contents guide... · 8.0 conclusion ... • sole proprietorship ... sole proprietorship this type...

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CONTENTS

PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(i)

1.0 ART OF ENTERPRENEURSHIP AND

STARTING A NEW BUSINESS . . . . . . . . . . . . . . . . .1

2.0 DEVELOPING YOUR BUSINESS WITH

CUSTOMER FOCUS . . . . . . . . . . . . . . . . . . . . . . . . .8

3.0 DEVELOPING A SUCCESSFUL

BUSINESS STRATEGY . . . . . . . . . . . . . . . . . . . . . .10

4.0 EFFECTIVE SALESMANSHIP . . . . . . . . . . . . . . . .14

5.0 PILLARS OF YOUR BUSINESS . . . . . . . . . . . . . . .19

6.0 BUSINESS RECORDS . . . . . . . . . . . . . . . . . . . . . .21

7.0 TYPES OF TAXES AND HOW TO

CALCULATE THEM . . . . . . . . . . . . . . . . . . . . . . . . .23

8.0 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

PREFACE

Tanzania Revenue Authority (TRA) in collaboration with the Zanzibar

Revenue Board (ZRB) has decided to introduce seminars on

entrepreneurship skills to small and medium taxpayers. The main

objective of conducting seminars in entrepreneurship is to create

awareness among entrepreneurs and future entrepreneurs as a

prerequisites for starting and managing a sustainable business

enterprise. This move has been triggered by the fact that the taxpayer

is the main player in mobilizing revenue for the two governments of

the United Republic of Tanzania and that of the Revolutionary

Government of Zanzibar. On this note, seminars in entrepreneurship

will be conducted to involve small and medium taxpayers and

stakeholders in tax management.

Small and medium size entrepreneurs contribute greatly to the

Government efforts towards economic growth and poverty

eradication under MKUKUTA, for Mainland Tanzania and MKUZA for

Zanzibar. It is therefore important for TRA and ZRB to observe their

role as partners in revenue collection and provide training to other

stakeholders on how to effectively manage business, increase sales

and sustain in business environment.

This publication for small and medium taxpayers has been released

at a time when the fourth phase Government of United Republic of

Tanzania is determined to improve the livelihood of Tanzanians

through various strategies. The book gives a brief explanation on the

art of entrepreneurship, advantages of entrepreneurship education

such as; expanding businesses, how to increase income that

ultimately leads to poverty alleviation in our communities, creating

employment opportunities, widening of the tax base of collection and

increasing government revenue.

During various seminars regularly conducted by revenue authorities

on the tax laws, regulations and payment of tax, the need for

entrepreneurship education to the taxpayers has clearly been noted.

Many taxpayers do not know much about entrepreneurship and its

role in business promotion. They lack tactics of business

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administration, management skills with a customer focus and

knowledge of effective salesmanship. They cannot meet the

challenges of competition; and they are not exposed to the art of

records keeping.

It is our sincere hope that this book will be useful to all stakeholders

as it has focused on entrepreneurs specific goals such as: How to

assist an entrepreneur in developing his/her business, how to impart

skills in record keeping in order to monitor business transactions,

ways of increasing openness in tax collection and disperse fear from

Small and Medium Enterprisers, (SMEs). The book also attempts to

create better business expectations of business operations; and how

to create a healthy relationship between taxpayers and tax authorities

as an important component towards success in business.

The preparation and publication of this book was made possible

through the co-operation and the assistance of Gtz through their tax

consultant Mr. Bernd Nuedling which supports TRA both materially

and financially. Appreciation also goes to Mr. Paul T. Chizi MD of

Customer Support Systems Ltd. for their valuable advice as

consultants on the adequacy and quality of the materials in this

publications.

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PART ONE

1.0 ART OF ENTREPRENEURSHIP STARTING A NEWBUSINESS

1.1 ART OF ENTEPRENEURSHIP

The word entrepreneurship comes from the word

enterprise and means:

• Determination to look for and eagerness to get wealth

• The ability to identify existing opportunities and courage to

exploit emerging opportunities

• The ability to overcome obstacles that may hinder

business operations.

Therefore an entrepreneur is a person who is able to identify

and exploit existing opportunities to establish and manage

viable enterprises by applying the main pillars of business,

which are; manpower resources and working capital. He is a

planner with a vision and mission who is dedicated to run

his/her business with success. He is also confident, self-

driven ready to work for long hours; a person who is quick to

realize his/her mistakes and take remedial measures; and

one who is willing to spot out other talents and use them to

accomplish business plans

1.2 MEANING OF BUSINESS

Business is an act of buying and selling property, goods

and/or delivering services, with the aim of earning profit.

The national policy of 2003 of developing small and medium

size entrepreneurs divides businesses into four main

categories by considering the number of employees and

operating capital as follows:-

1

Table no 1: CATEGORIES OF BUSINESSOther criteria used by Tanzania Revenue Authority to determine

categories of taxpayers are the yearly net-capital sales or the

magnitude of taxes one pays per year.

As business location has a great influence on the performance of

an enterprise, you should therefore: -

• Make sure that your business site is legally recognized in

terms of land registration and building permits

• Identify existing institutions, resource people, and

government departments which can play a role in

strengthening your business

• Make sure that there exists the necessary business

infrastructure (roads, water, electrical supply, etc.)

