Civil Appeal No. 620 of 2023
The Tanzania Revenue Authority (TRA) issued an additional tax assessment against Vodacom Tanzania Public Limited Company following a tax audit. The dispute concerned whether payments made by Vodacom to non-resident service providers for the use of international telecommunication infrastructure and related services attracted withholding tax under the Income Tax Act. The Tax Revenue Appeals Board and the Tax Revenue Appeals Tribunal ruled in favour of Vodacom, finding that the payments were not subject to withholding tax in Tanzania. Dissatisfied, the Commissioner General appealed to the Court of Appeal.
Whether the payments made by Vodacom to non-resident service providers constituted income derived from a source in Tanzania.
Whether such payments were subject to withholding tax under the Income Tax Act.
Whether the Tribunal correctly interpreted the provisions governing the taxation of payments to non-residents.
The Court of Appeal dismissed TRA's appeal and upheld the Tribunal's decision. It held that the payments made by Vodacom to the foreign service providers were for services rendered outside Tanzania and did not constitute Tanzanian-sourced income subject to withholding tax under the applicable provisions of the Income Tax Act. Consequently, TRA's additional assessment was unsustainable and was set aside.
The decision clarifies the application of the source rule under the Income Tax Act in determining whether payments to non-residents are taxable in Tanzania.
It confirms that not every payment to a non-resident attracts withholding tax; the taxability depends on whether the income is derived from a source in Tanzania as defined by statute.
The case provides important guidance for the telecommunications sector and other businesses making cross-border service payments, emphasizing that the nature and location of the services are critical in determining tax liability.
It reinforces the principle that tax statutes must be interpreted strictly and that withholding tax cannot be imposed unless there is clear statutory authority.
Note: This summary reflects the principal legal issues and outcome reported in the Court of Appeal decision. The case is an important authority on the taxation of cross-border service payments and the interpretation of the source rules under Tanzania's Income Tax Act.
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