Taxation of an Individual

Income of an individual may come from Employment, Business, Investment, Foreign source income and most often from a Combination of sources. In other words, individuals in Tanzania are taxed on employment income, business income, pension income, rental income, capital gains income, foreign source income and any other income earned. However, the Income Tax Act has several provisions related to Taxation of Individuals.

Employment Income : Employment means a position of an individual in the employment of another person; a position of an individual as manager of an entity other than as partner of a partnership; a position of an individual entitling the individual to a periodic remuneration in respect of services performed; or a public office held by an individual, and includes a past, present and prospective employment. The general rule is that income from employment is 'gains or profits from employment'. This means that included in income from employment is salary, allowances, gratuity, benefits in kind and all other forms of remuneration or compensation for the employment. However there are exceptions and for detailed explanation of what is employment income, visit the employment income page. Most often tax on employment income of an individual is paid to TRA by the employer on behalf of the employee under the Pay as You Earn (PAYE) system.

This is from the fact that most of the employees earn employment income as their only source of income, with perhaps some interest and dividends which are final withholding payments though some exceptions also exist. If tax has already been deducted from all the interests and dividends under the final withholding tax system, then the individual will not have to file a return with TRA and no need to be registered for a Tax Payer Identification Number (TIN).

Withholding tax on employment (Pay As You Earn - PAYE) : Section 81 of the Income Tax Act requires an employer to withhold tax from the payments made to an employee. The employer is required by Section 84 (1) to pay the tax withheld to TRA within seven days after the end of each calendar month. The practical procedures through which the employer use to pay the tax are described under the Withholding Taxes page. The Income from Employment page discusses how to compute employment income. Go to that page to learn more about employment income.

An individual with more than one employment : For individuals with more than one employment, they are required to choose among the employers the one they prefer to be the primary employer and they must inform all the other employers that they are secondary employers. The primary employer will withhold tax as per the monthly income tax tables and all the secondary employers will withhold tax at the maximum individual rate, which is 30%. However, if the total income is less than the top band threshold (Tshs 8,640,000 per annum), the individual may apply to his local TRA Domestic Revenue Department to have a lower rate applied to his secondary employments. If the individual thinks that the total tax withheld is more than what he would have paid if he filed a return according to the individual rates on his total annual income, he may file a return and claim a refund. See the Income Tax Returns page for more details.

Withholding tax on bank interest : When an individual receives interest from financial institutions, the bank withholds tax by deducting 10% of the interest and sends it to TRA. This satisfies the individual's tax liability for the interest.

Withholding tax on dividends : When an individual receives dividends, the company that pays the dividend withholds tax by deducting 10% of the dividend (if the company is not listed in the Dar es Salaam stock exchange) or 5% (if the company is listed in the Dar es Salaam stock exchange) and sends it to TRA. This satisfies the individual's tax liability for the dividends.

If tax has not been withheld : If the individual has income from employment, interest or dividends which has not had tax withheld (e.g. if it is income from foreign sources) then he has to file a return.

Individual's Foreign Source Income : An individual's income is of Tanzanian source if it has been derived in respect of employment exercised in Tanzania, services provided in Tanzania, or from businesses, assets or certain other activities located in Tanzania. Income from foreign sources includes income from employment exercised abroad, services provided to persons or entities abroad, or any businesses or assets (including land, buildings, financial assets) the individual may own which are located abroad. The individual must pay tax on all Tanzanian source income whether or not he is resident in Tanzania. However, whether foreign source income is taxable or not depends on the individual's residence status in Tanzania. Residence status is discussed in a separate page.

If the individual is not a resident of Tanzania, or if he has been resident for a period not exceeding two years in his whole life, then he does not have to pay tax on foreign source income in Tanzania. If he is a resident of Tanzania and has been resident for a period of more than two years in his whole life, then he has to pay tax on foreign source income.

If the individual has determined that his foreign source income is taxable, then he must file a return. However, when an individual receives dividends from non resident corporations, interest from non-resident financial institutions and rent from foreign land and buildings and these payments have been received as investment income (not business income), they are taxable at a flat rate of 10% instead of the marginal rates. The individual is still required to include them in his income tax return but cannot deduct expenses.

Foreign tax credits : If an individual has paid tax to another country on his foreign source income, he can subtract this tax paid from his tax liability on this income in Tanzania.

