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The Finance Act, 2020 is enacted following the passing of the Country’s budget for the year starting from 1^st July 2020 and ending of 30^th June 2021. The Finance Act, 2020 has amended various laws with a view to imposing and altering certain taxes, duties, levies and fees. Further, the Act has amended other written laws relating to the collection and management of public revenues.

Anti-Money Laundering Act (Cap 423)

The Anti-Money Laundering Act has been amended to widen the scope of circumstance within which a Reporting Person (hereinafter “the RP”) is required to ensure accurate and up to date records concerning their beneficial owners are obtained, verified, and maintained.

The scope now covers ‘arrangements’ which have been defined to include an action, agreement, course of conduct, dealing, promise, transaction, understanding or undertaking, whether express or implied, whether or not enforceable by legal proceedings and whether unilateral or involving more than one person.

The definition of the term arrangement has been widely and loosely defined to cast a wider net on activities that require the RP to obtain, verify and keep an accurate record.

Under the amendments the RP is now required, when dealing with entities or arrangements, to ensure that accurate and up to date records concerning their Beneficial Owners are obtained, verified and maintained. The Finance Act defines Beneficial Owners to be natural persons:

1. who directly or indirectly ultimately owns or exercises substantial control over an entity or an arrangement
2. who has a substantial economic interest in or receives substantial economic benefit from an entity or an arrangement directly or indirectly whether acting alone or together with other persons
3. on whose behalf an arrangement is conducted
4. who exercises significant control or influence over a person or arrangement through a formal or informal agreement.

The record to be obtained on Beneficial Owners include the following:

1. full name and any former or other name
2. date and place of birth
3. telephone number
4. nationality, national identity number, passport number or other appropriate identification and proof of identity.
5.  

The amendments also impose an obligation to provide official records relating to Beneficial Owners to the RP, on a director, manager, secretary, shareholder, partner, settlor, protector, consultant, care taker, member or council member or any other person handling or otherwise involved or responsible in the overall day to day management of the affairs of an entity or arrangement.

The Companies Act (Cap 212)

The Companies Act has been amended to enable the obtaining of information of beneficial owners who were initially not regulated under the Companies Act and whose information is vital for, among other things, tax purposes, control of anti-money laundering and terrorism financing.

Under the amendment, Companies are required to deliver to the Registrar of Companies together with memorandum a statement in a prescribed form containing, among others, the following accurate and up to date records of Beneficial Owners:

1. full name, including any former or other name
2. date and place of birth
3. telephone number
4. nationality, national identity number, passport number or other appropriate identification
5. residential, postal and email address if any
6. place of work and position held
7. nature of the interest including the details of the legal, financial, security, debenture or informal arrangement giving rise to the Beneficial Ownership
8. oath or affirmation as to whether the Beneficial Owner is a Politically Exposed Person or not.

The amendment defines a Beneficial Owner to be a natural person:

1. who directly or indirectly ultimately owns or exercises substantial control over an entity or an arrangement
2. who has a substantial economic interest in or receives substantial economic benefit from an entity or an arrangement directly or indirectly whether acting alone or together with other persons
3. on whose behalf an arrangement is conducted
4. who exercises significant control or influence over a person or arrangement through a formal or informal agreement.

The term ‘arrangement’ is defined to include an action, agreement, course of conduct, dealing, promise, transaction, understanding or undertaking, whether express or implied, whether or not enforceable by legal proceedings and whether unilateral or involving more than one person.

The term politically exposed person means a foreign individual entrusted with prominent public functions including heads of state or government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations or agencies.

Through the amendment the Registrar of Companies is required to establish a register of beneficial owners and Companies are also required to keep a register of members and beneficial owners. companies incorporated under the Companies Act before the 1^st day of July, 2020 are required to, within six months from the 1^st day of July, 2020 deliver accurate and up to date records of beneficial owners to the Registrar of Companies.  Any changes in the beneficial ownership of a Company has to be notified to the Registrar of Companies within thirty days of such changes.

