Stamp duty is one of few taxes that you may not encounter as often in Tanzania. It is a tax that can easily be overlooked. Not surprising, the penalty regime for non-compliance with stamp duty is one of the fiercest in monetary terms.
The penalty can go up to ten times the principal amount of stamp duty that was due but not paid on time!
Stamp duty applies to instruments specified in the stamp duty law (The Stamp Duty Act, Cap 189). The stamp duty law defines an “instrument” to include every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded. The law requires the specified instruments to be stamped within 30 days from the date of signing (execution).
Lease or rental agreements for residential or commercial buildings are probably the most common type of instruments that are subject to stamp duty. However, it is not uncommon to find most of these agreements are not stamped. From my experience, in most cases, the parties to those agreements are not aware of the stamp duty requirements. Even in cases where the parties are aware of the requirements, there is a problem of procrastination.
Who should pay stamp duty?
A rental agreement would normally have two parties, the landlord, and the tenant. The question is who, between the two, should pay the stamp duty? The stamp duty law provides a flexibility on the two parties to decide who should pay. For parties that are aware of the stamp duty requirement, normally they would put a clause in the agreement to specifically assign the obligation to pay stamp duty. If the rental agreement does not specify who should pay, the stamp duty law places that obligation to the tenant.
For rental agreements, the stamp duty is 1 percent of the annual rental amount. In practice, before stamp duty is paid, TRA requires a copy of a rental agreement to be sent to the TRA offices so that they can assess the tax. TRA also requires the rental agreements to be signed and certified by an advocate or a similar legal officer (notaries). Once the assessed stamp duty has been paid, relevant copies of the rental agreement are sent to TRA for stamping. This process needs to happen with 30 days from the date the rental agreement was signed.
As a tenant of the building, you need to ensure that the rental agreement is stamped. The risk of not stamping the rental agreement is more on the tenant than the landlord, as in most cases rental agreements do not specifically assign the responsibility to the landlord.
Mr Maurus is a Partner with Auditax International