TANZANIA REVENUE AUTHORITY ISO: 9001:2008 Certified SEMINAR PRESENTATION ON WITHHOLDING TAX 5 TH & 6 TH OCTOBER 2016 ITA, DAR ES SALAAM TRA TANZANIA REVENUE AUTHORITY
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 TRA TANZANIA REVENUE AUTHORITY 2
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? TRA TANZANIA REVENUE AUTHORITY 3
TRA TANZANIA REVENUE AUTHORITY 4
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 ” TRA TANZANIA REVENUE AUTHORITY 5
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. TRA TANZANIA REVENUE AUTHORITY 6
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. TRA TANZANIA REVENUE AUTHORITY 7
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 TRA TANZANIA REVENUE AUTHORITY 8
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 TRA TANZANIA REVENUE AUTHORITY 9
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 TRA TANZANIA REVENUE AUTHORITY 10
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 of 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 TRA TANZANIA REVENUE AUTHORITY 11
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; TRA TANZANIA REVENUE AUTHORITY 12
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; TRA TANZANIA REVENUE AUTHORITY 13
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; TRA TANZANIA REVENUE AUTHORITY 14
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 of the employer at the place of employment; TRA TANZANIA REVENUE AUTHORITY 15
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 TRA TANZANIA REVENUE AUTHORITY 16
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 of Government budget subvention. TRA TANZANIA REVENUE AUTHORITY 17
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 TRA TANZANIA REVENUE AUTHORITY 18
Illustrative examples on Terminal Benefits and Redundancy Payments TRA TANZANIA REVENUE AUTHORITY 19
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 TRA TANZANIA REVENUE AUTHORITY 20
Rates for withholding tax – Sec. 82 Category of payment To To Non - resident resident Dividend Where payer is listed on DSM Stock 5% 5% Exchange Where a resident Company holds 25% 5% N/A shares or more Dividend from other corporations 10% 10% Interest 10% 10% Rent Land and buildings 10% 10% Aircraft lease 10% 10% Other assets N/A 15% Natural resource payment 15% 15% Royalties 15% 15% TRA TANZANIA REVENUE AUTHORITY 21
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 other than land or buildings or aircraft Interest payable to a non-resident bank by a strategic investor TRA TANZANIA REVENUE AUTHORITY 22
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 TRA TANZANIA REVENUE AUTHORITY
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