Practice Note No. 08/2004 Date of Issue 15 Th December 2004 SELF-ASSESSMENT (ENTITIES) 1.0 TAX LAW. This Practice Note applies in respect of an assessment made by an entity under section 94 of the Income Tax Act, 2004. Where an entity files a return of income, an assessment shall be treated as made on the due date for filing the return. The assessment is of the income tax payable by the entity under section 4(1)(a) and (b) of the Act in the amount shown in the return and the amount of that tax still to be paid for the year of income in the amount shown in the return (the tax payable on the assessment ). Where an entity fails or is not required to file a return of income for a year of income then, until such time as a return shall be filed, an assessment shall be treated as made on the due date for filing the return that- (a) (b) the income tax payable by the entity for the year shall be equal to the sum of any income tax withheld from payments deserved by the entity during the year and any income tax paid by the entity by instalment for the year of income, and there is no tax payable on the assessment 2.0 INTERPRETATION. In this Practice Note, unless the context requires otherwise - Act means the Income Tax Act, 2004. Definitions and expressions used in this Practice Note that are used in the Act have, unless the context requires otherwise, the same meaning in this Note as they have in the Act. 3.0 THE APPPLICATION OF THIS PRACTICE NOTE This Practice Note considers an assessment for a year of income treated as made when an entity files with the Commissioner a return of income on the due date for filing such return as provided for under section 94 of the Act.
4.0 HOW THE LAW APPLIES. 4.1 The Self Assessment System applies where a taxpayer determines his own tax liability and pays the tax on specified due dates. Under this system an entity is initially supposed to file its own estimate of income, compute tax at appropriate tax rate and pay the estimated annual tax by quarterly instalments. Within six months from the end of an accounting period an entity shall file a return of income and audited accounts stating its actual income and actual tax for the year of income. An entity shall pay the balance of the tax due or claim the refund of overpaid tax on the date of filing the return. 4.2 Statement of Estimated Tax Payable An entity which is an instalment payer shall file with the Commissioner an estimate of its income and tax payable for the year of income by the date for payment of the first instalment. The tax estimate for the year of income shall be paid by quarterly instalments:- 4.3 Calculation of each instalment of income tax payable The amount of each instalment of income tax payable by an entity which is an instalment payer for a year of income is calculated according to the following fomula: (A C) B Where: A = is estimated tax payable at the time of the instalment. B = is the number of instalments remaining for the year including the current instalment C= is the sum of; i. income tax paid during the year of income but prior to the due date for payment of the instalment; and ii. income tax withheld during the year prior to the due date; and iii. defaulted income tax holding which is liable for payment by the entity as a withholder.
Where an instalment shall be payable at a time when an entity s estimated tax payable for a year of income is shs. 50,000/= or less or the amount of instalment is shs. 12,500/= or less, the amount of the instalment shall be nil. The instalments are payable on or before the last day of 3 rd, 6 th, 9 th and 12 th months of the year of income. The income and tax estimates may be revised at any time during the year of income if circumstances change. Example M/S ABC Co. Ltd is a manufacturer of fruit juice. ABC Co. Ltd. Also has fixed Deposit Account which earned the company interest income of Shs. 1,600,000 during the year. Income from the manufacturing business in the prior year was Shs. 7,500,000/=. The company estimates its manufacturing income for the year of income as 8,000,000/=. The accounting period of ABC Co. Ltd. of the company is 01 January 31 December and that the company received its first payments of interest on 30 th March of Shs. 400,000/= and withholding tax payment was Shs. 40,000/=. Solution The instalment payment for 31 st March is as follows:- Estimated business income shs. 8,000,000, taxed at the corporation tax rate of 30% Estimated Investment Income shs. 1,600,000 Estimated Total Income shs. 9,600,000 Tax withheld shs. 40,000 Number of instalments 4 Instalments Amounts Total income = shs. 9,600,000 Tax thereon = shs. 9,600000 x 30% = shs. 2,880,000 Instalment Payable = shs. 2,880,000 40,000 4 Instalment for March = shs. 710,000 Example 2
