CHAPTER ONE

INTRODUCTION TO TAX LAW

You should be familiar with the following areas

  • Concept of Tax and Tax Law
  • Types of Taxes
  • Historical Background of Tax Law
  • Tanzania
  • Sources of Tax law in Tanzania

1.1  CONCEPT OF TAX AND TAX LAW

Meaning of Tax

The Oxford English Dictionary define tax as the compulsory contribution to support government, levied a person property, a person, income commodities transaction, it fixed rate which is mostly proportional to which amount of contribution is levied.

Second definition of Tax

Is the compulsory levied that, liquated imposed under authority of law, enact under parliament purpose for rise revenue for governmental use.

Black’s Law Dictionary 8th Edition 2004 pg 1496

Is the momentary charge imposed by the government on person, entities, transactions or property to yield public revenue.

Definition of Tax Law

The Act does not define but gives us, what constitute Tax law, section 3(2) of the said act provides “tax law includes-

  • a law listed in the First Schedule to the Tanzania Revenue Authority Act but does not include the East Africa Community Customs Management Act;
  • any other law providing for administration of tax by the Authority
  • any international agreement concluded under section 7; and
  • any regulations made under this Act or made under any Act mentioned in paragraph (a) or (b);

1.2  TYPES OF TAXES

  • Indirect taxes
  • Direct taxes
  • Taxes on international trade
  • Other taxes

I.                    Indirect Taxes

Is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer). The intermediary later files a tax return and forwards the tax proceeds to government with the return.

Examples Value Added Tax, excise Duty on Locally Manufactured Goods

.

II.                  Direct Tax

Are one type of taxes an individual pays that are paid straight or directly to the government, such as corporation tax, individual Income, Individual Income Tax, Taxation of Small Traders with or without Complete Recorded, Gains or profits from employment, Gains or profits from Business and Gains from Investment.

  • Tax on International Trade

These are taxes on international trade include import duties, export duties, profits of export or import monopolies, exchange profits and exchange taxes.

  1. Other Taxes
  • Skills and Development Levy
  • Stamp Duty
  • Airport Service Charges
  • Port Services Charges
  • Motor Vehicle Registration and Transfer Fee
  • Motor Vehicle Annual License Fee

1.3  HISTORICAL BACKGROUND OF TAXATION IN TANZANIA

Tanzania has had a taxation system according to modern principles since the turn of the century. It was introduced by the colonial European powers which took charge of the administration of the territory.

1.3.1 GERMAN

Germany introduced simple forms of direct taxes such as the hut and poll taxes. These were introduced primarily to force the Adrican population to participate in the money economy and only incidentally to raise revenue. The budgetary expenses of the colonial administration were mostly financed by grants from the imperial government. However, the German period in Tanzania did not have a lasting impact on the country’s legal institutions including taxation. This is because they failed to establish effective control of the territory.

1.3.2 BRITISH

The end of first world war in 1919 saw the end of the Germans in Tanganyika. The country was declared a trust territory of the league of Nations and handed over to the British (as trustees as behalf of the league of Nations). It was the latter who established institutions that shaped Tanzania’s legal and tax structures.

Income taxation was first introduced by the British in 1940. The first Income Tax Legislation was based on a model Colonial Tax Ordinance which was essentially a simplified version of the United Tax Legislation as it existed in about 1920.

Under the British Income Taxation was primarily intended for the European portion of the population. The Africans were taxed though import and excise duties maily because of their low income and literacy levels.

Income taxation was first introduced by the British in 1940. The first income Tax Legislation was based on a model colonial income Tax Ordinance which was essentially a simplified synthesis of the United Kingdom Tax Legislation as it existed in about 1920

Under the British, income Taxation was Primarily intended for the European Portion of the Population. The Africans were taxed though import and excise duties because of low income and literacy levels.

Statistics show that an Africa middle class handy existed in 1950s. By 1957 there were less than 15,00 Africa males earning wages of more than 10 pounds per month. Cash crop farming although extensive has a yet produced very few substantial Commercial farmers.

According to Stephens, in 1957/58 only 740,000 men (32% of the total number of adult males in the country) were participating in the money economy. These were devided approprimately equally between cash crop farms and wages earners.

On the other hand adult literacy was estimated at between 5% and 10% in 1950. In 1957, only 4% of the population lived in cities and towns with populations exceeding 5,000. The conditions were very unsuitable for imposing income taxation in mass seale.

