EMPLOYMENT

INCOME
S. 7 OF ITA 2004 CAP 332 R.E 2019
 Introduction

Employment includes in particular:

A position of an individual in the employment of another person;
A position of an individual as manager of an entity other than as
partner of a partnership;
A position of an individual entitling the individual to a periodic
remuneration in respect of services performed; or
A public office held by an individual, and includes past, present and
prospective employment
Introduction cont..
• Therefore, employment is the contract of service between an
employer and an employee which can be full time, part-time or casual
whereby the practical relationship is as follows:-
1) A master and servant relationship exists,
2) The master has the right to demand the service of the person
(servant)
3) The master directs the manner and the method of the work to be
done
 Employer Vs Employee
• Employer means a person who conducts, has conducted or has the
prospect of conducting the employment of an individual. S.3. in
addition to this, the following are the indicators of employer:-
1) The employer has the right to assign work to employee
2) The employer controls the manner and the method of doing the
work
3) The employer benefits from business sound management of the
employee
4) The employer takes financial risks of the business
Employer Vs Employee cont..
• Employee’ means an individual who is the subject of an employment conducted by an
employer; S.3
• Indicators of employee
1) The employee has to do the work personally and exhaustively as assigned by the
employer, and cannot hire someone else to do the work for him/her work instead
2) The employee has to work for a number of hours per day, week or month as set by
the employer
3) The employee receives the payment set by the employer
4) The employee is entitled to benefits such as sick and holiday pay
5) The work done by the employee is an integral part of the business of the employer
6) The employee cannot benefit fro sound management of the business of the
employer
7) The employee does not take financial risks of the business of the employer
 Employment income items (Section 7(2)).

Income in connection with employment income (contract of service) means:

i. Wages, salary, payment in lieu of leave, fees, commissions, bonuses, gratuity or
any subsistence, travelling, entertainment or other allowance received in
respect of the employment or services rendered;
ii. Reimbursement by an employer of personal expenditure by the employee or
an associate of an employee;
iii. Payments for the employee’s agreement to any conditions of the employment;
iv. Retirement contributions and retirement payments paid by an employer on
behalf of employees
v. Payment for redundancy or loss or termination of employment relating to the
year of payment;
vi. Other payments made in respect of the employment including benefits in kind
 Example
Robots and Assembler Design makers employed Ms. Rachel Makona as the Company Accountant with effect from
1 January 2019. By the time the company submitted a statement of employment income for year 2020, the
following information was revealed to her as her monthly emoluments:
 TZS Basic monthly salary 600,000
 Transport allowance monthly 250,000
 Lunch allowance monthly 150,000
 Medical allowance monthly 100,000
The employer housed her for free. The market value of rental at that area was TZS 400,000 per month and the
expenditure claimed by the company for that premises was TZS 150,000. The contribution made monthly by the
employee was TZS 50,000 as rent. Beside the emoluments stated above, the employee had the following benefits:
i. Self-driven car for private use, which is 3000 cc, brand new. The company claims expenditure of car
maintenance.
ii. Loan advances of Tshs3,000,000 payable in 15 monthly instalments and free of interest. Statutory rate was
10% per annum.
iii. Other benefits included electricity TZS 30,000 and water TZS 25,000 per month. The employer was
contributing 15% of basic salary to the approved retirement fund, while the employee contributed 5%.
Though her employment services were terminated on 31 December 2020, the company paid her Tshs30,000,000
as termination benefits (compensation for lost employment). Other income she received in 2020 was TZS 300,000
interest from CRDB Bank (a resident person), TZS1,500,000 – lease amount from Milk Shake Company for the
building she leased to the company since 2008.
Required: Identify items included in chargeable employment income for the year 2020.
 Quantification of benefits in-
kind
• Benefits in-kind includes all silent financial gains from the employer to
the employee which does not involve physical cash.
• For convenience reasons they are calculated annually not monthly
• For this reason and others, they are not very much common in the
eyes and ears of the employees and employers due to the fact that
they are not on monthly practice. Some employees and employers are
likely to assume that they are not taxable at all.
 Taxation of benefits in kind as employment income
(S.27)

Generally, benefits in kind are valued on market values of the

benefits, but with exception of
1. car benefits,
2. beneficial loans and
3. house benefits.
These three benefits have specific approaches concerning their
valuations
 Private uses of motor car

When an employee uses an employer’s car for official purposes, it

results in no taxable income.
However, there is taxable benefit when the employee uses the car for
private purposes, provided the employer claims maintenance and
ownership allowances of the car when computing his/her taxable
income (Section 7(3) (e))
The amount of the payment shall be as prescribed in the Fifth
Schedule;
 QUANTIFICATION OF MOTOR VEHICLE
BENEFITS
5TH SCHEDULE pg 141
Quantity of Payment per annum
Engine size vehicle Vehicles less than five Vehicles more than
years old five years old

