TAXATION AND PUBLIC FINANCE|JAN-DECEMBER 2024

COMPILED BY TAX EXPERT; KELVIN JOHN EZEKIA

Nick Name: MR EFATHA GENUS
st
1 INTERVIEW-2023. TRA/38/72429/12552
Cert; THE INSTITUTE OF FINANCE MANAGEMENT (IFM)-2022
BACHELOR OF SCIENCE IN TAXATION-2022
Mobile phone; 0785431406/0765127593
Email; msulwakelvin99@gmail.com
/ mrefathagenus99@gmail.com
Website:http://www.youtube.com/@efathagenus99
TABLE OF CONTENTS
PART A: INTRODUCTION TO INCOME TAXATION.
PART B. CONCEPT OF TAX EVASION AND TAX AVOIDANCE
PART C.TAX PLANNING, TAX FRAUD AND TAX ARREARS.
PART D; TANZANIA REVENUE AUTHORITY; SERVICE, RIGHT AND
OBLIGATION.
PART E.TAX AUDIT, AUDITING ANT TAX INVESTIGATION.BY EZEKIA

PART F. CONCEPT OF VAT, EFD MACHINE AND INCOME TAX ACT

PART G. INTRODUCTION TO CUSTOM AND THEIR APPLICATION
PART H. INTERNATIONAL TAXATION CONCEPT
PART I. THEOETICAL CONCEPT OF ASSESSMENT, PAYE AND
WITHHOLDING TAX
PART J.APPLICATION OF OBJECTION AND CONCEPT OF TAX
PROCEDURE
PART K. BASIC CONCEPT OF TAX ANALYSIS AND REVENUE
FORECASTING
PART L.APPLICATION OF TAX ADMINISTRATION IN TANZANIA
AUTHORITY

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BASICALLY, INFORMATION CONTENT OF TAXATION

In system of Tanzania, taxes are collected at two levels: the central government and
the local government based on various laws, finance and regulations. At the central
government, tax is administered by the Tanzania Revenue Authority (TRA), and at the
local government is administered by the Local Government Authorities (LGAs). This
chapter introduces taxation of income administered by the Tanzania Revenue
Authority tax administration in general and the relevant authorities in relation to the
promulgation and enforcement of tax laws and regulations. The tax laws and
BY EZEKIA

regulations discussed in this manual apply to taxes on income.

Taxation in Tanzania is administered by the Tanzania Revenue Authority. The

Tanzania Revenue Authority (TRA) was established by Act of Parliament No. 11 of
1995 and started its operations on 1st July 1996. In carrying out its statutory
functions, TRA is regulated by law and is responsible for administering impartially
various taxes of the Central Government. Other taxes are administered through Local
Government Authorities in their respective jurisdictions. In this Study Guide, we
review the historical background of the establishment of the Tanzania Revenue
Authority, its functions in tax administration, tax administered by the TRA the tax
administration provisions relating to tax consultants in Tanzania

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PREFACE
Taxation is among the field that require the sufficient updated knowledge and skills
BY EZEKIA

to every TRA stakeholder. Being a tax expert in different organization specialized in

taxation and accounting, I was motivated to write this material to share my taxation
knowledge with others. Basically, I believe there is a shortage of recent literature in
the areas of taxation in Tanzania. I have witnessed Basically, and other stakeholder
suffering while looking the references book in the field of taxation.
The Material is expected to be useful to undergraduate university students majoring
in taxation, accountancy or business administration. Similarly, the material is
expected to help those who are preparing themselves to become certified public
accountant (CPA) and those who are preparing for Written and Oral interview. Also,
the Material target all people who are require the basic knowledge in taxation.
Writing this material has not been an easy task, Because the field of taxation
changing rapidly due to the frequent changes on the modality of doing a business,
innovation, creativity and technology. The change is highly experienced because of
continuous changes of technology, creativity and innovation I had to write and
rewrite to ensure readers obtain what I want them to. The motives were to write the
material using the simple language in taxation.

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PART A: INTRODUCTION TO INCOME TAXATION
QN 1. What is tax?
Tax is a compulsory contribution made by a person to the government.
QN 2. outline the various approach at which tax may be classified.
Answer 2.
a) Tax base.
Types of Tax base
 Income, Examples (. Corporate tax and PAYE for employees)
 Expenditure, E.g. Value added Taxes and Excise duties
 Wealth, Examples. Capital gain tax and property taxes
b) Tax incidence shift ability.
Types of Tax incidence shift ability.
 Direct taxes, Examples. Income taxes, property tax, capital gain tax, SDL,
Game and Gambling taxes, withholding taxes.
 Indirect Wealth, Stamp duty and Import duty
BY EZEKIA

c) Distribution of Tax burden.

Types of Distribution of Tax burden
 Progressive tax system
 Regressive tax system
 Proportionate tax system
d) Unit or ad-valorem based taxes
 Unit /specific taxes-are levied on the specific measurement of unit. Examples
weight, volume and square meters.
 Ad-valorem taxes-are levied on the value of the tax base. Examples income
taxes is charged on the level of income.
QN 3. What is tax base?
Tax base is the specific area in which tax collected from the sources. This
relates to the question which is taxed and which is not taxed.
QN 4. Mention the 7 unique features of tax over the other source of government
revenue
I. Taxes are usually paid and collected in monetary terms (forms), Examples
paper or coins.
II. Taxes are mandatory charges
III. Only government or other taxing body has the power to levy taxes,
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 Examples Central government or local government (TRA or LG)
IV. A payment of tax does not involve the a ‘quid pro quo’status
V. The government does not have obligation to provide an individual account
of how tax is utilized
VI. Non-resident and resident must pay tax according to the tax law
QN 5. What is direct tax?
Direct tax is a tax that is imposed on income or wealth of a taxpayer.
Examples of direct taxes is that taxes which is imposed on business profit,
employment and investment activities.
QN 6. outline the features of direct tax
I. Person/Entity Taxed Directly. Direct taxes are imposed on individual or
entities and the burden cannot be shifted to others
II Progressive Nature; Higher-income individual pay a higher percentage of their
income in taxes
III.Individual income tax; personal income tax is a common form of direct tax,
where individual is taxed based on their earning
IV.Corporate income Tax
v. Economic impact: Direct taxes can influence economic behavior, as changes
in tax rate may affect spending, investment decision
vi. Tax credit and deduction: Tax laws often include the provision for credit and
BY EZEKIA

deduction that can reduce the overall tax liability for individual and businesses.
Vii.There is a small possibility of shifting a tax burden from one person to
another
QN 7. What are indirect taxes?
Indirect taxes are a tax that is commonly charged and levied during
consumption of goods and services. Examples of indirect taxes are: VAT, Import
taxes and Excise duties
QN 8. outline the features of indirect taxes
I. There is a great possibility of shifting the incidence and tax burden in
the indirect tax
II. Regressive in Nature.
III. Simplicity in Administration
IV. Inflationary impact: Changes indirect tax rates can influence the overall
price level in the economy, contributing to inflationary pressure.
V. Flexible Revenue Sources.
VI. Convenience-not complicated system
QN 9. Explain the advantage of indirect taxes over direct taxes
a. There is mass participation
b. There is a less chance of tax evasion
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 c. Have a wide coverage
d. Convenient to both government and taxpayer
QN 10. What is Tax compliance?
Tax compliances is a tendency of taxpayer to complying fully with the
requirements of tax laws and regulation by reporting and paying the correct amount
of tax on time.
QN 11. Types of tax compliances
I. Voluntary compliances
II. Involuntary compliances
QN 12. Outline the key Aspect of Tax compliances
I. Filing Tax returns: Individual and businesses are required to submit tax
returns, providing details of their income, deduction and other relevant
financial information to the tax authorities
II. Timely payment of taxes:
III. Accurate reporting
IV. Record-keeping
V. Understanding tax laws
VI. Cooperation with audits
VII. Seeking professional Advice
VIII. Ethical conduct
BY EZEKIA

QN 13. What are voluntary compliances?

Voluntary compliances refer to the principles that individuals and
businesses willingly and faithfully or proactively fulfill their tax obligation in
accordance with the tax laws and regulation
QN 14. Describe the key aspect of voluntary compliances
Self-Assessment
I. Timely and Accurate Filling
II. Payment of Taxes
III. Honest Reporting
IV. Use of professional Advice
V. Trust in the system
VI. Reduced enforcement measures

QN 15. What are involuntary compliances?

Involuntary compliances refer to the enforcement of tax laws and
regulations through measures taken by tax authorities to ensure that individuals and
businesses fulfill their tax obligations.
QN 16. Outline the key Aspect of involuntary compliances
I. Audits and investigation
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 II. Penalties and fines
III. Legal action
IV. Revocation of licenses
V. Freezing Bank Accounts.
VI. Publication of Delinquencies
QN 17. How to achieve the maximum voluntary tax compliances
i. Clear communication and education to the taxpayers. Examples,
interview.
ii. Fair and transparent tax system
iii. Effective enforcement measures
iv. Assist the taxpayers. Examples, tax consultants
v. Cooperation of other government agencies and department
vi. Simple tax law
QN 17b.Describe the theory of compliances
a) Economic deterrence-focus on benefit and cost
b) Fiscal exchange –focus on government expenditures
c) Political legitimacy-trust government
d) Comparative treatment
e) Social influences
QN 18. Mention benefit of voluntary tax compliances
BY EZEKIA

a) Reduces tax disputes in tax liability, refund and taxable object

b) Improves relationship between taxing authority and taxpayer
c) Facilitates budget implementation
d) Ensure steady flow of revenue for development and growth
e) Improves the confidence of a taxpayer
f) Taxpayer avoid unnecessary penalties
QN 19. What is Revenue?
Revenue refers to the total income generated by business, government or
other organization from its primary activities. Examples of sales of goods or services
Types of Revenue
i. Tax revenue. Examples of tax revenue, corporate tax,
income tax, sales tax, value added tax, property tax, excise
tax, payroll tax and custom duties
ii. Non-tax revenue. Examples, user charges and fees, fines
and penalties, grants or aids, debts from other government
or banks, selling of assets and subsidies received from
other countries
QN 20. Differentiate tax burden and tax incidence
Tax burden Tax incidence
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Meaning /definition Means a weight which is Means a distribution of
imposed or intended to be economic burden of tax
imposed directly to a between buyer and sellers
taxpayer by the
government
Commonly Applicability to Demonstrated by the price Demonstrated by
elasticity of demand and identifying a taxpayer and
supply of a product respective tax rate
TYPES OF TAX INCIDENCE
i. Statutory incidence or legal incidence
ii. Economic incidence
QN 20 b. what is statutory incidence
Statutory incidence refers to the person on whom the law says the tax
obligation falls.it determines who, according to the law, is obligated to bear the
burden of a particular tax.
Economic incidence refers to the distribution of actual burden or impact of a
tax among different economic agents
IMPORTANCE OF STATUTORY INCIDENCE
i. Essential for interpreting tax legislation
BY EZEKIA

ii. Clarifying which party such as individuals, businesses or

specific transaction is legally for paying a particular tax
QN 21. What is taxation?
Taxation is a process in which the government collect money from the
people for the purpose of finance the government activities. Examples, construction
of infrastructure and Hospital
QN 23. What are canons of taxation?
Canons of taxation are a set of principle proposed by economist Adam
smith in his work “The wealth of Nation”. They serve as guidelines for designing a
fair and effective tax system

QN 24. Explain any canons of taxation

a. Equity: Tax should be distributed fairly, with each individual
contributing according to the ability to pay Tax Examples, the
high-income group should be subjected to higher tax and vice
versa is true.
b. Efficiency: This means that the revenue collected from the tax
payers in the form of tax should be sufficient to meet the
government expenditures without overburdening the taxpayers
such that the productive capacity is affected.
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 c. Certainty. Taxpayers should be aware of how much they owe,
when payment are due and how the tax is determined.
d. Economy: The cost of collecting taxes should be minimal
compared to the revenue generated. Efficiency in tax
administration ensures that resources are not wasted in the
collection process.
e. Convenience: The tax system should be convenient for
taxpayers both in terms of payment methods and the timing of
payment. A convenient system encourages compliances
QN 25. What is tax system?
A tax system is a set of rules, regulation and procedures established by a
government to collect taxes from individuals and businesses.it outlines how tax is
assessed, collected and used to fund the public services and government activities.
QN 26. What are the basic principles that a tax system should be adhere to?
i. Equity or fairness
ii. Simplicity-a straightforward and easy to understand tax
system reduces compliances cost and administrative
burden for taxpayers
iii. Efficiency-taxes should be structured to minimize
economic distortions and promote overall economic
BY EZEKIA

efficiency
iv. Economic growth-tax system should be supporting
economic growth by incentivizing investment, innovation
and entrepreneurship
v. Revenue adequacy-tax system should be generating the
sufficient revenue to fund government program and
services
vi. Flexibility-the tax system should be adaptable to changing
economic and social condition
vii. Certainty and predictability-taxpayer should have a clear
understanding of their tax obligation and the tax system
should provide stability to facilitate long-term planning.
viii. Neutrality. Taxes should be avoid favoring or
discriminating against particular industries, activities or
individuals to maintain economic neutrality
QN 27.
QN 27. Outline the purpose of Taxation.
a) Redistribution of wealth-taxes are used to reduce the gap
between poor and rich
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 b) Promote social equality
c) Manage Economy
d) Regulate society
e) Develop society and provide public goods
f) Full employment and stability of money supply
g) Satisfactory rates of economic growth.

THEORY OF TAXATION
Equality of Sacrifice Theory:

Sacrifice theory in taxation suggests that the amount of tax an individual pays
should be proportional to the amount of personal sacrifice they make for the benefit
of society. This theory argues that those who derive more benefits from society
should sacrifice more of their income for the common good and pay higher taxes.

According to the sacrifice theory, the burden of taxation should be distributed in a

way that considers the individual's ability to pay and the benefits they receive from
society. Therefore, individuals with a higher income or wealth should pay a higher
proportion of their income in taxes to support government programs and services
that benefit all members of society.
BY EZEKIA

The Ability to pay Theory

The ability-to-pay principle requires that the total tax burden be distributed among
individuals according to their capacity to bear it, taking into account all of the
relevant personal characteristics. The most suitable taxes from this standpoint are
personal levies (income, net worth, consumption, and inheritance taxes). The
theory holds that the rich should be made to pay more than proportionate to their
income. A person who earns an income of TZS. 9,000,000 per month will not, ceteris
paribus, feel the same pinch in parting with TZS. 900,000, as a man with an income
of only TZS. 90,000 feels in paying TZS 9,000 (though the percentage is the same)
because the former’s faculty to pay is greater. This principle is based on progressive
taxation, i.e., increasingly higher rates of taxation as incomes inc based taxes with
respect to work, saving, and investment decisions.

C.BENEFIT PRINCIPLE

Another important principle of taxation is the benefit principle, which requires that
taxes be linked to the benefits or services received by taxpayers. This principle
implies that people who benefit more from social programs or public goods such as
roads, schools, and hospitals should pay more taxes than those who benefit less.

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This principle is often used to justify user fees, such as tolls on highways or charges
for public transportation.

WHAT ARE THE DIFFERENCES BETWEEN ABILITY TO PAY THEORY AND SACRIFICE
THEORY

The main differences between the sacrifice theory of taxation and

the ability to pay principle are as follows

. Focus: The sacrifice theory focuses on the amount of personal sacrifice an

individual makes for the benefit of society, while the ability to pay principle focuses
on an individual's ability to bear the burden of taxation.

Basis: The sacrifice theory is based on the idea that those who derive more benefits
from society should make greater sacrifices, whereas the ability to pay principle is
based on the idea that those who have a higher income or wealth have a greater
ability to pay taxes.

Distribution: The sacrifice theory suggests that the distribution of the tax burden
should be proportionate to sacrifices made, while the ability to pay principle
suggests that the tax burden should be distributed according to an individual's ability
to pay.
BY EZEKIA

. Progressivity: The sacrifice theory does not necessarily lead to a progressive tax
system, whereas the ability to pay principle is often associated with a progressive
tax system, where those with higher incomes pay a higher rate of tax.

GENERAL COMMENT BY EXPERT EZEKIA the sacrifice theory and the ability to pay
principle share some similarities in terms of fairness in the distribution of the tax
burden, they differ in terms of the basis, focus, and progressivity of the tax system.

QN 28. Mention the objectives of taxation

i. Allocation of resources
ii. Mobilization of capital for capital formation
iii. A tool to regulate economy
iv. Distribution of wealth
v. Protecting economy
vi. Needs for financing reason
QN 29. What is tax impact.
Tax impact is the consequences of tax fall from the person from who tax
is collected
IMPACTS OF PARTICULAR TAX
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 I. Tax burden.
II. Tax incidence.
QN 30. What is tax liability
Tax liability refers to the amount of taxes an individual or entity is legally
obligated to pay to the government based on their income, profit or other taxable
factors.it represents the total tax obligation before any deductions, credit or
exemption applied.
QN 31. What is taxable capacity.
Taxable capacity is the maximum amount of tax burden which citizen of a
country are ready to bear.
FACTORS DETERMINING TAXABLE CAPACITY
i. Purpose of taxation
ii. Living standard of citizen
iii. A quality of tax system. A good tax system may increase
taxpayers’ perception of fairness and probably
compliances increase
iv. Inflation
v. Psychological factors-ability to trust the government.
QN 32. Outline the factors which may affect a taxable capacity of a country.
 Methods of taxation
BY EZEKIA

 Income stability
 Political stability
 Inflation
 Size and growth of gross domestic product (GDP)
 Population size and the rate of growth.
 Level and structure of trade openness.
PART B. CONCEPT OF TAX EVASION AND TAX AVOIDANCE
TAX AVOIDANCE
QN 33. What is tax avoidance?
Tax avoidance is the deliberate action or techniques used by the taxpayer to
minimize his or her tax liability or not to pay tax at all without contravene tax laws.
Normally not punishable under the tax laws
QN 34. Outline the ways in which the tax avoidance exists.
 Through tax deduction
 Using ambiguities or gap in tax provision.
 By using other loopholes in the tax laws
 Abusing the tax incentives
QN 35. Forms of tax avoidance are characterized by the methods used to minimize

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tax liabilities
FORMS OF TAX AVOIDANCE
 Permissible tax avoidance
 Impermissible tax avoidance
QN 36. What is permissible tax avoidance?
Permissible tax avoidance refers to the legal and legitimate strategies
employed by individuals or businesses to minimize their tax liabilities within the
framework of existing tax laws. These strategies are considered acceptable because
they adhere to the letter of the law and do not involve illegal activities or violation of
tax regulation.
Forms of permissible tax avoidance
i. In-depth knowledge of the tax laws and taking more substantial
step to avoid tax.
ii. Taxpayer studies and comprehends tax and make minor
adjustment to the financial affairs to avoid tax.
QN 37. Outline five examples of permissible tax avoidance.
 Claiming legitimate deduction: deducting business expenses,
charitable contribution or other eligible items in accordance with
the tax laws.

BY EZEKIA

Utilizing tax credit: Claiming tax credit for specific activities

such as investing in renewable energy, conducting research and
development, supporting or education.
 Adhering to legal structures: Using legal corporate structure that
comply with tax laws to minimize corporate tax liability.
 Taking advantage of tax: Contributing to retirement account or
utilizing other tax –deferred investment vehicle.
 Proper timing of transaction: Strategically timing income and
expenses to optimize tax outcomes, such as deferring income to
a later tax year or accelerating deductible expenses.
QN 37 b. Discus the right to engage in permissible tax avoidance
RIGHT TO ENGAGE IN PERMISSIBLE TAX AVOIDANCE (TAX PLABNING).
 Judicial recognition of right to avoid tax. (At the level of court)
When a tax case is taken to the court, the court shall apply the
principles and the rules of interpretation so as to given the meaning
and position of the laws on the matter;
 INTERPRETATION OF THE LAWS ON THE COURT.
i. “No taxation without statutes”.
No tax can be imposed on a subject without

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 words in the act showing clearly the intention to
impose taxation.
Commentary by expert EZEKIA. Even where it
may be within the spirt of the act to impose tax
on some items no tax would be imposed if the
statute is silent/has no clear provision
ii. Literal/strict laws.
Means each word in the statute should be
interpreted by letter and not with respect to the
spirit be in the mind

 RULE OF THE LAWS ON THE COURT.

In dealing with the tax cases, court may apply the
following rules.
 Rule of casus omissus/rule of omission. When
there is any omission in the tax statute the court
shall not take the responsibility to fix the wors
because by doing so the court will making new law
instead of giving the interpretation to the law.
 The contra proferentem rule/rule against the
BY EZEKIA

draftsman. Guides the interpretation of contract

and is typically applied when the contract is
challenged in court against interest of the party is
created, introduced and requested
QN 38. What is impermissible tax avoidance?
Impermissible tax avoidance referred to as aggressive or abusive tax
avoidance, involves strategies that go beyond the intended scope or spirit of tax laws.
These methods exploit loopholes, engage in manipulative practices or involves
actions that lacks of commercial purpose.
QN 39. Describe the five Examples of impermissible tax avoidance
i. Abuse of legal structures-creating complex corporate structures
solely for the purpose of shifting profits and minimizing tax
liabilities, without a genuine business
ii. Manipulation of Transfer Pricing- Engaging in transfer pricing
practices that artificially inflate or deflate the prices of goods or
services between related entities to achieve tax advantages.
iii. Exploitation of Legal Ambiguities- Interpreting tax laws in a way
that is not consistent with the intended purpose of the legislation,
exploiting ambiguities to gain unwarranted tax benefits.
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 iv. Artificial Loss Creation - Creating artificial losses or engaging in
transactions solely for the purpose of generating tax losses to
offset gains.
v. Unreasonable Use of Tax Havens - Establishing entities in tax
havens without a valid economic rationale or business purpose,
solely to minimize tax liabilities.
vi. Fraudulent Transactions-Engaging in deceptive practices or
transactions with the intent to deceive tax authorities, such as
falsifying records or hiding income.
QN 40. What is multinational tax avoidance?
Multinational tax avoidance is a deliberately action or techniques used by
multinational entity such as trust or partnership to arrange their financial affairs so
as to minimize their tax liability or not pay tax at all. Multinational tax avoidance is an
arrangement of tax affairs in which multinational entity arrange financial affairs in
the manner of reduce tax liability.
QN 41. Outline the aspect of mutational tax avoidance
Mutational tax avoidance can be identified by consider the following aspect.
i. Tax avoidance scheme
ii. Tax benefits
iii. Sole or dominant purpose
BY EZEKIA

QN 42. What is tax avoidance scheme?

Tax avoidance scheme refers to a structured plan or arrangement designed
to exploit loopholes, ambiguities, or gaps in tax laws to minimize tax liabilities. These
schemes are typically legal, as they adhere to the letter of the law, but they may go
against the spirit or intent of tax regulations.
QN 43. Outline the purpose of tax avoidance scheme.
 primary goal of tax avoidance schemes is to achieve tax benefits or
reductions without engaging in illegal tax evasion.