In 1948, the British created the East Africa High Commission as a statutory Corporation to administer and provide in Kenya, Uganda and Tanganyika. The Order in Council set a Legislative Assembly with Powers to Legislate in certain specified matters. Such Legislation would, when enacted override the conflicting Territorial Legislation. The specified matters were in the Schedule to the Order in Council.

High commission decided to synchronize all the Tax Legislation in the territories by enacting a single Managing Act to deal with the whole of the East Africa region (excluding Zanzibar) leaving each territory to enact separate legislation dealing with rates and allowances.

The East Africa Income Tax (Management) Act 1952 was passed repeat the territorial Ordinances with retrospective effect to 1st January, 1951. Between 1952 to 1958 this Act was amended five times.

However, it remained in force until 1958 when the East Africa-Tax (Management) Act 1958 was enacted. It was at this juncture that one can  say stable system was established. According to the scheme of the 1958 Act, Tax was levied on the residents of the East Africa upon their income from sources within East Africa-income from services outside East Africa was taxed to the extent that such income was remitted to and received in East African. There was no tax liability upon their income from sources outside East Africa.

1.3.3  INDEPENDENCE AND POST INDEPENDENCE

During the period between independence and Arusha Declaration, there were relatively few economic hardships and crises. The Government maintained a small bureaucracy and hence a lean administration. Tax compliance was high and corruption had not become an issue.

During this period, income taxation to be part of the Taxes administered by the East Africa Common Services Organization. All the major taxes such as Company and individual taxes, customs and excise duties were assessed, levied and collected by the organization on behalf of the three Governments.

The year 1967 witnessed a change of trend in Tanzania. In February 1967 Tanzania took a decisive step towards socialism with the adoption of the Arusha declaration at the meeting of the TANU National Executive Committee, a policy ststement later adopted by the party conferencre.

The Major economic effect of the Declaration was the policy of Nationalization. The objective of Nationalization. During the period of 1967-1985, taxation was used merely as a tool for revenue collection and a level for adjusting Government budgetary inbalances. No distinctive Tax Policy is identifiable save though broad objectives compuising the once celebrated Arusha Declaration.

The justification of taxation as mere instrument for collection of revenue to meet governmental expenditures hugs on the policy of socialism and self Reliance (Ujamaa na Kujitegemea). Under the aid policy, the government assigned to itself the task of ensuring economic growth and development of directly monopolizing the factures of the interprences and the investor.It also assumed the philanthropic task of social provider.

1.3.4 PERIOD OF 1980S

Tanzania’s centrally planned economy did not last longer, it ended in 1980 when efforts to liberalize started.

Trade liberalization has its origin in the economic crisis of the early 1987. A sharp decline in the availability of foreign exchange led to a severe restriction on the level of imports. The scarcity of imported inputs led to a sharp decline in industrial production. There was an extreme shortage of both locally produced and imported goods. The economy was in a downward spiral in which scarcity of consumer goods, inputs and transport equipment contributed to further declines in exports which in turn have rise to additional ewsion in the capacity to import.

1.4  SOURCES OF TAX LAW IN TANZANIA

There are various sources of tax law in Tanzania

  • The Constitution of United Republic of Tanzania

The provision of Article 138 of the Constitution of United Republic of Tanzania, 1977 Cap.2, sub article 1 require that there should be no taxation except under authority of law, enacted by parliament. Again article 99(1) of the Constitution, provide for the procedure for legislation matter, whereby government can introduce tax bill in parliament, to mean that there is no tax of private bill.

  • The Statutes

These derived from parliament which make such laws such as the Income Tax Act, 1973, The value Added Tax, The public Finance Act e.t.c. Complimentary to all these pieces of legislation are the finance Acts which often amend the various provisions of the taxing statutes or provide for new or additional matters thereto.

  • Case Law

These are decisions of judicial authorities on matters concerning taxation to which reference is frequently essential. It is important to note, however, that is construing taxing statutes the courts or judicial authorities do not create new law. But, precedents are very important in deciding particular points at issue and also for the principles which may be derived from the interpretation of statute by judicial authorities. Hence case law authority.

  • International Instruments

The organization for European economic co-operation and Development Model Tax treaty (OECD). Tanzania is member of the following model

  • Canada
  • Denmark
  • Finland
  • India
  • Italy
  • Norway
  • South Africa
  • Sweden
  • Switzerland
  • Zambia