1.3 CONSIDERATIONS FOR DETERMINING THE RIGHTBUSINESS

Before you engage in business, you should decide what type

of enterprise you would operate by considering the following

parameters:-

• The availability of raw materials, goods or services, you

want to sell or offer

• Competitors against your business

• Market for your goods, and interests of the customers

• Running cost of your business

• Procedures of paying taxes and various fees

2

SN BUSINESS TYPE NO. OFEMPLOYEES

BUSINESS CAPITAL

1. Minor enterprise 1 to 4 Under TZS 5,000,000/=2. Small enterprise 5 to 49 From TZS 5,000,000/=

To TZS 200,000,000/=3. Medium enterprise 50 to 99 From TZS 200,000,000/=

To TZS 800,000,000/=4. Large Enterprise Over 100 Over TZS 800,000,000/=

• The climate of your business location

• Living environment of the people around (peace and

tranquility, wars, peoples income, etc)

1.4 THE RIGHT BUSINESS PARTNER

Having confirmed your business location and the necessary

infrastructure in terms of human resources, related

institutions, and relevant government departments, you

should look into other criteria of selecting the right business

partner.

• Do you have the capacity to effectively run your own

business? If yes, do you have the necessary skills to

manage your enterprise?

• Is it logical to manage the business alone or there is a

need to form partnership with other people? Here you

should take into account how you can run your enterprise

during times of sickness, emergency, etc.

• Have you observed all legal measures of establishing your

partnership or cooperation?

In looking for the right business partner, consider the

following:-

• The partner should be ready to take business risks.

• Should have appropriate education and relevant skills to

run the business.

• Should have a vision and ambition of sustaining the

business.

• Should be willing to commit dedication, time, resources,

and energy in order to develop the business.

1.5 DETERMINING THE BUSINESS STRUCTURE

Knowledge of different forms of business will enable you to

choose the appropriate structure for your new enterprise. The

following are some of the forms of business.

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• Sole proprietorship

• Partnership

• Private/Public company

(a) Sole Proprietorship

This type of business is solely owned by a person assisted by

his/her children or spouse. The owner, may employ a

manager but he/she remains the final decision maker and

responsible for debt obligations of the company. In case of

bankruptcy, the owner of the company will meet all

obligations, profit and liabilities.

This type of business structure has no requirement other than

working capital, business license, and company registration

and enterprise management. Its disadvantage is that

everything lays on the owner’s shoulders. When his/her falls

sick or entangled in problems, your business will certainly fall.

Its advantage is that the owner has the freedom to plan and

develop his business at a desired pace.

(b) Partnership

Partnership is made of two or more people (not more than 20)

who have decided to join hands in business. The advantages

of this structure are as follows:-

• Develops working capital

• Diversified skills as partners complement their business

knowledge and experiences

• Lowers tax rates in comparison to a sole trade (look at the

example in section seven).

• Each partner is bonded to the business; and all of them

are liable to the business debts.

(c) Company

Companies fall into two categories namely: the private and

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public company. This type of companies is bonded to the

enterprise and its debts and the business transactions have

no relationship to the individual property of its owners. In case

of bankruptcy, and if the debts exceed the company property,

the liquidator will have no mandate to seize individual

property of the directors or shareholders.

Before one determines the structure of his/her intended

business, it is better to ask the following questions.

• Which structure is suitable for your capital?

• Which structure has less legislative conditions?

• Which structure will incur less taxes and fees?

• Which structure offers a better flexibility?

1.6 BUSINESS REGISTRATION

Any business has to be legally registered. You should register

your business with relevant institutions, and related

government departments in order to legalize your enterprise.

In the cause of registration, make sure you get all receipts and

necessary documents. Abide by Legislative procedures to

avoid unnecessary future disturbances.

The conditions that are listed at the backside of a trading

licence are as follows: -

• The Licensee in not allowed to put any conditions to the

buyer

• The Licensee shall issue receipt for each sale he makes

• The Licensee shall adhere to the provisions of the Trade

License Act (No. 25) of 1972 together with its

amendments (No.9) of 1980

• The Licensee shall not provide services or goods, which

are substandard as per recognized institutions that control

quality standards.

• The trading license may be impounded any time if found

to be illegally obtained or violation of conditions of the

license.

The act of doing business without a trading license is an

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offence and upon conviction the licensee is liable to a fine of

TZS 50,000 but not more than TZS 100,000 or imprisonment

for a term of not more than two (2) years or both fine and

imprisonment.

In order to be considered for issuance of trading license must

posses the following qualifications: -

• Your age should be not less than 18 years old

• Ensure that you have an authorized place of business

• Should be sane

• Should be a good citizen without criminal offences and if

not a citizen you must have Class A permit from

Immigration Department.

1.7 RAISING CAPITAL FOR YOUR BUSINESS

Business capital can be raised from your own saving or funds

from your colleagues. You can obtain loans from financial

institutions such as Banks, Pride, Finca, Poverty Africa, etc.

You can also take advantage of the government strategies

such as MKUKUTA, MKUZA, MKURABITA, etc.

Make sure you fully exploit these opportunities to raise and

develop your business. Other opportunities at hand are

SACCOS, and the special funds allocated to each region by

the Government.

1.8 APPOINTING THE MANAGEMENT FOR YOUR BUSINESS

You should assess your own potential and the potentials of

your partners and workforce to meet the goals of your

business. After identifying the strengths and weaknesses of

everyone who is part of the business, appoint competent

managers who will lay out plans and strategies to develop the

business. Without qualified managers, it shall be difficult to

achieve the set objectives.

If you do not have among yourselves, a person with the

desired qualities, you should employ an expert to run your

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business.