QN 43. Mention the various form of tax avoidance scheme

These schemes can take various forms,
A. Complex corporate structures,
B. offshore transactions.
C. intricate financial arrangements.
QN 44. Outline the causes of tax avoidance in a country like Tanzania.
i. Multiplicity of tax rates
ii. Human Nature (Behavior of taxpayer)
iii. Higher marginal tax rates
iv. Weak punishment such as penalties and interest.
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 v. Misuse of public funds.
vi. Complicated tax laws and regulations.
vii. Insufficient staff and poor working tools
QN45.What is tax benefit?
TAX BENEFIT. Explain in 4 category means

a) Tax benefit is a postponement of liability to pay tax.

b) Tax benefit is any advantage arising because of delay in payment of tax
c) Tax benefit is a reduction in tax liability. Examples deduction, credit and offset
d) Tax benefit is anything that cause exempted in revenue or not taxed amount
QN 46. Outline 4 Tax avoidance Techniques
Basically, there are four (4) Tax avoidance Techniques
 Deferral payment of tax liability. Example of Vat act-sec 11
 Re-characterization of an item of income or Expenses to tax at Low or Nil
 Permanent elimination of tax liability
 Shifting of income from a high taxed country to a low tax country.
QN 47. Tax avoidance Techniques in practice These are carried out by using the
following methods
I. Transfer Pricing arrangements (TPA)
II. Thin capitalization
BY EZEKIA

III. Controlled foreign corporation

IV. Treaty shopping
V. Foreign presence without foreign Taxes
VI. Uses of tax Heaven.
VII.Change of ownership.
QN 48. What is treaty shopping?
TREATY SHOPPING. Refers to the arrangements through which the person who are
not entitled to the benefits of Tax treaty use other person who are entitled to such
benefits in order to indirectly asses’ benefits.
QN 49. What is A controlled foreign Corporation (CFC)
A controlled foreign corporation is a corporate entity that is registered and
conduct business in a different jurisdiction or a country other than the country of
residence of controlling owner.
QN 50a.What is thin capitalization?
THIN CAPITALIZATION, refers to a situation in which a company is financed through
a relatively high level of a debt compared to equity. Normally used to describe hidden
equity capitalization through excessive loan.
QN 50b.Identify Four Measures to thin capitalization
Measures to Thin capitalization as follows
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  Arm's length Approach
 Hidden profit distribution
 Fixed Ratio Approach
 Loan may be wholly or partly reclassified as Equity.

QN 51. Explain the Reason why Entities may Choose to be Thinly capitalized.
From a tax point of view companies choose thin capitalization because existing
corporate tax system allow companies to deduct interest Expenses from the
corporate tax base where Equity are not tax deductible.
QN 52. What is tax Haven?
TAX HAVEN IS a country with a relatively low tax rates or lenient tax rules which are
often designed to tract a foreign investment. Example of a country that facilitates
Tax heaven is Mauritius, Singapore and Hong Kong.
THREE IDENTIFICATION OF TAX HAVEN
 Lack of transparency
 Lack of effective of exchange information of a taxpayers
 Low amount of tax or not at all.
QN 53. What is Transfer pricing?
TRANSFER PRICING
Transfer pricing refers to the setting the terms of transaction between related
BY EZEKIA

parties of non-arm’s length basis in order to move income, profit or Expenses

between group of companies which suffer different tax rates so as to reduce the
overall tax burden of a corporate group.
QN 53b.Define the Advanced pricing Arrangements (APA)
Advanced pricing Arrangements is an arrangement whereby tax payer and tax
authority lie agreement in Advance that the transfer pricing policies to be used for
transaction or set of transaction between associated enterprise based on
assumption satisfy the arm's length principle.
QN 54. Outline Ways to determine Transfer pricing (TP)
There are two ways to determine Transfer pricing arrangements
I. Traditional transaction method (TTM)
II. Transaction profit method
3 TYPES OF TRADITIONAL TRANSACTION METHOD.
I. Comparable uncontrolled price (CUP)
II. Resale price method (RPM)
III. Cost plus method (CPM)
2 TYPES OF TRANSACTION PROFIT METHOD
 Profit split method (PSM)
 Transactional Net margin method
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QN 55. Outline kinds of Transaction involve in Transfer pricing
 Provision of finance Example. Loan
 Provision of service, Example. Management
 Tangible
 Intangible
QN 56. Why Transfer pricing Guidelines
a) To justify Every Transaction
b) To keep detailed documentation and record
c) To examine all cross -border transaction between group companies
d) To ensure Transaction are based on commercial factor
e) To review each pricing decision against tax laws
f) Clear policies on purely commercial basis
QN 57. Outline Ant-avoidance Measures
 Legislative solution. government may rely on anti-avoidance statutes which
are passed by the legislature which involves enacting laws to curb tax
avoidance Example income Tax-sec 12 (interest)
Types of legislative solution in anti-avoidance measures
I. General -Ant avoidance rules (GARR)/Snipper Approach.
II. Specific-ant avoidance rules (SAAR)/Short gun Approach
III. Bilateral measures-pursued through Double tax Agreement (DTA)
BY EZEKIA

 Judicial ant-avoidance measures-The court may take either literal or mischief

rule towards statutory interpretation in dealing with tax avoidance issues
 Administrative Approach-Requires the taxing authority to understand tax laws
and take precautions measures before tax avoidance and to see loopholes
available within the laws and suggest amendment to be made to the
legislative.
PART B. TAX EVASION
QN 58. What is Tax Evasion?
TAX EVASION is the deliberate action or techniques used by the taxpayer to
minimize his or her tax liability or not to pay tax at all by contravening tax laws. An
act in contravention of the law where by a person who derives a taxable income
either pay no tax or pay less tax than he would otherwise be required to pay.
Normally it's punishable under the laws.

QN 59. Outline the Ways in which tax Evasion can occur

There are Two main ways in which tax Evasion can occur
i. Willfully and conscious action to violate tax (By fraud)
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 ii. Recklessly or negligently fail to pay Obligation but does not
deliberately conceal any income or information.
QN 60. mention ways exist in which taxpayers can evade tax
Taxpayer can evade tax by (strategies used by taxpayers to evade tax)
 Failure to provide notification to the tax authority.
 By declaring less income (failure to report full amount of income)
 Failure to report item. Example profit or sales
 Document not kept properly
 By overstating Expenses
 Not filling the required tax return
 Submitting an inaccurate tax return
 By falsely or fraudulently claiming tax refund
 By preparation or maintenance of false books of account or record
QN 61a.Outline the Consequences of Tax Evasion
CONSEQUENCES OF TAX EVASION
 Bring unfair competition in the market among the taxpayers in generally.
 Less government Revenue
 Promote inefficiency allocation of resources
 Bring more cost to tax authority
BY EZEKIA

 Heavy burden of debt

 Reduced trustworthy and faithfully to the stakeholders
 Reduced government Expenditures
 Result punishment such as penalties, interest or imprisonment.
QN 61 b. Outline the ways that can be Employed to minimize Tax avoidance and Tax
evasion
i. Provision of education to the taxpayer about tax in generally.
ii. Formulate the simpler tax laws (Not complicated tax laws) and clear to
the taxpayer
iii. The policy maker and authority avoid the multiplicity of taxes to the
taxpayer
iv. The authority keeps the marginal tax rates low
v. Promote administrative efficiency.
vi. Authority must conduct staff training in target areas of tax laws and
accountancy in generally
vii. Formulate the Best and good friendship with other countries in aspect of
tax laws and accountancy. Aims to avoid the double tax
viii. To formulate and to Implement serious punishment to the evaders and
corrupted tax official by cooperate effectively with PCCB and other

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 authority.
ix. Goods uses of public funds in order to improve voluntary compliance.
PART C.TAX PLANNING, TAX FRAUD AND TAX ARREARS.
QN 62. What is tax planning?
Tax planning means an arrangement of tax affairs to reduce tax liability. Tax
planning act as techniques of arranging businesses transaction so as to realize tax
saving.
QN 62 b. Mention techniques of tax planning
TECHNIQUES OF TAX PLANNING.
 Take full advantage of Exemption and deduction
 Distribute income among several taxpayer (splitting of income)
 Choose investment that provide tax shelter
 Transform ordinary income into capital gain (income capitalization)
 Re-characterized the income to a lower rate category
 Reduction of tax base
 Deferral of tax payment
 Treaty shopping
QN 63. Outline the techniques used by multinational firm in tax planning techniques
i. Re-characterized the income to a lower rate category
BY EZEKIA

ii. Credit or exemption for foreign tax paid

iii. Reduction of tax base
iv. Deferral of tax payment
v. Treaty shopping
QN 64. What is tax fraud?
Tax fraud is a broader term that encompasses various illegal activities related
to taxes including providing false information on tax return, failing to report income,
overstating deduction or using deceitful means to evade tax obligation.
Comment by TAX EXPERT EZEKIA ON TAX EVASION AND TAX FRAUD.
Tax fraud and tax evasion are both illegal activities related to not paying taxes owed
to the government. But there are subtle differences between them
TAX FRAUD TAX EVASION
Meaning Tax fraud is a Tax evasion is a specific
broader term that form of tax fraud that
encompasses various involves actively avoiding
illegal activities related to paying taxes by illegal
taxes including providing means.
false information on tax
return, failing to report

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 income, overstating
deduction or using
deceitful means to evade
tax obligation.

QN 65. Outline the source of tax fraud

Tax fraud can originate from the various sources including
i. Individuals. Individuals may commit tax fraud in the following ways
 Underreporting income.
 Overstating deduction
 Making false claim for tax credit or refunds on their personal
tax returns.
ii. Businesses. Business can engage in tax fraud by the following ways.
 Manipulating financial records.
 Underreporting sales or revenue to a lower tax liability.
 Misclassifying employees as independent contractor to
avoid paying payroll taxes.
iii. Unfaithfully tax professional to revenue authority. Tax professional can
BY EZEKIA

be sources of tax fraud by the following ways.

 Preparing false tax returns for clients
 Knowingly assisting clients in engaging in fraudulent
activities to evade tax
 Providing misleading advice on tax strategies.
PART D; TANZANIA REVENUE AUTHORITY; SERVICE, RIGHT
AND OBLIGATION.
QN 66. What is TRA stakeholder?
TRA Stakeholder are those who benefit from the services provided by TRA and
everyone who has interest in tax administration.
QN 67. Outline at least 10 TRA stakeholder.
 General public
 Non-government organization
 Development partner
 Court of law
 Taxpayers
 Tax consultants. examples Expert EZEKIA
 Clearing and forwarding agent.
 Account consultancy
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  Tax appeal board and tribunal
 Financial institution
 Private sector institution
 Government minister, agencies, departments and its agencies
Qn 67. mention the services offered by TRA
Services offered by TRA to its stakeholders as follows.
a. Registration
b. Tax assessment
c. Tax audit
d. Custom clearance
e. Permit and licenses
f. Tax refunds
g. Tax investigation
h. Tax education
i. Provision of statistical data
j. Training
k. Responses to enquiries and complaints
QN68.In discharging its responsibility of collecting government revenue, TRA is
committed to observe the following obligation to taxpayers or stakeholders.
TRA OBLIGATIONS
BY EZEKIA

I. To provide high quality services to taxpayer and stakeholders

II. To collect taxes according to the existing tax laws, regulation and
procedures.
III. To issues correct taxes assessment in accordance with tax laws.
IV. To offer professional training on tax matters to tax taxpayers and
stakeholder’
V. To provide contact to taxpayers and stakeholders so as to facilitate smooth
communication.
VI. To recruit competent staff who shall ensure quality services delivery to
taxpayers and stakeholders
VII. To handle all complaints from taxpayers and stakeholders with a view to
providing solution and enable the TRA to improve the services.
VIII. TRA will provide advice to the and other government organ on matter
pertaining to fiscal policy and implementation’
IX. To educate taxpayers and stakeholders on their rights and obligations, issue
tax forms and provide timely and accurate information in a simple language.
X. To cooperate with a taxpayer and stakeholders in manner that show respect,
dignity and a customer focused altitude
XI. To provide feedback for tax evasion information provided by taxpayers and
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 the public and in case of tax recovery, the provider of information will be
awarded 3% of tax collected provided that the amount of payment will not
exceed Tsh.20 millions
XII. To cooperate with the tax appeal board/tribunal and court of law by ensuring
timely attendance and provision of evidence in order to resolve tax disputes.
XIII. TRA officers have obligation to show respect when they are performing their
duties of assessing and auditing taxpayers record or when the taxpayers
need any services from tra.

QN 69. What is Taxpayer charter in Tanzania?

The taxpayer charter in Tanzania is a document that outlines the rights and
responsibilities of taxpayers and the obligations of the Tanzania Revenue Authority
(TRA). The charter aims to promote transparency, accountability, and efficiency in
the tax system and to build trust between taxpayers and the TRA.
The taxpayer charter sets out the following key principles:
a) Rights of the Taxpayer: Every taxpayer has the right to be treated fairly,
respect, courtesy, and confidentiality. Taxpayers have the right to know their
tax obligations and how their taxes are being used.
b) Responsibilities of the Taxpayer: Taxpayers have an obligation to pay taxes
on time and in full, file their tax returns accurately and honestly, and cooperate
BY EZEKIA

with the TRA in case of any investigations or audits.

c) Service Standards: The TRA is committed to providing quality and efficient
services to taxpayers. The charter sets out the standards for the quality of
services, including time frames for processing various services.
d) Taxpayer Education: The TRA is committed to providing taxpayers with
relevant and timely information on their tax obligations, rights, and
responsibilities.
e) Confidentiality and Privacy: The TRA will keep confidential and protect the
taxpayers' information provided to them, except in cases allowed by law.
f) Professional Conduct: The TRA is committed to carrying out its duties
professionally, impartially, and ethically. Like expert KELVIN JOHN EZEKIA
contact by 0785431406
g) Tax Dispute Resolution: The TRA is committed to providing an efficient and
transparent tax dispute resolution process. Taxpayers have the right to appeal
any decision made by the TRA.
h) Compliance Management: The TRA is committed to encouraging voluntary
compliance, but it will enforce compliance when necessary. The charter
outlines the TRA's approach to compliance management, such as educating
taxpayers on their tax obligations, conducting audits and investigations, and
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 imposing penalties for non-compliance.
QN 70. How does the charter address the issue of compliance management?
The Tanzania taxpayer charter addresses the issue of compliance
management in several ways. First, it recognizes that voluntary compliance is the
preferred approach, but, when necessary, the Tanzania Revenue Authority will
enforce compliance.
The charter emphasizes the following compliance management principles:
 Educating taxpayers: The TRA is committed to educating taxpayers on their
tax obligations, rights, and responsibilities. The charter highlights that
effective communication is key to achieving voluntary compliance.
 Risk Management: The TRA will employ risk-based strategies to identify high-
risk sectors and taxpayers for further compliance management actions. The
TRA will also assess the compliance risk of taxpayers when making
decisions.
 Audits and investigations: The TRA will conduct audits and investigations
where necessary to verify taxpayers' compliance with tax laws. The taxpayer
charter outlines that all audits and investigations should be conducted in a
professional, impartial, and transparent manner.
 Enforcement actions: The TRA will enforce compliance when necessary.
This means that taxpayers who do not comply with the tax laws will be
BY EZEKIA

subject to penalties and other enforcement actions.

 Dispute resolution: The charter outlines a clear and efficient tax dispute
resolution process, including the right for taxpayers to appeal any decisions
made by the TRA.
BY summary, the Tanzania taxpayer charter addresses the issue of
compliance management by emphasizing the importance of educating
taxpayers, risk management, conducting audits and investigations, enforcing
compliance, and providing an efficient dispute resolution process. These
principles aim to promote voluntary compliance, reduce tax evasion and
corruption, and build trust between taxpayers and the TRA.
QN 71. Mention six taxpayers’ obligation
Every taxpayer has the following obligation.
 Registration
 Filing returns
 Accuracy of returns, custom declaration and refund claim
 Timely payment of taxes
 Cooperation with tra officers
 Issuance of demand of receipt/tax invoice
QN 72. Outline five fundamental taxpayers right
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 TAXPAYER’S RIGHT
 Impartial treatment.
 Privacy and confidentiality.
 Presumption of honesty.
 Objection of tax assessment.
 Tax relief and exemption under the tax laws.
QN 73. Mention the services level standard offered by TRA.
SERVICE LEVEL STANDARDS
 Registration of taxpayers
 Taxpayers’ identification numbers (TIN).
 Value Added Tax (VAT)
 Motor vehicle registration
 Tax consultants’ registration
 Permits and licenses.
 Motor vehicle relicensing.
 Licensing of custom agents.
 Licensing transporters of goods under custom control’
 Temporary importation of motor vehicle
 Pre-arrival declaration (PAD)-Assessed pre-arrival declaration (A-PAD) issued
BY EZEKIA

within 4 days from the date of acceptance of PAD.

 Custom clearance.
 Importation clearance
 Exportation clearance
 Transit clearance
 Custom release.
 Across airport and sea ports
 Across land boarder station
 Licensing of bonded warehouse, manufacturing under bond (MUB) and
inland container deports (ICD).
 Tax Audits. TRA shall conduct tax audits on taxpayers’ business record and
finalize the audit within 3 months for simple cases and 6 months for complex
cases’
 Tax investigation services.
QN 74. Outline the general services offered by TRA.
GENERAL SERVICES
I. Handling of objection
II. Handling of enquiries and complaints
III. Written correspondence.

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IV. Telephone
V. Visits by taxpayers
VI. Training.
QN 75. In the events that TRA officers depart from these services standard without
reasonable cause thus causing delays to taxpayers, the commissioner general shall.
SERVICE RECOVERY.
a) Write a letter of apology to the taxpayer
b) Direct a senior officer to expedite and resolve the matter
c) Waive, where the laws allow, any interest payment that may accrue
as result of the delay.
PART E.TAX AUDIT, AUDITING ANT TAX INVESTIGATION.
TYPE 1; TAX AUDIT
QN 76. What is tax audit
Tax audit is a detailed examination of financial statement accompanying by tax
returns in order to arrive at fair tax liability.
QN 77. Mention 4 expectation of tax auditor in examine the financial statement.
Tax auditors always examine the financial statements in expectation of
the following.
i) To detect transactions which are either omitted or overstated
BY EZEKIA

ii) To observe some of the sources of items reflected in the financial

statements if they are correctly reported.
iii) To detect any cash transactions which are not consistent
iv) To detect dubious transaction.
QN 78. Outline 5 purpose of tax audit
The purpose of a tax audit is following
 To verify that a taxpayer has filed tax returns properly
 The taxpayer has paid the correct amount of tax.
 Audits are essential for the efficient administration of self-assessed
taxes.
 for ensuring that taxpayers pay neither more nor less tax than the law
requires.
 An auditor will identify reporting errors and provide the taxpayer with
proper guidance as to how to avoid such errors in the future.
QN 79. Explain and mention types of tax audit
Types of Tax Audit
i. Desk (or Office) Audit.
ii. Field Audit.
DESK AUDIT

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 Is the tax audit which takes place within the offices of the revenue
authority. the tax officer uses the tax returns and other information available in files
of the taxpayer to conduct tax audit. The tax official may simply request the
taxpayers to provide some additional documents to the office to enable him/her
clear some issues in the returns submitted.
FIELD AUDIT
This is a tax audit which is conducted in the premises of the taxpayer; it is
conducted when the tax officer is not satisfied with some of the information
available during the desk audit.
PURPOSE OF FIELD AUDIT
 Field audit involves physical verification of documentary evidence
and materials at the premises of a taxpayer so as to confirm the
facts and figures of the tax returns filed by the taxpayers.
 The tax auditor is expected to examine some of the original/primary
books of accounts which are the sources of the items reflected in
the financial statements.
QN 80. It’s true that due to the fact shortage of resources such as MANPOWER.
Revenue authority cannot conduct Audit to all taxpayers. Explain why
Criteria used to select Taxpayer for Tax Audit
Revenue authority cannot conduct tax audit to all taxpayers at the
BY EZEKIA

same time due to the shortage of resources such as manpower. The Revenue
Authority may select few taxpayers for tax audit basing on different criteria.
i. Turnover
Determining the level of turnover depends upon the nature of
business
ii. Sectorial criteria
Selection business which falls in a certain sector which
has high risk of noncompliance or the business is within an evolving or fast-growing
industry.
iii. Zonal criteria
Tax authority may concentrate on the more revenue zone by
selection taxpayers for tax audit by focusing on the region or zone with high
revenue.
iv. Profit level
Normally profit members are the one mostly selected for tax
audit. It may happen that a taxpayer is making loss year after year by still operating
the business this creates some doubt to the revenue authority and decide to seek tax
audit.
v. Third party information
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 The authority may get information from third part regarding
the business of a certain taxpayers and use the information provided to select the
taxpayer for tax audit.
The third part may be-
 Financial institutions and public companies’ information on interest and
dividends matched with what taxpayer’s report in their tax return;
 Information from government agencies.
 Mass media.
 inquiries

vi. Random or systematic selection

Taxpayer may be selected randomly for tax audit or
systematically, by using random method of selection the same taxpayer may be
selected more than once but by using systematic method of selection there is no
chance for a taxpayer to be selected more than once. Systematic selection uses
certain intervals when selection a taxpayer.
QN 81. Explain the audit and scope of intensity
Audit scope and intensity:
The following are the types of audit scope and intensity. Audits can vary in
their scope and the level of intensity to which they are conducted.
BY EZEKIA

 Full or comprehensive audit- Is the detailed verification of all the

taxpayers’ tax compliance obligation. Comprehensive audit involves
examination of all information relevant to the calculation of a taxpayer’s
tax liability for a given period. The objective is to determine the correct
tax liability for a tax return as a whole.
 Limited scope audit – The audit may cover few taxes or issue such as
VAT and Withholding tax only, the authority may limit the tax audit in the
areas which the authority is suspicious that the taxpayer may not have
complied accordingly.
 Single issue-oriented audit – The tax audit is limited to a specific issue
on the tax return and/or a particular tax scheme arrangement employed
by the taxpayer. The tax office selects all records and other information
relating to a specific issue that needs to deal with. Example, tax audit
may be conducted to deal specifically with transfer pricing. The
objective is to examine key potential risk areas of noncompliance.
QN 82. Explain the condition that triggers tax audit
Conditions that trigger tax audit
A taxpayer will be selected for tax audit in case one or more of the following

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cases happens.
i. Where a taxpayer fails to fulfill tax compliance obligation under the laws
example. filling a tax return.
ii. Where the taxpayer is suspected of false transactions for example as
transactions without authentic documentation or disguised or fictitious
transactions
iii. Where concrete information on a taxpayer’s tax evasion is reported. For
example, failure to provide full amount of income, by falsely or fraudulent
claiming tax refunds.
iv. Where there is evident material that justifies a suspicion that a taxpayer made
omission or errors in tax return.
v. Unexplained wealth, or declared income does not reflect the taxpayer’s
standard of living.
vi. Declared income does not correspond to the business activity of the
enterprise.
vii. Taxpayer consistently declares losses or insubstantial income for an
extended period.
viii. Most business operations are in cash.
ix. High operating expenses ratio to revenue, high operating expenses ratio to
revenue is a trigger, revenue authority would seek to inspect the components
BY EZEKIA

of the expenses and confirm if they meet the tax deductibility test. Relevant
information on the expenses would be required e.g., documentary support for
the cost, the entity to which the cost relates, whether the costs were incurred
by, or on behalf of a related party, compliance with the arm’s length rule etc.
x. Deductibility of cost- The Income Tax Act, for example, allows only costs that
are “wholly” and “exclusively” incurred in the production of profits as tax
deductible. While some costs are specifically not allowed by the Act, e.g.,
donations (other than donations specified by the act), general bad debt
provisions, etc., other costs are required to satisfy the wholly and exclusively
test to be tax deductible.
xi. Significant fluctuations in assessable profits: Where there is a significant
increase or decrease in the taxpayer’s assessable or total profits, the revenue
authority may be put on inquiry with a view to conducting an audit. In this case,
proper clarification supported by adequate documentation will assist in
resolving any concern that may be raised.
xii. Transfer pricing (TP) arrangements: A taxpayer conducting significant
transactions with related parties can be subjected to tax audit. The revenue
authority would seek to confirm that the related party transactions are
conducted at arm’s length and that there is no tax avoidance scheme (such as
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 by way of base erosion and profit shifting, etc.), in such arrangements.
xiii. The use of financial hybrids (excessive use of debt over equity); the tax
officer needs to be skeptical to know why a company prefers the use of more
debt than equity considering the tax treatment of dividend and interest
payment. (Thin capitalization rule need to be applied)
xiv. Foreign presence without foreign taxes; a company may be present in a
foreign country without paying taxes on income at all in the country of source.
Revenue authority needs to conduct tax audit and investigation to find out
why. This happens where a country has double taxation agreement (tax treats)
with another country in which the foreign company is resident which allows a
country to be taxed in the country of source only if a company operates its
business through permanent establishment (P. E) …. force of attraction rule
needs to be applied.
xv. Controlled foreign corporation (CFC)- when revenue authority is suspicious
that a company is operating as ‘foreign direct investment’ in foreign country
and has not repatriated the income to the home country (resident) for tax
purpose the taxing authority may conduct tax audit. A country shall apply CFC
rule to prevent tax deferral.
xvi. Treat shopping- when the revenue authority finds out that there are people or
companies misusing the tax treaties for tax benefit purposes the revenue
BY EZEKIA

authority my order tax audit and investigation to be conducted.

xvii. Liquidation of a company/ transfer of shares/asset acquisition/merger and
acquisition may trigger tax audit as those arrangements have tax implication.
Eg when a parent company distributes its shares in two or more subsidiaries
in a complete liquidation.

