ISO: 9001:2008 Certified SEMINAR PRESENTATION ON WITHHOLDING TAX 5 TH & 6 TH OCTOBER 2016 ITA, DAR ES SALAAM
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 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? 3
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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 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. 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. 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 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 nonresident employees a flat rate of 15% applies (Refer Tax Data Card) Directors fee (Non executive) - a flat rate of 15% applies 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 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 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; 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; 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; 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; 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 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. 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 18
Illustrative examples on Terminal Benefits and Redundancy Payments 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 20
Rates for withholding tax Sec. 82 Category of payment Dividend Where payer is listed on DSM Stock Exchange Where a resident Company holds 25% shares or more Dividend from other corporations To resident 5% 5% 10% To Non - resident 5% N/A 10% Interest 10% 10% Rent Land and buildings Aircraft lease Other assets 10% 10% N/A 10% 10% 15% Natural resource payment 15% 15% Royalties 15% 15% 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 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
WHT on Professional services Professional Service means services rendered by a person licensed as a practitioner by any recognized professional body and shall include other services or activities of an independent business character including consultancy, legal, architectural, engineering, supervisory, accounting, auditing medical artistic, survey, theatrical performance, sports, exhibition, private security services, private investigation and consultancies in various disciplines or any entertainment held or given other than those for remuneration under contract of employment Sec 83(3)
Rates for withholding tax Sec. 83 Category of payment To residen t To Non - resident Supply of Goods to government or its 2% N/A institution Service Fee 5% 15% Management and Technical Service Fee (Mining, oil and gas) 5% 15% Money transfer commission 10% N/A Insurance Premium 0% 5% 25
Exemptions to Sec 83 Payments made by individuals unless made in conducting a business; or Payments that are exempt amounts (Exempt payments are expounded under the Second Schedule of the ITA, 2004)
Exempted Government Institutions (Second Schedule of the ITA, 2004) Amounts derived by the Government (including Executive Agency established under the Executive Agencies Act, 1997) or any local authority of the United Republic or by the Revolutionary Government of Zanzibar or any local authority of Zanzibar except amounts derived from business activities that are unrelated to the functions of government; Therefore it follows that amounts derived by government institutions on business related activities are subjected to WHT Refer detailed list of exempt amounts under the Second Schedule of the ITA, 2004)
Withholding Tax Base Withholding Tax shall be computed on the amount exclusive of VAT without deduction of expenses or allowances Where services are provided and payments are made to the withholdee of cash plus provision of benefits and facilities the withholding tax base shall include the amount paid for the benefits or facilities
Example 1 ABC Limited invoice in relation to Consultancy services provided to Dar es Salaam City Council has the following amount: DESCRIPTION AMOUNT Service Fee 10,000,000/= VAT 1,800,000/= Total 11,800,000/= W/Tax will be charged on TSZ 10,000,000/= W/Tax is 5%*10,0000,000/= = 500,000/=
Example 2 FLG Consultants were hired by Kinondoni District Council to carry consultancy work. The contract terms involved payment of accommodation in a 5 star hotel for 4 staff of FLG for 20 days by the client. The contract price was quoted at TZS 150,000,000/=. The Client Paid a total of TZS 16,000,000/= as Accommodation for FLG staff stay at Serena Hotel.