The information on the beneficial owners of a company held by the Registrar of Companies is accessible to:

1. national competent authorities with designated responsibilities for combating money laundering and terrorist financing
2. national competent authorities that have the function of investigating or prosecuting offences related to money laundering and terrorist financing, or of tracing, seizing, freezing and confiscating criminal assets
3. the Financial Intelligence Unit
4. the Tanzania Revenue Authority
5. Government institution responsible for overseeing or implementing economic empowerment of Tanzanian nationals pursuant to the respective laws
6. any other national competent authority responsible for the prevention of money laundering and funding of terrorism.

The issuance or transfer by delivery of share warrants is with the prior approval of the Registrar of Companies who is also required to keep a record of issued and transferred share warrants.

The Electronic and Postal Communications Act (Cap 306)

The Electronic and Postal Communications Act has been amended to exclude from public shareholding requirements the following licensees:

1. network facility licensees wholly owned by the Government.
2. network facility licensee in which the Government owns twenty five (25) percent shares or more.
3. network facility licensee for lease of towers.

The Excise (Management and Tariff) Act (Cap. 147)

The Excise (Management and Tariff) Act is amended by introducing excise rates for imported powdered beer and imported powdered juice of Tanzania Shillings 844 and Tanzania Shillings 232 per kilogram respectively.

The Fair Competition Act (Cap. 285)

The Fair Competition Act is amended by limiting the amount for computing fines for offences under Section 60 (1) of the Act to the annual turnover which has source in mainland Tanzania.

Income Tax Act (Cap. 332)

The Income Tax Act has been amended to establish parameters for identifying beneficiaries in various entities for tax purposes and to impose tax payment obligations to a representative assessee on behalf of a non-resident for income realized in the United Republic of Tanzania by a non-resident.

The amendment has lowered the control and benefit threshold for individuals in entities to twenty five (25%) percent or more of the rights to income or capital or voting power of the entity down from fifty (50%) percent. The Commissioner of Income Tax is further empowered to determine the prescribed minimum percentage upon consideration of the nature of business or investment of a person.

The definition of associate has also been amended such that when there is reasonable expectation for one to act, other than as employee, in accordance with the intentions of the other then the question of whether or not they are in a business relationship and whether such intentions are communicated or not becomes irrelevant and the two will be considered associates.

The definition of investment asset has been amended to include a beneficial interest in a trust, initially this definition only covered beneficial interest in non-resident trusts.

The amendments have introduced a definition of a beneficial owner to mean a natural person:

1. who directly or indirectly ultimately owns or exercises substantial control over an entity or an arrangement
2. who has a substantial economic interest in or receives substantial economic benefit from an entity or an arrangement directly or indirectly whether acting alone or together with other persons
3. on whose behalf a transaction or arrangement is conducted
4. who exercises significant control or influence over a person or arrangement through a formal or informal agreement.

The amendments also define an agent of a non-resident person or of a beneficial owner to includes any person in the United Republic:

1. who is employed by or on behalf of a non-resident person or a beneficial owner.
2. who has any business connection with a non-resident person or a beneficial owner.
3. from or through whom a nonresident person or a beneficial owner is in receipt of any income, whether directly or indirectly
4. who is a trustee of a non-resident person, and includes any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset situated in the United Republic.

A business connection is defined to include any business activity carried out through a person who, acting on behalf of a nonresident person or a beneficial owner:

1. has and habitually exercises in the United Republic, an authority to conclude contracts on behalf of the non-resident person or a beneficial owner
2. habitually concludes contracts or plays the principal role leading to conclusion of contracts by that nonresident person or a beneficial owner, and the contracts are:
   1. whether or not in the name of the non-resident person or the beneficial owner
   1. for the transfer of the ownership of, or for the granting of the right to use property owned by that nonresident person, or that nonresident person has the right to use
   1. for the provision of services by the non-resident person or the beneficial owner
3. has no such authority but habitually maintains in the United Republic a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the nonresident person or the beneficial owner
4. habitually secures orders in the United Republic, mainly or wholly for the non-resident person or for that non-resident person and other non-resident persons controlling, controlled by, or subject to the same common control as that non-resident person, or for the beneficial owner
5. carries out any business or investment in the United Republic through an entity or an arrangement for economic benefit of a nonresident person or beneficial owner, whether directly or indirectly

The Act is amended in Section 4 to include a representative assessee from or through whom a non-resident person is in receipt of any income, whether directly or indirectly as a person from whom income tax on a non-resident is chargeable and payable for each year of income. A representative assessee is an agent of a non-resident person or of a beneficial owner. According to the amendments, income tax is only charged on the income of a non-resident or beneficial owner from business or investment for the year of income deemed to accrue or arise in the United Republic.