AUDIT EXAMINATION TECHNIQUES

QN 83. Explain 2 techniques that can be used in tax audit examination

There are two techniques that can be used in tax audit examination
i) Direct Method
ii) Indirect methods
Direct method
This is method based on a specific issue or specific item. The
methods rely upon verification of income or expenses by direct reference to the
books and records used to prepare the tax declaration. Adjustments to declarations
or assessments are supported by specific evidence in relation to an income or
expense items.
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 Indirect method
This is method based on seek information within the officer and
outside the officer. Auditors may only check the taxpayer’s figures reflected the in
their books of account. However, if tax administrations rely solely upon taxpayer
declarations, business records, and books of account to determine tax liability,
taxpayers could limit their liability by creating records that do not truly reflect their
financial position, or by merely opting not to maintain books and records and not
filing tax declarations, avoid a tax assessment.
Purpose of indirect methods
 indirect methods have been developed to assist auditors in
objectively determining tax liabilities when the books and records
are either unavailable or do not adequately reflect the taxpayer’s
financial affairs.
 Indirect methods involve the determination of tax liabilities
through an analysis of a taxpayer’s financial affairs utilizing
information from a range of sources beyond the taxpayer’s
declaration and formal books and records.
 Indirect method is done by making analysis of all bank deposits
into business and personal accounts, loan accounts, and
BY EZEKIA

accounts held with credit unions, investment trusts, and other

financial institutions, that may be maintained or controlled by the
taxpayer, provides the auditor with a figure for total deposits.
Non-taxable receipts, for example loans, gifts, inheritances, are
then deducted where the taxpayer is able to provide evidence of
such receipts, giving the auditor a net receipt deposited figure.
QN 84. Outline the procedure before going to the field audit
i. Notification of the audit.
ii. Interview.
iii. Review.
iv. Communication of audit findings.
v. Audit Report.
vi. Resolving disputes.
PROCEDURES TO BE TAKEN BEFORE GOING TO THE FIELD TAX AUDIT
i. Notification of the audit
If a taxpayer is selected for a tax audit, the revenue authority will
notify the taxpayer in writing. The taxpayer may choose to be represented by expert
and that expert may also get a call informing him/her about the audit. The written
notification you received is known as the “Audit Notice” and it will indicate the

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expected commencement date of the audit, period covered under the audit, and the
documents that may generally be examined during the audit. Taxpayers are usually
informed about an upcoming tax audit in advance. If possible, their wishes are taken
into consideration when the decision is made on when to begin the audit. When
there is a special reason, a tax audit can also be carried out without advance
notification.
The tax audit is carried out in the premises of the taxpayer, the Tax Administration or
an accounting company, depending on which is the most appropriate location. Also
here, the taxpayer's wishes will be taken into consideration.
If the tax audit is carried out in the premises of the taxpayer or an accounting
company, the taxpayer must provide the appropriate facilities and tools and, if
necessary, personnel to assist in practical matters. When the audit is carried out
elsewhere, the taxpayer must bring the material to be audited to the place in
question.
ii. Interview
Prior to commencing the audit, the auditor will generally
conduct an interview with the taxpayer or taxpayer’s representative. This meeting is
focused on understanding the business, record keeping process, the scale of
operation, and other information that may be necessary to start the audit. Whenever
possible, a tax audit starts with an initial meeting with the taxpayer or their
BY EZEKIA

representatives and possible assistants. At this meeting, the aims and procedure of
the tax audit are explained. The tax audit team also seeks to build a picture of the
taxpayer's business operations and accounting, as well as the manner in which the
customer has managed its tax affairs.
The following are among the issues that may be addressed at the initial meeting:
 Type, extent and special characteristics of the business operations;
 Affiliated companies and their locations;
 Ownership and each owner's participation in business operations;
 Owners' other business affiliations;
 Persons responsible for tax and accounting matters;
 Tax risks and categories covered in the tax audit and the emphases
within them;
 Priority periods subject to tax audits;
 Auditing of the company's foreign places of business, subsidiaries
and other affiliates;
 Preliminary time plan for the audit.
At the initial meeting, practical arrangements are also settled, such as the audit
schedule and the use of the workspace.
After the initial meeting, or later during the audit, the auditors may also visit the
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office and other company premises and conduct interviews with the employees if
necessary.

iii. Review
After the interview the auditor start the audit by reviewing the
business records. Often, this involves observation and examination of the business
procedures, processes, internal controls and documents. If an auditor requires any
additional documents will request the taxpayer to provide.
Typical matters examined in a tax audit:
 Do the facts about company business operations and the records found in its
accounting match?
 Do tax returns, information returns, and company accounting records match?
 Does the company comply with the requirements of tax legislation?
The materials relevant to each tax risk and tax category are examined to the
extent that is essential in view of the scope of the tax audit. They include the
annual accounts, general ledgers and journals, vouchers, dispatch documents
of goods, transfer pricing documents, minutes of company meetings,
employment contracts, commercial contracts, standing orders,
correspondence, and internal accounting system specifications and
instructions.
BY EZEKIA

iv. Communication of audit findings

Upon completion of the audit procedures, the revenue authority will contact
the taxpayer to discuss the findings of the audit and the amount of tax and fines
assessed. If the taxpayer disagrees with any of the points raised in the draft
assessment should discuss the matter with the auditor and formally raise the
concerns in writing.
Whenever appropriate and possible, a closing meeting is held with the taxpayer or
their representatives and possible assistants after the materials have been audited.
In the closing meeting, the auditors discuss with the taxpayer the findings and the
ways to resolve any unsettled issues. Any findings made in the audit are described
as fully as possible. In cases of tax assessment by estimation, the grounds for
applying this procedure must be explained to the taxpayer at the closing meeting if
possible.
The taxpayer is also informed of further action that will follow and of the preliminary
schedule. The taxpayer is informed on any tax debiting, tax adjustment, payment
arrangements, or relief measures and on the appeals procedure.
v. Audit Report
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 Revenue authority will issue a final Audit Report this report will point out the
audit findings after taking the comments of the taxpayer raised above, and will be
issued with a note that shows any additional taxes that the taxpayer has to pay.
After completed tax audit, a tax audit report must be prepared unless there are
special reasons not to do so. It enumerates the findings that affect taxation, and
details measures to be taken on account of the findings.
A tax audit report contains, as appropriate, the following details:
i. Information on the taxpayer and general information on their
business;
ii. Information on audit procedure and scope;
iii. Audited accounting records and other materials;
iv. Information on each tax category and the findings relating to it,
laid out in different sections;
v. A description of the matters for which the taxpayer gave
clarifications or explanations during the audit. If the taxpayer’s
views were dismissed, the grounds for this must also be given;
vi. Any grounds for the taxation, tax adjustment or debiting
decisions made and the guidance provided;
vii. Names and positions of the tax auditors who carried out the
audit and of the other participants involved in it.
BY EZEKIA

vi. Resolving disputes

A tax audit may reveal facts that will lead to a tax offence case
or require immediate precautionary measures. If the audit has not advanced far
enough for a report to be compiled, the tax auditor writes a memorandum on the
findings.
The memorandum will be sent to a tax attorney of the Tax Administration, who will
then report the tax offence or carry out a precautionary measure. In such cases, the
relevant legal provisions concerning the notification and hearing will be observed.
If the taxpayer disagrees with the final Audit Report and think that the auditor’s
assessment of tax does not truly reflect the taxpayers tax liabilities, the taxpayer can
formally object to the revenue authority in writing and eventually appeals to the
highest authorities.

QN 85. Before the tax auditor going to the field audit, it’s important to examine the
document and data. Outline the document and data to be examine
Before the tax audit, the tax auditors examine the information already collected by
the Tax Administration and available from other sources. The documents and data
to be examined in advance include
i) the tax returns filed by the taxpayer.
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 ii) payment control data.
iii) information from various registers.
iv) documentation of transfer pricing (in transfer pricing audits).
v) The tax auditors must also familiarize themselves with the previous tax audit
report on the taxpayer and the taxation practice and case law applicable to
the taxpayer’s sector.
TAX AUDIT OF INCOMPLETE RECORDS
QN 87. Mention two ways of maintaining accounting record.
There are two ways of maintaining the accounting records.
a) one is the double entry system
b) second is the single-entry system. The records maintained according
to the single-entry system are known as incomplete records. In
double entry system books are kept on the basis of the dual aspect
concept, every debit has a respective credit.
Qn 88. Outline the reason for incomplete record in any organization.
There can be numerous reasons due to which records in an organization may be
missing, unavailable or incomplete. It is difficult to list all such situations but some
of the common ones are listed below:
i. Fire, floods, riots, earthquakes or other natural calamities.
ii. Burglary/theft of records or documents.
BY EZEKIA

iii. Seizure of records by any authority such as income-tax, sales tax,

excise, customs, and Central Bureau of Investigation.
iv. Files, vouchers, papers or other data are misplaced
v. Partial availability of records where particular set of records have
been damaged or affected by spilling of water, ink, color, or
chemicals.
vi. Links with a country may be broken and data regarding the
accounts of overseas branches may not be accessible.
Qn89.Mention forms of incomplete records
Forms of incomplete records-
 No records found/absence of any record whatsoever
The records may not be found but there are indicators of purchases and sales
accompanied by other transactions, there is assign of service rendered.
 Partial records maintained
Owner of the business may have cash books disorganized
 Falsification/fabrication/production of records
Records can be destroyed either intentionally or unintentional or may be misplaced.
 Single entry accounting

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Books with debits records only no credit records or credit records with no debit
records.
QN 90. Outline things to consider by tax auditors when conducting tax audits audit
and investigation.
When conducting tax audit and investigation the tax auditor must be aware of the
following
i. Taxpayers’ operations (Nature of the business)
ii. Business location i.e. is their customers, are the customers
potential?
iii. Type of industry
iv. What is actually happening in the taxpayer’s records?
The tax auditor needs to observe clearly the circumstances of the
transactions carried by the taxpayer and to find out what make the taxpayer not to
generate complete records. Tax auditor must observe the deficiency and know how
to bridge the deficiency.
QN 91. During the tax audit process in case of missing or incomplete records tax
auditor should seek out the following information from the taxpayer.
a. Reasons for non-availability of the records and information required for the
audit.
b. The procedure by which the financial statements have been prepared by
BY EZEKIA

the taxpayer.
c. A list of all underlying assumptions made by the management in preparing
the financial statements. The auditor would be able to draw a more
comprehensive audit plan, if he knows the method of reconstruction of
financial statements adopted by the management.
d. A list of records in use before the date of their destruction or their non-
availability for other reasons. Where the records are numbered, the list of
the numbers of the last records, if available.
e. A brief note on the activities of the organization highlighting all important
functions such as purchases, sales, method of accounting, fixed assets in
use, production process, consumption ratios, scrap, storage, methods of
financing etc.
f. A list of records, books of account, vouchers and other data available, if
any, to support the financial statements.
QN92.How to deal with incomplete Records
For instance, where a riot has taken place and records are strewn all over the
premises, the taxpayer may truthfully state that he does not know whether the
records are available or not.
OR
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An office was flooded with water and as a consequence stocks, machinery, account
books, cash in hand, etc., was fully destroyed. The ruined machinery was the only
asset available. Particulars of debtors and creditors were not available as all the
books were destroyed.
What should be done by the Tax auditor?
I. The last available balance sheet may be obtained from an external
source, as for example, the Registrar of Companies or the Income-tax
Officer with whom it may have been filed.
II. Duplicate copies of bank statements may also be obtained from the
bankers. Suppliers may be asked to send statements showing the
amounts due to them and a similar request may be sent to customers.
III. The cheques issued on bank accounts may be obtained, if the required
information is not available in the bank statements.
From the data thus obtained, an attempt should be made to reconstruct the
accounts based on the personal knowledge of taxpayer, and the staff dealing with
that business.
QN 93. Outline the evaluation of assets of financial statement to be examine.
EVALUATION OF ITEMS OF FINANCIAL STATEMENTS
Evaluation of Assets
The auditor may consider application of the above techniques/procedures in respect
BY EZEKIA

of the following assets, namely:

 Fixed assets and stocks
 Investments and cash on hand
 Other current assets (such as debtors, loans and advances)
Fixed Assets and Stocks
If the actual assets are physically in existence as on the date of
tax audit. The first check that the tax auditor should apply in relation to assets is the
physical verification, wherever possible. All assets, including fixed assets, stocks,
etc., should be physically verified in-depth to, the extent possible within the
constraints of time and cost. This would provide a basis for working out the quantity
for valuation as at the date of the financial statements. Since the auditor may not
have the technical expertise in verifying the assets, it is suggested that, wherever
necessary, he should seek the help of experts and technically qualified consultants
for this purpose, particularly if the Fixed Assets Register is not available to support
his verification procedure.
QN 94. Outline things to consider by auditor if the assets are not available due to the
damage by fire and floods.
If the assets are not available due to damage or destruction by fire, floods, etc. In

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such situations, in order to satisfy himself that fixed assets or stocks or any other
assets as claimed were in existence, the auditor may consider the following:
I. Evidence in the form of photographs, films taken at functions, etc.
These should be certified as to the date, place, and the description
of the photograph.
II. Verification of the damaged asset at the site, wherever possible,
the auditor should physically verify the damaged, broken or
destroyed asset. Otherwise, he may place reliance on verification
reports issued by insurance surveyors or the management. The
physical verification, to the extent possible, should be
supplemented by photographs and video film especially for
inventories of higher value, which will form a part of the evidence
for the auditor’s working papers file.
III. Sample tests using laboratory test reports (on the remains of the
asset, wherever possible). This would furnish further evidence to
the auditor regarding the authenticity of the asset. In certain
instances, depending on the damage caused, the auditor may be
able to assess the original condition of the asset using technical
help from laboratories. For example, a laboratory may be able to
certify the condition or age of certain items such as cloth,
BY EZEKIA

chemicals, yarn, metal, paper, adhesive etc., from the available

remains of the asset. Such reports may be useful evidence for
determining the condition of the asset before the date of the
mishap which would be useful for valuation.
IV. External evidence in the form of reports from fire
brigade/insurance companies/police If the taxpayer has been
affected by any mishap such as fire, flood or earthquake, reports
may be available from external entities such as the insurance
companies, the fire department and even the police.
V. External evidence of physical verification conducted by the
bankers, internal auditors, or surveyors, if any, prior to the date of
destruction or non-availability of records. The verification so
conducted will enable the tax auditor to ensure existence of the
assets such as stocks, machinery etc., before the date of
destruction/non-availability.
VI. Financial returns and statements from external authorities such as
revenue authorities. The tax auditor can reconstruct almost the
entire stock record on the basis of the relevant statements
submitted to the revenue authorities.
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QN 95. Mention and discuss important things to consider by tax auditors when
conducting tax audits.
Inventory/Stock
The important things to consider by tax auditor when conducting tax
audit on inventory or stock are as follows
i. Existence – is the stock/inventory really exist
ii. Ownership – is the stock owned by the taxpayer
iii. Properly recorded – Value of the stock is normally determined by as
at the beginning and at the end of the year. Tax auditor should
observe the trend or value of the stock before stock taking, during
stock taking and after stock taking. The tax auditor does all these to
observe the following.
 Any change of the stock
 Is the change substantial
 What is the cause of change of value in case it is
substantial.
Is the change having any effect in the tax liability?
The tax auditor must ensure that the stock reported is in its current value. This is
done basing on the following.
BY EZEKIA

iv. Validating the unit price quoted

Tax auditor should make comparison or relate the quoted price with the third part
unit price, consultation of supplies accompanied with documents in the purchase
V. Review of the stock policy
There must be accepted existing accounting standards such as FIFO or weighting
average.
Vi. Review of the provision of damages, obsolete and slow-moving
goods as well as pilferage. Stock is normally reported at cost and net realizable
value.
Vii. Tax auditor should make sure that the work in progress is also
reviewed in case the entity is dealing with the manufacturing of other
products.
Cash and bank balance
Cash balance can be either cash in hand or cash in bank
Tax auditor should search for the following
 Existence
 Ownership
 Current value of money as per central bank
Tax auditor should check on -

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  Various cash transactions
 How frequent
 Recording i.e. the way of recording
 Obtain the reconciliation statement
 Scrutinize some of taxpayer’s claque payment operation
If records were destroyed in fire or misplaced physical verification of cash would not
be possible. In such a case, the auditor should apply the method of cross
verification.
In such instances, the bank statement would enable the auditor to identify such cash
deposits and classify them as cash sales of the taxpayer. If the system of
depositing cash sales has been satisfactorily implemented in the past, the auditor
may reasonably finalize cash sales on the basis of cash sales deposit entries in the
bank statements.
Tax audit and investigation of Liabilities
Tax auditor should obtain the following evidence relating to liabilities
 Are the liabilities reported in the current value
 Are they not overstated
 Are they fictitious
 Is the company obliged to settle the liabilities
BY EZEKIA

 The liabilities must relate to the entity’s operations

 Must also be recognized in as the part and parcel of the income
generated.
If the loan is a secured term loan, full details of loan should be available from the
lender including the nature of the security.
QN 96. What is Tax investigation?
Tax investigation as examination of taxpayer’s financial statements accompanied by
other records where there is suspicion of fraud or willful neglect with the aim of
recovering the evaded tax.
OR
Tax investigation Is the detailed examination of financial records accompanied by
tax return in order to recover the evaded tax, to determine fraudulent acts done by a
taxpayer that aim to minimize tax liability.
It differs from tax audit in the sense that tax audit aims at arriving at fair tax liability
while tax investigation aims to recover the evaded tax.
Objective of Tax Investigations
a) Detect tax evasion through measures which counteract fraud and
other forms of tax and fiscal evasion.

b) Ascertaining the person responsible for the offence, to pursue

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 criminal prosecution.

c) Ensure the correct amount of tax is collected

d) Enhance tax compliance

OPERATIONAL MATTERS

SELECTION OF CASES:

The aim of tax investigation is to determine whether the tax payer who
is subjected to investigation has committed a tax crime.

METHODS EMPLOYED FOR CASE SELECTION

Case selection methodologies for investigation purposes are many

and varied. Some methods employed are:

i) Information from informers and/or the public

ii) Information based on Intelligence

BY EZEKIA

iii) Review of tax returns

iv) Selection through risk analysis

v) Cases referred from revenue departments

QN 97. Outline the issues to consider when conducting tax investigation

Issues to consider when conducting tax investigation
(a) During the visit, the investigation officers are required to: -
(a) Introduce themselves; show the Identity card bearing
their names, job title and employee number.
(b) Explain the purpose of the visit to the taxpayer at the
outset of the visit.
(c) Inform the taxpayer of his/her rights and obligations to be
executed in the visit event
(d) Conduct a search at all the places in the premises
(e) Inform the taxpayer the scope, period of investigation,
documents, records in soft and hard form needed for
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 purposes of investigation.
(f) To access, download and take possession of relevant
information from all electronic storage media.
(g) Interview and take statements from taxpayer and relevant
persons present at the scene as and when required.
(h) Provide reasonable time for taxpayer to collect
documents, records and papers relevant to tax
investigation.
(i) Seize and take possession of books, documents, soft and
hard form records relevant to the investigation.
(j) Provide a written acknowledgement of receipt of the
documents, books of accounts, records duly confirmed
by the investigation officers and the taxpayer.
(k) Not to disclose any information obtained during the
course of investigation to unauthorized person.

QN 98. Outline the tax payers’ rights during tax investigation

Taxpayer’s Rights
(a) The taxpayer has the right to know the consequences of failing to
submit the necessary information.
BY EZEKIA

(b) The taxpayer has a right to identify investigation officers.