Example 2 - Cont After completion of work, FLG raised an Invoice with the following amount: Description W/Tax Base Amount Consultancy Fee 150,000,000/= VAT 27,000,000/= Total 177,000,000/= Consultancy fee 150,000,000/= Accommodation to staff 16,000,000/= W/Tax Base 166,000,000/=
Withholding Tax Base for Mixed Supplies (Goods & Services) If the invoice raised involves both supply of Goods and Services, a separation must be made for value for Goods and Services If payment involves Construction Works, the payment subject to WHT shall be based on the ratio of 3:2 for Materials and Services respectively
Example 3 XYZ was hired to conduct a Survey for Ministry of Education. The contract involved also supply of Books and Stationeries where there was a need. After completing the work, XYZ raised an invoice with the following details DESCRITION AMOUNT Survey Fee 70,000,000/= Books and Stationeries 30,000,000/= VAT 18,000,000/= Total 118,000,000/=
Example 3 Cont W/Tax will be charged as follows: W/Tax on Goods (2%*30,000,000/=) = 600,000/= W/Tax on Service (5%*70,000,000/=) Note: = 3,500,000/= Failure to separate the figures in respect of the value for goods and services attracts WHT at the rate of 5% on the entire amount (5%*100,000,000) = 5,000,000/=
Example 4 Mgeni Contractors were awarded a contract to construct a new office for Ministry of Finance in Dodoma. One of the invoice raised based on percentage of completion had the following amount: DESCRIPTION AMOUNT Value of work 600,000,000/= VAT 108,000,000/= Total 708,000,000/=
Example 4 Cont W/Tax Base 600,000,000/= Material Service 3 2 3/5*600,000,000/= 2/5*600,000,000/= 360,000,000/= 240,000,000/= W/Tax on Goods (2%*360,000,000/=) = 7,200,000/= W/Tax on Services (5%*240,000,000/=) = 12,000,000/=
Time for Payment & Filing Sec. 84 Payment 7 days after the end of the month of deduction Filing of returns 30 days after the end of each 6-month calendar period
Filing Statement of Taxes Withheld Sec. 84 Every withholding agent shall file to within 30 days after the end of every each six month calendar period a statement of taxes withheld on Goods Service fee Interest Employment taxes PAYE Dividends Rent Royalty Money transfer commission
Tax Return - Statement of Taxes Withheld All tax return forms can be downloaded through www.tra.go.tz
Withholding Certificates Sec. 85 A withholding agent is required to prepare and serve a withholding certificate to all withholdee s separately for each month within 30 days after the end of the month of deduction
Consequences for failure to withhold Sec. 84 A withholding agent who fails to withhold income tax in accordance with the law must nevertheless pay the tax that should have been withheld in the same manner and at the same time as tax that is withheld together with interest A withholding agent who fails to withhold income tax but pays the tax that should have been withheld to shall be entitled to recover an equal amount from the withheldee
Consequences for failure to file returns Sec. 78 of TAA,2015 A withholding agent who fails to file a tax return (statement of taxes withheld and paid ) on due date shall be liable for a penalty for each month or part of the month during which the failure continues calculated as the higher of 2.5% of the amount assessable per tax return less the amount of tax paid at the start of the period towards that amount or Tshs 225,000 in case of a body corporate or Tshs 75,000 for an individual
Submission of Contract Documents to In compliance with regulation 109 of The Public Procurement Act No. 7 of 2011 published through GN. No. 446 of 2013 which states that The Accounting Officer shall ensure that copies of all contracts are sent to the Authority, Attorney General, Controller and Auditor General, Internal Auditor General or Government Asset Management Division as the case may be, and the Tanzania Revenue Authority within thirty days from the date of signing the contract
Conclusion Accountants and Procurement Officers play a key role in enforcing compliance to tax laws Accountants are urged to work in collaboration with vote holders to enforce W/Tax requirements 44
Key Issues to Remember Ensure all payments are made upon submission of fiscalised Invoices/Receipts Submission of contract documents to Payment of WHT (Both PAYE and Other W/Taxes) to within 7 days after the end of the month of deduction Submission of WHT Certificates signed by withholdee and withholder to evidencing payment and serve a copy of certificate to the withhloldee Filing WHT returns within 30 days after the end of every six calendar months 45
Q&A? 46
Together We Build Our Nation Expectation of the Government is to increase revenue, to fully fund its budget through domestic funding to carter for national development. We are all obliged to pay tax and ensure compliance to tax laws as a sign of patriotism. Let s play our part. 47
Light Tomorrow with Today Thank You 48
Note: These slides were prepared and presented for illustration purposes and do not represent the opinion of the Authority nor override the provisions of the laid tax laws. Revisit the provision of the tax laws for clear interpretation of the tax laws 49