1.9 BUSINESS FAILURE/SUCCESS

Business is started to become sustainable. Nobody who

establishes a business would like to see it dying eventually.

The question to ask ourselves is “Why do businesses fail?”

According to surveys conducted in America in 1981, it was

established that, out of 100 enterprises that were started, 65

died within three years, and 17 out of the remaining business

died in the following two years. This means that only 18% of

the enterprises exist beyond the first 5 years. What is the

status in Tanzania?

In Tanzania some of the businesses once established are not

sustainable due to the following reasons: -

• Insufficient capital

• Inadequate business knowledge and skills

• Poor business management (selfishness, low integrity

etc)

• Wrong business location

• Unexpected business competition

• Unfriendly laws

• Bankruptcy

• Lack of customer focus

• Hazards and calamities

1.10 PRODUCT STANDARDS AND CERTIFICATION

For a successful business the entrepreneur should ensure

that the product that is trading with must have a certification

of its specifications approved by a recognized government

institution or authority. This is purely for healthy/safety, social,

and economic and for security reasons. For example locally

produced products should be certified with the Tanzania

Bureau of Standards. For exports of agricultural products

they should conform with the Sanitary and Python-Sanitary

Standards, or should have Product Certification/Quality

Standards such as ISO, Organic Product Certification

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Schemes.

PART TWO

2.0 DEVELOPING YOUR BUSINESS WITH CUSTOMERFOCUS

Who is a customer?

Customer is a person, company, institution, or group of people

who buy goods or services from you. He/she can come from

within or outside the business entity.

2.1 Customer Care Philosophy

A customer is the boss and a pillar of business success.

The aim of any business be it production, trading or provision

of service, is to realize profit to satisfy the needs of the owner.

Customer care is the main approach that will consolidate your

business and increase your income. You will develop your

business if you offer good services that will satisfy customer

demand and attract other customers to come and buy or get

services from you.

2.2 Factors that may lead to business growth

• To raise prices on goods or services. This approach may

not be successful and could drive away customers.

• To lower or retain prices thereby increasing the number of

customers and sales of goods or services.

• To know customer expectations and satisfy their demand.

• A customer who is not satisfied by your goods or services

will discourage others not to come and buy from you.

The philosophy of customer care is “alpha and omega” of your

business. This means that the customer will contribute to the

development of your business by praising it such that other

people will be tempted to come and buy/get services from

you. A customer may send away other customers by

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negatively publicizing your business.

2.3 IMPORTANT POINTS TO NOTE ON CUSTOMER CARE

The entrepreneur should be aware of various factors in caring

his/her customers.

• To view the customer as the essence of your business by

recognizing his/her values. No customers no business

• To develop the culture of valuing your workers. It is the

worker who meets the customers and may build the

reputation of your business or destroy it.

• To see things from the customer’s viewpoint.

2.4 BUILDING A SUSTAINABLE BUSINESS

Factors that make businesses sustainable will be discussed

in depth in their respective sections; however some of these

factors are: -

• Select the appropriate model for your business after

partnership, company, cooperatives and corporation.

• Appoint competent leadership and skilled labour with

customer focus.

• Place your business in proper location.

• Develop appropriate strategies to address business

competition.

• Prepare and maintain a proper balance sheet.

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PART THREE

3.0 DEVELOPING A SUCCESSFUL BUSINESS STRATEGY

3.1 STRATEGY VIS-À-VIS BUSINESS VISION AND MISSION

It is important to match the vision and mission of your

business. This will mean that you have to evolve strategies

that will focus on the mission of the business vision.

3.2 BUSINESS STRATEGIES

In order to succeed in trading or service delivery, one should

ask the following questions:

• What type of goods or services do you want to offer, now

and in future?

• What kind of customers do you intend to serve, now and

in future?

• In which areas (e.g. within Tanzania, East Africa, Africa or

Overseas) should you expand your business and why?

• How do you distinguish yourself from your business

competitors, now and in future?

• What competitive strategies do you deploy in order to

thrive and reach your business targets?

• What commitments do you make to the society?

• What benefits are your employees deriving from your

business?

Answer to these questions will determine your customers,

future customers, ways of reaching them, competitive

strategies, financial rewards and the expected contribution of

your business to the socio – economic growth of your

community.

After laying out the strategies, you can now workout yearly

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plans to achieve the mission of your business. It is therefore

important to make regular evaluation of the business trend to

ensure conformity with your business plan.

3.3 EVALUATE BUSINESS ENVIRONMENT

A serious entrepreneur who is looking for a success in

business will initially carry out an environmental assessment.

This is because the environment may boost your business,

stagnate it or kill it. Your evaluation should take into account

the internal and external features of your enterprise.

3.3.1 Internal environment of your business

In order for your business to thrive, it is recommended to

make thorough assessment of the internal factors.

(a) Capacity

Determine your ability, understanding and the scope of your

vision for the business you aspire to undertake by evaluating:-

• Your capital. Make sure you have enough capital to

effectively run your business.

• Quality of your goods and services

• Knowledge of your customers and their customs

• Understand your business competitors

• Knowledge and skill of the business.

(b) Weaknesses

It is important to understand the weaknesses that may affect

the growth of your business, for example:-

• Lack of customer focus

• Lack of techniques for overcoming competition

• Supply of goods and services not timely delivered

3.3.2 External environment of the business

Determine the opportunities and threats of your enterprise so

as to lay out viable strategies for developing your business.

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(b) Opportunities

• External capital, for example, aid, grants, loans, etc.

• A conducive business environment will attract investors to

enter into partnership with local entrepreneur e.g.