(c) The taxpayer has a right to appoint an approved tax consultant/
representative or a team of advisers acting individually or
collectively. However, a proper written authorization letter from the
taxpayer to the representative to act on the taxpayer’s behalf must
be submitted to TRA.
(d) Tax consultant /representative is allowed to be present during the
interview/discussion. The taxpayer will be given reasonable
opportunity to consult with tax consultant representative during the
interview session.
(e) The taxpayer is allowed to bring along interpreter(s) during the
interview/discussion session if the taxpayer is not conversant in
English or Kiswahili.
(f) The taxpayer has a right to request return of all documents taken
after completion of investigation but where the taxpayer requires
documents which are still in possession of the investigation
officers, the officers should allow the taxpayer to make relevant
copies and acknowledgement slip will be issued.
QN 99. Outline the taxpayer’s obligation during tax investigation
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 The taxpayer’s Obligations:
 To allow the investigation officers to have full and free access to all
places, books, documents, records and computers. The officers may
search such places and take a copy or make extract from any such
books, documents, records and computers without making any
payment by way of fee or reward.
 To permit investigation officers to take possession of records,
documents and computers in the custody of or under the control of or
belonging to the taxpayer.
 Where records and documents are maintained in a language other than
Kiswahili or English, to render a translation in Kiswahili or English of the
said records or documents.
 Provide complete responses for request of information either in writing
or orally.
 Co-operate with the investigation officers
 Attend all interviews/discussions as will be notified by the investigation
officers.
QN 100.The taxpayers is prohibited to allowed the following.
The taxpayer is prohibited from: -
BY EZEKIA

 Giving any form of gifts to the investigation officers.

 Making any form of payments to the investigation officers.
 Transacting any business with the investigation officers.
 Obstructing or hindering the investigation officer in exercising
his/her duties/functions. Such obstruction is an offence and is
punishable by law.
Obstruction includes the following: -
(a) Refusing investigation officers from entering lands, buildings,
places and premises to perform their duties
(b) Refusing to provide books of accounts, documents, records and
computers in the custody of or under his control when required
by the investigation officer;
(c) Failing to provide reasonable assistance to the investigation
officers in carrying out their duties
(d) Refusing to answer or give responses to questions asked during
the course of investigation
(e) Appointing unapproved tax consultant/representative.
QN 101.Outline the examination of record.
Examination of records

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 The investigation officer will do the following: -
(a) Examine taxpayer’s business books, note books, diaries, any
documents and computers.
(b) Examine taxpayer’s personal books, records, documents and
computers which may contain business information.
(The examination will assist RA to ascertain the amount of taxable
income evaded, if any, through direct or indirect methods of proof)
(c) Request a person to provide information, documents, records or
other papers in the custody of or under the control of that person.
QN 102.What are the Investigator’s powers?
Investigators have a range of powers in generally, these powers permit the
investigator to:
i. Gain access to buildings and property and remain there;
ii. Inspect, examine, copy and seize books, documents or records;
iii. Search premises;
iv. Require a person to answer questions and provide information; and
v. Require a person to give reasonable assistance. If a taxpayer fails to comply
with an investigator’s lawful requests, it is possible that a prosecution might result.
Furthermore, this action may have a bearing on the determination of the taxpayer
culpability in the matter relevant to the level of penalty tax involved or any decision
BY EZEKIA

made about the remission or partial remission of penalty tax.

QN 103.what is auditing?
AUDITING is the verification of the accuracy and correctness of the books of
account by an independent person qualified for the job and not in any way connected
with the preparation of such account with t6he purpose of determining if the
financial statement present true and fair view.
QN 104.Outline the characteristics of auditing.
i. Auditing is crucial review of the system of accounting and
internal control.
ii. It is an organized and scientific examination of books of
account of a business.
iii. Audit is the verification of the result shown by the profit
&loss account and balance sheet.
iv. Audit is done with the help of voucher, documents,
information and explanation received from the
organization being audited.
v. Audit is under taken by an independent person who are
duly qualified for the job.
QN 105.Outline the objectives of auditing,
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 OBJECTIVES OF AUDITING.
 Primary objectives.
 Secondary objectives.
A. PRIMARY OBJECTIVES
What are primary objectives of audit? Primary objectives are objectives of audit to
report to the owner of the business whether the balance sheet, profit and loss
account present true and fair view of the state of the affairs of the company at the
end of the accounting.
B. SECONDARY OBJECTIVES OF AUDITING
What are secondary objectives of audit? Are objectives of audit based on detection
and prevention of fraud and error to the owner of the business and to ensure the
financial statement at the end of the accounting present true and fair view

QN 106.Mention two parts of secondary objectives of auditing

Secondary of objectives of auditing may be categorized into two parts
i. Detection and prevention of errors
ii. Detection and prevention of fraud
A. DETECTION AND PREVENTION OF ERRORS
What is error? Error refers to the unintentional mis-statement or dis-description
BY EZEKIA

made in the book of account. Errors are reported committed innocently; an

auditor should be very careful about it because sometimes error which might
appear as innocent as result of fraudulent manipulation

TYPES OF ERROR
(a) Technical error/clerical error
(b) Error of principle.
TECHNICAL ERROR.
what is technical error? These are error which are committed during
(a) in totaling or balancing ledger account
(b) in posting the entries from the books of original entry to the concerned
account in the ledger
(c) in casting or posting carry forward and balancing the subsidiary books
(d) recording transaction in the books of original entry such as the cash books,
purchases and sales books
TYPES OF TECHNICAL ERROR.
i. ERROR OF OMISSION
ii. EROR OF COMMISSION
iii. COMPENSATING ERROR
i) ERROR OF OMISSION
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 What is error of omission? Is a type of errors which are arise on account of
transaction not being recorded in the books of accounts either wholly or partially.
If a transaction is completely omitted to be recorded in a subsidiary book, it is an
error of complete omission. This kind of error does not affect the agreement of trial
balance as both aspects of the transaction are omitted from the trial balance.
Therefore, such error cannot be detected easily; an intensive checking of the
subsidiary books and the posting from subsidiary books to the ledger is required.
ii) ERROR OF COMMISSION
This happens when incorrect entries are made in the books of accounts either wholly
or partly. E.g. The amount 657 might be entered as 576 in the books of original entry
such an error can be located while vouching the purchases with original invoice.
iii) COMPENSATING ERRORS
When the effect of one error is countered-balanced, set off or compensated by
another error the action is known as compensating error. Egg If salary and wages
account is under recorded by 150 and general expenses account is over recorded by
the same amount (150) then the error is automatically offset. Such error can be
detected only through checking of different subsidiary books and ledger accounts.
ERROR OR PRINCIPLE
This error refers to an error of recording transactions without following the general
accepted principles of accounting. The error cannot be detected by the
BY EZEKIA

disagreement of the trial balance or by mere routine checking.

B. DETECTION AND PREVENTION OF FRAUD
What is fraud?
Fraud refers to intentional misstatements or mis-description made in
the books of accounts with the view of cheating.
Types of fraud
a) Misappropriation
b) Fraudulent manipulation of accounts
A) MISAPPROPRIATION
It refers to dishonest use of another’s fund or property for the one’s own benefit or
use
MISAPPROPRIATION MAY BE SUB DIVIDED INTO TWO TYPES
i. Misappropriation or embezzlement of cash
ii. Misappropriation of goods
Misappropriation or embezzlement of cash
This includes
 Non-disclosure of cash receipts
 Recording the cash sales proceeds at a figure lower than the
actual cash sale proceeds.
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  Omitting to record the sales
 Showing false cash payments, recording false cash purchase
and pocketing the amount.
 Inflating the cash purchases at the figure higher than the
actual and pocketing the difference.
Misappropriation of goods
It means the wrongful or fraudulent conversion or fraudulent application of goods by
those who handle them. This involves
 Recording sales of large quantities than actually supplied and
misappropriation of the balance quantity
 Recording purchase of large quantities while getting delivery of less quantities
and receiving the balance quantity privately.

B) FRAUDULENT MANIPULATION OF ACCOUNTS

It is said to be committed when a person makes a false entry in the business records
or alters, erases, removes or destroys a true entry in the business records. This can
be done through the flowing.
 Provision of more or less depreciation on fixed assts
 Over valuation or under valuation of fixed asset
 Creation of secret reserves (provision for doubtful debt, provision for loss)
BY EZEKIA

QN 110.What are the differences between tax audit and tax investigation

TAX AUDIT TAX INVESTIGATION

TRA shall conduct tax audit on TRA shall conduct tax investigation at
taxpayer’s business records and finalize any time in the premises of tax payer.
the audit within 3 months for Complex
cases and 6 months for Very complex
cases.

PART F. CONCEPT OF VAT, EFD MACHINE AND INCOME TAX

ACT

QN 111. PART I CONCEPT OF EFD MACHINE

What is Electronic Fiscal Device? (EFD)

Electronic Fiscal Device (EFD) means a machine designed for use in business for

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efficient management controls in areas of sales analysis and stock control system
and which conforms to the requirements specified by the laws.

TYPES OF EFDS

i. Electronic tax register

ii. Electronical fiscal printer

iii. Electronic pump printer

iv. Electronic signature devices

v. Visual fiscal devices

vi. E-bus ticketing system

Types of Electronic Fiscal Devices (EFDs)

Electronic Tax Register (ETR)

The device is used by retail business that issue receipts manually.

Electronic Fiscal Printer (EFP)

The device is used by computerized retail outlets. It is connected to a computer

network and stores all sale transactions or details made in its fiscal memory.
BY EZEKIA

Electronic Signature Device (ESD)

The device is designed to authenticate by signing any personal computer (PC)

produced financial document such as tax invoice. The device uses a special
computer program to generate a unique number (Signature) which is appended to
and printed to every invoice issued by the user’s system.

Electronic Fiscal Pump Printer (EFPP)

The device is designed for use in Petrol Stations. It is connected to a pump and
printed every receipt during the sale transactions.

NOTE:

You are obliged to issue receipt or invoice on each sale and notify any
changes/malfunctioning of the machine to Commissioner within 24 hours. The
supplier of the machine will install, configure and attend the malfunctioning of the
machine within 48 hours

WHAT IS EFD SECOND PHASE?

Is implementation of machine designed for use in business for efficient

management controls in areas of sales analysis and stock control system and which
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conforms to the requirements specified by the laws.

Implementation of the second phase of Electronic Fiscal Devise (EFD) begun since
year 2013, with the aim to expand the number of traders who shall use the EFD
system to issue receipts or tax invoice in every transaction made. The second phase
includes non-VAT registered traders administered under The Tax Administration Act
2015,

Implementation of the second phase of EFD shall include the following groups;

i. Persons who are not VAT registered with a turnover ranging from TSHS 11 million
and above per year;

ii. Trader’s trading in the Region’s prime areas, identified on the basis of rent payable;

iii. Traders dealing with selected business sectors such as Spare Parts, Hardware,
Mini Supermarkets, Petrol stations, Mobile phone shops, Sub wholesale shops, Bar
and Restaurants, Pharmaceutical Stores; Electronic Shops etc.

The system is ongoing and the Authority shall gradually be registering traders basing
on traders’ business prosperity, experience and capacity

BY EZEKIA

WHAT IS EFD OFFENCES?

Any person who;

 Fails to acquire and use an electronic fiscal device upon commencement

of business operations or expiry of the period specified by the
Commissioner.
 Fails to issue fiscal receipt or fiscal invoice upon receiving payment for
sale of goods or service.
 Issues a fiscal receipt or fiscal invoice that is false or incorrect in any
material particulars.
 Uses electronic fiscal device in any manner that misleads the system or
the Commissioner.
 Tempers with or causes electronic fiscal device to work improperly or in
manner that does not give a correct or true document.

Commits an offence and shall be liable on conviction to a fine not less than 200
currency points and not more than 300 currency points or to imprisonment for a
term not exceeding three years or to both.

These offences shall not apply to a person who is exempted by any tax law to
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acquire or use an electronic fiscal device.

Where any amount of tax has been evaded in any of the offence, a person involved
shall be liable upon conviction in addition to a fine twice the amount of tax evaded
or imprisonment for a term not exceeding three years.

A person who fails to demand or report a denial of issuance of a fiscal receipt or

fiscal invoice upon payment for goods or service commits an offence and shall be
liable on conviction to a less than 2 currency points and not more than 100 currency
points.

WHY EFD IS PREFERRED?

The answer of this question also is same as importance /significance of
EFD/Features of EFD.

 It has in-built Fiscal Memory which cannot be erased by mechanical,

chemical or electromagnetic interferences;

 Automatic self-enforcing Issuing of daily “Z” report after every 24 hours;

 Transmits tax information to TRA system automatically;

BY EZEKIA

 It has irreversible date mechanism

 Issues fiscal receipts/invoice which is uniquely identifiable;

 It can be used as a stand-alone and configured into a network;

 It has at least 48 hours power backup, and it can use external battery in
areas with no electricity supply;

 It saves configured data and records on permanent fiscal memory

automatically

 It has tax memory capacity that stores data for at least 5 years or 1800-
day transactions

 Avoids conflict during audit and assessment of tax.

 Simplify and ease objection and appeals

QN 112.what is fiscal receipt?

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A fiscal receipt is defined to include receipt issued by a fiscal device, by the
Government Electronic Payment Gateway and any other electronic system approved
by the Commissioner General.
or
Fiscal receipts are legal documents that businesses issue to customers as proof of
purchase for goods or services. They comply with specific regulations set by the
local tax authorities and include details such as business name, address, tax
identification number, and other mandatory information.
QN 113.Outline the content of fiscal receipt.
i. The words
ii. Vat registration number
iii. Name and address of users
iv. EFD licenses number
v. Date and time of issue receipt
vi. TRA logo
vii. Name of product, quantity, unit price, item description and tax of items
collected.

QN 114.Qutline the aims of EFD Machine

a) Enhancing efficiency of tax administration.
BY EZEKIA

b) Provide taxpayer secure and reliable means of keeping their record.

QN 115.Outline the benefit to taxable persons when using EFD machine
 Easy record keeping.
 Storage of data. EFD has memory capacity that store data for at least 5
years, which is requirement of the law
 Enable the taxpayer to comply with the tax laws due to the invoice produce
 Assist the taxpayer to pay the correct amount of tax.
 Assist in reconciliation due the fact that it can produce a summary of
sales report
 Save time, use less time when issuing tax document as electronic fiscal
receipt
 Assist to obtain the genuine receipt for which input tax claimed.
QN 116.Outline the benefit to the tax authority when taxable person using EFD
machine.
 Reduced the level of tax evasion and tax avoidance.
 Assist in statistical analysis.
 Assist in administration for both income tax and vat.
 Increase the government revenue due to the correct sales & purchases

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 figure on EFD
 Reducing the level of disputes between officer and taxpayers
 Computerizing the tax auditing process as data are stored electronically.

QN 117.Mention challenges facing the use of EFD machine.

 Shortage of education on the use of EFD machine.
 Cost of bought EFD machine (Expensive)
 System error which may result into wrong report.
 Consume a lot of time incase EFD breakdown
 Network problem which may bring difficult on the use of EFD.

PART II. CONCEPT OF VALUE ADDED TAX (VAT)

QN 118.Explain the background and introduction of VAT
BACKGROUND OF VALUE ADDED TAX
 The most important tax innovation of the second half of the twentieth century.
Goode (1984:157). One stage VAT was introduced in France in 1954 after WW
II (Metcalf,1995). A comprehensive Value-Added Tax first appeared in Brazil in
1967, Designed to overcome the defects of turnover tax and to secure a
BY EZEKIA

greater degree of tax coordination among the states of the Brazilian

Federation (Shoup, 1990:4).
 1967 Denmark became the first country to introduce a comprehensive VAT at
the national level.

 In the following years, the VAT was adopted by the other member states of
the European Community to replace their turnover taxes.
 Sweden (1969), Norway (1970) enacted a VAT to replace retail sales tax
 Today, VAT is found in more than 90 countries under the OECD countries
 December 1991 the Tax Commission, appointed by the Govt of TZ offered a
proposal for reform of the Tanzanian tax system
 The replacement of the existed sales tax by a VAT was the Tax Commission’s
central recommendation in the domain of Indirect Taxation.
 The Government announced in the 1992 (June) Budget Speech its intention to
introduce VAT in January 1994
 VAT was introduced in Mainland Tanzania on 1st July 1998 with the coming
into operation of the VAT Act 1997
 Zanzibar has its own VAT Act and tax administration, and the tax was
st
introduced there on 1 January 1999.

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  The law in Zanzibar is for all intents and purposes identical

QN 119.What is value added tax?

VALUE ADDED TAX
 VAT is indirect tax charged on consumptions of goods and services at every
stage of production and distribution chain and on the importation of goods
and services
 It is the tax charged on value added at each stage of production and
distribution chain
QN 119 b. Explain the reason for introduction of VAT in Tanzania system.
REASON FOR INTRODUCTION OF VAT
a) To broaden the tax base. More revenue at low rate
b) To attain economic neutrality. There is no distortion of domestic production
and distribution
c) To promote exports. This is because exports are charged at a zero rate and
therefore make them less expensive and competitive in the world market.
d) To attain its administrative advantages.
i. VAT is a self-policing tax in that it minimizes tax evasion
ii. Simple in administration.
e) Vat promote efficiency in production.
BY EZEKIA

QN 120.What is value Added?

VALUE ADDED
 Is difference between trader’s sales price and purchases price exclusive of
VAT
 It also incorporates costs, expenses and gross profit of the business
It is contribution made at each stage of production and distribution chain

QN 121.Define the following VAT terminology used in Tanzania system

i. Input tax
ii. Output tax
iii. Exempt supplies
iv. Zero-rated supplies.
v. Taxable supplies
vi. Standard-rated supplies.
Answer.
A. INPUT TAX- VAT paid on local purchases or on imports

B. OUTPUT TAX-VAT charged on taxable supplies of goods and services

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 C. EXEMPT SUPPLIES -Supplies on which no VAT is charged
D. ZERO-RATED SUPPLIES -Supplies that are taxable at a rate of 0%.
E. TAXABLE SUPPLIES-These are supplies on which value added tax (VAT) IS
Charged and they consist of standard -rated supplies and zero-rated supplies.
F. STANDARD -RATED SUPPLIES-are those on which the VAT is charged at the
rate of 18% on the vat exclusive amount and VAT fraction of 18/118 is used if
the amount is inclusive of vat.

QN 121 b. Explain how making exempt supplies differs from making zero rated supplies
for the purpose of VAT.

DETAILS EXEMPT SUPPLIES ZERO-RATED SUPPLIES

REGISTRATION A trader who only A trader who makes

makes exempt supplies only zero-rated supplies
cannot register for VAT can register for Value
Added Tax

LEVEL OF TURN OVER The turnover of exempt The turnover of zero-

supplies is not rated supplies is
considered considered

INPUT VAT All the input vat that is all the input vat that is
BY EZEKIA

attributed to exempt attributable to zero

supplies cannot be rated supplies is
recovered recoverable.

QN 123.Explain the mechanism of vat

Mechanism of VAT, it’s explained how vat works
 A person (taxable person) charging VAT must be registered under VAT Act
2014.REVISED EDITION OF 2023 (turnover > 200m).
 Registered person btn the first supplier and the final consumer is charged on
the taxable supplies made to him (Input Tax) and charges tax on taxable
supplies made by him (output tax).
 Excess of Output tax over the input tax is paid to TRA or VAT payable the
excess of input tax over the of output tax is recovered from TRA or VAT
refund

QN 124.Outline the 3 classification of VAT BASES.

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 These three bases are sometimes used to classify value added taxes into
the following classes
 Consumption VAT
 Income VAT
 Gross Product value VAT
A. CONSUMPTION VAT
 All supplies of goods and services including purchase of capital goods are
taxable and their input taxes are deductible in the period of acquisition.
 Firm allowed to deduct the gross value of its product.
 i.e. the tax base is sales proceeds minus capital goods purchased + material
purchased.
 It encourages purchase of the capital goods for investment but reduces the
tax revenues.
B. PRODUCTION VAT (GROSS PRODUCT VAT)
 This recognizes only revenue transactions and totally disallows input taxes
deduction on capital goods.
 It is very close to income VAT but fall short on disallowing depreciation.
 The tax base is just sales minus materials.
 It discourages investment because the VAT paid on purchase of fixed assets
is not refunded
BY EZEKIA

C. INCOME VAT
 All goods and services supplied are taxable.
 Input taxes paid on the purchases of capital goods are spread over the life
span of the products or assets as depreciation.
Tax base is sales proceeds less material purchased + depreciation of capital
equipment
COMMENT BY EXPERT EZEKIA KELVIN. Tanzania vat system is consumption type,
taxing all taxable transaction whether involving capital or revenue expenditures.

QN 125.Expalin the advantage of Value added tax in the government of Tanzania

i. Less complex. Two rates i.e. 18% and 0%. No numerous rates
ii. It is simple to administer. This is because
a) The output shown on the invoices issued by the supplier will be input tax to
the recipient
b) The tax creates an audit trail by crosschecking and matching of invoices to
uncover cheating.
iii. It encourages exports by Zero rating exports
Exports are allowed full credit of the Input tax on the exported products.
iv. Provides goods audit trails. Tax charged on one person is reported as input
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 taxes by another taxable person.
QN 126.Explain the Disadvantage of value added tax in the government of Tanzania.
a) VAT is regressive in nature.
b) It is inflationary.
c) VAT is a complicated system involving keeping proper books of accounts
d) It may affect the Level of consumption in a country as VAT is consumption
tax
QN 127.What is input tax credit?
This is the deductible input tax (DIT)a taxable person is allowed to deduct from
the output tax charged from supplies made.
The input taxes are VAT incurred on purchases of goods and services that are to be
used for the purposes of the business
QN 128.What is general principle of input tax deduction

General principle of input tax deduction

“A taxable person shall be allowed a credit for input tax incurred by the person if
the goods, services, or immovable property on which the input tax was incurred were
acquired or imported into MT by the person in the course of the person’s economic
activity and for the purpose of making taxable supplies”
BY EZEKIA

Hence:
 Input taxes incurred by taxable person who sells only taxable supplies, are
fully deductible.
 If the trader also makes only exempt supplies the VAT incurred on purchases
may not be recoverable in full.
QN 129.Outline the exception of input tax credit
i. Input tax incurred to provide entertainment, unless the person is involved in
providing entertainment.
ii. An acquisition of a membership or right of entry in a club, association, or
society of a sporting, social, or recreational nature.
iii. An acquisition or import of a passenger vehicle, or of spare parts unless the
person’s activity involves dealing providing transport services in passengers
Note:
Entertainment means the provision of food, beverages, amusement, recreation or
hospitality of any kind

QN 130.What is partial exempt trader?

PET Is the person who supplies both taxable and exempt supplies and incurs
input related to both.

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 Note:
 Taxable person is full exempted only when he makes or intends to supply only
taxable supplies.
Taxable person is partly exempt when makes, or intends to make both taxable and
exempt supplies and incurs tax on costs which relate to both and therefore may not
be able to recover all your input taxes

 Since most businesses sell both taxable and exempt goods and services are
partial exempt persons.
 This practices of selling both taxable and exempt goods and services result
into apportionment of input taxes.
 This apportionment is mainly due to dual usage of inputs.
QN 131.what is dual usage of inputs?
Dual usage inputs are goods and services that are not acquired solely for the
purposes of taxable supplies or for the purposes of non-taxable supplies.
E.g. rent for business premises where both taxable and exempt goods are sold
The rent is a dual-use input and the VAT payable on its purchase must be
apportioned between the amount which is taxable supplies and that which is not

QN 132.What is types of dual usage of inputs?

