Personal Tax in Tanzania
IN Tanzania, personal taxes are categorised into several types under the Income Tax Act, 2004 and related regulations, with specific rates and thresholds governing each category.
Employment Income Tax applies to salaries, wages, bonuses, allowances and benefits in kind, with employers deducting tax through the PayAs-You-Earn (PAYE) system. Consulting Manager at Elegance Professional Associates, Mr Heri Mrisho Musa, expounds on Tanzania’s PayAs-You-Earn (PAYE) system, which operates under a progressive tax structure. Residents enjoy a tax exemption on monthly income up to 270,000/-.
For income between 270,001/- and 520,000/-, an 8 per cent tax is applied. Income in the range of 520,001/- to 760,000/- is taxed at a base rate of 20,000/- plus 20 per cent on the excess over 520,000/- For incomes between 760,001/- and 1,000,000/-, the tax rises to a base of 68,000/- plus 25 per cent on the amount exceeding 760,000/-.
For income above 1,000,000/-, a base tax of 128,000/- applies, along with 30 per cent on the excess. For non-residents, employment income is subject to a flat tax rate of 15 per cent, which is treated as final. A Senior Tax Associate at PwC, Ms Neema Nyandoa, provides clarification on the Business Income Tax system in Tanzania, particularly for individuals such as sole proprietors.
The general tax rate on net profits is 30 per cent. For small businesses with annual turnovers under 100m/- that do not maintain formal accounting records, a different regime, the Presumptive Tax system, applies with taxes turnover instead of profit.
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Here is how it works: Businesses with turnovers under 4m/- are exempt; those between 4m/- and 7m/- are taxed at 3 per cent of the amount over 4m/- if they keep proper books, otherwise, they must pay a flat 100,000/-. For turnovers between 7m/- and 11m/-, the tax is 90,000/- plus 3 per cent of the excess over 7m/- with proper documentation, but without documentation, the tax jumps to a flat 250,000/-.
Lastly, businesses with turnovers from 11m/- to 100m/- face incremental rates up to 3.5 per cent. This structured approach incentivises proper financial documentation while aiming to simplify tax compliance and boost revenue collection from small-scale entrepreneurs.
Investment earnings which apply to dividends, interest, rental income, royalties and capital gains in Tanzania are subject to various taxes, as explained by Mr Raphael Duhia from Taxplan Associates based in Arusha.
Dividend and interest income from financial institutions are taxed at a flat rate of 10 per cent, while according to the Tanzania Revenue Authority, rental income is not subject to progressive taxation but instead taxed at flat rates. Specifically, resident individuals are levied a withholding tax of 10 per cent on rental income, while non-residents face a 15 per cent rate.
This fixed-rate approach means that the tax imposed does not vary with the amount of rental income generated, contrasting with progressive taxation where rates increase with higher income brackets. Capital Gains Tax (CGT) is imposed on the profit from the sale of assets such as real estate, shares and securities.
For residents, CGT is considered part of business income tax, while nonresidents face a 30 per cent tax on such gains. Additionally, Withholding Tax plays a crucial role in the taxation system, being deducted at source for certain types of payments.
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These include professional fees, rent and royalties, with rates varying from 2 per cent on goods supplied to the government to up to 15 per cent for services provided by non-residents and for local royalty payments, as discussed by Ms Nyandoa and her colleagues.
Tanzania’s social security contributions, though not classified as a direct tax, require employees to contribute 10 per cent of their gross income, with employers matching this amount under schemes like the National Social Security Fund (NSSF), explains Lidia Temba from Premier Plus Associates.
She explains that the government also provides a range of tax incentives to encourage investment and drive economic growth.
For example, income earned from government bonds is fully exempt from taxation, contributions to approved pension schemes reduce taxable income and reduced tax rates apply to income generated from infrastructure projects. This comprehensive approach ensures robust tax coverage, promotes compliance and supports the country’s targeted development goals.
Benchmarking African Comparisons
In East Africa, personal income tax structures vary significantly, reflecting each country’s fiscal policies and socio-economic goals.
In Kenya, tax rates range from 10 per cent to 30 per cent, with monthly income up to KES 12,298 taxed at 10 per cent and income above KES 47,059 taxed at 30 per cent, enforced through the Pay-As-You-Earn (PAYE) system, as reported by the Kenya Revenue Authority (KRA).