Tanzania Certificate of Incentive to investors.

• The establishment of the East African Common Market

that will expand the scope of business undertaking.

(b) Threats

• Internal competition

• External competition from multinational companies which

invest in our country

• Change in legislations, which do not favour local

industries or business enterprises

• Business environment in Tanzania can be difficult for

SMEs to conduct effective business due to multiple

licenses or permits, contract enforcement. However the

government is trying to streamline and simplify the

procedures with a view to facilitate business.

3.4 ENVIRONMENTAL SCANNING: CURRENT AND FUTURE

The PESTL analysis:(a) Political

The political trend may negatively or positively affect

your business.

(b) EconomicA health economic environment will empower the

people to buy your goods or services. How much does

the government play its part in improving the business

environment for the local entrepreneur? (Consider the

necessary social infrastructures of law and order,

means of transport, road network, health facilities,

etc.)

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(c) SocialHow does:-

• The community gains from the sales of your goods

or services?

• How does your business protect the environment?

(d) Technological• Ho do you intend to take your business beyond the

borders. Taking advantages of opportunities that

exist in East African Customs Union and SADC.

• Do your working equipment conform to the ever-

changing technology?

(e) LegalHow does the legal framework protect the local

entrepreneur?

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PART FOUR

4.0 EFFECTIVE SALESMANSHIP

The purpose of a business is to generate income. Expertise in

salesmanship will develop your business, deliver necessary

requirements, and improve your well being.

4.1 DEPLOY GOOD SALESMEN /WOMEN

In the cause of selling goods/services, lay sound strategies in

promoting your business. These strategies include:-

(a) Ways of reaching the customers

(i) Advertise you business using the media such as TV, radio,

placards, publications, etc.

(ii) Buy the idea that, “Business advertised is business

delivered.”

• If necessary, take your goods to the customer’s door

• Where possible employ agents.

• Visit your customers to promote your goods and get

their feeling about your business.

• Use questionnaires to explore market demand for your

goods or services.

(b) Differentiate yourself from your competitors

Your business will thrive if you display your goods through

different ways from that of your competitors

• Offer competitive prices to your main customers.

• Decrease prices beyond those of your competitors to

attract customers.

• Introduce psychological reductions of price and business

trade mark.

• Announce grand price deductions for out fashioned

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products.

• Employ attractive salesmen/women who offer better

customer care than your competitors (smiling, receptive,

presentable, etc).

• Make good display of your goods in your shop.

(c) Identify your customers

Considering the social diversity of our communities, a

businessman has an opportunity to dispose of his/her goods

or services if he capitalizes on the social groupings. The

society falls into different categories in conformity with their

cultures traditions, social norms, economic status, behavior

etc.

In that case you can sell your goods or services in line with

the aforesaid divisions.

• Identify areas where you can sell products of a certain

quality.

• Determine the economic status of your customers.

• Observe the culture and social behavior of the society in

relation to the quality of your goods.

• Determine the needs and expectations of each group of

customers.

4.2 OVERCOMING YOUR COMPETITION

Address the following basic issues:• Do your actions, goods and services attract customers?

• Do you understand the needs of your customers?

• Of what benefit are your goods and services to the

customers?

• Constantly compare your prices to those of your

competitors.

4.3 NORMS OF SALESMANSHIP

When selling goods, observe the followings:-

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• Attract customers to buy at first sight.

• Create good impression to your customers.

• Make sure you use the initial few words to sell your goods.

• Keep records of important elements of your customers to

be able to mention their names when they come to buy

from you.

• Develop courage to look straight into the faces of your

customers when you are doing business with them.

4.4 COST CONTROL

You should be cost conscious in order to reduce running cost

of the business. The following ways will guide you in reducing

or avoiding unnecessary costs and making profit. Cutting

down costs of procurement and business administration will

enable to expand your enterprise. You may categorize these

costs in three groups

(a) Procurement and storage of goodsBefore you indulge in procurement of goods, ask

yourself the following questions:-

• Are the goods you want to buy easy to sell? Does

the market need them? (in terms of quality, price,

environment, etc).

• Is the source of supply to acceptable standard?

(in terms of distribution, price, processing, etc)

(b) Management of goodsProcurement of goods contributes greatly to the over

all cost of business and should therefore be monitored

very closely.

Ways to restrict cost in procurement and improve

business

performance are:

• Lead timeThe businessman/women should have a

timetable to lead him/her in making

procurements from the time of ordering to the

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securing of goods, before available goods are

obsolete or get to minimum stock level. If new

supply is delayed current stock may get finished

and disturb the flow of business.

• Economic Order quantityBefore you decide how much you want to order

you have to underscore the cost implications of

buying large quantities and storing part thereof

or ordering more than once. If the costs of

making a single order are greater than that of

several orders or vice versa, that kind of order is

not beneficial to you. An economic order is

achieved when the cost of a single order is equal

to that of storage; for further explanation, refer to

the diagram below: -

CHANGES IN STORAGE, PROCUREMENT AND SALES OF

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_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _

GOODS(c) Running Cost

• Avoiding unnecessary costs by reducing family

expenditure and ensuring you do not spend more than

you can afford.

• Reduce administrative cost (such as water bills,

electricity, telephones, etc).

• Do not buy unnecessarily expensive furniture.

4.5 Other operating costs

Avoid penalties for non-compliance with statutory payments

(Taxes for TRA /ZRB, City/Municipal/Town Councils, Licence,

etc)

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PART FIVE

5.0 PILLARS OF YOUR BUSINESS

It is important to realize that whenever you engage in

business there is a silent partner in business engaged in

creating the right environment for your business. This

silent partner is the government as it ensures that roads,

hospitals, utilities schools are in good condition for the

conveniences running of your business.

