No More Withholding Tax Turbulence For Aircraft Charter Services

• Published date: 20 May 2021
• Subject Matter: Tax, Transport, Aviation, Income Tax, Tax Authorities, Withholding Tax
• Law Firm: Dentons EALC East African Law Chambers
• Author: Mr East Africa Law Chambers

For the withholding tax mechanism to apply in Tanzania, following boxes have to be ticked: there must be income derived from a source that is subject to income tax as provided for in the income tax legislation (i.e. income from royalty, rental, lease, service fees, interest, dividend etc); the income must be sourced from Tanzania; and, there must be payment being made to recipient of that income from a resident person who become an involuntary tax agent for the Commissioner under the withholding tax mechanism. The resident person is required to withholding the appropriate amount of the tax from the payment that he is making in relation to royalty, rental, lease, service fees, interest, dividend etc. and account for that tax to the Commissioner.

The tax that is withheld and accounted for to the Commissioner under the withholding tax regime is not the tax of the tax agent who is required to operate the withholding mechanism; the tax that is withheld is part the recipient of tax which is accounted for at source by the tax agent. Under section 87 of the income tax legislation, that recipient |is allowed to treat that tax which has been accounted for the Commissioner as his tax credit and can offset it against his future income tax liability. It therefore means that if the withholding tax agent does not operate the withholding tax mechanism, the recipient has to account for tax on his income without the benefit of a tax credit.

In law, it is often argued that as long as words and phares are used to communicate intention, there will always be varied interpretation; different people reading a set of words will probably interpret these differently and probably arrive at different meanings. Perhaps no where is this more evident than when it comes to tax statutes where on the one hand you have the tax authority seeking to interpret a set of words in a manner that suits revenue collection and taxpayers on the other hand who have a different interpretation. We should point out that this does not happen all the time, it often occurs for example where words used by the draftsman in a statute lend themselves to varied interpretation, where a certain word or phrase that has been used has acquired generic meaning or is unique to a certain industry or in most instances where the law has yet to catch up with the commercial reality. All these, and perhaps many more instances, often result in polar opposite interpretations depending on one's intentions.

Under the withholding tax regime at the moment, the contentious issues that have arisen between the Commissioner and taxpayers have revolved around the four elements described above; (i) where something falls within what is subject to withholding tax under the as provided for in the income tax legislation; (ii) whether the income in relation to what is being paid for is sourced from Tanzania (where there is a plethora of case law and emerging jurisprudence...