Uganda exempts income up to UGX 235,000, with rates of 10 per cent on income between UGX 235,001 and UGX 335,000, 20 per cent between UGX 335,001 and UGX 410,000 and 30 per cent for income above UGX 410,000, according to the Uganda Revenue Authority (URA).
In Rwanda, income up to RWF 30,000 is exempt, with rates rising to 20 per cent for income between RWF 30,001 and RWF 100,000 and 30 per cent for income exceeding RWF 100,000, based on data from the Rwanda Revenue Authority (RRA).
Ethiopia exempts income up to ETB 600, with rates starting at 10 per cent and reaching 35 per cent for income above ETB 10,900, supporting public infrastructure and social programmes, as detailed by the Ethiopian Ministry of Revenue.
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In West Africa, Nigeria applies rates from 7 per cent for income up to NGN 300,000 to 24 per cent for income exceeding NGN 3,200,000, leveraging PAYE to ensure compliance, as outlined by the Federal Inland Revenue Service (FIRS). Ghana exempts income up to GHS 365, with rates climbing to 35 per cent for income above GHS 240,000, focusing on expanding the tax base while aiding lower-income earners, according to the Ghana Revenue Authority (GRA).
In Cameroon, rates range from 11 per cent for lower incomes to 38.5 per cent for income above XAF 25 million, supporting public services and regional integration, based on information from the Cameroon Directorate General of Taxes.
These systems showcase the diversity of tax policies across Africa, emphasising the importance of PAYE systems in aligning fiscal goals with national priorities.
Benchmarking Global Comparisons
Personal income tax systems in major economies vary significantly, reflecting differing economic policies, social welfare goals and fiscal requirements.
In the United States, federal income tax rates range from 10 per cent to 37 per cent, with the highest rate for incomes above $539,900 for single filers and $647,850 for married couples, notes New York-based tax consultant Emily Roberts.
She points out the lack of income tax in states like Texas and Florida, in contrast to California, where rates can reach 13.3 per cent. In Canada, tax expert David Wong from Toronto explains that federal tax rates span 15 per cent to 33 per cent, with the top rate for incomes over CAD 235,675. Combined with provincial taxes, rates in some areas exceed 50 per cent, supporting universal healthcare and social programmes.
Meanwhile, in India, Mumbai’s Priya Desai describes a progressive system with rates from 5 per cent to 30 per cent, applicable to incomes over INR 1.5 million. Additional surcharges and levies can push the effective rate above 40 per cent, with exemptions and deductions designed to foster savings and investment.
East Asian economies employ diverse tax strategies. In China, tax rates range from 3 per cent to 45 per cent, with mandatory social insurance contributions that support social welfare and infrastructure, according to Shanghai-based tax consultant Li Wei. Japan’s top marginal rate is 45 per cent for incomes above JPY 40 million, with local taxes increasing it to 55 per cent, aimed at supporting healthcare and pensions, explains Kyoto’s Hiroshi Tanaka.
South Korea’s tax rates range from 6 per cent to 45 per cent, with local taxes raising the top rate to 49.5 per cent to fund public services, notes Seoul’s JiHyun Kim. In the UK, rates span 0 per cent to 45 per cent, with regional adjustments like higher rates in Scotland for certain income bands, according to London’s James Ellis.
Finally, Australia, as Sydney’s Sarah Blake describes, has rates from 0 per cent to 45 per cent, plus a 2 per cent Medicare levy and surcharges for high earners, focusing on healthcare funding.
Personal Tax Enforcement
Chief Accountant at Organiam Mr Sylvester Machiya, details how the Tanzania Revenue Authority (TRA) facilitates tax collection primarily through the Electronic Fiscal Devices (EFD) system and the Online Tax System (OTS).
Employers are obligated to withhold taxes using the PayAs-You-Earn (PAYE) system. To enforce compliance, TRA levies stringent penalties for late tax filings. These penalties are the greater of 2.5 per cent of the unpaid tax due or a fixed amount calculated in currency points—5 for individuals and 15 for corporates—charged monthly for each month the non-compliance continues.
Additionally, interest on overdue taxes is applied at the statutory rate, compounded monthly. This robust framework of penalties and interest is a cornerstone of TRA’s strategy to ensure compliance and prompt tax payments. The emphasis on digital tax systems and mandatory employer deductions reflects Tanzania’s commitment to efficient tax administration and stringent enforcement measures to maintain compliance.