It is therefore imperative that part of the profit that accrues

is paid to your silent partner. This type of dividend is

generically called tax. It is therefore important to operate

your business in a transparent manner so that each party

in the business (also the tax administration) can have

access to the information and be satisfied.

5.1 DISTRIBUTION OF DIVIDEND

5.2 Government Dividend

• The government dividend forms the expenditure of her

yearly budget. This dividend is known as tax, a name that

is misinterpreted and given a negative connotation,

making its collection difficult.

• Training in tax management is meant to make you aware

of your responsibility of paying government taxes

voluntarily and educate your neighbours who are yet to

receive this education, of their duty of paying their

respective fees and taxes.

5.3 Dividend of the Entrepreneur

• Your dividend is the remaining part of the profit of your

business after you have paid government taxes. You can

use it for your current and development expenditures and

even boost the capital of your business or start a new

business out of the education, knowledge and skills you

19

have obtained from this training.

• Your dividend is part of the profit, an attractive name in

the ears of everyone, who hears it. If you do not have

these pillars, your business will tend to fall, changing the

profit into a loss.

• This publication reminds you of your noble responsibility

registering your business and obtaining the Taxpayer

Identification Number (TIN). Future expectation is to see

your business records showing the progression of your

business for your sake, community and the nation at large.

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PART SIX

6.0 BUSINESS RECORDS

In the last section we underscored the need for transparency

in managing your business. This essentially emphasizes the

need of keeping proper records. This section shall dwell much

more deeply on record keeping.

6.2 WHAT ARE RECORDS?

• A record is anything that contains information for one to

remember.

• In business, records refer to documents for

remembrance/reference.

• Documents for remembrance are written specifically to

enable the stakeholder remember or create in his/her

mind the real picture of the flow of the business.

6.2 THE NEED FOR BUSINESS RECORDS

• Proper records will reveal the actual profit of the business.

• Records assist in tracing the flow of business and its

corresponding income.

• Records assist in confirming or giving testimony to a

business transaction, for example, procurement of good

without receipts, or buying illegal property.

• Proper records enable the business stakeholder to know

his real income and determine the actual taxes he/she has

to pay.

• Records enable the entrepreneur to determine his/ her

needs from business investors, from within or outside the

country. For example, getting loans or business skills from

various institutions.

Every business man/woman is required to keep records and

books of accounts of his/ her business. Records should be

kept within the prescribed time frame. Failure to keep proper

records is illegal.

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6.3 TYPE OF RECORDS

There are many business records that are grouped according

to the size of the enterprises. Some of them are:-

• Receipts of sales and purchases

• Copies of tax invoice which were issued showing VAT that

was collected

• Copies of tax invoice which were received during

purchases showing VAT payments

• Debit and Credit Notes

• VAT account

• Purchase day book

• Sales day book

• Production records of industrial goods and how they are

distributed

• Accounts showing yearly income and expenditure and the

final accounts of business

• Cashbook, petty cash, and other books of accounts

• Business communications

• Bank statement

• Records stored in a computer.

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PART SEVEN

7.0 TYPES OF TAXES AND HOW TO CALCULATE THEM

7.1 VALUE ADDED TAX (VAT)

VAT is a consumption tax charged by VAT registered traders

on all taxable goods and services at a standard rate of 20%.

The VAT is a multistage tax levied at each stage of production

and distribution up to the retail stage. The tax is also levied on

taxable imports made by persons whether or not registered

for VAT.

All traders whose taxable turnover exceeds TZS 40 million per

annum (for Tanzanian Mainland) and TZS 20,000,000 (for

Zanzibar) are obliged to apply for VAT registration to the

respective Commissioners in their respective Tax Authority.

They are also required by law to keep records and books of

accounts of their business.

(a) VAT ACCOUNT

This shows, on one hand, a brief report of tax collection on

sales and any changes in tax collection and on the other hand

a brief report of taxes paid on purchases and any changes

made in taxes, which were paid. Thus the actual VAT paid or

remitted shall be realized.

You are supposed to keep VAT brief reports within the period

of VAT returns. Add the columns of VAT in your books of

account regularly, say weekly, and the sum should be written

in briefs under the following headings:-

Table no: 2 VAT ACCOUNT

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S/N VAT ON PURCHASES VAT ON SALES1. Internal purchases Sales2. Imports of goods Goods for personal use3. Errors of previous returns Errors on previous returns

Total Total

At the end of each tax period add the figures on each heading

and insert them on your VAT returns.

(b) HOW TO CALCULATE VAT ON SALES

If VAT is inclusive in the sales of goods or services, the result

is a “price that includes VAT”.

The VAT fraction is r , where r = tax rate.(r + 100)

Using VAT tax rate of 20%, VAT on sale and purchase can be

obtained by using the VAT fraction 20/120 of the VAT included

price.

Example 1

BAHATI bought goods worthy TZS 1,200/=, VAT included.

The value of VAT can be determined as follows: -

By using the VAT fraction

VAT : 20 x 1,200 = TZS 200/=

120

The actual value of goods shall be obtained by subtracting

VAT from the gross values of goods, i.e.

Actual Value of goods = Value inclusive of VAT – VAT

= TZS 1,200 – TZS 200 = TZS 1,000

Therefore:

• VAT on goods shall be TZS 200

• Actual value of goods is TZS 1,000

Example 2

How to calculate VAT on goods or services that are VAT

exclusive

.

