Tanzania International Tax Law: Understanding the import taxation regime (2)

Saturday January 11 2020



PAUL KIBUUKA

tax@paulkibuuka.com

PAUL KIBUUKA tax@paulkibuuka.com 

By PAUL KIBUUKA

In last week’s part one of this mini-series on the Tanzanian import taxation regime, we noted that import taxes comprise of import duties (customs duties), excise duties, and value added tax (VAT) on imports. Before we get into the nitty-gritty of these taxes in this week’s part two of the mini-series, it helps to first understand the structure of tax administration in Tanzania.

In brief, the Tanzania Revenue Authority (TRA) is the revenue service of Tanzania responsible for assessing, collecting, and enforcing various taxes of the Central Government, while the Zanzibar Revenue Board (ZRB) is responsible for administering domestic consumption taxes in the Zanzibar archipelago.

Tanzania’s 1997 Constitution recognizes the two parts of the Union, namely Mainland Tanzania (formerly Tanganyika) and Zanzibar (also known as Unguja).

Consequently, there are ‘union taxes’, which are collected by the TRA; and ‘non-union taxes’, which are collected by the ZRB—although the TRA also collects non-union taxes e.g., VAT.

Union taxes are the income taxes imposed under the Income Tax Act, 2004, and the customs duties imposed under the East African Community Customs Management Act, 2004.

Non-union taxes are the domestic consumption taxes, including VAT and excise duties. VAT in Mainland Tanzania is administered by the TRA under the Value Added Tax Act, 2014. In Zanzibar, VAT is administered by the ZRB under the Value Added Tax Act No. 4 of 1998.

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Now, let’s get down to the nitty-gritty of import taxes.

Import duty is a tax that is charged on imported goods. It is computed as an ad valorem rate on customs value (i.e. CIF: Cost, Insurance and Freight) of goods imported into Tanzania. As a member of the East African Community (EAC)—which became a Customs Union on 1 January 2005 on the implementation of the East African Customs Union Protocol—Tanzania agreed with other EAC countries on a common external tariff (CET).

Under the CET, imports from non-EAC countries are subjected to the same import duty rates when sold to any EAC-member country.

Import duty is collected before the goods leave the entry point into Tanzania and/or bonded warehouses. Tanzania is also a member of the Southern African Development Community (SADC), so the country implements two CETs—one for the EAC and the other for SADC. Subject to meeting the Rules of Origin criteria, goods originating in SADC and EAC have preferential or nil import duty rates.

The Excise (Management and Tariff) Act, Cap 174, provides for, inter alia, the collection excise duties in Tanzania. Excise duty is a duty that is charged on specific goods and services manufactured locally or imported into Tanzania on varying rates. Excise duty rates apply on specific or ad valorem basis.

One of the policy rationales for imposing excise duties is to tax selected goods deemed harmful to Tanzanian society in order to create an incentive to reduce negative externalities. Cigarettes, for instance, have a harmful spillover effect, for which no compensation is paid.

VAT is charged on both locally produced goods and services and on imports. The time of payment and collection of VAT as well as the determination of the value of imports for the purpose of VAT is provided for under the Value Added Tax Act, 2014, and the EACCMA 2004.

The standard rate of VAT is 18 percent; however, depending on the industry, there are numerous exempt supplies. VAT is payable on taxable imports at the time of importation, together with any payable import duty and customs duty.

It’s possible to defer the VAT payable for capital goods imported in Tanzania if the importer follows prescribed procedures. In respect of taxable imported services, a ‘reverse charge’ mechanism applies to a recipient in Tanzania who must account for VAT on the services.

The mechanism applies where the taxpayer has exempt supplies of 10 percent or more out of total supplies. The fact that some supplies are exempt from VAT means that the TRA has to be vigilant to ensure that there is no dumping in the Tanzanian economy of such supplies.

Most imports to Tanzania are also subject to the Railway Development Levy (RDL) of 1.5 percent (save for those items that are exempted under the Fifth Schedule to the EACCMA 2004), and the customs processing fee of 0.6 percent of the Free on Board (FOB) value.

Charged and collected under the Railways Act, Cap 170, the RDL applies on customs value of imported goods, and it is thought to be impacting the cost of imports into Tanzania. The costs cascade down the supply chain and affect the lives of wananchi.

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Mr Paul Kibuuka (tax@paulkibuuka.com), a tax and corporate lawyer and tax poli-cy analyst, is the chief execu-tive of Isidora & Company and the executive director of the Taxation and Development Research Bureau