Special notes on capital gains tax on foreign assets : Sometimes an individual may be in the situation where he owns assets abroad (land, buildings, shares or securities) and these are not excluded from tax on capital gains, and his foreign source income is taxable in Tanzania. If he sells these assets, any capital gain will be taxable in Tanzania. If he acquired the asset before the first time he were resident in Tanzania, and the first time he were resident in Tanzania was after 1 July 2004, the cost of the asset is deemed to be the market value of the asset when he first became resident in Tanzania, not the original cost.

Individual’s income from controlled foreign corporations and trusts : Sometimes an individual may be in the situation where he holds shares or an interest in a non-resident corporation or trust that is controlled by five or fewer residents. Under this situation, the individual will be taxed on his proportion of the corporation's or trust's income irrespective of whether it is distributed.

Tax Treaties : Tanzania has signed Tax Treaties with some other countries (Canada, Denmark, Finland, India, Italy, Norway, South Africa, Sweden, Zambia) and as a result some of the above rules may sometimes be affected if the source of the individual's income is from these countries.

Income from Business : a business includes a trade, concern in the nature of trade, manufacture, profession, vocation or isolated arrangement with a business character; and a past, present or prospective business, but excludes employment and any activity that, having regard to its nature and the principal occupation of its owners or underlying owners, is not carried on with a view to deriving profits.

The general rule is that income from business is 'gains or profits from conduction a business'. Included in income from business is service fees; incomings for trading stock; gains from the realisation of business assets or liabilities of the business; amounts derived from the realisation of the person's depreciable assets of the business; amounts derived as consideration for accepting a restriction on the capacity to conduct the business; gifts and other ex-gratia payments received by the person in respect of the business; amounts derived that are effectively connected with the business and that would otherwise be included in calculating the person's income from an investment; and all other amounts derived in conducting the business. However there are exceptions and these are discussed in the income from business page.

Individual's businesses with turnover greater than Tshs 20 million : If an individual's business has a turnover greater than Tshs 20m, he must calculate his income from business using the income from business rules explained in the business income page and pay tax on this income according to the standard individual tax rates.

An individual may account for his business income on either a cash basis (accounting when a payment changes hands) or an accruals basis (generally, accounting when the right to a payment is created), depending on which basis most correctly reflects his profits or gains.

An individual in business may also have to withhold tax from others. Visit the withholding taxes page for more details on withholding obligations. Furthermore, the individual must read the timetable for filing returns page.

Individual's businesses with turnover less than Tshs 20 million : If an individual's business has a turnover (total value of sales) of less than Tshs 20m, he has a choice. If he keeps only very basic records which can show the TRA only which turnover band he is in, he must pay the fixed presumptive rates below. If he keeps better records allowing him to demonstrate accurately his turnover to the TRA, he may choose to be assessed according to the percentage of turnover presumptive rates below. If he keeps good records of all his business transactions he may choose to submit a return and pay taxes on his net income (income minus expenses and deductions) calculated according to the income from business rules and pay tax on this net income according to the standard individual tax rates. It is in best interest of the individual to keep as accurate records as possible, as paying tax on his net income is fairer than paying tax on his turnover.

Annual Turnover

Annual Tax payable where records are incomplete

Annual Tax payable where records are complete

Where turnover does not exceed Tshs 4,000,000

Nil

Nil
Where turnover exceeds Tshs 4,000,000 but does not exceed Tshs 7,500,000 Tshs 100,000 2% of the turnover in excess of Tshs 4,000,000
Where turnover exceeds Tshs 7,500,000 but does not exceed Tshs 11,500,000 Tshs 212,000 Tshs 70,000 plus 2.5% of the turnover in excess of Tshs 7,500,000
Where turnover exceeds Tshs 11,500,000 but does not exceed Tshs 16,000,000 Tshs 364,000 Tshs 170,000 plus 3% of the turnover in excess of Tshs 11,500,000
Where turnover exceeds Tshs 16,000,000 but does not exceed Tshs 20,000,000 Tshs 575,000 Tshs 305,000 plus 3.5% of the turnover in excess of Tshs 16,000,000

Individual's income from a partnership : A partnership is a group of people doing business together. For partnerships, the net income of the partnership should be calculated using the income from business rules. This income should then be split among the partners according to the partnership agreement. Each partner should then pay tax on his/her share of the income according to the standard individual tax rates. The partnership may also have to withhold tax from others - see withholding taxes page for more details on withholding obligations.

