Following the issue of Practice Note No. 01/2013 for Withholding Tax on Payments of Service Fee to a Resident Person under Section 83(1) (c) of the Income Tax Act, Cap. 332 was issued in August 2013, a lot of issues have been raised by various groups who are affected by the it.
Some people Confuse when the Law says Resident Person Whether the Practice Note is applicable to Zanzibar residents or not;
The Practice Not number 01/2013 on withholding tax on service fee paid to a resident person under section 83 (1) (c) of the Income Tax Act, Cap 332 was made under Section 130 of the Act. Income tax is a Union matter, therefore the practice Note is applicable to all parts of the Union.
This Practice Note is issued under Section 130 of the Income Tax Act, Cap. 332 as amended from time to time.
This practice note was intended to address administrative problems arising from the wide scope of the recently introduced withholding tax on any service fee payable by a resident person to another resident person.
I will try to clarify on Some of issues Raised , This is to my Understanding of the practice as published by Tanzania Revenue Authority.
a) Lack of clarity between paragraphs 188.8.131.52 and 184.108.40.206 about types of services subject to withholding tax
Generally, the services whose payments are subject to withholding tax are professional services or consulting services of independent business character. The practice note under paragraph 220.127.116.11 has gone further to list these services to be those of scientific, literary, artistic, educational or training activities of physicians, surgeon lawyers, engineers, architects, surveyors, dentists, accountants and auditors. This list represents services falling under ‘’professional or consulting ‘’. The objective of the practice note is to cover service whose payments are subject to withholding tax under section 83 © of the Income Tax Act, Cap 332.
(b) Are services not listed in paragraphs 18.104.22.168 and 22.214.171.124 are subject to withholding tax.
The intention of the practice Note is to narrow down the scope of the application of Section 83(1)(c) to professional or consulting service only where a resident person pays service fees to another person. Paragraph 126.96.36.199 of the Practice Note provides for the service that are of professional or consultancy nature which were intended to be subject of the withholding tax. This paragraph has listed some of the professional or consultancy services. However, this paragraph has only some of The professional or consultancy services falling within the withholding tax net and hence the list is not exhaustive. In so far as the service is a professional service or a consultancy service it falls within the ambit of paragraph 188.8.131.52
Paragraph 184.108.40.206 has provided a list of payments that are excluded from the scope of the 5% withholding tax that would have otherwise been subjected to the tax by virtue of Section 83 (1) (c).
Therefore, in order to determine whether a service fee payment is subject to withholding tax of 5%, one has to check whether the service fee is of a professional or consulting in nature. If the service is not professional or consulting in nature then the payment in respect of the service is not subject to withholding tax deduction. On the other hand, if the service is professional or consulting in nature and it is not specifically listed under paragraph 220.127.116.11 then the payment is subject to withholding tax.
List of Services Not Applicable to WT Deduction:
|SN||Type of Service||Applicability of withholding tax|
|1||Hotel/ accommodation||Not applicable|
|2||Security services||Not applicable|
|3||Clearing Services||Not applicable|
|4||Loading and offloading services||Not applicable|
|5||Storage services||Not applicable|
|6||Packaging Services||Not applicable|
|7||Vehicle Rental||Not applicable|
|8||Equipment rental||Not applicable|
|9||Supply of agency staff||Not applicable|
|10||Telephone Services||Not applicable|
Blessed Sunday ALL