BY EZEKIA

There are three broad types of dual-use inputs:

a. Consumables such as stationery which are used in making the supplies or
carrying out the activity;
b. General overheads such as electricity, qualifying entertainment, rent and audit
fees;
c. Capital goods such as premises qualifying cars etc.
QN 133.outline the categories of input tax
Categories of input tax
A: Input tax directly attributable to taxable supplies(X)
B: Input tax directly attributable to Exempt supplies (B)
C: Input tax directly attributable to Both supplies (I)
STEP TWO: Apply the formula for calculation as follows
Deductible Input tax (DIT) = X + {I × Taxable supplies(T)}
Total Supplies(A)
Total Supplies= Taxable supplies(T) + Exempt Supply(E)

 If the ratio of T/A > 0.9 then DIT = X + I (All I incurred for A)
 If the ration of T/A < 0.1 then DIT = X (All I incurred for B)
Remember
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 Taxable supplies are the Value of Supplies excluding VAT (Taxable value)
Supply made outside the UR Should not be included in A or T

Qn 134.What is tax period?

Tax period means a calendar month, beginning at the start of the first day of
the month and ending at the last day of the month
QN 135.what is vat return?
Vat return This the document in prescribed format containing taxable person
information relating to output tax, input tax credit and tax payable required to be filed
with CG.
i. It shows the person output tax, input tax and VAT payable.
ii. Every month taxable persons have to submit a VAT return that shows all their
VAT outputs where the company has received VAT from its customers and all
their VAT input where the company has paid VAT on its purchases
iii. Value added tax return can be in paper form or electronically and lodge in
prescribed format available in FORM ITX 240.02.B
Qn 136.What is due date of submission of vat return?
a) The due date is 20th day of a month after the end of the tax period to which it
relates
b) Whether or not that person has a net amount of value added tax payable for
BY EZEKIA

that period.
NOTE
 Where the 20th day falls on Saturday, Sunday or a public holiday, VAT return
shall be lodged on the first working day following a Saturday, Sunday or a
public holiday.
QN 137.Outline the amendment of vat return
AMENDEMENT OF VAT RETURN
i. Application should made not later than three years after the end of the tax
period to which the returns relate to correct any genuine omission or incorrect
declaration.
ii. A non -taxable person who is required to pay an amount of value added tax
shall file a return in respect of that value added tax at the time prescribed by
the CG.
iii. The decision by CG on Application shall be made not later than 90 days after
receiving the application.
QN 138.Mention the content of vat returns
 The VAT return shall contain the taxpayer information including the
following
a) Value of supply.
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 b) The Total output tax.
c) Total input tax.
d) Deductible input tax.
e) VAT payable for the supply.

QN 139.What is supplies?
Supply means any kind of supply whatsoever (sec. 2 of VAT Act, 2014)
 A supply includes something (goods or services) available for another person
either for consideration or otherwise

QN 140. Discuss the types of supplies according to the VAT

There are three broad categories of supplies:
i. Taxable supplies.
ii. Exempt supplies.
iii. Supply outside the scope of VAT
It is very important to know which supplies are taxable, which one are not as well
as the applicable rates. The input tax deduction is allowable only when they relate to
taxable supplies made by taxable person (seller).
BY EZEKIA

QN 141.What is taxable supplies?

TAXABLE SUPPLIES
This means a supply, other than an exempt supply, that is made in Mainland
Tanzania by a taxable person in the course or furtherance of an economic activity
carried out by that person or a supply of imported services to a taxable person who
is the purchaser and acquires the services in the course of an economic activity if
had the supply been made in Mainland Tanzania by a taxable person in the course of
furtherance of an economic activity

QN 142.Mention types of taxable supplies

There are two types of Taxable Supplies

a) Standard Rated Supplies

b) Zero Rate Supplies
STANDARD RATED SUPPLIES
 These are taxable supplies charged at standard rate of 18%.
It can be inferred that all supplies which are neither zero rated nor exempt are
standard rated supplies

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 ZERO RATE SUPPLIES
These are taxable supplies charged value added tax at zero rate (0%). The person
supplying zero rated supplies receives full refund of the input taxes Taxable supplies.

QN 143.Outline the goods for zero rated supplies.

GOODS FOR ZERO-RATES SUPPLIES
A. A supply goods for export (meeting meaning of export)
HENCE, export in relation to a supply of goods, means the removal of goods from
a place in MT to a place outside the UR, and in the absence of proof to the contrary,
the following are sufficient evidence that the goods have been so exported; -
 Evidence of the consignment or delivery evidence of the goods to an address
outside the UR; or
 Evidence of the delivery of the goods to the charterer, operator, owner, or
engage in international transport purpose of carrying the goods outside the
UR
Supply of Immovable property if the land is situated outside the UR
Immovable property includes interest or right over land; personal right to be
granted an interest in land; right to occupy land; provision of accommodation or any
right and option to acquire the mentioned items.
BY EZEKIA

C. Supply of locally manufactured goods by a local manufacturer supplied to a

taxable person registered under VAT law in Zanzibar and good are removed from
MT
D. A supply of Goods in international transport
a. A supply of the services of repairing, maintaining, cleaning, renovating,
modifying, treating, or otherwise physically affecting an aircraft or ship
engaged in international transport.
b. A supply of goods for use in repairing, maintaining, cleaning, renovating,
modifying, treating, or otherwise physically affecting an aircraft or ship
engaged in international transport
c. A supply of aircraft’s stores or ship’s stores, for an aircraft or ship shall
be zero-rated, if the stores are used for consumption or sale on the
aircraft or ship during a flight or voyage that constitutes international
transport
d. A supply, to a non-resident who is not a registered person, of services
that consist of the handling, pilot age, salvage, or towage of a ship or
aircraft engaged in international transport; or are provided directly in
connection with the operation or management of a ship or aircraft
engaged in international transport.
E.A supply of goods to a tourist or visitor by a licensed duty-free vendor who holds
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documentary evidence, collected at the time of the supply, and establishing that the
goods shall be removed from the United Republic without being effectively used or
enjoyed in the United Republic
F. A supply of services physically performed on goods situated outside the United
Republic at the time the services are performed
G. A supply of services, of which the services are physically received at no time and
place other than the time and place at which the services are physically
performed, if the services are performed outside the United Republic of Tanzania
H. A supply of services directly related to land outside the United Republic

QN 144.What is exempted supplies

EXEMPTES SUPPLIES This is the type of the supplies where by the VAT is not
charged on the supplies and the person supplying is not entitled any tax credit on
input tax paid on purchases.
 The list of exempt supplies is given in the schedule of the VAT Act 2014. The
exempt supply is Introduced due to social reasons and for goods consumed
mostly by low-income earners.
 Person supplying exclusively exempt supplies need not to be registered
regardless of the amount of turnover,
BY EZEKIA

QN 145.Outline the exempted supplies and exempted import

EXEMPTED SUPPLIES AND EXEMPTED IMPORT
 Agricultural implements (liquid sprayers, spades, shovels, hoes, forks, rakes,
axes, tractor trailers etc.)
 Agricultural inputs (fertilizers, pesticides, Insecticides…)
 Livestock and foods for human consumption (live cattle, swine, sheep, goats
unprocessed edible animal products, beans etc.)
 Fisheries Implements
 Bee-keeping implements
 Diary equipment
 Medicine or pharmaceuticals products
 Articles designed for people with special needs including food supplements
or vitamins
 Sanitary pads

 Education materials (Printed books, newspapers, maps and examination

question papers etc.)

 Health care (medical, dental etc.)

 Immovable property (sale of vacant land etc.)

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  Educational services (pre, primary, sec and univ and technical colleges)
 Intermediary services i.e. A supply of financial services
 Government entity or institution
 Petroleum products, Supply of water, except bottled or canned water or
similarly presented water.

 The transportation of person by any means of conveyance other than taxi

cabs, rental cars or boat charters.

 Supplies of arms and ammunitions, parts to the armed forces.

 Funeral services include: -coffin, shroud, transportation, mortuary and
disposal services of human remain
 Gaming supply.
 Supply of tourist guiding, game driving, water safaris, animal or bird
watching, park fees, and ground transport services.
 Supply of solar panels, modules, solar charger controllers, solar inverter,
solar lights, vacuum tube solar collectors and solar battery.
 Supply of air charter services
 Revenue stamps
 Electronic cash register BY EZEKIA

QN 146.What is tax point of value added tax?

The value added tax imposed on a taxable supply shall become payable at the
earlier of: -
1. The time when the invoice for the supply is issued by the supplier.
2. The time when the consideration for the supply is received, in whole or in part.
3. The time of supply.

QN 147.What is time of supply?

Time of supply means: -
a) In relation to a supply of goods, the time at which the goods are delivered or
made available
b) In relation to a supply of services the time at which the services are rendered,
provided, or performed
c) In relation to a supply of immovable property, the earlier time at which the
property is: -
I) Created, transferred, assigned, granted, or otherwise supplied to
the customer; or
ii) Delivered or made available.

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QN 148.What is Taxable value of supply?
TAXABLE VALUE SUPPLY(TV)
The value of a taxable supply which is made in Mainland Tanzania shall be the
consideration for the supply reduced by an amount equal to the tax fraction of that
consideration
NOTE
 The value of a supply made without payment of consideration shall be a fair
market value
 The value of a taxable supply of imported services shall be the consideration
for the supply
QN 149.What is tax fraction?
TAX FRACTION Means the amount out of tax calculated in accordance with the
following formula-
Tax Fraction = (R/100+R)
Where “R” is the rate of value added tax
QN 150.What is consideration of supply?
Means the sum of the following amounts
 Person, whether direct or indirectly, in respect of, the amount in money paid or
payable by any in response to, or for the inducement of the supply and
 The fair market value of anything paid or payable in kind, whether directly or
BY EZEKIA

indirectly, by any person in respect of, in response to, or for the inducement of
the supply
COMMENT BY EXPERT EZEKIA:
The consideration for a supply shall not include a price discount or rebate
allowed and accounted for at the time of the supply.

ON 151.What is taxable imported goods?

Taxable imported goods mean an import of goods, other than an exempt
import

The value of an import of goods shall be the sum of: -

a) The value of goods for the purposes of customs duty under the East African
Community Customs Management Act (EACCMA), whether or not duty is
payable on the import i.e. CIF
b) The amount of any customs duty payable on the import; and
The amounts of any tax, levy, fee, or fiscal charge other than customs duty and VAT
on the import of the goods

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 Hence the Taxable value of imported goods may be given by the following formula
Taxable value = CIF + Import duties + Excise + Other custom duties
But
CIF = Cost + Freight + Insurance
And
Cost = Free On-Board Cost (F.O. B)
THEREFORE
Value of supply which is the taxable value of the supply is given as follows: -
TAXABLE VALUE = CONSIDERATION – (CONSIDERATION × VAT FRACTION)
Assume consideration = selling price (SP)
TAXABLE VALUE = SP – (SP × R)
100+R
HENCE
TV = SP (1 - R/100+R)
TV = SP (100/100+R) ………………………………………….…. (1)
ALSO
SP = TV (100+R/100) ……………………………………………... (

Qn 152.what is value added payable?

The amount of VAT payable shall be calculated by multiplying the value of the supply
BY EZEKIA

or import by the value added tax rate, which shall be 18%.

 Where the supply or import is zero-rated, the value added tax rate shall be
zero percent
 Where a supply is both exempt and zero-rated, the supply shall be zero -rated.

QN 153.Computation of VAT
A taxable person imported Toyota Pickup 1 ton from Japan. The price of the car
was Tshi. 4,000,000, insurance Tshi. 2,000,000 and Tshi. 1,500,000 for freight costs
to Dar es Salaam port. On importation the person was liable to import duty of 25%
excise duty of 5%, excise duty of aged car 20% and the VAT 18%. It also paid Tshi.
500,000 to a custom agent to help processing importation documents.
Required
Compute the VAT payable on importation of the car
ANSWER, BY EXPERT EZEKIA
To compute the VAT payable on the importation of the car, we need to follow these
steps:
1. Calculate the CIF value (Cost, Insurance, and Freight).
2. Compute Import Duty.
3. Compute Excise Duty (both standard and for aged cars).
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4. Determine the VAT base.
5. Calculate the VAT payable.
Step-by-Step Calculation
1. Calculate the CIF Value
The CIF value includes the cost of the car, insurance, and freight costs.
{CIF Value} = {Price of the car} + {Insurance} + {Freight Costs}]
{CIF Value} = 4,000,000 + 2,000,000 + 1,500,000 = 7,500,000]
2. Compute Import Duty
Import duty is calculated as a percentage of the CIF value.
{Import Duty} = {CIF Value} times 25%]
{Import Duty} = 7,500,000 times 0.25 = 1,875,000]
3. Compute Excise Duty
There are two types of excise duties: standard excise duty and excise duty for aged
cars.
Standard Excise Duty:
{Standard Excise Duty} = {CIF Value} + {Import Duty}) times 5%]
{Standard Excise Duty} = (7,500,000 + 1,875,000) times 0.05 = 9,375,000 times 0.05 =
468,750]
Excise Duty for Aged Car:
{Excise Duty for Aged Car} = {CIF Value} + {Import Duty}) times 20%]
BY EZEKIA

{Excise Duty for Aged Car} = (7,500,000 + 1,875,000) times 0.20 = 9,375,000 times
0.20 = 1,875,000]
4. Determine the VAT Base
The VAT base includes the CIF value, import duty, excise duties, and other costs
related to the importation (such as the custom agent fee).

{VAT Base} = {CIF Value} + {Import Duty} + {Standard Excise Duty} + {Excise Duty for
Aged Car} + {Custom Agent Fee}]
{VAT Base} = 7,500,000 + 1,875,000 + 468,750 + 1,875,000 + 500,000 = 12,218,750]
5. Calculate the VAT Payable
VAT is calculated as a percentage of the VAT base.
{VAT Payable} = {VAT Base} times 18%]
{VAT Payable} = 12,218,750 times 0.18 = 2,199,375 \]
Conclusion
The VAT payable on the importation of the Toyota Pickup 1 ton is Tshi. 2,199,375.

QN 154. What is interest for failure to pay tax on due dates?

interest for failure to pay tax on due dates is typically charged as a penalty to
encourage timely payment and compensate the tax authority for the delay.
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. INTEREST FOR FAILURE TO PAY TAX ON DUE DATE
 If VAT PAYABLE remains unpaid after the due date, the interest at the
statutory rate shall be payable to the Commissioner General on the amount
for the time being due and unpaid
 Interest is given by the following formula
n
INTEREST = P [(1 + r) – 1]
Where P= VAT payable remains unpaid
r = Statutory interest rate per month
n = Number of months in which tax remains unpaid

QN 155.What is penalty for failure to maintain document?

 A person who fails to maintain proper documents as required by a tax law
is liable for a penalty for each month or part of a month during which the
failure continues.
 The penalty shall, in the case of an individual, be 1 currency point or, in the
case of a body corporate 10 currency points.
PENALTY = CP × n (for Individual)
=10CP × n (for body corporate)
n = number of months in which failure continues
BY EZEKIA

CP is Currency Point
1CP = Tshi. 15,000/=

QN 156.What is penalty for failure to file the vat returns?

 A person who fails to file a VAT return or pay tax on due date is liable for a
penalty for each month or part of a month during which the failure continues
as follows:
PENALTY = 2.5% (A – C) OR 5CP whichever is greater (individual)
PENALTY = 2.5% (A – C) OR 15CP whichever is greater (body corporate) for each
month of part of the month in which the failure continues
Where: A is the amount of tax assessable with respect to the tax return
C is tax paid by the start of the period towards that amount(A)

QN 157.A person whose VAT payable was Tshi 10,000,000 for the month of
September 2011 submitted the VAT return and paid the amount on 10/01/2012
Required:
Determine the non-compliance and calculate the penalty or interest payable for the
delay.

ANSWER
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To determine the non-compliance and calculate the penalty or interest payable for
the delay in paying VAT, we need to follow these steps:
1. Determine the due date for VAT payment.
2. Calculate the period of delay.
3. Apply the interest rate to calculate the penalty for late payment.

Step-by-Step Calculation
1. Determine the Due Date for VAT Payment
In Tanzania, VAT returns and payments are generally due by the 20th day of the
month following the end of the tax period. Therefore, for the VAT payable for
September 2011, the due date would be:
th
{Due Date} = 20 {October 2011}]

2. Calculate the Period of Delay

The VAT was paid on 10th January 2012. To calculate the period of delay, we need
to count the days from the due date to the payment date.
From 20th October 2011 to 10th January 2012:
- October: 11 days (from 20th to 31st)
- November: 30 days
- December: 31 days
BY EZEKIA

- January: 10 days
Total days of delay:
[ 11 + 30 + 31 + 10 = 82 {days}]
For simplicity, we can convert the days into months for interest calculation,
assuming a month as 30 days:
[ 82 {days} approx. 2.73 {months}]
3. Apply the Interest Rate
In Tanzania, the interest rate for late payment of taxes is typically 1% per month.
{Interest Rate} = 1% {per month}]
{Amount of VAT Payable} = 10,000,000 {TZS}]
Calculate the interest:
{Interest Payable} = {VAT Amount} times {Interest Rate} times {Months of Delay}]
{Interest Payable} = 10,000,000 times 0.01 times 2.73 = 273,000 {TZS}]
Summary
- Total Days of Delay: 82 days (approximately 2.73 months)
- Interest Rate: 1% per month
- Interest Payable: 273,000 TZS
Therefore, the penalty (interest payable) for the delay in paying the VAT amount of
TZS 10,000,000 for the period from 20th October 2011 to 10th January 2012 is TZS
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273,000.

QN 157. State any four (4) conditions which must be met for a business to claim
bad debt relief.
1. A supply of goods/ services must have been made for consideration in money.
2. Output VAT must have been accounted for and paid by the supplier.
3. The whole or part of the debt have been written off the records of the supplier,
4. At least 18 months must have elapsed since the time when the payment was due.

QN158. Explain at least 5 circumstances where input VAT is not claimable

CIRCUMSTANCE WHERE INPUT VAT IS NOT CLAIMABLE
1. Where the input tax is directly attributable to an exempt supply.
2. Where the input tax deduction claim is not supported by the document.
3. Where the input tax is time barred. Tax is incurred more than six months before
the date of claiming deduction.
4. Input tax incurred on purchase of motor vehicles for carriage of passengers or
cargo for other than commercial reasons.
5. Input tax incurred in respect of entertainment for which core business is not to
provide Entertainment.
6. Where input tax paid acquisition of a membership or right of entry in a club,
BY EZEKIA

association, or society of a sporting, social, or recreational nature .

QN 159. What are the conditions for the taxable person to claim input tax
CONDITIONS FOR THE TAXABLE PERSON TO CLAIM INPUT TAX
1. The amount to be claimed must actually be VAT properly charged by another
taxable person or relate to a taxable importation
2. The supplies must be made to the taxable person seeking to claim the input tax
3. The supplies must have been incurred for the purpose of the business.
4. The person must hold satisfactory documentary evidence of the supplies in
support of his/her claim.
5. The input tax must be incurred not more than six months from the date of tax
invoice
6. The supplies received must not be subject to input tax restrictions i.e. motorcars,
entertainment, and subscription.

QN160. What are the safeguards imposed under VAT Act to prevent escaping a
charge of VAT?
safeguards imposed under VAT Act to prevent escaping a charge of VAT
1. Denying all exemptions under S.6 of VAT Act except as allowed under VAT
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Schedules.
2. Specifying exemptions under VAT schedule.
3. Specifying the zero-rated supplies under S.54 – S.63 of VAT Act.
4. Including every supply as a subject matter of a supply under S. 12 of VAT Act,
except supply of money.
5. Clearly stating the tax point of VAT under S.15 and S.16 of VAT Act.