Individual's capital gains : This concerns individuals who makes capital gains on non-business activities. If an individual is making capital gains in business activities, then that will fall under the income from business discussed above.

When an individual sells land, buildings, shares or securities he may be liable for individual capital gains tax at a maximum of 10%. The following are excluded from capital gains:

  1. a private residence that the individual owned continuously for three years or more and lived in continuously or intermittently for a total of three years or more, and if he has made a gain (sale price minus cost) of less than Tshs 15 million.
  2. land that the individual has sold for less than Tshs 10 million and that has been used for agricultural purposes for at least two of the three years before the sale.
  3. shares or securities listed on the Dar es Salaam stock exchange

Sale of land or buildings : If an individual sells a land or buildings and it does not fall under the above exclusions, he must report to his local TRA Domestic Revenue Department and pay a single instalment tax. This tax will be 10% of the difference between the sale price and the costs (the cost when he bought the asset or the costs in building it). If the individual pays this instalment, he may choose to treat it as final and will not have to file a return (unless he has other income requiring a return).

In the case of a private residence that an individual owned continuously for three years or more and lived in continuously or intermittently for a total of three years or more, and if he makes a gain of more than Tshs 15 million, then he will have to reduce the gain by Tshs 15 million (i.e. the excess of Tshs 15 million will be taxed).

Sale of shares or securities : If an individual sells shares or securities which are not listed on the Dar es Salaam stock exchange, he must file a return (unless his total income is below Tshs 2,040,000 which is not taxable).

Capital losses : Capital losses can offset other capital gains of the individual, but cannot offset any other income. They can, however, be carried forward and offset against future capital gains.

Capital gains and filed returns : If an individual chooses to file a return or is required to file a return, he must include the capital gains as part of his total income. The capital gains part of his income will be taxed at 10% if the other income exceeds Tshs 2,040,000. If the other income is less than Tshs 2,040,000, part of his capital gains will not be taxed.

Individuals opting/required to file a return : an individual may opt to file a return though this is very rear in Tanzania. However, there are those individuals who are required by the Income Tax Act to file a return - who are they? - individuals with employment, interest, or dividend income which has not had tax withheld e.g. foreign source income must file a return; individuals earning business income with turnover greater than Tshs 20 million must also file a return; individuals selling shares or securities which are not listed on the Dar es Salaam stock exchange must as well file a return (unless the total income of the individual is below Tshs 2,040,000 which is not taxable); individuals earning combination of income must also file a return.

Filing a return means making a statement to TRA Domestic Revenue Department of the income sources and the tax a person is supposed to pay under the law. A return must be filed with supporting documents to verify the authenticity of the statement in case the TRA audits or investigates the return. The following procedures are applicable to an individual in determining his tax liability.

Writing down a full list of the individual's income sources and the income earned from each source. Income sources include but not limited to the following:

  • Income from employment. If an individual has more than one employment, he should list the different employments and the income from each one. Employment can include full time, part time, formal or casual employment. Income from employment includes salary, any extra allowances (which are not to cover certain employer expenses in doing your job), and the value of benefits in kind (when an employer provides for the employee personal needs by giving him goods or services instead of money) - see rules for valuing benefits in kind in the employment income page.
  • Income from business. In this case, income means the profits rather than the gross turnover of the individual's business. The individual should include in this category any investment income that was made as part of the business, rather than by the individual privately.
  • Income from investment (investments which are not part of a business). This includes interest, dividends, retirement payments from a non-resident retirement fund, net capital gains, rent or royalty.

Some of these incomes may have been subject to withholding taxes. This means the person paying the individual may have deducted tax on his behalf and sent it to TRA. These withholding taxes may be final or non-final. The table below shows withholding taxes on payments to individuals outside business and their categories (i.e. final or non-final). Any other types of income sources received from other types of payers have not been subject to withholding tax. The incomes that have been subject to withholding taxes shall be separated from incomes that have not been subject to withholding taxes.