Deductible realized foreign exchange loss on interest free debt obligation is the amount of loss attributable to not more than seventy percent (70%) of such obligation. This amendment is intended to protect the tax base.

Through the amendments contributions made to the AIDS Trust Fund established under the Tanzania Commission for Aids Act and those made to the Government in the fight against Coronavirus disease (COVID-19) are deductible for the purposes of calculating a person’s income for a year of income from any business. Contributions made to the Government in the fight against Coronavirus disease (COVID-19) will cease to be deductibles on a date to be determined by the Minister for Finance.

Income of a person for the year of income having chargeable income and unrelieved losses for the four previous consecutive years of income may, subject to other limitations imposed by the Act in particular Section 19, be reduced by reason of use of the unrelieved losses which shall not be below thirty per centum of that income before any reduction for losses. This requirement does not however apply to a corporation undertaking agricultural business or providing health or education services.

Section 52 (2) of the Act is amended to include distributions of a trust or unit trust in calculating the income of the trust’s beneficiary. In the case of an individual’s testamentary trust incorporated for purposes of social protection of settlor’s surviving minor dependents, distributions shall not include the trust’s discharge of its primary obligations.

All payments for services consumed in the United Republic of Tanzania irrespective of the place of exercise, rendering or forbearance and regardless of the place of payment are considered to have a source of payment in Tanzania and will be subject to taxation under the Income Tax Act.

The amendments have also introduced a new Section 69A under which income is deemed to accrue or arise in the United Republic of Tanzania whether directly or indirectly and will be taxed through a representative assessee of a non-resident person or a beneficial owner:

1. income through or from any business connection
2. income through or from any property
3. income through or from any asset or any source of income
4. income through or from transfer of an asset situated in the United Republic of Tanzania.

The above does not however preclude the Commissioner for Income tax from assessing the tax to a non-resident person or beneficial owner under any provision of the Income Tax Act.

With the aim of widening the tax base and creating equity among tax payers, the Income Tax Act has also been amended to the following effect:

1. to impose withholding tax obligations on commission paid to bank agents and digital payment agents
2. to introduce Capital Gains Tax on net gains realised from licence or concessional right on reserved land
3. to increase the minimum individual income threshold subject to taxation
4. where amounts derived during a year of income by a primary cooperative society whose turnover for the year of income does not exceed Tshs. 100,000,000 are exempted from income tax
5. income of investors in Special Economic Zones who produces for sale in the local market (Category B) is not exempted from income tax.

Another notable amendment to the Income Tax Act is the exemption of amounts paid to persons entitled to benefits granted pursuant to the provisions of Part V of the Political Service Retirement Benefits Act from income tax with effect 1st July 2016.

Land Act (Cap 113)

Through an amendment by the Finance Act 2020 occupiers of surveyed land are required to apply for a grant of a right of occupancy within 90 days. Occupiers of surveyed land who fail to apply for a grant of a right of occupancy within 90 days from the date of approval of a survey plan in accordance with the Land Survey Act are required to pay land rent.

All occupiers of land surveyed prior to the 1^st day of July 2020 who have not applied for a right of occupancy are required to do so within ninety days from the 1^st day of July 2020.

The aim of the amendments is to ensure all persons occupying surveyed land without a right of occupancy comply with procedures for grant of right of occupancy.

Amendment of The Local Government Finance Act (Cap. 290)

Service levy collection from corporate entities is limited to those entities whose annual turnover exceeds four million shillings.

The Act is further amended by addition of a new Section 9A under which the Minister responsible for Local Government is required to establish a centralized system for collection of service Levy from licensees of the Tanzania Communications Regulatory Authority (TCRA), with an exception of postal and courier survives. In doing so the Minister will in consultation with TCRA evaluate, assess, collect and account for the service levy to be paid by the licensees.

