Contents - Tanzania Revenue Authority

CONTENTS
PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(i)
1.0 ART OF ENTERPRENEURSHIP AND
STARTING A NEW BUSINESS . . . . . . . . . . . . . . . . .1
2.0 DEVELOPING YOUR BUSINESS WITH
CUSTOMER FOCUS . . . . . . . . . . . . . . . . . . . . . . . . .8
3.0 DEVELOPING A SUCCESSFUL
BUSINESS STRATEGY . . . . . . . . . . . . . . . . . . . . . .10
4.0 EFFECTIVE SALESMANSHIP . . . . . . . . . . . . . . . .14
5.0 PILLARS OF YOUR BUSINESS . . . . . . . . . . . . . . .19
6.0 BUSINESS RECORDS . . . . . . . . . . . . . . . . . . . . . .21
7.0 TYPES OF TAXES AND HOW TO
CALCULATE THEM . . . . . . . . . . . . . . . . . . . . . . . . .23
8.0 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
i

PREFACE
Tanzania Revenue Authority (TRA) in collaboration with the Zanzibar
Revenue Board (ZRB) has decided to introduce seminars on
entrepreneurship skills to small and medium taxpayers. The main
objective of conducting seminars in entrepreneurship is to create
awareness among entrepreneurs and future entrepreneurs as a
prerequisites for starting and managing a sustainable business
enterprise. This move has been triggered by the fact that the taxpayer
is the main player in mobilizing revenue for the two governments of
the United Republic of Tanzania and that of the Revolutionary
Government of Zanzibar. On this note, seminars in entrepreneurship
will be conducted to involve small and medium taxpayers and
stakeholders in tax management.
Small and medium size entrepreneurs contribute greatly to the
Government efforts towards economic growth and poverty
eradication under MKUKUTA, for Mainland Tanzania and MKUZA for
Zanzibar. It is therefore important for TRA and ZRB to observe their
role as partners in revenue collection and provide training to other
stakeholders on how to effectively manage business, increase sales
and sustain in business environment.
This publication for small and medium taxpayers has been released
at a time when the fourth phase Government of United Republic of
Tanzania is determined to improve the livelihood of Tanzanians
through various strategies. The book gives a brief explanation on the
art of entrepreneurship, advantages of entrepreneurship education
such as; expanding businesses, how to increase income that
ultimately leads to poverty alleviation in our communities, creating
employment opportunities, widening of the tax base of collection and
increasing government revenue.
During various seminars regularly conducted by revenue authorities
on the tax laws, regulations and payment of tax, the need for
entrepreneurship education to the taxpayers has clearly been noted.
Many taxpayers do not know much about entrepreneurship and its
role in business promotion. They lack tactics of business
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administration, management skills with a customer focus and
knowledge of effective salesmanship. They cannot meet the
challenges of competition; and they are not exposed to the art of
records keeping.
It is our sincere hope that this book will be useful to all stakeholders
as it has focused on entrepreneurs specific goals such as: How to
assist an entrepreneur in developing his/her business, how to impart
skills in record keeping in order to monitor business transactions,
ways of increasing openness in tax collection and disperse fear from
Small and Medium Enterprisers, (SMEs). The book also attempts to
create better business expectations of business operations; and how
to create a healthy relationship between taxpayers and tax authorities
as an important component towards success in business.
The preparation and publication of this book was made possible
through the co-operation and the assistance of Gtz through their tax
consultant Mr. Bernd Nuedling which supports TRA both materially
and financially. Appreciation also goes to Mr. Paul T. Chizi MD of
Customer Support Systems Ltd. for their valuable advice as
consultants on the adequacy and quality of the materials in this
publications.
iii

PART ONE
1.0 ART OF ENTREPRENEURSHIP STARTING A NEW
BUSINESS
1.1 ART OF ENTEPRENEURSHIP
The word entrepreneurship comes from the word
enterprise and means:
• Determination to look for and eagerness to get wealth
• The ability to identify existing opportunities and courage to
exploit emerging opportunities
• The ability to overcome obstacles that may hinder
business operations.
Therefore an entrepreneur is a person who is able to identify
and exploit existing opportunities to establish and manage
viable enterprises by applying the main pillars of business,
which are; manpower resources and working capital. He is a
planner with a vision and mission who is dedicated to run
his/her business with success. He is also confident, selfdriven
ready to work for long hours; a person who is quick to
realize his/her mistakes and take remedial measures; and
one who is willing to spot out other talents and use them to
accomplish business plans
1.2 MEANING OF BUSINESS
Business is an act of buying and selling property, goods
and/or delivering services, with the aim of earning profit.
The national policy of 2003 of developing small and medium
size entrepreneurs divides businesses into four main
categories by considering the number of employees and
operating capital as follows:-
1

