MANAGING TAX RISKS:Proposed tax reforms for 2017/18

Last week we reviewed some proposed tax reforms presented by the Minister for Finance in his 2017/18 Budget Speech. In this article, we continue with the commentary on the other proposed tax reforms.

TRA’s powers to waive interest reinstated

Generally, late payment of taxes attracts interest. If good reasons exist, the interest can be waived. Through the Finance Act, 2016; (1) the power to waive the interest was moved from the Commissioner General (‘CG’) of TRA to the Minister of Finance; and (2) the waiver was capped at 50 percent. Giving powers to the Minister served to complicate tax administration. Decisions of the CG can be objected or appealed by taxpayers. What about the decisions of the Minister? There is no guidance on how taxpayers should apply to the Minister for waiver and what should happen if taxpayers are aggrieved by the decision(s) of the Minister. The proposed reform, rightly, reinstates the powers to the CG. This simplifies tax administration.

Tax relief on carriage of horticulture products

Foreign transport operator or charterer without a permanent establishment in Tanzania is subject to a 5% percent single installment tax on gross receipts for carriage of passengers or moveable tangible assets. Carriage of fish from Tanzania is exempt from the tax. The proposed reform extends the exemption to carriage of horticulture products (e.g. vegetables, fruits and flowers). This move is likely to reduce cost and encourage export of the horticulture products.

Ring-fencing of losses from derivatives

A derivative is a contract whose value is based on an agreed-upon underlying instrument like bonds, commodities, currencies, interest rates, and shares. Futures contracts, forward contracts, options and swaps are common derivatives used for speculating and hedging purposes. Speculators seek to profit from changing prices in the underlying instrument but can also end up in losses. The proposed reform seeks to restrict deduction of losses from speculative transactions only from incomes derived from speculative transactions. This will protect the income tax base by isolating the much riskier incomes from the lower risk income streams.

Premiums for re-insurance taxable in Tanzania

Re-insurance is insurance that is purchased by an insurance company from one or more insurance companies (the “reinsurer”) as a means of risk management. The source rules under the income tax law subject both the proceeds from general insurance and premium payments for general insurance to income tax in Tanzania. But the source rules were silent on re-insurance business and provided avenue for possible base erosion and profit shifting arrangements. The proposal seeks to extend the source rules to cover re-insurance proceeds and premiums regardless of whether the insured or re-insured risk is in Tanzania. Proceeds and premiums from re-insurance will be subjected to income tax in Tanzania.

VAT returns due date clarified

The due date for monthly VAT returns and payments was reduced by the Finance Act 2016 from a month to 20 days after month end. The measure increased pressure on taxpayers in terms their accounting and cashflows management. What if the 20th day falls on a public holiday or weekend (sometimes a public holiday and a weekend are consecutive)? The VAT law is not very clear and hence uncertainty to some taxpayers. The proposed reform, rightly, clarify that if the 20th day falls on a weekend or a public holiday, then the first working day following that weekend or public holiday becomes the due date.

My next article will cover property tax, advertisement fee (billboards and posters) and machinga’s identity cards. There are significant reforms in respect of the special rules for taxing charitable organisations for which I will write a separate article.