What Does TRA Consider When Estimating Tax for New Businesses?
In Tanzania, Tax estimates are not final judgments of your opening business. If you think it is unfair for your estimation, you can appeal by providing genuine reasons.
Starting a new business is an important step in economic growth, but it also places you under Tanzania’s formal tax system. Here in our country, the Tanzania Revenue Authority (TRA) has a process to estimate taxes for new businesses to ensure everyone pays the right amount based on their business type and capacity. But do you know exactly what factors TRA looks at when making these estimates? Here’s a clear breakdown from us, based on the TRA guide, showing what they consider;
Nature of the business industry
Even before opening a business, you will have to tell the TRA what business you want to open. TRA will consider the sector and nature of your business. For example, the tax estimate for a business selling electronics differs from that of a restaurant because their profits, sales volumes, and cash flows are very different, so no matter the size of your capital, the nature of the business will be used in determining your Tax estimation.
Location of the Business
Where your business operates plays a big role in tax estimation. TRA checks and estimates your tax based on the location of your business. With the same business and same capital, usually TRA will charge a town business (with Market, high cashflow and traffic) higher tax than those in the rural area because of the possibility the low sales. A shop in Dar es Salaam is expected to have a higher charge than that in Namtumbo, Ruvuma.
Business Capacity and Assets
TRA also looks at the resources you use in your business, like machinery, computers, delivery vehicles, or buildings. The more valuable assets you own, the higher your expected turnover could be.
Estimated Sales Turnover
In many occasions, TRA asks for your estimated monthly or annual sales. They may use your information, industry averages, or statistics from similar businesses to make their estimations.
Owner’s Business experience and history
If the business owner has run other businesses before, TRA might review past sales and tax payment history as a guide for the new estimate for your business. Also, if you own another business, then they could use it to make your estimations of your new business.
Type of Tax and Payment System
Sometimes, your estimate also depends on whether you pay tax through the presumptive tax (Instead of calculating tax based on actual profits, the tax is estimated based on predetermined criteria such as business type, location, or estimated turnover), system or actual accounting. But here we mostly start under presumptive tax.
In Tanzania, Tax estimates are not final judgments of your opening business. If you think it is unfair for your estimation, you can appeal by providing genuine reasons, and if they see it as convincing, they could reduce your estimated tax.