TAXATION OF THE DIGITAL ECONOMY IN TANZANIA: CHALLENGES AND RECOMMENDATIONS/KOMBA STELLAH BENJAMIN
Introduction
The rapid advancement of technology and evolving business models have significantly contributed to the growth of the digital economy worldwide. While this sector presents substantial opportunities for economic development, it also poses considerable challenges for revenue collection. The emergence of online transactions has created a new tax base leading to issues such as base erosion and profit shifting (BEPS). In response, countries are implementing unilateral measures, including the Digital Services Tax (DST), with Tanzania being a notable example. This paper examines the current state of digital service taxation in Tanzania, the challenges faced, and potential solutions.
Taxation of Digital Services in Tanzania
Tanzania has made significant efforts in taxing revenues generated from online transactions. The country has introduced both Value Added Tax (VAT) and income tax (DST) on electronic services provided by non-resident service providers to resident individuals. The applicable rates are 18% for VAT and 2% for DST, with an additional 3% withholding tax imposed on payments made to residents by digital platform owners.
Registration Requirement
Non-resident digital service providers (NRDSP) must register as taxpayers to comply with income tax obligations. They are required to remit DST at a rate of 2% on gross revenue generated from Tanzania and a 3% withholding tax on payments to residents. For VAT purposes, NRDSP must also register and remit VAT at an 18% rate, with no entitlement to claim input tax.
Remittance of Tax
Registered NRDSPs must file monthly online returns detailing the taxes payable (DST and withholding tax) and VAT. These returns and payments are due by the 7th day of the month following the reporting period. Payments are made in Tanzanian Shillings or equivalent to a designated bank account.
Enforcement
Tanzanian tax laws apply to any revenue sourced within the country. Payments for electronic services are considered sourced in Tanzania if the recipient's credit or debit card information, bank account details, billing address, or mobile country code indicates a Tanzanian connection.
Challenges
A significant challenge is ensuring compliance among NRDSPs regarding registration and tax payment. This process often relies on international cooperation and information exchange, which can be complex and resource-intensive. Additionally, the imposition of taxes lead to increased costs for consumers, potentially limiting access to digital services in a developing country like Tanzania, where affordability is a critical concern.
Recommendations
To enhance compliance, Tanzanian authorities should consider incentivizing registration and payment among NRDSPs. Strengthening tax administration capacity and actively participating in global discussions on digital taxation will be essential. Furthermore, Tanzania should evaluate its position within the OECD's Inclusive Framework to align with global initiatives aimed at taxing the digital economy.
Conclusion
The taxation of electronic services in Tanzania marks a significant step toward modernizing the country's tax system in response to the digital economy's realities. While challenges persist, the established framework has provided a foundation for capturing revenue from this growing sector. Addressing these challenges through strategic recommendations will be crucial for ensuring sustainable growth and equitable access to digital services in Tanzania.
References
Dentons (2024). Taxation of didital services in Tanzania: navigating the law, enforcement and new challenges.
OECD (2021). Addressing the Tax Challenges Arising From the Digitalisation of the Economy.
RSM (2022). Taxation of digital services.
Stead, Joseph (2021), “Taxing digital economies”, in OECD, Development Co-operation Report 2021:Shaping a Just Digital Transformation, OECD Publishing, Paris. https://doi.org/10.1787/3cf15fef-en
Tanzania Income Tax Act, 2004.
Tanzania Value Added Tax Act, 2014.
Comments