Type of income Received from Rate of withholding tax Final/Non-Final
Employment Resident employer

Rates as per the monthly individual tax table for primary employer, 30% for secondary employers

Non-final
Dividend Resident corporation listed on DSE 5% Final
Dividend Resident corporation not listed on DSE 10% Final
Interest Financial institution 10% Final
Interest Resident business 10% Non-Final
Rent for land or building Resident business 10% Final
Royalty Resident business 15% Non-Final

If an individual receives rent outside a business of less than Tshs 500,000 from individuals renting for residential purposes, he does not need to include this in his income. This is per section 86 (4) of the Income Tax Act.

For income from capital gains due to selling land or buildings, shares or securities, an individual should calculate tax separately from the calculations below, according to the capital gains rules.

An individual should divide his list of income sources into two categories. First category contains those income sources which have either no withholding tax or a non-final withholding tax and the second category contains those income sources for which withholding tax is final.

For the second category income sources the tax liability has already been satisfied and the individual will not pay further tax or claim refunds on these items. However, if the payer has not withheld tax, the individual must pay the tax instead.

For the first category, follow the following steps:

  • Add up your total income in this category
  • Subtract any contributions you made (or your employer made on your behalf as a benefit in kind) to approved retirement funds (including NSSF, PPF, PSPF, LEPF, ZSSF). However the total amount you may subtract is limited to the amount that is compulsory to contribute under the social security laws (for employees) or limited to Tshs 2.4m per annum (for self-employed).
  • Apply the standard individual tax rates to this total amount to calculate your total tax liability

Note, if all income of an individual is in the second category (i.e. has been subject to final withholding tax), his liability has already been satisfied and he doesn't have to file a return with the TRA.

Note also that if all income of an individual is from employment, or from employment and from sources falling under the second category of income only, then he does not have to file a return.

Note that if an individual has a business, as well as paying his own tax as described in this page, he may have withholding obligations.

Landlords/landladies : if an individual is not doing a business of renting but earns rental incomes by renting land and/or buildings then three scenarios might arise:

  • If the rent is received from a corporation, 10% should have been withheld by the corporation. That satisfies the individual's tax liability.
  • If the rent has been received from an individual who is not doing business, no tax would have been withheld and hence the individual receiving such rent must file a return and pay tax as per the marginal rates. Expenses related to the earned rent should not be deducted.
  • If the rent has been received from an individual and the individual from whom the rent was received is using the land and buildings as his residence and if all such rents added together do not exceed Tshs 500,000 per year then the individual receiving the rents will not have to pay any tax on that income.

If an individual owns properties for renting and this forms part of his business or is the sole business of the individual, then he will have to compute the rental income in the same way used to compute business income.

Individuals receiving pension : retirement payments may be classified into regular and commuted pension. Any of these may come from approved retirement fund or unapproved retirement fund. A regular pension is a pension that is paid periodically and commuted pension is a pension which at least half of the individual's pension entitlement is paid as a lump sum rather than in periodic payments. Approved retirement funds includes the statutory funds such as NSSF, ZSSF, PPF, PSPF, LEPF and any other retirement fund approved by the Government

Pension received from approved retirement fund : Pensions received from approved retirement funds are not included in investment income and therefore no tax is paid. This is because the retirement fund's own profits have been taxed.

Pension received from unapproved retirement funds : Pensions received from unapproved retirement funds are exempt. This is because the contributions to such funds and the funds themselves were taxed.

Pension received from non-resident retirement funds : Pensions received from non resident retirement funds are taxable to the extent they are a gain over the contributions. In other words, no tax is paid until the total received in pension has exceeded the total contributions made. After that point, tax is paid using the individual rates.

Pension received directly from employer : If an individual receives a pension directly from his previous employer, then it is taxed as income from employment.

The table below shows individual rates of income tax

Income for the Month Rate Payable
Where income for the month does not exceed Tshs 170,000/= Nil
Where income for the month exceeds Tshs 170,000/= but does not exceed Tshs 360,000/= 14% of the amount in excess of Tshs 170,000/=
Where income for the month exceeds Tshs 360,000/= but does not exceed Tshs 540,000/= Tshs 26,600/= plus 20% of the amount in excess of Tshs 360,000/=
Where income for the month exceeds Tshs 540,000/= but does not exceed Tshs 720,000/= Tshs 62,600/= plus 25% of the amount in excess of Tshs 540,000/=
Where income for the month exceeds Tshs 720,000/= Tshs 107,600/= plus 30% of the amount in excess of Tshs 720,000

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