BAHATI is an entrepreneur of a whole sale shop, who is VAT

24

registered for the tax period of November, 2006; she has

bought and sold goods as follows:

Value of goods bought (VAT excluded) TZS 100,000.00

VAT on purchases (20%) TZS 20,000.00

Value of goods with VAT TZS 120,000.00

Profit on sales is as follows:

Value of goods without VAT TZS 100,000.00

Profit and expenses TZS 20,000.00

Selling price without VAT TZS 120,000.00Add VAT on sales (20%x 120,000/=) TZS 24,000

Selling price with VAT TZS 144,000.00

At the end of the month the VAT to be paid from returns of

November 2006, shall be:-

VAT on sales TZS 24,000.00

Subtract VAT on purchases TZS 20,000.00

VAT to be paid to Tax Authority TZS 4,000.00

7.2 CUSTOMS DUTY AND EXCISE DUTY

7.2.1 Customs Duty: Customs duty is levied on imported goods

7.2.2 Excise Duty: Excise duty is levied on certain specified

imported goods like wines, spirits, cigarettes, petroleum

products and non-utility cars. It is also levied on specified

local produced goods and services. The duty is charged at

specific or ad-valorem rates.

7.2.3 Common External Tariffs for East Africa Community:Imports from East Africa Community member states are

chargeable at the rates enshrined in the Common External

Tariff.

Anybody can import goods into the country after observing

customs regulations on imports. You are supposed to know

whether the goods you want to import are legally allowed into

the country or not. There are goods that are prohibited to

25

enter into the country for example, intoxicating drugs,

equipment for tear gas, inciting literature, abuses, etc. There

are also restricted goods which law permit to enter the country

with further permission from relevant government institutions,

e.g. Live animals, crops, blasts and fire arms. You should

know the authorities and institutions concerning the

importation of such goods.

According to the present system of clearing goods from

customs, there are certain types of goods that are cleared

immediately for security and safety reasons eg explosives or

perishable items or as a way of facilitating business such as

raw materials or equipment. Registered Customs Clearing

Agents with TRA carry out the function of clearing imported

goods.

Imported goods may bear a custom clearance certificate for

home consumption, or transit or bonded warehouse. Goods

for home consumption have to be charged custom duty,

excise duty (if any) and VAT; unless such goods are exempted

or the person concerned is exempted from tax. The duty rates

differ according to the type of goods and their place of origin.

Goods with Certificate of Transit are not charged tax and are

kept under the supervision of the Custom and Excise

Department until they cross borders and reach the country of

destination.

Goods certified for warehousing are not charged tax until they

are cleared and declared for home consumption.

Warehouses can be used by anybody who, for one reason or

another, cannot pay all taxes at once.

Some of the goods, such as personal cars for foreigners, are

given permits to allow them to use their vehicles in the country

for a certain period of time. Thereafter they will be required

to register the vehicles or return them to their country of origin.

26

Goods exempted from custom duty, excise duty and VAT,

because of its use or credibility of the owner, are required to

pay the taxes once ownership shifts to another person who

does not have the exemption.

It should be understood that exemptions that are given to

various institutions and government departments has no

relationship with the officers of those institutions. Thus an

officer/ worker in those institutions/ government department is

obliged to pay all taxes on goods he/ she imports into the

country.

The department of custom and excise has an inspection unit

whose duty is to ascertain proper tax payment on imported

goods and that they are used in accordance with the

documents of the certificate of importation.

Tanzania is among the nations that are signatory to the Article

of Value Determination of imported goods. In order to avoid

unnecessary costs, TRA urges importers to pay taxes and

warehouse charges using the proforma invoice while waiting

for the invoice of the imported goods.

7.2.3 CALCULATION OF TAX ON IMPORTED NON-UTILITYVEHICLES

(a) Imported non-utility vehicle of not more than tenyears from the year of manufacture.

Example 3

Imported non-utility vehicle with engine capacity lessthan 2,000 c.c. valued at USD 3,200 on arriving in

Tanzania Assume exchange rate is 1 USD = TZS 1,300

27

Computation of duty and tax will be calculated based on

the applicable rates. Import Duty rate 25%, Excise Duty

20% and VAT 20%.

Example 3 Calculations

28

Duty/Tax Type Computation Duty/Taxpayable

(i) Import Duty In order to obtain import duty to be paid, takethe certified customs value and multiply bythe import duty rate (25%).USD 3,200 x 25% = USD 800USD 800 x TZS 1,300 = TZS 1,040,000

TZS 1,040,000

(ii) Excise Duty In order to obtain excise duty value, take thecertified customs value plus import dutycalculated in (i). Then multiply by the exciseduty rate (20%).USD (3,200+800) = USD 4,000USD 4,000 x 20% = USD 800USD 800 x TZS 1,300 = TZS 1,040,000

TZS 1,040,000

(iii) Value AddedTax (VAT)

In order to get the value of VAT, take thecertified value and add to it the customs dutyand the excise duty you have calculated in(ii). Then multiply by the VAT rate (20%). TZS 1,248,000USD (4,000+800) = USD 4,800USD 4,800 x 20% = USD 960USD 960 x TZS 1,300 = TZS 1,248,000

Total Duty & TaxPayable

Import Duty + Excise Duty + VAT TZS 3,328,000

Example 4

Imported non-utility vehicles with engine capacity more than2,000 c.c with certified value of USD 3,800 on arriving in

Tanzania. Duty and taxes for this type of car will be calculated

basing on applicable rates. 25% import duty, (20%+10%) =

30%* Excise duty, and 20% VAT.