Research indicates that Tanzania’s use of digital systems like the EFD and OTS reflects a broader trend across Africa and globally, where technology and penalties are leveraged to ensure efficient tax collection and compliance.
For example, in Kenya, the iTax system managed by the Kenya Revenue Authority (KRA) facilitates online registration, filing and payment, while employers deduct taxes through the PAYE system. Non-compliance attracts fines of 5 per cent of the tax due or KES 10,000, with a 20 per cent penalty for late payments.
Uganda employs the e-Tax platform under the Uganda Revenue Authority (URA), where PAYE deductions are mandatory and fines include UGX 8,000,000 for violations of electronic invoicing requirements.
In South Africa, the South African Revenue Service (SARS) operates the eFiling system, supported by PAYE deductions, with penalties ranging from ZAR 250 to ZAR 16,000 for late filings.
Nigeria uses the Integrated Tax Administration System (ITAS) under the Federal Inland Revenue Service (FIRS), enforcing PAYE compliance and imposing fines of NGN 25,000 for the first month of late filings, with additional penalties for each subsequent month.
Ghana’s Total Revenue Integrated Processing System (TRIPS), managed by the Ghana Revenue Authority (GRA), ensures efficient filing and payment, with late filings incurring a penalty of 5 per cent of the tax due and interest on overdue amounts.
Cameroon utilises an electronic tax platform for filings, with penalties for non-compliance escalating based on severity, including fines and legal actions for repeated violations.
Expanding beyond Africa, advanced systems globally integrate digital platforms and strict enforcement measures. In the United States, the IRS’s e-file system facilitates online filing, with penalties for non-compliance including a 5 per cent monthly charge on unpaid taxes for late filings.
In Canada, the Canada Revenue Agency (CRA) manages the My Account system, imposing a 5 per cent penalty on overdue taxes plus 1 per cent for each additional month of delay. India’s e-Filing portal supports compliance through Tax Deducted at Source (TDS) mechanisms, with penalties such as INR 1.5 lakh or 0.5 per cent of turnover for audit noncompliance.
China’s Golden Tax System facilitates tax administration, with daily interest charges of 0.05 per cent on overdue taxes. In Japan, the e-Tax system is used for compliance, where late filings incur surcharges starting at 5 per cent of unpaid taxes, increasing after one month. South Korea’s National Tax Service (NTS) ensures compliance with penalties of 10 per cent to 20 per cent for late filings and interest on unpaid taxes.
In the United Kingdom, the HMRC’s Making Tax Digital platform enforces compliance through penalties of £100 for late returns, with additional daily penalties after three months. Finally, in Australia, the Australian Taxation Office (ATO) uses the myTax platform, imposing Failure to Lodge on Time (FTL) penalties starting at AUD 222 per 28 days, escalating for longer delays or larger entities.
These systems and penalties, tailored to each country’s economic and regulatory framework, highlight the global reliance on digital platforms and rigorous enforcement to uphold tax compliance.
Epilogue
Personal tax systems worldwide balance fiscal responsibility, compliance and economic growth.
Tanzania demonstrates a structured approach with progressive taxation, digital tools like the Electronic Fiscal Devices (EFD) system and targeted exemptions to streamline tax collection and encourage investment. Similarly, countries like Kenya, Uganda and South Africa integrate digital systems and enforce compliance through penalties, reflecting a regional focus on efficient administration.
Globally, diverse tax systems reveal unique economic priorities. Developed economies like the United States, Canada and Japan rely on advanced platforms and strict enforcement to balance compliance and public service funding, while tax-free hubs like the UAE attract investment through fiscal incentives.
The growing reliance on digitalisation and employerdriven mechanisms unites modern tax practices, aligning with global economic demands. As nations continue to innovate, the integration of digital tools, strict enforcement and targeted tax incentives remains pivotal for achieving fiscal sustainability.
Tanzania’s tax framework, shaped by both African and global practices, exemplifies the dynamic interplay between compliance and economic growth.
● Kelvin Msangi is a financial analyst and a Daily News columnist.
For suggestions, you can reach him at kelvin. msangi@protonmail.com or 0655963224.
