Introduction of Income Tax and VAT on Electronic Services

With regards to Income Tax (Digital Service Tax - DST); the Finance Act, 2022 amended the Income Tax Act, Cap. 332 by introducing section 69(m) that creates a source in the United Republic for payments made by individuals (not conducting business) in respect of services rendered by a non-resident. Furthermore, section 90A of the Income Tax Act requires a non-resident person to pay income tax at a rate of two percent (2%) emanating from payments received from an individual not conducting business, in respect to services rendered through a digital marketplace.

However, the Finance Act, 2023 amended section 90A of the Income Tax Act to broaden the scope of services by incorporating all electronic services as opposed to limiting the services to those rendered through a digital marketplace.

With regards to Value Added Tax; the Finance Act, 2022 amended the Value Added Tax Act, Cap. 148 by introducing section 64 (5) which provides for a non-resident person to apply for registration without having a tax representative.

Furthermore, the Income Tax (Registration of Non-resident Electronic Service Providers/Suppliers) Regulations, 2022 and Value Added Tax (Registration of Non-Resident Electronic Service Providers/Suppliers) Regulations, 2022 were introduced to provide guidance regarding implementation of the provisions.

Implementation of the Electronic Service Tax Regime

A: Registration

1. Regulation 4 of the Income Tax (Registration of Non-resident Electronic Service Providers/Suppliers) Regulations, 2022 and Regulation 4 of the Value Added Tax (Registration of Non-resident Electronic Service Providers/Suppliers) Regulations, 2022 requires a non-resident electronic service provider/supplier eligible for registration as per the provisions of the law, to make an online application for registration to the Commissioner General using Simplified Online Registration Portal.
2. There is no registration threshold.

B: Filing and Payment

1. Regulation 6 of the Income Tax (Registration of Non-resident Electronic Service Providers/Suppliers) Regulations, 2022 and Regulation 6 of the Value Added Tax (Registration of Non-resident Electronic Service Providers/Suppliers) Regulations, 2022 requires a non-resident to file tax returns and make tax payment electronically. 
2. Section 90(A) (2) of the Income Tax Act, Cap. 332 and Regulation 6 of the Value Added Tax (Registration of Non-resident Electronic Service Providers/Suppliers) (Amendments) Regulations, 2023 provides for the twentieth day of the following month as the due date for return filing and tax payment for a respective month.
3. The tax rate for Income Tax (Digital Services Tax) is 2% on gross payments.
4. The tax rate for Value Added Tax is 18%.
5. Input tax credit is not allowable.
6. Non-resident electronic service providers/suppliers are exempted from using an Electronic Fiscal Device (EFD) when issuing receipts/invoices.
7. Taxes shall be paid to a bank account designated by the Commissioner General in Tanzanian Shillings or equivalent convertible currency at the Bank of Tanzania’s prevailing exchange rate on the date of payment.

Withholding Tax on Digital Content Creators and Digital Assets

The Finance Act, 2024 amended the Income Tax Act, Cap. 332 by introducing section 83B to provide for an obligation to a resident or non-resident person who makes payment to a resident digital content creator to withhold tax at the rate of 5% on such payments.

The Finance Act, 2024 amended the Income Tax Act, Cap. 332 by introducing section 83C to provide for an obligation to a resident or non-resident person who owns a digital asset exchange platform or facilitates the exchange or transfer of a digital asset and makes payment to a resident person in respect of exchange or transfer of the digital asset to withhold tax at the rate of 3% on such payments.