(Assume exchange rate is USD 1 = TZS 1,300)

Note: * The Excise Duty of 30%* is a sum of:-

(i) 10% imposed on imported saloon cars with engine

capacity of more than 2,000 cc and

(ii) 20% imposed on imported saloon cars with ten or more

than ten years from the year of manufacture.

(b) Imported non-utility vehicles with less than ten years oldfrom the year of manufacture.

Non-utility vehicles, with engine capacity less than 2,000

c.c. valued at USD 3,200 on arriving in Tanzania. (Assuming

exchange rate is 1 USD = 1,300 TZS)

Computation of duty and tax will be calculated based on the

applicable rate. Import Duty rate 25% and VAT 20%.

29


(i) Import Duty In order to obtain import duty to be paid, takethe certified customs value and multiply bythe import duty rate (25%).USD 3,800 x 25% = USD 950USD 950 x TZS 1,300 = TZS 1,235,000

TZS 1,235,000

(ii) Excise Duty*) In order to obtain excise duty value, take thecertified customs value plus import dutycalculated in (i). Then multiply by the exciseduty rate (30 %*).USD (3,800+950) = USD 4,750USD 4,750 x 30%* = USD 1,425USD 1,425 x TZS 1,300 = TZS 1,852,500

TZS 1,852,500


In order to get the value of VAT, take thecertified value and add to it the import dutyand the excise duty you have calculated in(ii). Then multiply by the VAT rate (20%).USD (4750+1425) = USD 6,175USD 6,175 x 20% = USD 1,235USD 1,235 x TZS1300= TZS 1,605,500

TZS 1,605,500


Import Duty + Excise Duty + VAT TZS 4,693,000



30

Example 6

Non-utility vehicles, with engine capacity more than 2,000

c.c. valued at USD 3,800 on arriving in Tanzania. (Assuming

exchange rate is 1 USD = 1,300 TZS)

Computation of duty and tax will be calculated based on the

applicable rate: Import Duty rate 25%, Excise Duty 10% and

VAT 20%.


(i) Import Duty In order to obtain import duty to be paid,take the certified customs value andmultiply by the import duty rate (25%).USD 3,200 x 25% = USD 800USD 800 x TZS 1,300 = TZS 1,040,000

TZS 1,040,000


In order to get the value of VAT, takethe certified value and add to it theimport duty you have calculated in (i).Then multiply by the VAT rate (20%).USD (3,200+800) = USD 4,000USD 4,000 x 20% = USD 800USD 800 x TZS 1,300 = TZS 1,040,000

TZS 1,040,000


Import Duty + VAT TZS 2,080,000

Note: The Excise duty 10%*: The rate is imposed on Non- utility

vehicles with engine capacity of more than 2,000 cc and with

less than ten years from the year of manufacture.

7.3 INCOME TAX

7.3.1 The Income tax is a tax on gains or profits from person’s

income from employment, business or ownership of property

and an investments in corporations and other entities

• Income from employment

The total income of each person is determined separately.

This includes salaried people who are taxed at

progressive individual income tax rate that varies from the

lowest marginal rate of 18.5% to the top marginal rate of

30%. Benefits in kind are also to be included in

determining the taxable income of an employee.

31

In order to obtain import duty to be paid,take the certified customs value andmultiply by the import duty rate (25%).USD 3,800 x 25% = USD 950USD 950 x TZS 1,300 =In order to obtain excise duty value, takethe certified customs value plus importduty calculated in (i). Then multiply bythe excise duty rate (10 %)USD (3,800+950) = USD 4,750USD 4,750 x 10% = USD 475USD 475 x TZS 1,300=In order to get the value of VAT, take thecertified value and add to it the importduty and the excise duty you havecalculated in (ii). Then multiply by theVAT rate (20%).USD (4750+475) = USD5225USD5225 x 20% = USD 1,045USD 1,045 x TZS1300= TZS 1,358,500/=


• Income from business

A person’s income from business is the gain or profits

from that business.

• Income from Investment

Income from conducting an investment includes

dividends, interest and rent. The amount derived from

the sale of investment assets is included in investment

income.

7.3.2 Chargeability of income tax is divided into twocategories:

(i) Sole Propriatorship

(a) Small Enterprises

These are business men/ women who possess the following

qualities:-

(i) Their business sales are not more than twenty million

shillings

(ii) They should be residents in the United Republic of

Tanzania

(iii) They should be private enterprises who are not involved in

any other activity except business.

Tax rates on yearly sales (turnover) are determined as

follows: -

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Table 3: TAX RATES FOR SMALL ENTERPRISES

(b) Enterprises which prepare business records

These are business with the following qualities: -

(i) Do not have qualities similar to those of small businesses.

(ii) Keep proper records and prepare business returns.

Tax rates, profit or yearly income is calculated as follows: -

Table 4: TAX RATE FOR THE INDIVIDUAL

Before calculating the tax that you are liable to pay, it is

important to examine the allowable and non-allowable costs

to be considered in the calculation of tax.

33

Where sales does notexceed TZS 3,000,000

TZS 35,000 1.1% of yearly sales

Where sales are morethan TZS 3,000,000 butless than TZS 7,000,000

TZS 95,000 TZS 33,000 + 1.3% of the salesexceeding TZS 3000,000 peryear

Where sales exceedingTZS 7,000,000 but lessthan TZS 14,000,000

TZS 291,000 TZS 85,000 + 2.5% of salesexceeding 7,000,000 per year.