SN BUSINESS TYPE NO. OF
EMPLOYEES
BUSINESS CAPITAL
1. Minor enterprise 1 to 4 Under TZS 5,000,000/=
2. Small enterprise 5 to 49 From TZS 5,000,000/=
3. Medium enterprise 50 to 99
To TZS 200,000,000/=
From TZS 200,000,000/=
To TZS 800,000,000/=
4. Large Enterprise Over 100 Over TZS 800,000,000/=
Table no 1: CATEGORIES OF BUSINESS
Other criteria used by Tanzania Revenue Authority to determine
categories of taxpayers are the yearly net-capital sales or the
magnitude of taxes one pays per year.
As business location has a great influence on the performance of
an enterprise, you should therefore: -
• Make sure that your business site is legally recognized in
terms of land registration and building permits
• Identify existing institutions, resource people, and
government departments which can play a role in
strengthening your business
• Make sure that there exists the necessary business
infrastructure (roads, water, electrical supply, etc.)
1.3 CONSIDERATIONS FOR DETERMINING THE RIGHT
BUSINESS
Before you engage in business, you should decide what type
of enterprise you would operate by considering the following
parameters:-
• The availability of raw materials, goods or services, you
want to sell or offer
• Competitors against your business
• Market for your goods, and interests of the customers
• Running cost of your business
• Procedures of paying taxes and various fees
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• The climate of your business location
• Living environment of the people around (peace and
tranquility, wars, peoples income, etc)
1.4 THE RIGHT BUSINESS PARTNER
Having confirmed your business location and the necessary
infrastructure in terms of human resources, related
institutions, and relevant government departments, you
should look into other criteria of selecting the right business
partner.
• Do you have the capacity to effectively run your own
business? If yes, do you have the necessary skills to
manage your enterprise?
• Is it logical to manage the business alone or there is a
need to form partnership with other people? Here you
should take into account how you can run your enterprise
during times of sickness, emergency, etc.
• Have you observed all legal measures of establishing your
partnership or cooperation?
In looking for the right business partner, consider the
following:-
• The partner should be ready to take business risks.
• Should have appropriate education and relevant skills to
run the business.
• Should have a vision and ambition of sustaining the
business.
• Should be willing to commit dedication, time, resources,
and energy in order to develop the business.
1.5 DETERMINING THE BUSINESS STRUCTURE
Knowledge of different forms of business will enable you to
choose the appropriate structure for your new enterprise. The
following are some of the forms of business.
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• Sole proprietorship
• Partnership
• Private/Public company
(a) Sole Proprietorship
This type of business is solely owned by a person assisted by
his/her children or spouse. The owner, may employ a
manager but he/she remains the final decision maker and
responsible for debt obligations of the company. In case of
bankruptcy, the owner of the company will meet all
obligations, profit and liabilities.
This type of business structure has no requirement other than
working capital, business license, and company registration
and enterprise management. Its disadvantage is that
everything lays on the owner’s shoulders. When his/her falls
sick or entangled in problems, your business will certainly fall.
Its advantage is that the owner has the freedom to plan and
develop his business at a desired pace.
(b) Partnership
Partnership is made of two or more people (not more than 20)
who have decided to join hands in business. The advantages
of this structure are as follows:-
• Develops working capital
• Diversified skills as partners complement their business
knowledge and experiences
• Lowers tax rates in comparison to a sole trade (look at the
example in section seven).
• Each partner is bonded to the business; and all of them
are liable to the business debts.
(c) Company
Companies fall into two categories namely: the private and
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public company. This type of companies is bonded to the
enterprise and its debts and the business transactions have
no relationship to the individual property of its owners. In case
of bankruptcy, and if the debts exceed the company property,
the liquidator will have no mandate to seize individual
property of the directors or shareholders.
Before one determines the structure of his/her intended
business, it is better to ask the following questions.
• Which structure is suitable for your capital?
• Which structure has less legislative conditions?
• Which structure will incur less taxes and fees?
• Which structure offers a better flexibility?
1.6 BUSINESS REGISTRATION
Any business has to be legally registered. You should register
your business with relevant institutions, and related
government departments in order to legalize your enterprise.
In the cause of registration, make sure you get all receipts and
necessary documents. Abide by Legislative procedures to
avoid unnecessary future disturbances.
The conditions that are listed at the backside of a trading
licence are as follows: -
• The Licensee in not allowed to put any conditions to the
buyer
• The Licensee shall issue receipt for each sale he makes
• The Licensee shall adhere to the provisions of the Trade
License Act (No. 25) of 1972 together with its
amendments (No.9) of 1980
• The Licensee shall not provide services or goods, which
are substandard as per recognized institutions that control
quality standards.
• The trading license may be impounded any time if found
to be illegally obtained or violation of conditions of the
license.
The act of doing business without a trading license is an
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offence and upon conviction the licensee is liable to a fine of
TZS 50,000 but not more than TZS 100,000 or imprisonment
for a term of not more than two (2) years or both fine and
imprisonment.
In order to be considered for issuance of trading license must
posses the following qualifications: -
• Your age should be not less than 18 years old
• Ensure that you have an authorized place of business
• Should be sane
• Should be a good citizen without criminal offences and if
not a citizen you must have Class A permit from
Immigration Department.
1.7 RAISING CAPITAL FOR YOUR BUSINESS
Business capital can be raised from your own saving or funds
from your colleagues. You can obtain loans from financial
institutions such as Banks, Pride, Finca, Poverty Africa, etc.
You can also take advantage of the government strategies
such as MKUKUTA, MKUZA, MKURABITA, etc.
Make sure you fully exploit these opportunities to raise and
develop your business. Other opportunities at hand are
SACCOS, and the special funds allocated to each region by
the Government.
1.8 APPOINTING THE MANAGEMENT FOR YOUR BUSINESS
You should assess your own potential and the potentials of
your partners and workforce to meet the goals of your
business. After identifying the strengths and weaknesses of
everyone who is part of the business, appoint competent
managers who will lay out plans and strategies to develop the
business. Without qualified managers, it shall be difficult to
achieve the set objectives.
If you do not have among yourselves, a person with the
desired qualities, you should employ an expert to run your
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usiness.
1.9 BUSINESS FAILURE/SUCCESS
Business is started to become sustainable. Nobody who
establishes a business would like to see it dying eventually.
The question to ask ourselves is “Why do businesses fail?”
According to surveys conducted in America in 1981, it was
established that, out of 100 enterprises that were started, 65
died within three years, and 17 out of the remaining business
died in the following two years. This means that only 18% of
the enterprises exist beyond the first 5 years. What is the
status in Tanzania?
In Tanzania some of the businesses once established are not
sustainable due to the following reasons: -
• Insufficient capital
• Inadequate business knowledge and skills
• Poor business management (selfishness, low integrity
etc)
• Wrong business location
• Unexpected business competition
• Unfriendly laws
• Bankruptcy
• Lack of customer focus
• Hazards and calamities
1.10 PRODUCT STANDARDS AND CERTIFICATION
For a successful business the entrepreneur should ensure
that the product that is trading with must have a certification
of its specifications approved by a recognized government
institution or authority. This is purely for healthy/safety, social,
and economic and for security reasons. For example locally
produced products should be certified with the Tanzania
Bureau of Standards. For exports of agricultural products
they should conform with the Sanitary and Python-Sanitary
Standards, or should have Product Certification/Quality
Standards such as ISO, Organic Product Certification
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Schemes.
PART TWO
2.0 DEVELOPING YOUR BUSINESS WITH CUSTOMER
FOCUS
Who is a customer?
Customer is a person, company, institution, or group of people
who buy goods or services from you. He/she can come from
within or outside the business entity.
2.1 Customer Care Philosophy
A customer is the boss and a pillar of business success.
The aim of any business be it production, trading or provision
of service, is to realize profit to satisfy the needs of the owner.
Customer care is the main approach that will consolidate your
business and increase your income. You will develop your
business if you offer good services that will satisfy customer
demand and attract other customers to come and buy or get
services from you.
2.2 Factors that may lead to business growth
• To raise prices on goods or services. This approach may
not be successful and could drive away customers.
• To lower or retain prices thereby increasing the number of
customers and sales of goods or services.
• To know customer expectations and satisfy their demand.
• A customer who is not satisfied by your goods or services
will discourage others not to come and buy from you.
The philosophy of customer care is “alpha and omega” of your
business. This means that the customer will contribute to the
development of your business by praising it such that other
people will be tempted to come and buy/get services from
you. A customer may send away other customers by
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negatively publicizing your business.
2.3 IMPORTANT POINTS TO NOTE ON CUSTOMER CARE
The entrepreneur should be aware of various factors in caring
his/her customers.
• To view the customer as the essence of your business by
recognizing his/her values. No customers no business
• To develop the culture of valuing your workers. It is the
worker who meets the customers and may build the
reputation of your business or destroy it.
• To see things from the customer’s viewpoint.
2.4 BUILDING A SUSTAINABLE BUSINESS
Factors that make businesses sustainable will be discussed
in depth in their respective sections; however some of these
factors are: -
• Select the appropriate model for your business after
partnership, company, cooperatives and corporation.
• Appoint competent leadership and skilled labour with
customer focus.
• Place your business in proper location.
• Develop appropriate strategies to address business
competition.
• Prepare and maintain a proper balance sheet.
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PART THREE
3.0 DEVELOPING A SUCCESSFUL BUSINESS STRATEGY
3.1 STRATEGY VIS-À-VIS BUSINESS VISION AND MISSION
It is important to match the vision and mission of your
business. This will mean that you have to evolve strategies
that will focus on the mission of the business vision.
3.2 BUSINESS STRATEGIES
In order to succeed in trading or service delivery, one should
ask the following questions:
• What type of goods or services do you want to offer, now
and in future?
• What kind of customers do you intend to serve, now and
in future?
• In which areas (e.g. within Tanzania, East Africa, Africa or
Overseas) should you expand your business and why?
• How do you distinguish yourself from your business
competitors, now and in future?
• What competitive strategies do you deploy in order to
thrive and reach your business targets?
• What commitments do you make to the society?
• What benefits are your employees deriving from your
business?
Answer to these questions will determine your customers,
future customers, ways of reaching them, competitive
strategies, financial rewards and the expected contribution of
your business to the socio – economic growth of your
community.
After laying out the strategies, you can now workout yearly
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plans to achieve the mission of your business. It is therefore
important to make regular evaluation of the business trend to
ensure conformity with your business plan.
3.3 EVALUATE BUSINESS ENVIRONMENT
A serious entrepreneur who is looking for a success in
business will initially carry out an environmental assessment.
This is because the environment may boost your business,
stagnate it or kill it. Your evaluation should take into account
the internal and external features of your enterprise.
3.3.1 Internal environment of your business
In order for your business to thrive, it is recommended to
make thorough assessment of the internal factors.
(a) Capacity
Determine your ability, understanding and the scope of your
vision for the business you aspire to undertake by evaluating:-
• Your capital. Make sure you have enough capital to
effectively run your business.
• Quality of your goods and services
• Knowledge of your customers and their customs
• Understand your business competitors
• Knowledge and skill of the business.
(b) Weaknesses
It is important to understand the weaknesses that may affect
the growth of your business, for example:-
• Lack of customer focus
• Lack of techniques for overcoming competition
• Supply of goods and services not timely delivered
3.3.2 External environment of the business
Determine the opportunities and threats of your enterprise so
as to lay out viable strategies for developing your business.
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(b) Opportunities
• External capital, for example, aid, grants, loans, etc.
• A conducive business environment will attract investors to
enter into partnership with local entrepreneur e.g.
Tanzania Certificate of Incentive to investors.
• The establishment of the East African Common Market
that will expand the scope of business undertaking.
(b) Threats
• Internal competition
• External competition from multinational companies which
invest in our country
• Change in legislations, which do not favour local
industries or business enterprises
• Business environment in Tanzania can be difficult for
SMEs to conduct effective business due to multiple
licenses or permits, contract enforcement. However the
government is trying to streamline and simplify the
procedures with a view to facilitate business.
3.4 ENVIRONMENTAL SCANNING: CURRENT AND FUTURE
The PESTL analysis:
(a) Political
The political trend may negatively or positively affect
your business.
(b) Economic
A health economic environment will empower the
people to buy your goods or services. How much does
the government play its part in improving the business
environment for the local entrepreneur? (Consider the
necessary social infrastructures of law and order,
means of transport, road network, health facilities,
etc.)
12