QN 161. Why is it necessary for a VAT Act to provide clarification on the place of
supply?
i. The place of supply is the place where a supply is made and where VAT
may be charged and paid.
ii. When goods or services are supplied, then for VAT purposes, it is essential
to know the 'place of supply'. This determines whether the supply is
subject to VAT charging rules in Mainland Tanzania or it is outside the
scope of VAT in Mainland Tanzania. Therefore, goods or services are VAT
chargeable in Mainland Tanzania if the place of supply is Mainland
Tanzania.
QN 162. Give examples of supplies of goods or services that are outside the scope
of VAT.
supplies of goods or services that are outside the scope of VAT.
BY EZEKIA

a) Goods supplied by a trader not registered for VAT and is not required to do
so.
b) Goods or services bought or sold outside the United Republic of Tanzania
c) Goods or services supplied in the course of something other than business
d) Donations to charity freely given by a business where the giver does not
receive anything in return or Low-cost welfare services provided by charities.
e) Dividends
f) Wages
QN 163. Explain the purposes and types of VAT Registration
PURPOSE OF VAT REGISTRATION
i. Record the particulars of taxable persons for the purpose of control and
collection of tax.
ii. Enable them to take credit of input tax on their purchases of taxable
supplies;
iii. Allow them charge output tax on their taxable supplies and to issue tax
invoices
QN 164. Describe registrations for branches and divisions
Many businesses operate from more than one set of premises (branches) or
may structure their organization and create autonomous units within same legal
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entity and describe them as divisions. However, the registration by a kind of
business shall be a single registration, which shall cover all economic activities
undertaken by that person’s branches or divisions.
This means that, all branches/divisions activities are part of one legal entity and all
figures (turnover, VAT etc.) are amalgamated for completion of a single VAT return

QN 165. Explain the statutory records to be maintained by VAT registered traders.

statutory records to be maintained by VAT registered traders.
I. Tax invoices
ii. Adjustment Notes
iii. Documentation issued by or to agents
iv. Records and Accounts
QN 166. Explain the causes and effects of cancellation of registration
I. Taxable person ceases to make taxable supplies.
ii. Taxable turnover falls below the registration threshold.
iii. Cessation of economic activity /business
iv. Providing of false or misleading information (during registration)
Effects of Registration
Once registered, the taxable person will be issued with a registration certificate and
the VRN. The taxable person will be required to display the certificate at a
BY EZEKIA

conspicuous place in the business premises. Moreover, he will be required to quote

the VRN on each tax invoice issued.
Then the person will be entitled to the following requirements:
I. Charge output tax on each taxable supply
ii. File returns (on monthly basis, not later than the 20th day of the following month)
iii. Recover input tax on business purchases and expenses
iv. Maintain appropriate VAT records
v. Use TIN and a VRN on all documents required to be issued.
QN 167. Explain the types of registration for the purposes of Value Added Tax
(VAT)
Types of registration for the purposes of Value Added Tax (VAT)
i. Normal Registration
Occurs when a taxpayer registers for VAT when his taxable turnover exceeds
registration threshold of TZS.200,000,000 for consecutive 12 months or
TZS.100,000,000 for consecutive 6 months. Registration should be made within 30
days from the date when the registration threshold is exceeded
ii. Compulsory registration
Occurs when a person fails to apply for the VAT registration within 30 days, the
Commissioner General, compulsory register the person and not later than 14 days
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after the day on which the registration is done, notify the person on the registration.
Also, where there is a good reason including protection of government revenue, the
commissioner general may register the person for VAT regardless of the turnover.
The following are other persons required to register regardless of turnover:
Persons carry on an economic activity involving the supply of professional services
in Mainland TZ A Government entity or institution which carries on economic activity
iii. Intending trader Registration
VAT Act, 2014 allows any person who has grounds for believing he will qualify for
registration to apply for registration. Intending traders are suppliers who are
registered for VAT before they commence trading activities. Such registration is
normally for the sole purpose of claiming input tax incurred in setting up the
business (e.g. equipment, office machinery, lawyers, and architects fees).
QN. Explain what is meant by pre-registration input VAT and describe the
circumstances under which a business may recover pre-registration input VAT
This is the VAT that is incurred on supplies acquired prior to the time of obtaining
registration for VAT. Conditions for recovery of pre-registration of input VAT:
For pre-registration tax to be recoverable:
The goods should have been acquired within a period of up to six months prior to the
effective date of registration may be allowed,
The goods are in stock on the effective date of registration.
BY EZEKIA

In other words, input tax incurred prior to registration cannot be recovered with
regard to goods that have already been supplied out or consumed regardless of the
six-month period
QN 168. List any Six (6) contents which must appear on the tax invoice
1. The date on which it is issued;
2. The name, TIN and VRN of the supplier;
3. The description, quantity, and other relevant specifications of the things supplied;
4. The total consideration payable for the supply and the amount of value added tax
included in that consideration;
5. If the value of the supply exceeds the minimum amount prescribed in the
regulations, the name, address, TIN and VRN of the customer.
6. Any other additional information as may be prescribed in the regulations.
QN 169. Explain the Value Added Tax registration requirements.
a) VAT registration is required once the VAT exclusive taxable supplies of a
business exceed TZS 200M for any period of twelve months, or TZS 100M for
any period of six months.
b) Once this happens, a business has an obligation to inform TRA within 30 days
of the end of the month in which the registration limit is exceeded.
c) Registration will become effective on the first day of the following month. A
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 business which expects the turnover of taxable supplies, excluding VAT, for
the following twelve months to exceed TZS 200M or for the following six
months to exceed TZS 100M must register for VAT immediately under this
same rule. In such cases, notification is required by the end of that 30-day
period with registration being effective from the start of that period.
QN170. Describe three (3) circumstances which may result in a business being de-
registered for VAT
circumstances which may result in a business being de-registered for VAT
1. If the taxable person ceases to make taxable supplies.
2. If the taxable turnover falls below the registration threshold.
3. If the taxable person ceases to carry on an economic activity/business.
QN 171. Explain how the accrual basis of VAT tax accounting may adversely affect
a taxpayer’s cash flow position. Suggest one way for ameliorating the cash flow
problem.
 VAT is computed and accounted for on accrual basis of accounting of
sales and purchases whether the sales or purchases are made in cash
or on credit.
 Where the sales or purchases are made on credit and the credit period
is prolonged, the seller is still required to pay the tax on the due date
BY EZEKIA

although he has not collected adequate cash from his customers.

 Since there may not be adequate cash for payment of the tax, the seller
is forced to pay the tax out of his private resources or borrow money at
considerable interest in order to avoid penalties for failure to pay the tax
on the due date. Even where a VAT refund is due to the taxpayer it takes
at least six months to secure the refund from the TRA. TRA should
allow payment of VAT in instalments or pay on cash basis.
QN 172. The VAT single rate policy or structure has been in operation for more than
five years. It is now probably appropriate to review this policy in favor of a VAT
multiple rates policy or structure. The change would allow the provision of
preferential rates for essential business inputs such as the utilities (water, electricity
and telephone) for the mega consumers of such utilities to increase their production
and tax revenue. Comment.
Advantages of a multiple VAT rate structure and lower rate for the utilities.
a. It is likely to increase revenue yield as consumption of the utilities increases
with more production.
b. Lower VAT rate on utilities will also reduce the cost of industrial inputs
resulting into cheaper goods. Affordable goods for the public raise the
standard of living for the people.

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Disadvantages:
 A multiple VAT rate structure reverts to the old sales tax system which was
full of administrative complexity and cumbersome administration.
 Complexity of the law leads to tax evasion (less revenue) as taxpayers try to
reclassify goods to take advantage of the lower rates categories.
QN 173. State the general rule for input tax credit.
The general rule for input tax credit.
The general rules for input tax deduction are that:
a) All input tax directly attributable to taxable supplies is allowed
b) Input tax directly attributable to exempt supplies is not allowed
c) Where the input tax that is attributable to both taxable and exempt supplies, an
apportionment must be done for each tax period, to determine the allowable amount
of that input tax.
QN 174. CONCEPT OF VAT EXCLUSIVELY AND VAT INCLUSIVELY, BY EXPERT
EZEKIA KELVIN
TABLE OF ASSITANCE TO UNDERSTAND THE CONCEPT OF VAT INCLUSIVELY AND
VAT EXCLUSIVELYBOTH PRATICAL AND THEORITICAL
VAT EXCLUSIVELY VAT VAT INCLUSIVELY
100 18% 118
BY EZEKIA

EXAMPLE.1, Find the amount of the following

Vat exclusively vat Vat inclusively
2000 360 2360

Assume the following amount of 2360 is VAT inclusively.

Required to find
a) Vat exclusively
b) Vat.
SOLUTION.
A) VAT EXCLUSIVELY=AMOUNT (SALES OR PURCHASES) *100/118
= (2360*100)/118
=2000
Automatically, vat exclusively is computed and obtain 2000

B) VAT CHARGED=AMOUNT OF VAT INCLUSIVELY*18/118

= (2360*18)/118
=360
Automatically, vat charged is computed and obtain 360

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OR
VAT CHARGED= (VAT EXCLUSIVELY) *18/100
=2000*(18/100)
=360

QN 175.Briefly explains the methods of computing VAT. State which is being used
by Tanzania VAT and explain the advantages of the said method.

1. Addition method
This method takes the total of rewards to factor of production and applies tax rates
on that figure. The rewards might include wages, interest, rents, and profits
2. Subtraction method
Under this method the tax base is found by deducting purchases from sales. The tax
base for a VAT is calculated as Gross receipts less purchases of goods (fewer
capital goods if VAT is consumption VAT)
3. Credit method
The credit method requires the deduction of input tax from output tax in every VAT
accounting period.
This is the method Tanzania use for its VAT. Therefore, a taxpayer is allowed to
BY EZEKIA

deduct all deductible taxes paid (and payable) from all taxes collected (and
collectible) in the respective reporting period.
Advantages of credit method
a) It works well with the consumption-type VAT.
b) It attaches tax liability to each transaction.
c) providing good audit trial.
d) It allows application of multiple rates.

QN 176.state three types of expenditures on which the input vat payable by a

registered trader is treated as blocked and therefore irrecoverable.
Three types of expenditures on which the input vat payable by a registered
trader is treated as blocked and therefore irrecoverable.
i. an acquisition of goods, services or immovable property to the extent that
it is used to provide entertainment unless the person’s economic activity
involves providing entertainment.
ii. an acquisition of Membership or right of entry for any person in a club,
association or society of sporting social or recreational nature.
iii. an acquisition or import of a passenger vehicle or of spare parts or repair
and maintenance services for a passenger vehicle, unless the person
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 economic activity involves dealing in, hiring out or proving transport
services in passenger vehicle and the vehicle was acquired for that
purpose.

QN 177.What is a VAT refund?

IS Money paid back to the trader. A taxable person will be entitled
to a refund of VAT when in a particular prescribed accounting period when his tax
liabilities are not exhausted by allowable deductions or where its returns for
prescribed accounting periods regularly result in excess credits. The refund once is
processed is paid to the taxpayer through Interbank Settlement System (TISS) or
through his or her bank account.
A taxable person may apply for a refund where a person has over paid a net amount
payable for a tax period, the application may be logged through form
VAT ITX260.02E accompany with:
1. Certificate of genuineness
The certificate of genuineness referred to under VAT regulation shall be issued by an
auditor who has been registered by National Board of Accountants and Auditors and
who is registered as a tax consultant with Tanzania Revenue Authority
2. Computation of the refund amount;
a. Checklist for the applicant’s value added tax repayment.
BY EZEKIA

b. And any other information as Commissioner General may require.

Upon receipt of the refund claim the Commissioner General make decision on the
application on the basis of the information provided without under takeng an audit or
investigation, and shall
Within ninety days of it receipt makes decision on the application and informs the
applicant on the amount to be refunded, and the period upon which such a refund
shall be made.

VAT REFUND DIPLOMATS AND INTERNATIONAL BODIES

Application for refund to diplomats and international bodies shall be made to the Commissioner Ge
For the purpose of justifying diplomatic status or status of an international body; the application
responsible for foreign affairs and international cooperation.
Be accompanied by tax invoices related to the taxable supplies on which refunds claim is made.
Can the VAT refund be offset against the unpaid tax?
Yes. Any refund may be offset against other taxes, penalties and interest owing to Tanzania Reve
but the Commissioner General shall inform the taxable person in writing.
Is interest payable on the delayed refunds?

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Yes. Refunds must be made within 30 days after the due date for lodgment of the return for the
the half year or receipt of the last outstanding tax return due for any prescribed accounting
whichever is later unless the Commissioner believes there is a revenue risk. For regularly repay
within 90 days after the due date for lodging the return for the prescribed accounting period, o
whichever is later.
Where the refund is not made within this period, interest is paid to the taxable person at the comm
by the Central Bank

What are the requirement for a VAT refund be effected?

A VAT refund, cannot be affected unless the applicant has submitted among others the following d
1. Certificate of genuineness issued by an auditor who has been registered by NBAA and who is
TRA.
2. A checklist of details of issues regarding the refund application must be
properly filled and completed by the applicant.
3. For a case of Regularly Repayment traders the following documents are vital
to be submitted
 Single Bill of Entry
 Bill of Lading
 Airway bill BY EZEKIA

 Road consignment note

 Landing certificate
 EFDs receipts/invoices
4. Brief working from the auditor as to how the claimed amount has been arrived
at including the summary of purchases and sales
NOTE: Input Tax shall not be deducted /credited after six months from the date of
the tax invoice/EFDs receipts.

CONCEPT OF INCOME TAXATION (INCOME TAX I & II), CAP 332.

The Income Tax Act of Tanzania and other relevant governs the taxation of income for
individuals and businesses in the country of URP. Here are some key aspects: These
aspects aim to create a structured and fair tax system that supports the government’s
revenue collection and economic development goals.

1.Tax Rates.

- Progressive tax rates for individuals based on income brackets.

- Corporate tax rates generally set at 30%, with specific rates for different sectors (e.g.,
mining).

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2. Tax Residency.

- Defines tax residents as individuals or entities that have a permanent home in Tanzania
or spend a certain number of days in the country.

3. Types of Income.

- Covers various income types, including employment income, business income, and
investment income.

4.Deductions and Allowances.

- Allows for certain deductions (e.g., business expenses, contributions to pension schemes)
and tax reliefs.

5. Capital Gains Tax.

- Tax on profits from the sale of capital assets, with specific rules regarding exemptions.

6. Withholding Tax.

- Imposed on specific types of payments (e.g., dividends, interest) at the source.

7. Filing Requirements.

- Mandates annual tax returns for individuals and corporations, with specific deadlines.
BY EZEKIA

8. Tax Incentives.

- Various incentives for specific industries and sectors to promote investment, such as
exemptions and reduced rates.

9. Penalties and Compliance.

- Establishes penalties for non-compliance, late filing, and underreporting income.

QN 177.State the Imposition of Income tax Act and Charge of the Tax

Imposition of Income tax Act

The Imposition of Income Tax Act refers to the legal framework that mandates the
collection of income tax from individuals, investment and businesses based on their
earnings.

Charge of the Tax.

Charge of tax is the legal imposition of a tax liability on individuals or entities once
their income or activity falls within the scope of taxable activities as defined by the tax law.

In the context of income tax, the charge of tax arises when:

Taxable Income is Earned: Once an individual or business earns income (whether from

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employment, business, investments, etc.), they become subject to tax.

Tax Rates Apply: The charge of tax is determined based on the applicable tax rates,
deductions, and credits that apply to different levels or types of income.

Tax Liability is Assessed: After calculating the taxable income and applying the relevant tax
rates, the resulting tax liability is the amount that must be paid to the tax authorities.

IMPOSITION OF INCOME TAX ACT AND CHARGE OF THE TAX

SECTION 4. -(1) Income tax shall be charged and is payable for each year of income in
accordance with the procedure in Part VII by every person –

who has total income for the year of income. Such as Employment, Business or
investment

a corporation which has a perpetual unrelieved loss determined under section 19 for
the year of income and the previous two consecutive years of income;

who has a domestic permanent establishment that has repatriated income for the
year of income;

who receives a final withholding payment during the year of income.

QN 178.What is a total income?

Total income BY EZEKIA

SECTION 5. -(1) The total income of a person shall be the sum of the person's chargeable
income for the year of income from each employment, business and investment less any
reduction allowed for the year of income under section 61 relating to retirement
contributions to approved retirement funds.
Comment by Expert Ezekia

Total income is the starting point for determining how much tax an individual, Investment or
business owes before applying any tax relief measures. Total income of each person shall
be determined separately.

QN 179.What is chargeable income?

Chargeable income (also known as taxable income) is the portion of an individual’s or

business’s total income that is subject to tax after allowable deductions, exemptions, and
reliefs have been subtracted. Chargeable income it is the income that remains after
adjustments and on which tax is actually levied.

SECTION 6. - the chargeable income of a person for a year of income from any employment,
business or investment shall be-

in the case of a resident person, the person's income from employment, business or
investment for the year of income irrespective of the source of the income;

in the case of a non-resident person, the person's income from employment,

business or investment for the year of income, but only to the extent that the income
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 has a source in the United Republic;

in the case of a resident corporation which has perpetual unrelieved losses, the
turnover of such corporation for a year of income.

Examples. If someone has a total income of 1000,000/=Tz and they are eligible for
200,000/=Tz in deductions (retirement savings contributions and charitable donations),
their chargeable income would be 800,000/=. This 800,000/= is what would be taxed
according to the applicable tax rates.

QN 180.Define the words Employment, mention inclusion and exclusion of employment.

SECTION 7-"employment" means-

(a) a position of an individual in the employment of another person;

(b) a position of an individual as manager of an entity other than as partner of a partnership;

(c) a position of an individual entitling the individual to a periodic remuneration in respect of

services performed; or

(d) a public office held by an individual, and includes a past, present and prospective
employment;

What is Employer? BY EZEKIA

Employer means a person who conducts, has conducted or has the prospect of
conducting the employment of an individual;

What is Employee?

Employee means an individual who is the subject of an employment conducted by an

employer;

INCLUSION OF EMPLOYMENT.

7.-(1) An individual's income from an employment for a year of income shall be the
individual's gains or profits from the employment of the individual for the year of income.

In calculating an individual's gains or profits from an employment for a year of

income the following payments made to or on behalf of the individual by the employer or
an associate of the employer during that year of income shall be included:

payments of wages.

salary.

payment in lieu of leave. Normally practically is 21 working days exclude weekly

fees, commissions, bonuses and gratuity.

any subsistence travelling entertainment or other allowance received in respect of

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 employment or service rendered;

payments providing any discharge or reimbursement of expenditure incurred by the

individual or an associate of the individual;

payments for the individual's agreement to any conditions of the employment;

retirement contributions and retirement payments;

payment for redundancy or loss or termination of employment;

other payment made in respect of employment including benefits in kind quantified

in accordance with section 27.

annual director’s fees payable to a director other than a full-time service director.

Non-Final Withholding Payment. Examples PAYE

Benefits derived from the use of motor vehicle where the employer claim any
deduction or relief in relation to the ownership, maintenance or operation of the
vehicle;

On premises cafeteria services that are available on a discriminatory basis;

payment providing passage of the individual, spouse of the individual and up to more
than four of their children to or from a place of employment which correspond to the
actual travelling cost where the individual is domiciled less than twenty miles from
BY EZEKIA

the place of employment and is recruited or engaged for employment solely in the
service of the employer at the place of employment

medical services, payment for medical services, and payments for insurance for
medical services to the extent that the services or payments are –

available with respect to medical treatment of the individual, spouse of the individual
and up to More than four of their children; and

made available by the employer and any associate of the employer conducting a
similar or related business on a discriminatory basis;

EXCLUSION FROM EMPLOYMENT

(a) Exempt amounts and final withholding payments;

(b) on premises cafeteria services that are available on a non-discriminatory basis;

(c) medical services, payment for medical services, and payments for insurance for medical
services to the extent that the services or payments are –

(i) available with respect to medical treatment of the individual, spouse of the
individual and up to four of their children; and

(ii) made available by the employer and any associate of the employer conducting a
similar or related business on a non-discriminatory basis;

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(d) any subsistence, travelling, entertainment or other allowance that represents solely the
reimbursement to the recipient of any amount expended by him wholly and exclusively in the
production of his income from his employment or services rendered;

(e) benefits derived from the use of motor vehicle where the employer does not claim any
deduction or relief in relation to the ownership, maintenance or operation of the vehicle;

(f) benefit derived from the use of residential premises by an employee of the Government
or any institution whose budget is fully or substantially out of Government budget
subvention;

(g) payment providing passage of the individual, spouse of the individual and up to four of
their children to or from a place of employment which correspond to the actual travelling
cost where the individual is domiciled more than twenty miles from the place of employment
and is recruited or engaged for employment solely in the service of the employer at the place
of employment;

(h) retirement contributions and retirement payments exempted under the Public Service
Social Security Fund Act;

(i) payment that it is unreasonable or administratively impracticable for the employer to

account for or to allocate to their recipients;

(j) allowance payable to an employee who offers intramural private services to patients in a
public hospital; and
BY EZEKIA

(k) housing allowance, transport allowance, responsibility allowance, extra duty allowance,
overtime allowance, hardship allowance and honoraria payable to an employee of the
Government or its institution whose budget is fully or substantially paid out of Government
budget subvention.

QN 181.What is Business?

Comment by Expert Ezekia according to the research, The Income tax act does not
define the word business but shown what are inclusion in the business

SECTION 8 "business" includes-

(a) a trade, concern in the nature of trade, manufacture, profession, vocation or isolated
arrangement with a business character; and

b) a past, present or prospective business, but excludes employment;

ANALYSIS BY EXPERT KELVIN JOHN EZEKIA

The given inclusion of "business" has a few potential weaknesses:

Weaknesses:

Overly Broad Scope: The definition is quite broad, especially with phrases like
"concern in the nature of trade" and "isolated arrangement with a business
character." This could lead to ambiguity and confusion about what qualifies as a

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 business, especially when dealing with casual or one-off transactions.

Isolated Transactions: Including "isolated arrangement with a business character"

could create confusion, as one-time or isolated transactions are not always
considered as having the continuity typically associated with a business. The lack of
clear criteria for what constitutes "business character" leaves room for interpretation.

Lack of Clarity on Specific Terms: Terms like "concern in the nature of trade" and
"isolated arrangement" are vague and open to interpretation, which could lead to
inconsistent applications or disputes about what falls under the definition.

Excludes Employment, but Not Clearly Defined: While the definition excludes
"employment," it doesn't define employment or clearly distinguish it from professions,
vocations, or other activities that might resemble employment relationships,
potentially leading to confusion in some contexts.

My Suggested Revised Definition according to the weakness of ITA, cap 332

To make the inclusion clearer and more precise, it can be revised as follows:

"Business" includes:

- (a) Any activity involving trade, commerce, manufacture, profession, or vocation carried on
with the intention of making a profit or gain, whether as a continuing enterprise or a series of
transactions.
BY EZEKIA

- (b) Any enterprise or undertaking that is past, present, or prospective in nature, where there
is a regular or habitual pursuit of income generation.

- Excludes*activities performed solely under a contract of employment or in the capacity of

an employee.

STRENGH OF MY INCLUSION IN THE WORD OF BUSINESS

Clearer Scope: The phrase “carried on with the intention of making a profit or gain”
clarifies that a business involves intentional profit-seeking activities.

Isolated Transactions Clarified: By referring to “a series of transactions” instead of

“isolated arrangements,” it distinguishes regular business activity from one-off
personal transactions.

Exclusion of Employment: The revision defines employment as a separate category

to avoid confusion between business and employment activities

LAST COMMENT BY EXPERT EZEKIA

Although I strive to share my perspective on inclusion in the business sector, defining the
term "business" proves challenging due to its inherent subjectivity. Notably, both the tax laws
of the United Kingdom and those of East African countries, such as Kenya's Income Tax Act
CAP 470, do not provide a specific definition of "business." Based on my experience with top
global auditing firms and my career development, I have observed that defining this concept
is particularly complex. This difficulty is supported by research conducted on the tax

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regulations across various countries.

INCLUSION IN THE BUSINEES INCOME,

8.-(1) A person's income from a business for a year of income is the person's gains or
profits from conducting the business for the year of income, there shall be included in
calculating a person's gains or profits from conducting a business for a year of income.

The following amounts derived by the person from conducting the business during the
year of income –

(a) service fees;

(b) Incomings for trading stock;

(c) Gains from the realization of business assets or liabilities of the business as
calculated under Division III of this Part;

(d) Amounts required to be included under paragraph 4 of the Third Schedule on the
realization of the person's depreciable assets of the business;

(e) Amounts derived as consideration for accepting a restriction on the capacity to

conduct the business BY EZEKIA

(f) Gifts and other ex gratia payments received by the person in respect of the business;

(g) Amounts derived that are effectively connected with the business and that would
otherwise be included in calculating the person's income from an investment; and

(h) The amount of tax benefit or advantage quantified under section 27 or other amounts
required to be included under Division II of this Part, Parts IV, V or VI.

QN 182.What is Badges of Trade?

Badges of Trade" refers to a set of criteria used to determine whether a person

is engaged in a trade or business activity. This concept is important in tax law,
particularly for differentiating between trading activities and non-trading activities, which
can affect the tax treatment of income and expenses.

Element of Badges of Trade/Component of Badges of Trade.

The "Badges of Trade" typically include factors such as:

Frequency of similar Transactions: How often the transactions occur. Regularity and
frequency suggest a trading activity.

Nature of Transactions: The nature of the goods or services involved. For instance,
dealing in goods or services on a regular basis indicates trading.

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 Organizational Structure: Whether the activities are organized in a business-like
manner, with a systematic approach and business plans.

Profit Motive: The intent to make a profit. If the primary aim of the activity is to
generate income, it's more likely to be considered a trade.

Transaction Size: The scale of transactions and the value of the goods or services
involved can indicate trading activity.

Duration of Ownership: How long assets are held before being sold. Short holding
periods are often associated with trading.

