• Legislative update
• Capital gain Tax on property.
• List of conditions for qualifying to pay 3% tax rate.
• List of conditions for qualifying to pay 10% tax rate.

Overview
In Tanzania, the realization of interest in land and buildings under the Income Tax Act entails various scenarios where ownership is transferred or relinquished, such as through sale, exchange, transfer, distribution, cancellation, redemption, destruction, or surrender. Additionally, in the case of interests held in entities, realization occurs when the entity ceases to exist, immediately preceding its dissolution. For individuals deriving gains from such realizations in the United Republic, the Income Tax Act mandates the payment of income tax through a single instalment. This provision ensures that taxpayers fulfil their tax obligations upon gaining from transactions involving land or buildings, contributing to the revenue collection mechanism outlined by the Act.

Legislative Update
These changes arise from two pivotal legislative updates: Government Notice (GN) No. 448C of 2023, also known as the Land Amendment Regulations 2023, which revises the Land (Fees) Regulations GN No. 83 of 2001, and the Finance Act No. 2 of 2023, which amends the Income Tax Act [Cap 332 R.E. 2019].

Capital Gain Tax on property.
Capital gains tax on property in Tanzania is governed by the Income Tax Act, in conjunction with the Income Tax Act Practice Note on Taxation of Gains from the Realization of Interest in Land or Buildings, No. 03 of 2013. This tax applies to gains realized from interests in land or buildings (Property) in the country.
The Finance Bill introduces a significant amendment by proposing a reduction in Capital Gains Tax from 10% on profits to 3% of the sales value (incomings) or the approved value of land, whichever is higher, for property sellers who do not maintain records of expenses. This adjustment aims to alleviate the administrative burden on sellers in substantiating investment costs related to the property. The reduced rate is intended to accurately reflect the tax liability without the need for detailed expense documentation.
Moreover, this provision seeks to minimize disputes with the revenue authority concerning investment costs, a common issue under the current framework. By offering a straightforward tax calculation based on sales value or approved land value, the government aims to create a more conducive investment climate.
Furthermore, the proposed change maintains flexibility by allowing sellers who maintain records of costs to opt for the current tax rate. This dual approach encourages compliance and addresses concerns about the perceived high tax burden, particularly among those who do not regularly file final tax returns. Overall, this initiative demonstrates the government’s commitment to fostering a fair and efficient tax regime while incentivizing investment.

List of conditions for qualifying to pay the 3% tax rate:
Residential Status: The taxpayer must be a resident of the United Republic of Tanzania.

1. The gain should arise from the sale or realization of an interest in land, buildings, shares, or securities in a resident entity.
2. The individual must not possess documented records detailing the costs associated with acquiring the assets in question.
   The 3% tax is applicable and calculated based on the higher value between the income generated from the transaction and the officially approved value of the asset.

List of conditions for qualifying to pay the 10% tax rate:

1. The taxpayer should be a Tanzanian.
2. The gain subject to taxation should result from the realization of an interest in land, buildings, shares, or securities in a resident entity.
3. Individuals should have a proper record of costs associated with the acquisition of assets that are subject to the standard 10% tax rate.
   The 10% tax is calculated based on the gain derived from the transaction, considering the documented costs associated with the acquisition of the assets.

Conclusion:
The proposed amendments outlined in the Finance Bill represent a proactive step towards streamlining tax procedures and fostering a more investor-friendly environment. By reducing the Capital Gains Tax burden and simplifying the calculation process, the government aims to alleviate administrative complexities for property sellers while ensuring fair taxation practices. Additionally, the provision for sellers to choose between simplified or traditional tax rates enhances compliance and promotes transparency in tax reporting. Overall, these changes reflect the government’s commitment to facilitating economic growth and encouraging investment in Tanzania.

Disclaimer: This article is for informational purposes only and should not be construed as legal advice. It is recommended to consult with a qualified legal professional for advice specific to your situation.

Written by Jacqueline Hima.