(c) Social
How does:-
• The community gains from the sales of your goods
or services?
• How does your business protect the environment?
(d) Technological
• Ho do you intend to take your business beyond the
borders. Taking advantages of opportunities that
exist in East African Customs Union and SADC.
• Do your working equipment conform to the everchanging
technology?
(e) Legal
How does the legal framework protect the local
entrepreneur?
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PART FOUR
4.0 EFFECTIVE SALESMANSHIP
The purpose of a business is to generate income. Expertise in
salesmanship will develop your business, deliver necessary
requirements, and improve your well being.
4.1 DEPLOY GOOD SALESMEN /WOMEN
In the cause of selling goods/services, lay sound strategies in
promoting your business. These strategies include:-
(a) Ways of reaching the customers
(i) Advertise you business using the media such as TV, radio,
placards, publications, etc.
(ii) Buy the idea that, “Business advertised is business
delivered.”
• If necessary, take your goods to the customer’s door
• Where possible employ agents.
• Visit your customers to promote your goods and get
their feeling about your business.
• Use questionnaires to explore market demand for your
goods or services.
(b) Differentiate yourself from your competitors
Your business will thrive if you display your goods through
different ways from that of your competitors
• Offer competitive prices to your main customers.
• Decrease prices beyond those of your competitors to
attract customers.
• Introduce psychological reductions of price and business
trade mark.
• Announce grand price deductions for out fashioned
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products.
• Employ attractive salesmen/women who offer better
customer care than your competitors (smiling, receptive,
presentable, etc).
• Make good display of your goods in your shop.
(c) Identify your customers
Considering the social diversity of our communities, a
businessman has an opportunity to dispose of his/her goods
or services if he capitalizes on the social groupings. The
society falls into different categories in conformity with their
cultures traditions, social norms, economic status, behavior
etc.
In that case you can sell your goods or services in line with
the aforesaid divisions.
• Identify areas where you can sell products of a certain
quality.
• Determine the economic status of your customers.
• Observe the culture and social behavior of the society in
relation to the quality of your goods.
• Determine the needs and expectations of each group of
customers.
4.2 OVERCOMING YOUR COMPETITION
Address the following basic issues:
• Do your actions, goods and services attract customers?
• Do you understand the needs of your customers?
• Of what benefit are your goods and services to the
customers?
• Constantly compare your prices to those of your
competitors.
4.3 NORMS OF SALESMANSHIP
When selling goods, observe the followings:-
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• Attract customers to buy at first sight.
• Create good impression to your customers.
• Make sure you use the initial few words to sell your goods.
• Keep records of important elements of your customers to
be able to mention their names when they come to buy
from you.
• Develop courage to look straight into the faces of your
customers when you are doing business with them.
4.4 COST CONTROL
You should be cost conscious in order to reduce running cost
of the business. The following ways will guide you in reducing
or avoiding unnecessary costs and making profit. Cutting
down costs of procurement and business administration will
enable to expand your enterprise. You may categorize these
costs in three groups
(a) Procurement and storage of goods
Before you indulge in procurement of goods, ask
yourself the following questions:-
• Are the goods you want to buy easy to sell? Does
the market need them? (in terms of quality, price,
environment, etc).
• Is the source of supply to acceptable standard?
(in terms of distribution, price, processing, etc)
(b) Management of goods
Procurement of goods contributes greatly to the over
all cost of business and should therefore be monitored
very closely.
Ways to restrict cost in procurement and improve
business
performance are:
• Lead time
The businessman/women should have a
timetable to lead him/her in making
procurements from the time of ordering to the
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securing of goods, before available goods are
obsolete or get to minimum stock level. If new
supply is delayed current stock may get finished
and disturb the flow of business.
• Economic Order quantity
Before you decide how much you want to order
you have to underscore the cost implications of
buying large quantities and storing part thereof
or ordering more than once. If the costs of
making a single order are greater than that of
several orders or vice versa, that kind of order is
not beneficial to you. An economic order is
achieved when the cost of a single order is equal
to that of storage; for further explanation, refer to
the diagram below: -
CHANGES IN STORAGE, PROCUREMENT AND SALES OF
_
______ _____________________
_______________________________ ____
17