Assume facts similar to those in Example 1, but the company wants to adjust the income and tax estimate on 30 th September to take into account the income tax amounts withheld in June and September. Solution Since 10% withholding tax on interest income is made on quarterly basis, same must have been withheld for March, June and September equals Shs. 40,000 x 3 = shs. 120,000/=. The instalments for March and June which have been paid: shs. 1,420,000 The remaining two instalments will be computed as follows: Total tax payable shs. 2,880,000 Tax paid being March and June instalmenst Remaining instalments: Shs. 710,000 x 2 = hs. 1,420,000 Withholding to March, June and September Shs. 40,000 x 3 shs. 120,000 shs. 1,540,000 Total shs. 1,340,000 Shs. 2,880,000 1,540,000 2 = shs. 1,340,000 = shs. 670,000 2 Instalments for September and December will be each shs. 670,000 4.4 An entity which has filed a return of income Where an entity files a return of income it is treated that an assessment is made on the due date for filling the return. The return must show Income Tax Payable from the total income of the entity during the year of income less tax withheld from payments derived by the entity and income tax paid by instalments by the entity during the year of income. A notice of assessment will not be served to an entity that complied with the furnishing a return within the due date. The Commissioner is deemed to have made the assessment on the day the return is filed. The Commissioner may, within three years adjust an assessment made as a self assessment or a jeorpady assessment. The Commissioner may adjust an assessment at any time -: (1) in the case an entity fails to file a return of income with the intent of evading or delaying the payment of tax; or
(2) in the case an the assessment that is inaccurate by reason of fraud by or on behalf of the entity assessed. 4.5 Tax payable on the assessment and due date for payment 4.5.1 Tax payable Under the Self Assessment system tax payable by an entity means income tax imposed on the total income for the year of income including amounts payable by a withholding agent, by an instalment and an assessment. 4.5.2 Calculation of tax payable Example Where an entity has total income of shs. 8,000,000 for a year of income inclusive of a non-final withholding payment of shs. 3,000,000 was withheld and instalment payable of shs. 1,500,000 were made during the year of income, the tax payable is calculated as follows:- Income tax rate is 30% of the chargeable income as contained under the 1 st schedule. Tax payable on the assessment is calculated as follows: - Income Tax on Total income Shs. 2,400,000 Less: Tax paid by Instalments 1,500,000 Tax paid by withholding 300,000 1,500,000 Tax on assessment. 600,000 4.6 Where an Entity files a Return of income with no tax payable on the assessment Where an entity files a late return of income with no tax payable, will be liable for late submission penalty of Shs. 100,000/=. An assessment to charge the penalty will be served on the entity and the date for payment will be specified therein. 4.7 Where an entity files a Return of income with a Tax Credit Example
- Income filed on 30 th June, 2002 indicates the following Chargeable income for the year of income shs. 2,000,000 Income tax payable on total income 600,000 Income tax paid by instalment 800,000 Income tax paid by withholding nil Income tax refundable 200,000 - An application for a refund is filed on 30 th July 2002 The Commissioner shall effect a refund within 45 days from the date the application was received. But if there is unpaid tax that is due, the excess amount will be applied to discharge such liability. 4.8 Where an entity fails to file a return of income An entity that has not filed a return of income is treated as having made an assessment on the due date for filling a return. The income tax payable by such entity for the year shall be equal to taxes already paid by withholding and instalments. There will be no tax payable on the assessment. 4.9 Where an entity is not required to file a return of income A non resident entity other than one with a domestic permanent establishment which has no income tax payable for the year of income or its total income consists of a gain from the realization of land or buildings situated in the United Republic of Tanzania is not required to file a return of income unless such entity elects to file a return. 5.0 Relief for errors or mistake in a return Where for any year of income an entity has filed a return and treated an assessment having been made for the year of income and alleges that the assessment was excessive by reason of some errors or mistake of fact in such return, then the entity may object to the Commissioner disputing such assessment. The objection shall be administered in accordance with the provisions of the Tax Revenue Appeals Act, 2000.