Tax system in Tanzania

Direct taxes

Direct taxes are taxes that are paid directly to the government by the taxpayer. The impact and incidence of direct taxes fall on the same person or entity. These taxes are levied on income, wealth, or assets and are not passed on to others.

Examples of direct taxes in Tanzania include:

Income Tax

Income tax is levied on the earnings or profits of individuals, businesses, and organizations. It is imposed annually on all forms of income, including wages, salaries, rental income, and profits from business activities. This includes taxes such as Pay As You Earn (PAYE) for employees and taxes on corporate profits.

1. Corporate Tax: Corporate tax is levied on the profits made by companies and corporate entities in Tanzania. This tax is paid by businesses based on their net income after deducting allowable expenses.
2. Property Tax: This tax is imposed on the ownership of property, such as land, buildings, or real estate. The tax is paid by property owners, either individuals or corporations.
3. Capital Gains Tax: This tax is applied to the profit made from the sale of assets such as land, buildings, shares, and other investments that have appreciated in value. It is aimed at taxing profits that arise from the sale of assets, such as when someone sells a property at a higher price than it was purchased for.

Indirect taxes

Indirect taxes are taxes that are levied on goods and services rather than on income or wealth. The impact of indirect taxes falls on the consumer, but the incidence of the tax is passed to others, typically through the price of goods and services. These taxes are often hidden in the cost of products, and consumers are generally unaware of the exact amount they are paying.

Examples of indirect taxes in Tanzania include:

1. Value Added Tax (VAT): VAT is a tax applied to the sale of goods and services. It is a consumption tax, meaning that it is passed on to the end consumer.
2. Excise Duty: Excise duty is a tax imposed on specific goods, particularly those that are either luxury items or harmful to health, such as alcohol, tobacco, and petroleum products.
3. Customs Duty: Customs duties are taxes levied on goods when they are imported into or exported from the country. They are designed to protect local industries and raise government revenue.
4. Stamp Duty: Stamp duty is a tax imposed on legal documents that are involved in financial transactions such as the transfer of property, shares, or mortgages.

The Tanzania Revenue Authority (TRA) is the central body responsible for administering taxes in Tanzania. TRA is tasked with collecting taxes, enforcing tax laws, and ensuring compliance with the country's tax policies.

The authority operates under the Ministry of Finance.

TRA is divided into several departments for efficiency:

1. Domestic Revenue: This department handles taxes related to individual income, corporate profits, and property taxes.
2. Customs and Excise: This department deals with import and export duties as well as excise duties on certain goods.
3. Large Taxpayers: This unit is dedicated to handling the tax affairs of large businesses and organizations.

The main sources of revenue were as follows:

1. VAT on Domestic Sales: 14.8%: The largest source of revenue, VAT on domestic goods and services plays a critical role in the country's finances.
2. VAT on Imports: 14.5%: This tax, levied on imported goods, is also a significant contributor to the government's income.
3. Income Tax (PAYE): 12.3%: This represents the tax collected from individuals through the PAYE system, which is deducted from salaries.
4. Corporate Tax: 12.1%: Corporate income tax is collected from businesses based on their profits.
5. Excise Duty (Imports): 8.2%: Taxes on imported goods, especially luxury items and harmful products, contribute a significant portion.
6. Import Duty: 7.4%: Customs duties are levied on imported goods and are an important part of the tax revenue.