GOODS
(c) Running Cost
• Avoiding unnecessary costs by reducing family
expenditure and ensuring you do not spend more than
you can afford.
• Reduce administrative cost (such as water bills,
electricity, telephones, etc).
• Do not buy unnecessarily expensive furniture.
4.5 Other operating costs
Avoid penalties for non-compliance with statutory payments
(Taxes for TRA /ZRB, City/Municipal/Town Councils, Licence,
etc)
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PART FIVE
5.0 PILLARS OF YOUR BUSINESS
It is important to realize that whenever you engage in
business there is a silent partner in business engaged in
creating the right environment for your business. This
silent partner is the government as it ensures that roads,
hospitals, utilities schools are in good condition for the
conveniences running of your business.
It is therefore imperative that part of the profit that accrues
is paid to your silent partner. This type of dividend is
generically called tax. It is therefore important to operate
your business in a transparent manner so that each party
in the business (also the tax administration) can have
access to the information and be satisfied.
5.1 DISTRIBUTION OF DIVIDEND
5.2 Government Dividend
• The government dividend forms the expenditure of her
yearly budget. This dividend is known as tax, a name that
is misinterpreted and given a negative connotation,
making its collection difficult.
• Training in tax management is meant to make you aware
of your responsibility of paying government taxes
voluntarily and educate your neighbours who are yet to
receive this education, of their duty of paying their
respective fees and taxes.
5.3 Dividend of the Entrepreneur
• Your dividend is the remaining part of the profit of your
business after you have paid government taxes. You can
use it for your current and development expenditures and
even boost the capital of your business or start a new
business out of the education, knowledge and skills you
19

