Introduction:

Withholding tax is the amount of tax retained by one person when making payments to another person in respect of goods supplied or services rendered by the payee. A person receiving or entitled to receive a payment from which income tax is required to be withheld is referred to as a withholdee while a person required to withhold income tax from a payment  is referred to as the Withholding Agent.

 

Payment subject to Withholding Tax

Withholding tax applies to specific payments prescribed by the income tax Act and it includes  payment that is to be included in calculating the chargeable income of an employee from the employment, payment of investment return including  dividend, interest, natural resource payment, rent or royalty, payment in respect of professional service, service fee in respect of management or technical services in extractive industry in mining, oil or gas business, insurance premium, money transfer commission and payment in respect to supply of goods to the government and its institutions.

 

Payment of tax withheld

Every withholding agent shall pay to the Commissioner within seven days after the end of each calendar month any income tax that has been withheld.

Filling a statement of Tax Withheld

       Every withholding agent shall file with the Commissioner within 30 days after the end of each six-month calendar period a statement in the manner and form prescribed specifying payments made by the agent during the period that are subject to withholding tax, the name and address of the withholdee, income tax withheld from each payment; and any other information that the Commissioner may prescribe.

A person who fails to file a statement of tax withheld  is liable for a penalty for each month or part of a month during which the failure continues. The applicable penalty is the higher of;

  • 5% of the amount of tax assessable with respect to the tax return less tax paid by the start of the period towards that amount; and
  • in the case of an individual, 5 currency points or in the case of a body corporate, 15 currency points

Withholding Tax Certificate

A withholding agent shall prepare and serve on a withholdee a withholding certificate setting out the amount of payments made to the withholdee and income tax withheld from those payments. A withholding certificate shall cover a calendar month and shall be served within 30 days after the end of the month. However, in case of withholding tax from employment tax the certificate shall cover the part of the calendar year during which the employee shall be employed and shall be served by 30 January after the end of the year or, where the employee has ceased employment with the withholding agent during the year, no more than 30 days from the date on which the employment ceased.

Categories of withholding taxes:

The law has divided withholding taxes in to two major categories namely:-

  • Final withholding taxes
  • Non final withholding taxes

Final withholding taxes are taxes in which the withholdee cannot claim any tax credit when calculating the income tax payable for a year of income. Final withholding tax satisfies the withholdee's income tax liability in full.

Non final withholding taxes: are taxes which the withholdee is entitled for a tax credit an amount equal to the tax treated as paid for the year of income in which the amount is derived.

Withholding Tax rates

Description of Payment

Rate for Resident

Rate for Non Resident

(i)Dividends from the  Dar es salaam Stock Exchange  listed corporations

(ii)  Dividend from  resident corporation to another resident corporation where the corporation receiving the dividend holds 25% or more of the shares in the corporation

5%

 

 

5%

5%

 

 

NA

Dividends from other corporations

10%

10%

Interest

10%

10%

Royalties

15%

15%

Other Withholding payments from Investment Returns.

15%

15%

Rental Income

10%

15%

Technical services fees (mining)

5%

15%

Transport (Non-resident operator/ charterer without permanent establishment).

N/A

5%

Insurance Premium

N\A

5%

Natural Resources Payment

15%

15%

Service Fees

5%

15%

Directors Fee (Non full time Directors) 

15%

15%

Commission to agents by service providers on money transfer through mobile phones.

10%

N/A

Payments for goods supplied to   Government and its institutions by any person.

2% of gross payment

N/A

 


Forms

ITX234.01.E Withholding Tax Certificate on Service Fees

Certificate/remittance slip in respect of withholding tax on service fees

ITX 230.01.E Withholding Tax Statement

Withholding taxes statement and payment of tax withheld

ITX 302.01.E Certificate remittance slip Withholding tax from bank interest.

Certificate/remittance slip in respect of withholding tax deducted from bank interest