Under the VAT law, there are certain goods and services which are exempted from VAT. Such goods or services are like food crops and livestock supplies, equipment’s used for storage, transportation, and distribution of natural gas, health supplies and hospital equipment, education services, financial and insurance services, transportation of persons, sale or lease of an interest in land and tourist services such as guide services, game driving, water safaris, animal or bird watching, park fees and tourist charter services. Aircrafts, aircraft engines, parts and maintenance are also VAT exempt supplies.
Under the VAT law, some persons and organizations are entitled to relief from VAT within the limits and conditions subject to procedures laid down. Some persons such as importers of capital goods enjoy 45% VAT relief.
The government will form a team of experts from the Ministry of Finance and tax institutions Tanzania Revenue Authority (TRA)/Zanzibar Revenue Board (ZRB) and to inspect all strategic investment projects that have been granted tax exemptions.
Minister of State, President’s Office(Finance and Planning),Jamal Kassim Ali said the move was intended to ensure that project owners strictly observed tax exemption responsibilities according to the laid down agreements.
He made the remarks during a visit to inspect the progress of Emerald Zanzibar Resort and Spa projects at Matemwe village in Unguja North Region.
The minister insisted that granted tax-exemptions should not be used in the interests of the investors and that projects under implementation were in line with agreed terms.
He added that the government would continue to create conducive environment for investors to attract more projects in various economic sectors.
Commenting on the Palolo projects, the Minister said the USD 60 Millions project was intended to stimulate tourism industry adding that the 250-room hotel would increase employment opportunities.
Zanzibar Revenue Board(ZRB) Commissioner, Salum Yussuf Ali pledged to closely follow up the tax-exemptions issues as the government relied heavily on taxes to provide better services to the people.
More investments are now being attracted on the islands in a major move to implement the government’s envisaged blue economy.
The government has already leased nine smaller islands to potential investors under long-term agreements which had attracted USD 261.5 Million through lease acquisition costs.
What are Tax Incentives under the Zanzibar Investment Promotion and Protection Act, 2004?
Investors investing in Free Economic Zones are granted the following tax incentives:-
- 10 year Corporate Tax Holiday and 25% tax rate for the subsequent ten years.
- 10 year withholding tax holiday on dividends to non residents.
- Duty and VAT Exemption on raw materials, machinery, equipment and other inputs.
- Stamp Duty Exemption
- 100% investment deduction on capital expenditure within 20 years.
- Exemption from Tax on dividend for ten years.
- Duty and Tax free Import of goods from domestic area permissible.
- Duty Free import of raw materials for construction of factory buildings.
- Duty free export of goods produced.
- Exemption of income Tax on interest on borrowed capital.
- Exemption from payment of all taxes and levies imposed by local government authorities for gods and services produced in Free Economic Zones.
- On site custom inspection of goods in lieu of off-port inspection.
Investors investing in Free Zones are granted the following tax incentives:
- Exemption from any tax on all goods destined for re-export.
- Exemption from local taxes on all goods produced in Freeport for export
- Exemption from payment of corporate tax for the first 20 years.
- No limit to the durations that goods may be stored to Freeport Zones.
- 100% retention of all profits.
- 100% foreign ownership allowed.
- Free repatriation of profit.
NB: 20% of turnover is allowed for sale at the local market and is subject to the payment of all taxes.
What tax incentives are granted under the Income Tax Act, 2004?
Corporate tax rate.
The income tax rate for resident and non-resident companies is 30%. (No discrimination)
There is a reduced rate of 25% which is charged for three years to newly listed companies with Dar es Salaam Stock Exchange, with at least 35% of equity share issued to the public.
100% capital allowance in agriculture.
Investors in agriculture enjoy 100% capital allowance on expenditure incurred on plant and machinery, including windmills, electric generators and distribution equipment used solely in Agriculture.
50% Initial capital allowance.
The 50% allowance is granted on expenditure of plant and machinery that is used in manufacturing and installed in the factory or providing services to tourists and fixed in a hotel. Other rates for capital allowances range from 37.5% for items like computers and earthmoving equipment to 5% for buildings dams, water reservoir etc.
Withholding tax exemption
The law provides exemption of withholding tax chargeable by foreign banks on interests payable to strategic investors as defined by Tanzania Investment Act. This is one of the measures devised to encourage investment in the country.
The income tax law provides for tax credit in case the tax was paid abroad on the same income, which was assessed in respect to resident person (Individual or entity).
100% Deduction in mining operations.
Theinvestments in mining operations get special treatment in Tanzanian tax system. The whole expenditure incurred for the year (both capital and revenue expenditure) is deducted when calculating taxable income.
Income Tax exemption under Export Processing Zone (EPZ)
As per Income tax Act, 2004 the following amounts are exempted from income tax:-
- Income derived from investment or business conducted within the Export Processing Zone and Special Economic Zone, during the initial period of ten years.
- Payment of withholding tax in respect of foreign loan granted to an investor licensed under in the Export Processing Zone and Special Economic Zone during the initial period of ten years.
- Payment of withholding tax on dividend arising from investment in the Export Processing Zone and Special Economic Zone during initial period of ten years.
- Payment of withholding tax on rent payable by an investor licensed under the Export Processing Zone and Special Economic Zone during initial period of ten years.
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