have obtained from this training.
• Your dividend is part of the profit, an attractive name in
the ears of everyone, who hears it. If you do not have
these pillars, your business will tend to fall, changing the
profit into a loss.
• This publication reminds you of your noble responsibility
registering your business and obtaining the Taxpayer
Identification Number (TIN). Future expectation is to see
your business records showing the progression of your
business for your sake, community and the nation at large.
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6.0 BUSINESS RECORDS
PART SIX
In the last section we underscored the need for transparency
in managing your business. This essentially emphasizes the
need of keeping proper records. This section shall dwell much
more deeply on record keeping.
6.2 WHAT ARE RECORDS?
• A record is anything that contains information for one to
remember.
• In business, records refer to documents for
•
remembrance/reference.
Documents for remembrance are written specifically to
enable the stakeholder remember or create in his/her
mind the real picture of the flow of the business.
6.2 THE NEED FOR BUSINESS RECORDS
• Proper records will reveal the actual profit of the business.
• Records assist in tracing the flow of business and its
corresponding income.
• Records assist in confirming or giving testimony to a
business transaction, for example, procurement of good
without receipts, or buying illegal property.
• Proper records enable the business stakeholder to know
his real income and determine the actual taxes he/she has
to pay.
• Records enable the entrepreneur to determine his/ her
needs from business investors, from within or outside the
country. For example, getting loans or business skills from
various institutions.
Every business man/woman is required to keep records and
books of accounts of his/ her business. Records should be
kept within the prescribed time frame. Failure to keep proper
records is illegal.
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6.3 TYPE OF RECORDS
There are many business records that are grouped according
to the size of the enterprises. Some of them are:-
• Receipts of sales and purchases
• Copies of tax invoice which were issued showing VAT that
was collected
• Copies of tax invoice which were received during
purchases showing VAT payments
• Debit and Credit Notes
• VAT account
• Purchase day book
• Sales day book
• Production records of industrial goods and how they are
distributed
• Accounts showing yearly income and expenditure and the
final accounts of business
• Cashbook, petty cash, and other books of accounts
• Business communications
• Bank statement
• Records stored in a computer.
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PART SEVEN
7.0 TYPES OF TAXES AND HOW TO CALCULATE THEM
7.1 VALUE ADDED TAX (VAT)
VAT is a consumption tax charged by VAT registered traders
on all taxable goods and services at a standard rate of 20%.
The VAT is a multistage tax levied at each stage of production
and distribution up to the retail stage. The tax is also levied on
taxable imports made by persons whether or not registered
for VAT.
All traders whose taxable turnover exceeds TZS 40 million per
annum (for Tanzanian Mainland) and TZS 20,000,000 (for
Zanzibar) are obliged to apply for VAT registration to the
respective Commissioners in their respective Tax Authority.
They are also required by law to keep records and books of
accounts of their business.
(a) VAT ACCOUNT
This shows, on one hand, a brief report of tax collection on
sales and any changes in tax collection and on the other hand
a brief report of taxes paid on purchases and any changes
made in taxes, which were paid. Thus the actual VAT paid or
remitted shall be realized.
You are supposed to keep VAT brief reports within the period
of VAT returns. Add the columns of VAT in your books of
account regularly, say weekly, and the sum should be written
in briefs under the following headings:-
Table no: 2 VAT ACCOUNT
S/N VAT ON PURCHASES VAT ON SALES
1. Internal purchases Sales
2. Imports of goods Goods for personal use
3. Errors of previous returns Errors on previous returns
Total Total
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At the end of each tax period add the figures on each heading
and insert them on your VAT returns.
(b) HOW TO CALCULATE VAT ON SALES
If VAT is inclusive in the sales of goods or services, the result
is a “price that includes VAT”.
The VAT fraction is r , where r = tax rate.
(r + 100)
Using VAT tax rate of 20%, VAT on sale and purchase can be
obtained by using the VAT fraction 20/120 of the VAT included
price.
Example 1
BAHATI bought goods worthy TZS 1,200/=, VAT included.
The value of VAT can be determined as follows: -
By using the VAT fraction
VAT : 20 x 1,200 = TZS 200/=
120
The actual value of goods shall be obtained by subtracting
VAT from the gross values of goods, i.e.
Actual Value of goods = Value inclusive of VAT – VAT
= TZS 1,200 – TZS 200 = TZS 1,000
Therefore:
• VAT on goods shall be TZS 200
• Actual value of goods is TZS 1,000
Example 2
How to calculate VAT on goods or services that are VAT
exclusive
.
BAHATI is an entrepreneur of a whole sale shop, who is VAT
24