The Minister will prescribe the manner in which the collected levy will be allocated to local authorities.

Mining Act, (cap 123)

Through the amendments of the Mining Act all applications for Mining Licence, Primary Mining Licence, Dealer Licence and Broker Licence including renewals has to be accompanied by Taxpayer Identification Number (TIN) and a valid Tax Clearance Certificate both issued by the Tanzania Revenue Authority. The amendments aim at promoting compliance of paying tax voluntarily.

Motor Vehicles (Tax on Registration and Transfer) Act, Cap. 124.

The First Schedule to the Act is amended by introducing a tax for special registration number of five hundred thousand shillings in addition to registration tax.

Trustees’ Incorporation Act (Cap. 318)

The Amendment to the Trustees’ Incorporation Act requires all applications for incorporation to contain particulars of beneficial owners. Beneficial owner means a natural person:

1. who directly or indirectly ultimately owns or exercises substantial control over an entity or an arrangement
2. who has a substantial economic interest in or receives substantial economic benefit from an entity or an arrangement directly or indirectly whether acting alone or together with other persons
3. on whose behalf an arrangement is conducted
4. who exercises significant control or influence over a person or arrangement through a formal or informal agreement.

The term ‘arrangement’ is defined to include an action, agreement, course of conduct, dealing, promise, transaction, understanding or undertaking, whether express or implied, whether or not enforceable by legal proceedings and whether unilateral or involving more than one person.

Particulars of a beneficial owner to be submitted together with an application for incorporation include:

1. full name and any former or other name
2. date and place of birth
3. telephone number
4. nationality, national identity number, passport number or other appropriate identification and proof of identity
5. residential, postal and email address
6. place of work and position held
7. nature of the interest including the details of the legal, financial, security, debenture or informal arrangement giving rise to the beneficial ownership
8. oath or affirmation as to whether the beneficial owner is a politically exposed person or not.

A beneficial owner is a politically exposed person if the beneficial owner is a foreign individual entrusted with prominent public functions including heads of state or government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations or agencies.

A trust is further required to submit to the Administrator General records of non-resident beneficiary and beneficial owner of the respective trust.

The Value Added Tax Act, (Cap. 148)

The amendment by the Finance Act, 2020, has extended the period of charging value added tax at the rate of zero percent on ancillary transport services for transit goods which have stayed within Tanzanian territory for an additional period to be determined by the Commissioner for Customs.

The Value Added Tax Act has also been amended to allow input tax credit for export of raw minerals, acquatic, forestry and fauna products.

Through the amendments crop agricultural insurance is VAT exempted. This move is intended to encourage farmers to insure crop farming.

Tax Administration Act, Cap. 438.

The amendments made to the Tax Administration Act are aimed at ensuring smooth administration of tax and ensure that there is efficient and effective procedure in the determination of tax objections.

Together with the right to representation in tax matters, the amendments made by the Finance Act 2020 have specified the representative to be either a practicing advocate, a tax consultant or such other person authorized through a power of attorney by the taxpayer.

The amendments have also set a time limitation of fourteen (14) days for submission of information requested by the Commissioner General from persons not liable for tax. If there is failure to submit the information within the prescribed time of 14 days, or any extension thereof, such information will be precluded from being used in objection or appeal proceedings.

An objection to a tax decision should be accompanied by relevant documents or information which a taxpayer intends to rely upon to support his objection. This information or document should be submitted at the time of lodging the notice of objection.

The Commissioner General is required to determine an objection within six months from the date of admission of the notice of objection failure of which the tax assessment or tax decision the subject of the objection will be treated as confirmed and the objector will have the right to appeal to the Tax Revenue Appeals Board.

An objection to a tax decision will not be admitted unless an objecting taxpayer pays the undisputed amount of tax or one third (1/3) of the assessed tax, whichever is greater. Through the amendments brought by the Finance Act 2020, Where the Commissioner General has reasonable cause to believe that the objector intends to permanently leave the United Republic of Tanzania then the objecting tax payer will be required to pay the whole of the assessed tax before an objection is admitted.