Financial Investment: The level of financial investment and risk taken in the activity.

Comment BY Expert Ezekia. These badges help tax authorities, such as the IRS or HMRC,
to assess whether an individual's activities constitute a trade or business and ensure
that income is reported and taxed appropriately. SUMMARY OF BADGES OF TRADE

Nature of assets

Profit seeking motives

Existence of similar Business Transaction

Modification or repair of the assets

Interval between purchases and sale. BY EZEKIA

EXCLUSION IN CALCULATING THE BUSINESS INCOME.

(a) Exempt amounts and final withholding payments; and

(b) Amounts that are included in calculating the person's income from any employment.

QN 183.Outlined the Expenditures that are not allowed in Computing taxable income of a
business.

Comment by Expert Ezekia. A taxpayer before Claiming any deduction, he or she is

supposed to prove that the whole expenditures was spent for the business purpose only.
The following expenditures are not allowed to deduct in computing taxable income of a
person.

Capital Expenditures.

Consumption Expenditures.

Excluded expenditures.

CAPITAL EXPENDITURES. Means expenditures whose benefit do not last longer than
12 months. Normally are any expenses incurred by a taxpayer to buy an assets or
equipment.

ACCORDING TO THE ITA, "expenditure of a capital nature" means expenditure that

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 secures a benefit lasting longer than twelve months.

Capital expenditures, often abbreviated as CapEx, are funds used by a company or

organization to acquire, upgrade, or maintain physical assets. These assets typically include
property, buildings, equipment, or technology. Essentially, CapEx is about investing in long-
term assets that will help the organization grow or maintain its operations.

For example, buying new machinery, constructing a new facility, or upgrading existing
technology are all considered capital expenditures. Unlike operational expenses (OpEx),
which cover day-to-day costs such as salaries, utilities, and rent, capital expenditures are
meant to benefit the organization over a longer period of time and usually involve significant
investment.

CONSUMPTION EXPENDITURES. “consumption expenditure” means any expenditure

incurred by any person in the maintenance of himself, his family or establishment, or
for any other personal or domestic purpose;

EXCLUDED EXPENDITURE

“excluded expenditure” means –

(a) tax payable under this Act; Example income tax

(b) bribes and expenditure incurred in corrupt practice;

(c) fines and similar penalties payable to a Government or a political subdivision of a

BY EZEKIA

Government of any country for breach of any law or subsidiary legislation;

(d) expenditure to the extent to which incurred by a person in deriving exempt

amounts or final withholding payments;

(e) distributions by an entity; or

(f) withholding tax paid by a withholder;

QN 184.What is investment?

SECTION 9 "investment" means the owning of one or more assets of a similar nature or
that are used in an integrated fashion, on similar terms and subject to similar conditions,
including as to location and includes a past, present and prospective investment, but does
not include a business, employment and the owning of assets, other than investment assets,
for personal use by the owner;

INCLUSION IN THE INVESTMENT INCOME

In calculating a person's gains or profits from conducting an investment for a year of

income the following amounts derived by the person from conducting the investment during
that year of income shall be included, namely-

(a) Any dividend, distribution of a trust, gains of an insured from life insurance, gains from
an interest in an unapproved retirement fund, interest, natural resource payment, rent or
royalty;

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(b) Net gains from the realisation of investment assets of the investment as calculated
under Division III of this Part;

(c) Amounts derived as consideration for accepting a restriction on the capacity to conduct
the investment; and

(d) The amount of tax benefit or advantage quantified under section 27 of the Act or other
amounts required to be included under Division II of this Part, Parts IV, V or VI.

EXCLUSION IN THE INVESTMENT INCOME.

(a) Exempt amounts and final withholding payments; and

(b) Amounts that are included in calculating the person's income from any employment or
business.

QN 185.Define the Following 48 Terminologies applicable in the income tax act, cap 322

Arrangement.

Definition of “arrangement” includes an action, agreement, course of

conduct, dealing, promise, transaction, understanding or undertaking, whether
express or implied, whether or not enforceable by legal proceedings and whether
unilateral or involving more than one person;

Business assets.
BY EZEKIA

Definition of "business asset" means an asset to the extent to which it is

employed in a business and includes a membership interest of a partner in a
partnership but excludes-

(a) trading stock or a depreciable asset;

(b) an interest in land held by an individual that has a market value of less
than ten (10,000,000) million shillings at the time it is realised and that has been
used for agricultural purposes for at least two of the three years prior to
realisation;

(c) the beneficial interest of a beneficiary in a resident trust;

(d) shares in a corporation where receipt of a dividend in respect of the

shares is exempt in the hands of the shareholder under section 54(2); and

(e) shares and securities listed on the Dar es Salaam Stock Exchange
that are owned by a resident person or by a non-resident person who either alone
or with other associates controls less than twenty five percent of the controlling
shares of the issuer company;

Capitalizations of profit.

Definition of "capitalizations of profits" by an entity, includes a

capitalizations by way of issuing bonus, membership interests or increasing the
amount paid upon membership interests in the entity or otherwise crediting
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 profits to a capital or premium account of the entity;

Commuted pension.

Definition of "commuted pension" means a payment received by an

individual on retirement of the individual for the surrender of at least half of the
individual's pension rights in respect of a retirement fund.

Controlled foreign trust and controlled corporation.

Definition of "controlled foreign trust" and "controlled foreign corporation"

means a non-resident trust or corporation in which a resident person owns a
membership interest, whether directly or indirectly through one or more
interposed non-resident entities, and where- (a) the person is associated with the
trust or corporation; or (b) there exist between one and four other resident
persons which, if associated with the person, would cause the person to be
associated with the trust or corporation;

Corporation.

Definition of "corporation" means any company or body corporate

established, incorporated or registered under any law in force in the United
Republic or elsewhere, an unincorporated association or other body of persons, a
Government, a political subdivision of a Government, a public authority, public
institution international organization and a unit trust but does not include
partnership. BY EZEKIA

Debt claim.

Definition of “debt claim" means an asset representing a right of one

person to receive a payment from another person and includes a deposit with a
financial institution, account receivable, note, bill of exchange or bond

Decommissioning fund.

Definition of "decommissioning fund" with respect to petroleum

operations means a fund established under the Petroleum Act;

Dependant of an individual.

Definition of "dependant of an individual” with respect to a year of income,

means a relative of the individual who has total income that does not exceed two
hundred fifty thousand shillings (250,000) and receives substantial support from
the individual during the whole year of income for the necessities of life; In legal
texts, the term "dependant" is often used to denote someone who depends on
another for financial support or care. For example, in the UK, "dependant" is used
in the context of inheritance laws or insurance claims. In the UK, the term
"dependant" is commonly used in laws like the Inheritance (Provision for Family
and Dependants) Act 1975.

Depreciable assets.

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 Definition of depreciable asset" means an asset employed wholly and
exclusively in the production of income from a business, and which is likely to
lose value because of wear and tear, obsolescence or the passage of time but
excludes goodwill, mineral or petroleum rights and other interest in land, a
membership interest in an entity and trading stock;

Depreciable basis.

"depreciation basis" at the end of a year of income with respect to a pool

of depreciable assets, has the meaning ascribed to it by paragraph 3 of the Third
Schedule;

Domestic assets.

"domestic asset" means-

(a) an asset owned by a resident person (other than foreign land or buildings or
an asset held by a foreign permanent establishment of the person) or held by a
domestic permanent establishment;

(b) an interest in land or a building situated in the United Republic; and

(c) shares in a resident corporation whether the owner of the shares together
with associates controls or within the previous five years controlled, either
directly or indirectly, twenty-five (25) percent or more of the voting power in the
corporation; BY EZEKIA

Domestic liability.

"domestic liability" means a liability owed by a resident person (other than a liability
attributable to a foreign permanent establishment of the person) or attributable to a
domestic permanent establishment;

Example. Imagine Lecturer Mgallusy, who lives and works in Country A(Tanzania).
Lecture Mgallusy operates a small business there. Here’s how “domestic liability” might
apply to him:

Domestic Liability Example: Lect.Mgallusy has taken out a loan from a bank in Country A to
expand him local business. This loan is a financial obligation Lect.Mgallusy owes to the
bank. Because lect. Mgallusy is a resident of Country A and this loan is tied to him domestic
business activities, this loan qualifies as a “domestic liability.”

Exclusion of Foreign Liabilities: Suppose Lect Mgallusy also has a business in Country B.
The profits from this business are subject to taxation and lect Mgallusy has a tax liability
there. This liability is connected to him foreign business operations in Country B (Swaziland)
and thus is not considered a “domestic liability” under the definition provided.

Domestic Permanent Establishment: If lect Mgallusy business in Country A has multiple

locations and owes rent or other expenses at these locations, these liabilities are also
considered “domestic liabilities” because they are tied to him business operations within
Country A.

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 So, in summary, domestic liabilities are those financial obligations that a person
living in a country

Domestic Permanent establishment.

"domestic permanent establishment" means all permanent establishments

of a non-resident individual, partnership, trust or corporation situated in the
United Republic;

Entity. "entity" means a partnership, trust or corporation;

Entity of public character.

Entity of a public character” means an entity established and functions solely

for a public purpose and which operates in such a way that:

(a) its membership is open to the general public or an identifiable group of a

community with common interests;

(b) it operates for purposes other than deriving profit or gain;

(c) it does not allow any distribution or deemed distribution of profit generated
out of its charitable business; and

(d) its profit is ploughed back and used solely for improving or expansion of the
BY EZEKIA

original charitable purposes or function;

Farm -out arrangement.

"farm-out arrangement" with respect to a mineral right or a petroleum right

includes an arrangement for the transfer of part of the right in return for
consideration that includes in whole or in part an obligation on the part of the
transferee to meet a disproportionate amount of future expenditure with respect
to mineral operations or petroleum operations conducted with respect to the
right, as the case requires;

Financial cost.

"financial cost" means any amount payable under a financial instrument or a

loss from the realisation of a financial instrument, includes the payment of
interest but excludes a distribution by an entity

Foreign permanent establishment.

"foreign permanent establishment" means all permanent establishments of

an individual, partnership, trust or corporation that are situated in any one country
that is not the country in which the individual, partnership, trust or corporation is
resident but excludes a domestic permanent establishment;

Foreign source.

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 "foreign source" means an amount that is not treated as having a source in
the United Republic by section 67, 68 or 69, as the case requires;

Full time service director.

full time service director" means a person at a managerial position and is in

full time service in a corporation;

Gift

gift" means a payment without consideration or a payment with

consideration to the extent that the market value of the payment exceeds the
market value of the consideration;

Insurance business.

"insurance business" means the business of an insurer in effecting,

issuing and carrying out insurance

Incapacitated individual

"incapacitated individual" means a minor or any individual who is

substantially blind or physically crippled or substantially mentally retarded or who
is adjudged under any law, whether of the United Republic or of any other country,
to be of unsound mind;

Investment assets.
BY EZEKIA

"investment asset" means shares and securities in a corporation, a

beneficial interest in a non-resident trust and an interest in land and buildings but
does not include-

(a) business assets, depreciable assets and trading stock;

(b) a private residence of an individual that has been owned continuously for
three (3) years or more and lived in by the individual continuously or intermittently
for a total of three years or more, other than a private residence that is realized
for a gain in excess of fifteen million (15 million) shillings;

(c) an interest in land held by an individual that has a market value of less than
ten million shillings at the time it is realized and that has been used for
agricultural purposes for at least two of the three years prior to realisation; and

(d) shares or securities listed on the Dar es Salaam Stock Exchange that are
owned by a resident person or a non-resident person who either alone or with
other associate controls less than twenty five percent of the controlling shares of
the issuer company;

Lease.

"lease" means an arrangement providing a person with a temporary right in

respect of an asset of another person, other than money, and includes a license,

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 profit-a-prendre, option, rental agreement, royalty agreement and tenancy;

Life insurance.

"life insurance" means insurance of any of the following classes:

(a) insurance where the specified event is the death of an individual who is the
insured or an associate of the insured;

(b) insurance where-

(i) the specified event is an individual who is the insured or an associate

of the insured sustaining personal injury or becoming incapacitated; and

(ii) the insurance agreement is expressed to be in effect for at least five

years or without limit of time and is not terminable by the insurer before the
expiry of five years except in circumstances prescribed by the regulations;

(c) insurance under which an amount or series of amounts is to become payable

to the insure ed in the future; and

(d) re-insurance of insurance referred to under paragraphs (a) to (c);

Manager.

"manager" in relation to an entity-

BY EZEKIA

(a) means any councilor, director, manager, member, officer or other person who
participates or may participate, whether alone or jointly with other persons, in
making senior management decisions on behalf of the entity; and

(b) includes a partner of a partnership, a trustee of a trust and a person in

accordance with whose directions and instructions the entity or a person
described in paragraph (a) is required or accustomed to act;

Life insurance business

"life insurance business" means the business of an insurer in effecting,

issuing and carrying out life insurance;

Member

“member” in relation to an entity, means any person who owns a

membership interest in the entity;

Natural resources payment,

"natural resource payment" means any payment, including a premium or like

amount, for the right to take natural resources from land or the sea or calculated
in whole or part by reference to the quantity or value of natural resources taken
from land or the sea;

Membership Interest

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 "membership interest" in an entity means a right, including a contingent
right and whether of a legal or equitable nature, to participate in any income or
capital of the entity and includes the interest of a partner in a partnership, the
interest of a beneficiary in a trust and shares in a corporation;

Natural resources.

"natural resource" means minerals, petroleum, water or any other non-living or

living resource that may be taken from land or the sea

Net cost of assets

“net cost” for an asset or liability to a particular time means –

(a) in the case of a depreciable asset, its share of the written down value of the
pool to which it belongs at that time apportioned according to the market value of
all the assets in the pool; and

(b) in the case of any other asset or a liability, the amount by which cumulative
costs for the asset or liability exceed cumulative incomings for the asset or
liability to the time;

net gain

"net gains" from the realisation of investment assets of an investment of a

person for a year of income has the meaning ascribed to it by section 36;
BY EZEKIA

Parastatal organization

"parastatal organisation" means –

(a) a local authority of the United Republic; Cap. 212

(b) a body corporate established by or under any Act or Ordinance of the

United Republic other than the Companies Act, and any company registered
under the Companies Act where

- (i) in the case of a company limited by shares, not less than fifty percent of
the issued share capital of the company is owned by the Government or an
organisation which is a parastatal organisation under this definition; or

(ii) in the case of a company limited by guarantee-

(aa) the members of the company include the Government or an

organisation which is a parastatal organisation under this definition; and

(bb) such members have undertaken to contribute not less than fifty
percent of the amount to be contributed by members in the event of the company
being wound up;

Partnership

"partnership" means any association of individuals or bodies corporate

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 carrying on business jointly, irrespective of whether the association is recorded in
writing

Permanent establishment.

"permanent establishment" means a place where a person carries on

business and includes –

(a) a place where a person is carrying on business through an agent, other than a
general agent of independent status acting in the ordinary course of business as
such;

(b) a place where a person has used or installed, or is using or installing

substantial equipment or substantial machinery; and

(c) a place where a person is engaged in a construction, assembly or installation

project for six months or more, including a place where a person is conducting
supervisory activities in relation to such a project;

Petroleum rights.

"petroleum right" means an exploration license or a development license

granted under the Petroleum Act and includes-

(a) separately, the interest of a contractor under a Production Sharing Agreement

with respect to each exploration license granted with respect to the contract area;
BY EZEKIA

(b) separately, the interest of a contractor under a Production Sharing Agreement

with respect to each development license granted with respect to the contract
area; and (c) data or information pertaining to petroleum operations;

Production sharing agreement.

"Production Sharing Agreement" means Cap.392

(a) an agreement concluded under section 47 of the Petroleum Act between

the Government of the United Republic, the National Oil Company and another
person "the contractor"; and

(b) a tripartite agreement between the Government of the United Republic,

the National Oil Company and a contractor under which the National Oil Company
engages the contractor to carry out on its behalf petroleum operations in an
exploration or development area with respect to an exploration or development
license held by the National Oil Company;

Relative

"relative" means the individual’s child, spouse, parent, grandparent, grandchild,

sibling, aunt, uncle, nephew, niece or first cousin, including by way of marriage or
adoption;

Religious organization

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 religious organisation” means a resident entity of a public character
established for the advancement religion that has been issued with ruling by the
Commissioner under section 131 currently in force stating that, it is a religious
organisation;

Rent.

"rent" means any payment made by the lessee under a lease of a tangible
asset including any premium and any other payment for the granting of the lease
but excludes a natural resource payment and a royalty;

Retirement contribution

"retirement contribution" means a payment made to a retirement fund for

the provision or future provision of retirement payments;

retirement fund

retirement fund" means any entity established and maintained solely for the
purposes of accepting and investing retirement contributions in order to provide
retirement payments to individuals who are beneficiaries of the entity;

Retirement payment.

"retirement payment" means a payment, by way of a lump sum, pension or

commuted pension, made by a person to - (a) an individual in the event of the
BY EZEKIA

individual's retirement; or (b) a relative of an individual in the event of the

individual's death;

Royalty.

"royalty" means any payment made by the lessee under a lease of an

intangible asset and includes payments for –

(a) the use of, or the right to use, a copyright, patent, design, model, plan, secret
formula or process or trademark;

(b) the supply of know-how including information concerning industrial,

commercial or scientific equipment or experience;

(c) the use of, or right to use, a cinematography film, videotape, sound recording
or any other like medium;

(d) the use of, or right to use, industrial, commercial or scientific equipment;

(e) the supply of assistance ancillary to a matter referred to in paragraphs (a) to

(d); or (f) a total or partial forbearance with respect to a matter referred to in
paragraphs (a) to (e), but excludes a natural resource payment;

Services fees

"service fee" means a payment to the extent to which, based on market

values, it is reasonably attributable to services rendered by a person through a
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 business of that person or a business of any other person and includes a
payment for any theatrical or musical performance, sports or acrobatic exhibition
or any other entertainment performed, conducted, held or given;

services rendered

"service rendered" means transmitting or delivering of service in the United

Republic of Tanzania irrespective of the place of performance of service;

Technical services

"technical service" in respect of mining or petroleum operations, means

services in respect of earthmoving, engineering and construction and includes
geological, geotechnical and metallurgical services, seismic survey, data
interpretation, drilling or any such services;

Trading stock

"trading stock" means assets owned by a person that are sold or intended to
be sold in the ordinary course of a business of the person, work in progress on
such assets and inventories of materials to be incorporated into such assets and
includes, in the case of a person carrying on a banking business, loans made in
the ordinary course of that business

Trust
BY EZEKIA

trust" means an arrangement under which a trustee holds assets but excludes
a partnership and a corporation

Trustee

trustee" - (a) means an individual or body corporate holding assets in a

fiduciary capacity for the benefit of identifiable persons or for some object
permitted by law and whether or not the assets are held alone or jointly with other
persons or the individual or body corporate is appointed or constituted trustee by
personal acts, by will, by order or declaration of a court or by other operation of
the law; and

(b) includes-

(i) any executor, administrator, tutor or

(ii) any liquidator, receiver, trustee in bankruptcy or judicial manager;

(iii) any person having the administration or control of assets subject

to a usufruct, fideicommissum or other limited interest;

(iv) any person who manages the assets of an incapacitated individual;

(v) any person who manages assets under a private foundation or other similar
arrangement

Unit Trust. means

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 An arrangement under which the trustee holds assets for the benefits at least 20
persons.

Where the entitlement of the person to participate in the income or capital of the
arrangement are divided into units such that the entitlements are determined by the
number of units owned.

Written down value of a pool depreciable assets.

At the end of a year of income.

At a particular time (the time) during a year of income means

The written down value of the pool at the end of the previously year of income

Expenditures incurred prior to the time which is added to the depreciation basis of
the pool during the year of income or to be added during the following year of income.

Incomings derived during the year of income or to be derived with respect to a

realisation occurring Prior to the time in respect of assets that are or have been in
the pool.

QN 186.What is Exemption from Tax?

SECTION 10: Exemption from tax refers to a specific allowance that reduces or
eliminates an individual's or entity's tax liability. Here are some common types of tax
exemptions: Tax exemptions are designed to provide financial relief or incentivize particular
BY EZEKIA

behaviors or investments. The specifics of what qualifies for exemption and how it is
applied can vary widely depending on the tax laws of a particular country or jurisdiction.

(1) The Minister may, by order published in the Gazette, provide-

(a) that any income or class of incomes accrued in or derived from the
United Republic shall be exempt from tax to the extent specified in such order; or

(b) that any exemption under the Second Schedule shall cease to have
effect either generally or to such extent as may be specified in such order.

(2) The Minister may, by order published in the Gazette, amend, vary or replace the Second
Schedule.

QN 187.What is Interest according to the income tax Act.

According to the Expert Ezekia

interest refers to the income earned from lending money or from certain types of
investments, such as savings accounts, bonds, or loans. This interest is generally
considered taxable income and must be reported on your tax return.

There are different types of interest that may be treated differently for tax purposes:

Interest Income: This is the interest you earn from bank accounts, loans, or investments,
and it is taxable in the year it is received.
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Deductible Interest: Certain interest payments, like mortgage interest or business loan
interest, may be deductible, reducing your taxable income.

Tax-Exempt Interest: Some types of interest, such as that from municipal bonds, may be
exempt from federal income tax.

SECTION 12: INTEREST ACCORDING TO THE ITA

Interest incurred by a person during a year of income under a debt obligation shall be
incurred wholly and exclusively in the production of income from a business or
investment if

(a) where the debt obligation was incurred in borrowing money, the money is
employed during the year of income or was used to acquire an asset that is employed
during the year of income wholly and exclusively in the production of The Income Tax Act
[CAP. 332 R.E 2019] 39 income from the business or investment; or

(b) in any other case, the debt obligation was incurred wholly and exclusively in the
production of income from the business or investment.

(2) The total amount of interest that an exempt controlled resident entity may deduct
for a year of income shall not exceed the sum of interest equivalent to debt-to-equity
ratio of 7 to 3. interest equivalent to debt-to-equity ratio of 7 to 3.

QN 188.What is Exempt -Controlled resident entity?

BY EZEKIA

An exempt-controlled resident entity for a year of income state that” if it is

resident and at any time during the year of income twenty five percent (25%) or more of
the underlying ownership of the entity is held by entities exempt under the Second
Schedule, approved retirement funds, charitable organisations, non-resident persons or
associates of such entities or persons”.

Where there is a change of the amount of debt or equity, the amount of equity or debt
shall be the average of balances of amount of debt or equity at the end of each period.

QN 189.What is debt and Equity

“Debt” means any debt obligation excluding:

(i) a non-interest-bearing debt obligation;

a debt obligation owed to a resident financial institution; and

a debt obligation owed to a non-resident bank or financial institution on whose interest tax
is withheld in the United Republic;

“Equity” means: (i) paid up share capital;

Commentary by Expert Ezekia, the concept of debt to equity ratio is applicable to thin
capitalization in computing the allowable interest that is suppose to be deduct according to
the Income tax act of Tanzania.