Sales more than14,000,000 but less thanTZS 20,000,000

TZS 520,000 TZS 260,000 + 3.3% of salesexceeding 14,000,000 per year

Yearly Sales

Tax payable where unreliable records

are kept

Tax payable wherereliable records

are kept

TaxBand

TOTAL INCOME TAX RATE

18.5%

20%

25%

30%

Allowable costs

(i) Salaries and remunerations of employee.

(ii) Water and electricity used in business

(iii) Rent for the business.

(iv) Transport costs for business purposes.

(v) Cost for advertisement and business promotion

(vi) Depreciation of property.

(vii) Cost for repair and maintenance of furniture and other

equipment used in business, such as computers,

vehicles, etc.

(viii) Loan interests for the business.

Non – allowable costs

(i) Income tax

(ii) Penalties and various interests incurred for non-

observing state laws.

(iii) Personal expenditure.

(iv) Bribery, inducement, entertainment, and other payments

of that nature.

(v) Procurement of business assets such as computer,

vehicle, furniture and building construction. The cost of

these assets is lowered by yearly depreciation as the

law demands.

Example 7

The balance sheet of income and expenditure of Madame

Subira, in the year 2006, is as shown below.

Sales TZS TZSSales income 70,000,000.00

Remaining goods

in year 2005 5,000,000.00

Add Purchases 70,000,000.00

Available goods for sale 75,000,000.00Less Remaining goods

in year 2006 9,000,000.00

Cost of sales 64,000,000.00

Profit after sales (gross profit) 6,000,000.00

34

Running Costs:Salaries 840,000.00

Electricity 240,000.00

Water 40,000.00

Rent of Business 720,000.00

Local govt levy 60,000.00

Educations levy 50,000.00

Property depreciation 120,000 .00 2,075,000.00

Net Profit 3,925,000.00

Extra Information (i) Half of the levy income of the council comes from

penalties which amount to TZS 30,000.00

(ii) Madam Subira also paid some TZS 400,000.00 in four

installments, as yearly initial tax.

Calculation of tax that Madame Subira is supposedto pay in the year 2006 is as follows:-

TZS

(i) Net profit 3,925,000.00

(ii) Add penalty by local government 30,000.00

(iii) Profit liable for taxation 3,955,000.00

Tax computation: (iv) Profit liable for taxation 3,955,000.00

(v) Subtract (see tax band 3) 2,160,000.00

1,795,000.00(vi) Multiply by 20%

(vii) First part of tax 359,000.00

(viii) Add (tax for tax band 3) 224,400.00

(iX) Total tax of the year 581,400.00Subtract initially estimated tax 400,000.00

Tax at the end of fiscal year 181,400.00

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(ii) Partnership

Under a partnership arrangement business profits is shared

among partners in their agreed proportions.

Example 8Take into account the above returns of revenue and

expenditure for Madame Subira, but consider that she had a

partner known as Mr. Saburi. In their partnership they agreed

to share their profit in equal proportions however Mr. Saburi

got a salary of TZS 500,000.

Tax will be calculated as follows: - TZS

Profit previously calculated 3,955,000.00

Add salary of Saburi 500,000.00

Income for dividends and tax payment 4,455,000.00

Sharing of Income

Partners Subira SaburiProportion of dividends 50% 50%

Salary - 500,000.00

Profit in books of account (4,455,000 – 500,000)

= 3,955,000 1,977,500.00 1,977,500.00

Taxable income 1,977,500.00 2,477,500.00

Tax to each Partner TZS 188,236.00 285,900.00

Total tax for the both partners, (188,238+285,900) =

TZS 474,138.00

Note:There is less tax payment in partnership compared to sole

propriator.

Individual income tax (propriator) TZS 581,400.00

Tax for partners TZS 474,138.00

Relief Partners get compared to

Individual TZS 107,262.00

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(iii) Corporate Tax

A legally registered company shall be liable for tax at the rate

of 30% of the yearly taxable income.

Example 9

Let us consider that the above profit of TZS 3,955,000 from

the books of account is for a company.

Computation of income tax payable will be as follows: -

Tax payable = Profit before tax multiply by tax rate

= TZS 3,955,000 x 30%

= TZS 1,186,500

Therefore income tax payable by the company will be

TZS 1,186,500

8.0 CONCLUSION

It is the expectation of TRA and the government that, this

publication provides a good guidance to entrepreneurs in

areas of identifying business opportunities, undertake

qualitative business measures and therefore increase their

wealth through expanding business, employment creation,

improve standard of living and hence reduce poverty.

Prosperity in business will pave way for effective tax

contribution to the Government as outlined under the specific

tax statutes. Tanzania Revenue Authority has decided to

foster a closer co-operation with stakeholders and particularly

taxpayers who are customers in tax collection and

development of the nation at large.

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To pay tax voluntarily is an act of patriotism.It is possible. Simply comply

and

“TOGETHER WE BUILD OUR NATION”

TRA office or Director,

Taxpayer Services and

Education Department

Tanzania Revenue Authority

P.O.Box 11491

Dar es salaam.

Tel: 255-22-2119343

Fax: 255-22-2128593

E-mail: [email protected]

Website: www.tra.go.tz

ZRB office or Manager,

Taxpayer Education Department

Zanzibar Revenue Board

P.O.Box 7072

Zanzibar.

Tel: 255-24-2230639/223341

Fax: 255-24-2233904

E-mail: [email protected]

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For more information please contact:Your nearest.