egistered for the tax period of November, 2006; she has
bought and sold goods as follows:
Value of goods bought (VAT excluded) TZS 100,000.00
VAT on purchases (20%) TZS 20,000.00
Value of goods with VAT TZS 120,000.00
Profit on sales is as follows:
Value of goods without VAT TZS 100,000.00
Profit and expenses TZS 20,000.00
Selling price without VAT TZS 120,000.00
Add VAT on sales (20%x 120,000/=) TZS 24,000
Selling price with VAT TZS 144,000.00
At the end of the month the VAT to be paid from returns of
November 2006, shall be:-
VAT on sales TZS 24,000.00
Subtract VAT on purchases TZS 20,000.00
VAT to be paid to Tax Authority TZS 4,000.00
7.2 CUSTOMS DUTY AND EXCISE DUTY
7.2.1 Customs Duty: Customs duty is levied on imported goods
7.2.2 Excise Duty: Excise duty is levied on certain specified
imported goods like wines, spirits, cigarettes, petroleum
products and non-utility cars. It is also levied on specified
local produced goods and services. The duty is charged at
specific or ad-valorem rates.
7.2.3 Common External Tariffs for East Africa Community:
Imports from East Africa Community member states are
chargeable at the rates enshrined in the Common External
Tariff.
Anybody can import goods into the country after observing
customs regulations on imports. You are supposed to know
whether the goods you want to import are legally allowed into
the country or not. There are goods that are prohibited to
25

enter into the country for example, intoxicating drugs,
equipment for tear gas, inciting literature, abuses, etc. There
are also restricted goods which law permit to enter the country
with further permission from relevant government institutions,
e.g. Live animals, crops, blasts and fire arms. You should
know the authorities and institutions concerning the
importation of such goods.
According to the present system of clearing goods from
customs, there are certain types of goods that are cleared
immediately for security and safety reasons eg explosives or
perishable items or as a way of facilitating business such as
raw materials or equipment. Registered Customs Clearing
Agents with TRA carry out the function of clearing imported
goods.
Imported goods may bear a custom clearance certificate for
home consumption, or transit or bonded warehouse. Goods
for home consumption have to be charged custom duty,
excise duty (if any) and VAT; unless such goods are exempted
or the person concerned is exempted from tax. The duty rates
differ according to the type of goods and their place of origin.
Goods with Certificate of Transit are not charged tax and are
kept under the supervision of the Custom and Excise
Department until they cross borders and reach the country of
destination.
Goods certified for warehousing are not charged tax until they
are cleared and declared for home consumption.
Warehouses can be used by anybody who, for one reason or
another, cannot pay all taxes at once.
Some of the goods, such as personal cars for foreigners, are
given permits to allow them to use their vehicles in the country
for a certain period of time. Thereafter they will be required
to register the vehicles or return them to their country of origin.
26

Goods exempted from custom duty, excise duty and VAT,
because of its use or credibility of the owner, are required to
pay the taxes once ownership shifts to another person who
does not have the exemption.
It should be understood that exemptions that are given to
various institutions and government departments has no
relationship with the officers of those institutions. Thus an
officer/ worker in those institutions/ government department is
obliged to pay all taxes on goods he/ she imports into the
country.
The department of custom and excise has an inspection unit
whose duty is to ascertain proper tax payment on imported
goods and that they are used in accordance with the
documents of the certificate of importation.
Tanzania is among the nations that are signatory to the Article
of Value Determination of imported goods. In order to avoid
unnecessary costs, TRA urges importers to pay taxes and
warehouse charges using the proforma invoice while waiting
for the invoice of the imported goods.
7.2.3 CALCULATION OF TAX ON IMPORTED NON-UTILITY
VEHICLES
(a) Imported non-utility vehicle of not more than ten
years from the year of manufacture.
Example 3
Imported non-utility vehicle with engine capacity less
than 2,000 c.c. valued at USD 3,200 on arriving in
Tanzania Assume exchange rate is 1 USD = TZS 1,300
27

Computation of duty and tax will be calculated based on
the applicable rates. Import Duty rate 25%, Excise Duty
20% and VAT 20%.
Example 3 Calculations
Duty/Tax Type Computation Duty/Tax
payable
(i)ImportDuty In order to obtain import duty to be paid, take
the certified customs value and multiply by
the import duty rate (25%).
USD 3,200 x 25% = USD 800
TZS 1,040,000
USD 800 x TZS 1,300 = TZS 1,040,000
(ii) Excise Duty In order to obtain excise duty value, take the
certified customs value plus import duty
calculated in (i). Then multiply by the excise
duty rate (20%).
USD (3,200+800) = USD 4,000
USD 4,000 x 20% = USD 800
(iii) Value Added
Tax (VAT)
Total Duty & Tax
Payable
Example 4
USD 800 x TZS 1,300 = TZS 1,040,000
28
TZS 1,040,000
In order to get the value of VAT, take the
certified value and add to it the customs duty
and the excise duty you have calculated in
(ii). Then multiply by the VAT rate (20%). TZS 1,248,000
USD (4,000+800) = USD 4,800
USD 4,800 x 20% = USD 960
USD 960 x TZS 1,300 = TZS 1,248,000
Import Duty + Excise Duty + VAT TZS 3,328,000
Imported non-utility vehicles with engine capacity more than
2,000 c.c with certified value of USD 3,800 on arriving in
Tanzania. Duty and taxes for this type of car will be calculated
basing on applicable rates. 25% import duty, (20%+10%) =
30%* Excise duty, and 20% VAT.
(Assume exchange rate is USD 1 = TZS 1,300)