QN 190.What is trading stock?

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According to the Expert Ezekia, "trading stock" refers to goods that are held by a business
for the purpose of sale or exchange in the ordinary course of business. It is typically
classified as inventory (IAS 2) and includes items that a business intends to sell.

key points to consider in the context trading stock.

Definition: Trading stock encompasses all raw materials, work-in-progress, and finished
goods that a business holds for resale.

Valuation: Trading stock must be valued at the end of each accounting period, which affects
taxable income. Common valuation methods include the cost method or market value.

Tax Implications. The value of trading stock affects the calculation of gross income. When
trading stock is sold, the income generated is included in taxable income, while the cost of
the stock sold is deducted.

Changes in Value: Any increase or decrease in the value of trading stock from one
accounting period to the next must be accounted for in the taxable income.

Capital vs. Revenue: Generally, trading stock is treated as a revenue asset, not a capital
asset, meaning it is directly linked to the business's trading activities.

Commentary by Expert Ezekia, Trading stock is practically managed through the preparation
of a stock movement sheet and stock analysis. The difference identified between the stock
movement and stock analysis helps in determining the closing balance for an existing
company. For a new business, this process assists in establishing both the opening and
BY EZEKIA

closing balances.

SECTION 13. ACCORDING TO INCOME TAX ACT (1) For purposes of calculating a person's
income for a year of income from any business, the trading stock of the business the
allowance shall be calculated as –

The opening value of trading stock of the business for the year of income;

plus, expenditure incurred by the person during the year of income that is included in the
cost of trading stock of the business;

less the closing value of trading stock of the business for the year of income. NOTE: The
opening value of trading stock of a business for a year of income shall be the closing value
of trading stock of the business at the end of the previous year of income.

In the case of closing stock, if you have both the closing stock value and the market value,
you typically take the **lower amount**. This approach ensures that the inventory is not
overstated on the financial statements, adhering to the conservatism principle in
accounting. So, when calculating the trading stock allowance for tax purposes, you would
use the lower value between the closing stock and its market value. This practice helps to
avoid inflating the asset values and ensures a more accurate representation of the
company’s financial position.

Here’s a comprehensive question with answer about trading stock that includes various
aspects

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Question on Trading Stock

You are the financial manager of Efatha limited Company, which engages in the buying and
selling of electronics. At the end of the financial year, you need to prepare the financial
statements and determine the trading stock for tax purposes.

Opening Stock. At the beginning of the year, the closing value of trading stock from the
previous year was $60,000.

Expenditures. Throughout the year, Efatha limited Company incurred additional costs related
to the purchase of trading stock amounting to $100,000.

Closing Stock.At the end of the financial year, the value of the closing stock was assessed at
$80,000. However, market conditions suggest that the market value of this closing stock is
only $70,000 due to a decline in demand.

Question

1. Calculate the trading stock allowance that should be deducted from the company's
income for tax purposes. ANS; Trading Stock Allowance = $90,000

2. Which value should be used for the closing stock: the assessed value or the market value?
Justify your choice based on accounting principles.

ANS; The market value of $70,000 should be used for the closing stock. This choice is
based on the conservatism principle in accounting, which states that assets should not be
BY EZEKIA

overstated. By using the lower market value, the financial statements present a more
accurate and conservative valuation, reflecting the potential losses due to market conditions.

3.Explain how the opening stock, expenditures, and closing stock values impact the taxable
income for Efatha limited Company.

Commentary by Expert Ezekia. This question covers the essential components of

trading stock, including calculations, principles of valuation, and the implications for
taxable income.

ON191.SECTION 14. In the context of meaning by expert Ezekia,

"repair and maintenance" typically refer to expenses incurred to keep a

property or asset in good working condition without significantly improving its value or
extending its life.

Repair and maintenance expenditure. For purposes of calculating a person's

income for a year of income from any business, there shall be deducted all expenditure
to the extent incurred during the year of income, by the person and in respect of the
repair or maintenance of depreciable assets owned and employed by the person wholly
and exclusively in the production of income from the business.

(2) Deductions shall not be allowed under subsection (1) for expenditure in improving an
asset, but that expenditure may be included in the cost of the asset if the requirements

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 of section 37 are met.

QN 192.What is agricultural improvement expenditures. SECTION 15

“agricultural improvement expenditure” means expenditure incurred by the owner or

occupier of farm land in conducting an agriculture, livestock farming or fish farming
business where the expenditure is incurred in –

(a) clearing the land and excavating irrigation channels; or

(b) planting perennial crops or trees bearing crops

QN 193.What is environmental expenditure"

Environmental Expenditures means expenditure incurred by the owner or occupier of

farmland for prevention of soil erosion;

"research and development expenditure” means expenditure incurred by a person in

the process of developing the person's business and improving business products or
process and includes expenditure incurred by a company for the purposes of an initial
public offer and first listing on the Dar es Salaam Stock Exchange but excludes any
expenditure incurred that is otherwise included in the cost of any asset used in the use in
any such process, including an asset referred to in paragraph 1(3) of the Third Schedule.
BY EZEKIA

QN 194.What is Gifts to public, charitable and religious institution?

Under Tanzanian law, gifts to public, charitable, and religious institutions. Are
generally understood as donations or contributions made to organizations that operate
for public benefit, charity, or religious purposes. These gifts are usually voluntary and can
take the form of money, property, goods, or services. They are typically made without any
expectation of personal gain or direct benefit to the donor.

In Tanzania, these gifts are governed by a variety of laws and regulations, including tax
law, the Non-Governmental Organizations (NGOs) Act, and the Income Tax Act.

Key Aspects of Gifts to Public, Charitable, and Religious Institutions in Tanzania:

1. Public Institutions: These institutions include government bodies and other

organizations that serve the public good, such as schools, hospitals, and community
development organizations. Donations to public institutions are often aimed at supporting
public welfare projects.

2. Charitable Institutions: These include registered non-governmental organizations

(NGOs) and other entities whose primary purpose is to provide relief, improve social

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 welfare, or promote general public well-being. Donations to charitable institutions are
considered acts of philanthropy and may benefit disadvantaged groups or contribute to
social development.

3. Religious Institutions: These are organizations formed for the purpose of practicing,
promoting, or supporting religious activities. Examples include churches, mosques,
temples, synagogues, and other religious associations. Donations to religious
institutions may support religious services, community outreach programs, or
humanitarian efforts conducted by the institution.

Tax Treatment and Benefits of Donations:

1. Tax Deductions: In Tanzania, donations to registered charitable or religious

institutions that meet the conditions set out in Tanzanian tax law may be eligible for tax
deductions. Specifically, under the Income Tax Act, charitable donations are eligible for
tax deductions if the donation is made to an institution recognized by the Tanzania
Revenue Authority (TRA). The donor may be allowed to deduct the value of the donation
from their taxable income, reducing their overall tax liability.

2. Exemption Status: Public, charitable, and religious institutions that are registered with
the relevant authorities (such as the Registrar of NGOs for charitable organizations or
the Tanzania Revenue Authority for tax-exempt status) may be exempt from paying
taxes on the donations they receive. However, the institution must use the donations for
its charitable or religious purposes. BY EZEKIA

3. Conditions for Donations: For a donation to be recognized as charitable and eligible

for tax benefits, it often must meet certain legal requirements. This may include:

- The organization receiving the gift must be registered and recognized by the
authorities.

- The gift must be used exclusively for charitable, public, or religious purposes (not for
private gain).

- The donor should retain proper documentation (such as receipts or donation

certificates) to substantiate the gift.

4. Compliance with Laws: Gifts made to charitable, public, or religious institutions in

Tanzania must also comply with other relevant laws, including anti-money laundering
regulations and the regulations governing the registration and operations of NGOs. This
ensures that donations are used transparently and for their intended purpose.

Examples of Charitable and Religious Organizations in Tanzania:

Tanzania Red Cross Society. A charitable organization that helps with disaster relief and
community health services.

Religious organizations. such as the Roman Catholic Church or the Anglican Church of
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 Tanzania**, which may use donations for both religious activities and social welfare
programs.

COMMENT BY EXPERT EZEKIA

In Tanzania, gifts to public, charitable, and religious institutions play a vital role in
supporting the development and welfare of the country. Donors can receive tax benefits
for making charitable contributions, but it is important that the donations comply with
local laws and are directed to organizations that are registered and recognized for their
charitable or religious purposes.

SECTION 16

16.-(1) For purposes of calculating a person's income for a year of income from
any business, there shall be deducted –

(a) amounts contributed during the year of income to a charitable institution referred to
in subsection (8) of section 64 or social development project;

(b) any donation made under section 12 of the Education Fund Act; and

(c) amount paid to local government authority, which are statutory obligations to support
community development projects.
BY EZEKIA

(2) The deduction available under subsection (1)(a) for a year of income shall not exceed
two percent (2%) of the person's income from the business calculated without a
deduction under that subsection.

(3) For purposes of calculating a person’s income for a year of income from any
employment, there shall be deducted any donation made under section 12 of the
Education Fund Act. (4) Subject to subsection (3), an employee who makes a donation to
the Fund may apply to the Commissioner for deduction.

QN 195.What is Depreciable assets?

Depreciable assets are tangible assets that have a limited useful life and
decrease in value over time due to wear and tear, obsolescence, or other factors. These
assets are used by a business or individual to produce income, and because they lose
value as they are used, they must be depreciated for accounting and tax purposes.

Key Characteristics of Depreciable Assets:

1.Tangible: Depreciable assets are physical, long-term assets, as opposed to intangible

assets (like patents or trademarks).

2. Limited Useful Life: These assets have a finite lifespan, meaning they will eventually
wear out, become obsolete, or lose their value due to usage or time.
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 3. Used in Business: Depreciable assets are generally used in the production of goods or
services, or for rental purposes, by a business or individual to generate income.

4. Loss of Value: The asset's value decreases over time as it is used in the business, so
its cost must be spread out over its useful life.

Common Examples of Depreciable Assets:

-Buildings: Commercial and industrial properties used for business purposes.

- Machinery and Equipment: Factory machinery, production lines, or other equipment

used in manufacturing or service delivery.

- Vehicles: Cars, trucks, and other vehicles used for business operations, like delivery
trucks or company cars.

- Computers and Office Equipment: Desks, chairs, and computers used in office settings.

- Furniture and Fixtures: Items like shelves, tables, and fixtures used in businesses.

- Tools and Implements: Hand tools or power tools used in construction, maintenance, or
manufacturing.

Depreciation of Assets: BY EZEKIA

To account for the loss in value of depreciable assets, businesses apply depreciation.
Depreciation is an accounting method that allocates the cost of the asset over its
expected useful life. There are several methods of depreciation, including:

1. Straight-Line Depreciation: The same amount of depreciation expense is recorded

each year over the asset's useful life.

2. Declining Balance Method: A higher depreciation expense is recorded in the earlier

years of the asset's life, and the amount decreases over time.

3. Units of Production: Depreciation is based on the asset’s usage, such as the number
of units produced or hours the asset is in use.

Why Depreciate Assets?

- Matching Principle: Depreciation helps businesses match the cost of an asset with the
revenue it generates over time. This ensures that financial statements reflect the asset’s
consumption and the associated expense in the correct periods.

- Tax Deductions: Depreciation can often be deducted as a business expense, reducing

the taxable income of the company.

- Accurate Financial Reporting: By recognizing depreciation, a business can more

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 accurately reflect the current value of its assets and the cost of maintaining them.

Non-Depreciable Assets:

Not all assets are depreciable. For example:

-Land: Land does not depreciate because it generally does not lose value over time
(although its value may fluctuate due to market conditions).

- Intangible Assets: Patents, trademarks, and goodwill are typically amortized, not
depreciated.

Conclusion:

In summary, depreciable assets are physical, long-term assets used in business

operations that lose value over time. Depreciation helps businesses allocate the cost of
these assets over their useful life, providing a more accurate picture of the business's
financial position and offering potential tax advantages.

For the purposes of calculating a person's income for a year of income from any
business, there shall be deducted in respect of depreciation of depreciable assets owned
and employed by the person during the year of income wholly and exclusively in the
production of the person's income from the business the allowances granted under the
Third Schedule. BY EZEKIA

QN 196.What is Losses on realisation of business assets and liabilities?

Losses on realization of business assets and liabilities. refer to the financial losses
that occur when a business disposes of its assets or settles its liabilities in a way that
results in a loss compared to their book value or the amount initially recorded in the
financial statements.This typically happens during certain business events, such as:

- Liquidation of the business ‘when the company shuts down and its assets are sold off),

- Restructuring,

- Sale of a division or business unit,

- Disposal of assets. that are no longer needed or useful to the business.

Breakdown of Losses on Realization:

1. Losses on Realization of Assets:

- When a business sells or disposes of an asset, it may receive less money than the
asset's book value (the value recorded on the balance sheet).

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 - The difference between the book value (or carrying amount) of the asset and the
actual sale price or proceeds from the disposal results in a loss on realization.

- For example, if a company sells a piece of machinery for $10,000, but its book value
is $15,000, the company incurs a loss of $5,000 on the realization of the asset.

Examples of assets that could lead to a loss on realization:

- Property, plant, and equipment: Buildings, machinery, or vehicles.

- Intangible assets: Patents, trademarks, or goodwill.

- Inventory: Goods or materials that are sold off at a price lower than their recorded
value.

2. Losses on Realization of Liabilities:

- On the other hand, when a business settles its liabilities for less than the amount it
owes (e.g., negotiating a debt settlement or paying off creditors for a reduced sum), this
results in a gain (not a loss).

- However, if liabilities are written off or settled for an amount greater than expected or
for more than their book value, the business could incur a loss.
BY EZEKIA

Examples of liabilities that could result in a loss on realization:

- Loans or borrowings: If a business must pay off a loan at a higher cost due to
penalties, fees, or exchange rate fluctuations.

- Accounts payable: If creditors agree to forgive part of a debt but the company still
must pay more than anticipated, the difference might lead to a loss.

Impact on Financial Statements:

- Income Statement: Losses on the realization of business assets are recorded as a loss
in the income statement. This decreases the company's profit or increases its net loss.

- Balance Sheet: The assets and liabilities are adjusted to reflect their new values after
the realization event. The loss may reduce the business's equity or net worth.

Key Examples:

1. Liquidation of a Business:

- If a company is liquidated (shut down and its assets sold to pay off creditors), it might
sell its assets (e.g., buildings, machinery, inventory) for less than their recorded values.

- For example, if the company's assets have a book value of $1,000,000 but can only be
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 sold for $800,000, the company will incur a loss of $200,000 on the realization of its
assets.

2. Sale of a Business Unit:

- A company might sell off part of its business (e.g., a subsidiary) for less than the
carrying value of the assets and liabilities in that business unit. The difference is
recorded as a **loss on realization.

3. Debt Restructuring:

- If a company renegotiates its debt with creditors and agrees to pay less than the
amount owed (a "haircut"), there may be a loss on realization of the liability, depending
on the terms of the agreement.

Conclusion:

Losses on the realization of business assets and liabilities are an essential part of
financial accounting, especially during business closures, asset sales, or debt
restructurings. These losses reflect the difference between the book values of assets
and liabilities and the actual amounts realized (sold or settled). In most cases, these
losses will reduce the business's overall profitability and affect its financial position,
requiring proper reporting in the financial statements.
BY EZEKIA

QN 197.What is Speculative Transaction?

speculative transaction” means-

(a) a transaction which is a contract for sale or purchase of a commodity including

stocks and shares settled, otherwise than actual delivery or transfer of the commodity;
or

(b) any agreement for repurchase or resale, forward sale or purchase, futures contract,
option or swap contract; and

"unrelieved loss" means the amount of a loss that has not been deducted in calculating a
person's income under subsection (1) or section 2.

QN 198.What is cash basis of Accounting

Cash Basis Accounting: section 22 of ITA

Cash basis accounting is an accounting method where transactions are recorded only when
cash is actually received or paid. This method is simpler than accrual accounting, which
records revenues and expenses when they are earned or incurred, regardless of when cash
changes hands.

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In cash basis accounting, you only recognize:

Revenue when cash is received (i.e., when a customer pays you).

Expenses when cash is paid (i.e., when you actually pay a vendor or bill).

Key Features of Cash Basis Accounting:

Revenue recognition: Revenue is recorded when cash is received, not when the service is
performed or goods are delivered.

Expense recognition: Expenses are recorded when they are actually paid, not when they are
incurred or billed.

QN 199.What is accrual Basis of Accounting?

Accrual basis accounting is an accounting method that recognizes revenues

and expenses when they are earned or incurred, regardless of when cash transactions
occur. This method provides a more accurate picture of a company’s financial position
because it matches revenues with the expenses incurred to generate them, even if the cash
has not yet changed hands.

In contrast to cash basis accounting, which only records transactions when cash is received
or paid, accrual accounting aligns income and expenses with the periods in which they
BY EZEKIA

actually occur.

Key Features of Accrual Basis Accounting:

Revenue recognition: Revenue is recognized when earned, which is typically when a service
is performed or goods are delivered, not when cash is received.

Expense recognition: Expenses are recorded when incurred, i.e., when goods or services are
received, not when cash is paid.

This method adheres to the matching principle, which is a core principle of accrual
accounting that requires businesses to record expenses in the same period as the revenues
they help generate.

Examples of Accrual Basis Accounting:

Example of Revenue Recognition:

Scenario: A company, XYZ Corp, delivers a consulting service to a client in November but
does not receive payment until December.

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Accrual Accounting: XYZ Corp would record the revenue in November, when the service
was completed, even though payment will not be received until December.

Impact: The revenue is recognized in the period in which it was earned, providing an
accurate picture of the company's financial performance for November.

Example of Expense Recognition:

Scenario: A business receives an invoice for supplies in December, but payment is due and
made in January.

Accrual Accounting: The expense would be recorded in December, when the goods were
received and the expense was incurred, even though the cash is not paid until January.

Impact: The expense is recognized in the period when it was incurred (i.e., when the goods
or services were received), not when the payment is made.

Example of Accrued Expenses:

Scenario: A company receives a utility bill in October for services rendered in September, but
the payment is not due until November.

Accrual Accounting: The company would accrue the expense in September, when the utility
service was used, even though the bill is paid in October or November.
BY EZEKIA

Impact: The expense is recorded in the period when the service was provided, not when cash
changes hands.

Example of Accrued Revenue:

Scenario: A law firm completes work for a client in March, and the client agrees to pay
$5,000 in April.

Accrual Accounting: The law firm would record the $5,000 as revenue in March, when the
work was completed and the earning process was considered "substantially complete."

Impact: The revenue is recognized in March, even though the cash is received in April, which
reflects when the service was performed and matches the revenue with the period in which
the service was delivered.

Example of Deferred Revenue (Unearned Revenue):

Scenario: A subscription-based company receives $1,200 in December for a one-year

subscription starting in January of the next year.

Accrual Accounting: Under accrual accounting, the company would record $1,200 as
unearned revenue (liability) in December, and recognize $100 of revenue each month,
beginning in January, as the service is provided over the 12 months.
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Impact: This ensures that revenue is recognized as it is earned, in line with the service
delivery, and not when the cash is received.

QN 2OO.What is transfer Pricing and other arrangement between associates?

SECTION 33. -(1) In any arrangement between persons who are associates, the
persons shall quantify, apportion and allocate amounts to be included or deducted in
calculating income between the persons as is necessary to reflect the total income or
tax payable that would have arisen for them if the arrangement had been conducted at
arm’s length.

QN 201.What is resident status of individual?

Resident status" refers to an individual's classification in terms of their legal

residence or domicile in a specific country or jurisdiction. It is typically used to determine
their rights, obligations, and eligibility for various benefits, taxes, and other legal matters.
Resident status is commonly used in immigration, tax law, and other governmental
matters to distinguish between those who live in a country for an extended period and
those who are just visiting or temporarily staying.

Section 66
Resident Person/INDIVIDUAL
66.-(1) An individual is resident in the United
Republic for a year of income if the individual-
BY EZEKIA

(a) has a permanent home in the United Republic and is present in the United Republic
during any part of the year of income;
(b) is present in the United Republic during the year of income for a period or periods
amounting in aggregate to one hundred eighty three days or more;
(c) is present in the United Republic during the year of income and in each of the two
preceding years of income for periods averaging more than one hundred twenty two
days in each such year of income; or
(d) is an employee or an official of the Government of the United Republic posted abroad
during the year of income.

Partnership. A partnership is a resident partnership for a year of income if at any time

during the year of income a partner is a resident of the United Republic.

A TRUST. A trust is a resident trust for a year of income if -

(a) it was established in the United Republic;
(b) at any time during the year of income, a trustee of
the trust is a resident person; or
(c) at any time during the year of income a resident
person directs or may direct senior managerial
decisions of the trust, whether the direction is or
may be made alone or jointly with other persons
or directly or through one or more interposed
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 entities.

CORPORATION. A corporation is a resident corporation for a year

of income if-
(a) it is incorporated or formed under the laws of the
United Republic; or
(b) at any time during the year of income the
management and control of the affairs of the
corporation are exercised in the United Republic.

QN 202.Outline the content of return

In the context of taxes, a "return" refers to the formal document that individuals or
businesses submit to the government to report their income, expenses, and other
relevant financial information. This document is used to calculate the amount of tax
owed or the refund due based on the taxpayer's situation

SECTION.91. -(1) Subject to sections 92 and 94 of this Act and

39 and 48 of the Tax Administration Act, every person

shall file with the Commissioner not later than six months
BY EZEKIA

after the end of each year of income a return of income for

the year of income.

(2) A return of income of a person for a year of

income shall, subject to any instructions by the

Commissioner to the contrary -

(a) be in the manner and form prescribed specifying –

(i) the person's chargeable income for the year of income from each employment,
business and investment and the source of that income;

(ii) the person's total income for the year of income and the income tax payable with
respect to that income under section4(1)(a);

(iii) in the case of a domestic permanent establishment of a non-resident person the

permanent establishment's repatriated income for the year of income and the income
tax payable with respect to that income under section 4(1)(b);

(iv) any income tax paid by the person for the year of income by withholding, instalment
or assessment for which a tax credit is available under sections 67, 88,90 of this Act or
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 47 of the Tax Administration Act;

(v) the amount of income tax still to be paid for the year of income calculated as the
sum of the tax referred to in subparagraphs (ii) and (iii) less the tax already paid referred
to in subparagraph(iv); and (vi) any other information that the Commissioner may
prescribe;
(b) in the case of a corporation, be prepared or certified by a certified public accountant
in
public practice;
(c) include a declaration that the return is complete and accurate;
(d) be signed by -
(i) the person; and (ii) a person specified in section 37(2)(a) of the Tax Administration
Act;
(e) have attached to it –
(i) any withholding certificates supplied to the person under section 85 with respect
to payments derived by the person during the year of income;
(ii) any statement provided to the person under section 38(3) of the Tax Administration
Act;
(iii) certified financial statements; and
(iv) any other information that the Commissioner may prescribe

BY EZEKIA

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