deduction Filing of returns 30 days after the end of each 6-month calendar period

TANZANIA REVENUE AUTHORITY TRA

Filing Statement of Taxes Withheld – Sec. 84

Every withholding agent shall file to TRA within 30 days after the end of every each six month calendar period a statement of taxes withheld on



Goods



Service fee



Interest



Employment taxes – PAYE



Dividends



Rent



Royalty



Money transfer commission

TANZANIA REVENUE AUTHORITY TRA

Tax Return - Statement of Taxes Withheld

All tax return forms can be downloaded through www.tra.go.tz

TANZANIA REVENUE AUTHORITY TRA

Withholding Certificates – Sec. 85

 A withholding agent is required to prepare and serve a

withholding certificate to all withholdee’s separately for each month within 30 days after the end of the month of deduction

TANZANIA REVENUE AUTHORITY TRA

Consequences for failure to withhold – Sec. 84

 A withholding agent who fails to withhold income tax in

accordance with the law must nevertheless pay the tax that should have been withheld in the same manner and at the same time as tax that is withheld together with interest

 A withholding agent who fails to withhold income tax but

pays the tax that should have been withheld to TRA shall be entitled to recover an equal amount from the withheldee

TANZANIA REVENUE AUTHORITY TRA

Consequences for failure to file returns – Sec. 78 of TAA,2015

 A withholding agent

who fails to file a tax return (statement of taxes withheld and paid ) on due date shall be liable for a penalty for each month or part of the month during which the failure continues calculated as the higher of

 2.5% of the amount assessable per tax return less the amount of

tax paid at the start of the period towards that amount or

 Tshs 225,000 in case of a body corporate or Tshs 75,000 for an

individual

TANZANIA REVENUE AUTHORITY TRA

Submission of Contract Documents to TRA

In compliance with regulation 109

• f

The Public Procurement Act No. 7 of 2011 published through GN. No. 446 of 2013 which states that

“The Accounting Officer shall ensure that copies of all contracts are sent to the Authority, Attorney General, Controller and Auditor General, Internal Auditor General or Government Asset Management Division as the case may be, and the Tanzania Revenue Authority within thirty days from the date of signing the contract”

TANZANIA REVENUE AUTHORITY TRA

Conclusion

 Accountants and Procurement

Officers play a key role in enforcing compliance to tax laws

 Accountants are urged to work

in collaboration with vote holders to enforce W/Tax requirements

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Key Issues to Remember



Ensure all payments are made upon submission

• f

fiscalised Invoices/Receipts



Submission of contract documents to TRA



Payment of WHT (Both PAYE and Other W/Taxes) to TRA within 7 days after the end

• f

the month

• f

deduction



Submission

• f

WHT Certificates signed by withholdee and withholder to TRA evidencing payment and serve a copy of certificate to the withhloldee



Filing WHT returns within 30 days after the end of every six calendar months

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Q&A?

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Together We Build Our Nation

Expectation of the Government is to increase revenue, to fully fund its budget through domestic funding to carter for national

• development. We are all obliged to pay tax and ensure compliance

to tax laws as a sign of patriotism. Let’s play our part.

TANZANIA REVENUE AUTHORITY TRA

“Light Tomorrow with Today” Thank You

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TANZANIA REVENUE AUTHORITY TRA

Note: These slides were prepared and presented for illustration purposes and do not represent the opinion of the Authority nor

• verride the provisions of the laid tax laws. Revisit the provision of the

tax laws for clear interpretation of the tax laws

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