Example 4 Calculations
Duty/Tax Type Computation Duty/Tax
payable
(i)ImportDuty In order to obtain import duty to be paid, take
the certified customs value and multiply by
the import duty rate (25%).
USD 3,800 x 25% = USD 950
USD 950 x TZS 1,300 = TZS 1,235,000
TZS 1,235,000
(ii) Excise Duty*) In order to obtain excise duty value, take the
certified customs value plus import duty
calculated in (i). Then multiply by the excise
duty rate (30 %*).
USD (3,800+950) = USD 4,750
USD 4,750 x 30%* = USD 1,425
(iii) Value Added
Tax (VAT)
Total Duty & Tax
Payable
USD 1,425 x TZS 1,300 = TZS 1,852,500
In order to get the value of VAT, take the
certifiedvalueandaddtoittheimportduty
and the excise duty you have calculated in
(ii). Then multiply by the VAT rate (20%).
USD (4750+1425) = USD 6,175
USD 6,175 x 20% = USD 1,235
USD 1,235 x TZS1300= TZS 1,605,500
Note: * The Excise Duty of 30%* is a sum of:-
(i) 10% imposed on imported saloon cars with engine
capacity of more than 2,000 cc and
(ii) 20% imposed on imported saloon cars with ten or more
than ten years from the year of manufacture.
(b) Imported non-utility vehicles with less than ten years old
from the year of manufacture.
Non-utility vehicles, with engine capacity less than 2,000
c.c. valued at USD 3,200 on arriving in Tanzania. (Assuming
exchange rate is 1 USD = 1,300 TZS)
Computation of duty and tax will be calculated based on the
applicable rate. Import Duty rate 25% and VAT 20%.
29
TZS 1,852,500
TZS 1,605,500
Import Duty + Excise Duty + VAT TZS 4,693,000

Example 5 Calculations
Duty/Tax Type Computation Duty/Tax
payable
(i)ImportDuty In order to obtain import duty to be paid,
take the certified customs value and
multiply by the import duty rate (25%).
USD 3,200 x 25% = USD 800
TZS 1,040,000
(iii) Value Added
Tax (VAT)
Total Duty & Tax
Payable
USD 800 x TZS 1,300 = TZS 1,040,000
In order to get the value of VAT, take
the certified value and add to it the
import duty you have calculated in (i).
Then multiply by the VAT rate (20%).
USD (3,200+800) = USD 4,000 TZS 1,040,000
USD 4,000 x 20% = USD 800
USD 800 x TZS 1,300 = TZS 1,040,000
Import Duty + VAT TZS 2,080,000
Example 6
Non-utility vehicles, with engine capacity more than 2,000
c.c. valued at USD 3,800 on arriving in Tanzania. (Assuming
exchange rate is 1 USD = 1,300 TZS)
Computation of duty and tax will be calculated based on the
applicable rate: Import Duty rate 25%, Excise Duty 10% and
VAT 20%.
30

Example 6 Calculations
Note: The Excise duty 10%*: The rate is imposed on Non- utility
vehicles with engine capacity of more than 2,000 cc and with
less than ten years from the year of manufacture.
7.3 INCOME TAX
In order to obtain import duty to be paid,
take the certified customs value and
multiply by the import duty rate (25%).
USD 3,800 x 25% = USD 950
USD 950 x TZS 1,300 =
In order to obtain excise duty value, take
the certified customs value plus import
duty calculated in (i). Then multiply by
the excise duty rate (10 %)
USD (3,800+950) = USD 4,750
USD 4,750 x 10% =USD475
USD 475 x TZS 1,300=
In order to get the value of VAT, take the
certified value and add to it the import
duty and the excise duty you have
calculated in (ii). Then multiply by the
VAT rate (20%).
USD (4750+475) = USD5225
USD5225 x 20% = USD 1,045
USD 1,045 x TZS1300= TZS 1,358,500/=
7.3.1 The Income tax is a tax on gains or profits from person’s
income from employment, business or ownership of property
and an investments in corporations and other entities
• Income from employment
The total income of each person is determined separately.
This includes salaried people who are taxed at
progressive individual income tax rate that varies from the
lowest marginal rate of 18.5% to the top marginal rate of
30%. Benefits in kind are also to be included in
determining the taxable income of an employee.
31

• Income from business
A person’s income from business is the gain or profits
from that business.
• Income from Investment
Income from conducting an investment includes
dividends, interest and rent. The amount derived from
the sale of investment assets is included in investment
income.
7.3.2 Chargeability of income tax is divided into two
categories:
(i) Sole Propriatorship
(a) Small Enterprises
These are business men/ women who possess the following
qualities:-
(i) Their business sales are not more than twenty million
shillings
(ii) They should be residents in the United Republic of
Tanzania
(iii) They should be private enterprises who are not involved in
any other activity except business.
Tax rates on yearly sales (turnover) are determined as
follows: -
32

Table 3: TAX RATES FOR SMALL ENTERPRISES
Tax payable where Tax payable where
Yearly Sales
unreliable records
are kept
reliable records
are kept
Where sales does not TZS 35,000 1.1% of yearly sales
exceed TZS 3,000,000
Where sales are more TZS 95,000 TZS 33,000 + 1.3% of the sales
than TZS 3,000,000 but
exceeding TZS 3000,000 per
less than TZS 7,000,000
year
Where sales exceeding TZS 291,000 TZS 85,000 + 2.5% of sales
TZS 7,000,000 but less
than TZS 14,000,000
exceeding 7,000,000 per year.
Sales more than TZS 520,000 TZS 260,000 + 3.3% of sales
14,000,000 but less than
TZS 20,000,000
exceeding 14,000,000 per year
Tax
Band
(b) Enterprises which prepare business records
These are business with the following qualities: -
(i) Do not have qualities similar to those of small businesses.
(ii) Keep proper records and prepare business returns.
Tax rates, profit or yearly income is calculated as follows: -
Table 4: TAX RATE FOR THE INDIVIDUAL
TOTAL INCOME TAX RATE
Before calculating the tax that you are liable to pay, it is
important to examine the allowable and non-allowable costs
to be considered in the calculation of tax.
33
18.5%
20%
25%
30%

Allowable costs
(i) Salaries and remunerations of employee.
(ii) Water and electricity used in business
(iii) Rent for the business.
(iv) Transport costs for business purposes.
(v) Cost for advertisement and business promotion
(vi) Depreciation of property.
(vii) Cost for repair and maintenance of furniture and other
equipment used in business, such as computers,
vehicles, etc.
(viii) Loan interests for the business.
Non – allowable costs
(i) Income tax
(ii) Penalties and various interests incurred for nonobserving
state laws.
(iii) Personal expenditure.
(iv) Bribery, inducement, entertainment, and other payments
of that nature.
(v) Procurement of business assets such as computer,
vehicle, furniture and building construction. The cost of
these assets is lowered by yearly depreciation as the
law demands.
Example 7
The balance sheet of income and expenditure of Madame
Subira, in the year 2006, is as shown below.
Sales TZS TZS
Sales income 70,000,000.00
Remaining goods
in year 2005 5,000,000.00
Add Purchases 70,000,000.00
Available goods for sale 75,000,000.00
Less Remaining goods
in year 2006 9,000,000.00
Cost of sales 64,000,000.00
Profit after sales (gross profit) 6,000,000.00
34

Running Costs:
Salaries 840,000.00
Electricity 240,000.00
Water 40,000.00
Rent of Business 720,000.00
Local govt levy 60,000.00
Educations levy 50,000.00
Property depreciation 120,000 .00 2,075,000.00
Net Profit 3,925,000.00
Extra Information
(i) Half of the levy income of the council comes from
penalties which amount to TZS 30,000.00
(ii) Madam Subira also paid some TZS 400,000.00 in four
installments, as yearly initial tax.
Calculation of tax that Madame Subira is supposed
to pay in the year 2006 is as follows:-
TZS
(i) Net profit 3,925,000.00
(ii) Add penalty by local government 30,000.00
(iii) Profit liable for taxation 3,955,000.00
Tax computation:
(iv) Profit liable for taxation 3,955,000.00
(v) Subtract (see tax band 3) 2,160,000.00
1,795,000.00
(vi) Multiply by 20%
(vii) First part of tax 359,000.00
(viii) Add (tax for tax band 3) 224,400.00
(iX) Total tax of the year 581,400.00
Subtract initially estimated tax 400,000.00
Tax at the end of fiscal year 181,400.00
35

(ii) Partnership
Under a partnership arrangement business profits is shared
among partners in their agreed proportions.
Example 8
Take into account the above returns of revenue and
expenditure for Madame Subira, but consider that she had a
partner known as Mr. Saburi. In their partnership they agreed
to share their profit in equal proportions however Mr. Saburi
got a salary of TZS 500,000.
Tax will be calculated as follows: - TZS
Profit previously calculated 3,955,000.00
Add salary of Saburi 500,000.00
Income for dividends and tax payment
Sharing of Income
4,455,000.00
Partners Subira Saburi
Proportion of dividends 50% 50%
Salary
Profit in books of account
(4,455,000 – 500,000)
- 500,000.00
= 3,955,000 1,977,500.00 1,977,500.00
Taxable income 1,977,500.00 2,477,500.00
Tax to each Partner TZS 188,236.00 285,900.00
Total tax for the both partners, (188,238+285,900) =
TZS 474,138.00
Note:
There is less tax payment in partnership compared to sole
propriator.
Individual income tax (propriator) TZS 581,400.00
Tax for partners
Relief Partners get compared to
TZS 474,138.00
Individual TZS 107,262.00
36

(iii) Corporate Tax
A legally registered company shall be liable for tax at the rate
of 30% of the yearly taxable income.
Example 9
Let us consider that the above profit of TZS 3,955,000 from
the books of account is for a company.
Computation of income tax payable will be as follows: -
Tax payable = Profit before tax multiply by tax rate
= TZS 3,955,000 x 30%
= TZS 1,186,500
Therefore income tax payable by the company will be
TZS 1,186,500
8.0 CONCLUSION
It is the expectation of TRA and the government that, this
publication provides a good guidance to entrepreneurs in
areas of identifying business opportunities, undertake
qualitative business measures and therefore increase their
wealth through expanding business, employment creation,
improve standard of living and hence reduce poverty.
Prosperity in business will pave way for effective tax
contribution to the Government as outlined under the specific
tax statutes. Tanzania Revenue Authority has decided to
foster a closer co-operation with stakeholders and particularly
taxpayers who are customers in tax collection and
development of the nation at large.
37

To pay tax voluntarily is an act of patriotism.
It is possible. Simply comply
TRA office
or
Director,
and
“TOGETHER WE BUILD OUR NATION”
For more information please contact:
Your nearest.
Taxpayer Services and
Education Department
Tanzania Revenue Authority
P.O.Box 11491
Dar es salaam.
Tel: 255-22-2119343
Fax: 255-22-2128593
E-mail: info@tra.go.tz
Website: www.tra.go.tz
ZRB office
or
Manager,
Taxpayer Education Department
Zanzibar Revenue Board
P.O.Box 7072
Zanzibar.
Tel: 255-24-2230639/223341
Fax: 255-24-2233904
E-mail: zrb@zanzinet.com
TRA-TSED-400GUIDE TO SMES HANDBOOK N0 13 /2007