Not exceeding 1000cc 250,000 125,000

Above 1000cc but not exceeding

2000cc 500,000 250,000

Above 2000cc but not exceeding

3000cc 1,000,000 500,000

Above 3000cc 1,500,000 750,000

Exampe (Ms. Rachel Makona)
Required:
Establish the taxable car benefit in kind of Ms. Rachel Makona for the
year 2020.
 Loan benefit
When an employer provides staff loans at lower interest rates compared to
statutory rates or interest free loans; recipient employees enjoy taxable
income.
The taxable income is the whole of the forgone interest in the case of interest
free loans and when the lower interest rate is offered the benefit would be
calculated based on the relinquished part of interest rate.
However, no taxable benefit is derived when the loan made by an employer
to an employee is
i. for less than 12 months and
ii. the aggregate amount of the loan and any similar loans outstanding at any
time during the previous 12 months do not exceed 3 times the month’s
basic salary (Section 27(1) (b)).
‘Statutory rate’ in relation to a calendar year means the prevailing discount
rate determined by the Bank of Tanzania; (S.3)
 Loan benefit
In short, no taxable benefit if:-
Loan period < 12months
Loan amount + similar or outstanding loan < 3 months basic salary
The opposite in a loan benefit.
However both conditions have to be fullfilled
The loan benefit is the interest forgone

Interest = Outstanding amount x (statutory rate – interest rate paid) x time/12

 Example
Refer to the information of Robots and Assembler Design makers.
Required:
Calculate the loan benefit of Ms. Rachel Makona for the year 2020.
 Solution-Loan benefit
Follow the steps below
1. Loan period/term of the loan. The loan made by the employer to the employee
is for more than 12 months (in this case 15 months term)
2. Loan amount and similar outstanding loan. The aggregate amount of the loan
and any similar loans outstanding at any time during the previous 12 months
exceed 3 times the month’s basic salary (Tshs3,000,000 is greater than 3 times
basic salary i.e. Tshs600,000).
3. Loan interest rate. The interest rate is 0% below the BOT statutory rate of 10%.
Therefore, the beneficial loan is taxable.
As the loan balance did not change, the formula of simple interest can be used to
determine the forgone interest.
So Interest = Principle x time/12 x saved interest rate
= Tshs3,000,000 x 12/12 x 10%= Tshs300,000
 Residential premises benefit

There is taxable employment benefit when:-

An employee lives in a subsidized house,
The employee claims maintenance and ownership allowances in his/
her tax returns (Section 27(1)(c))
This valuation of taxable house benefit in kind includes any furniture
or other contents provided by an employer for residential occupation
by an employee during a year of income
 Residential premises benefit

The taxable benefit is the lower of;

a. The market value rental of the part of the premises occupied by the
employee for the period occupied during the year of income; and
b. The greater of:-
i. 15% of the employee's total income for the year of income, calculated
without accounting for the provision of the premises and, where the
premises are occupied for only part of the year of income, apportioned
as appropriate; and
ii. Expenditure claimed as a deduction by the employer in respect of the
premises for the period of occupation by the employee during the year
of income;
 Example-Housing Benefit
BAF-BS Ltd employed Ms Tracy Jones as the Company Accountant with effect from 1 January 2020.
By the time the company submitted a statement of employment income for year 2020, the
following information was revealed to her as her monthly emoluments:
• Basic monthly salary Tshs 600,000
• Transport allowance monthly Tshs 250,000
• Lunch allowance monthly Tshs150,000
• Medical allowance monthly Tshs100,000
The employer housed her freely. The market value of rental at that area was Tshs400,000 per month
and the expenditure claimed by the company for that premise was Tshs150,000. The contribution
made monthly by the employee was Tshs50,000 as rent. Beside the emoluments stated above, the
employee had the following benefits.
i. Self-driven car for private use, which is 3000 cc, brand new. The company claims expenditure
of car maintenance.
ii. Loan advances of Tshs3,000,000 payable after 15 monthly and free of interest. Statutory rate
was 10% per annum.
iii. Business income of Tshs1,000,000 and investment income of Tshs500,000
iv. Other benefits included electricity Tshs30,000 and water Tshs25,000 per month
Items Excluded In Calculation Of Chargeable
Income From Employment S.7(3)
a) exempt amounts and final withholding payments; on-premises
cafeteria services that are available on a non-discriminatory basis;
b) medical services, payment for medical services, and payments for
insurance for medical services to the extent that the services or
payments are;
i. available with respect to medical treatment of the individual,
spouse of the individual and up to four of their children; and
ii. made available by the employer (and any associate of the employer
conducting a similar or related business) on a non-discriminatory
basis;
Items Excluded In Calculation Of Chargeable
Income From Employment S.7(3)
c) any subsistence, travelling, entertainment or other allowance that represents solely
the reimbursement to the recipient of any amount expended by him wholly and
exclusively in the production of his income from his employment or services rendered;
d) benefits derived from the use of motor vehicle where the employer does not claim
any deduction or relief in relation to the ownership, maintenance or operation of the
vehicle;
e) benefit derived from the use of residential premises by an employee of the
Government or any institution whose budget is fully or substantially out of Government
budget subvention;
f) payment providing passage of the individual, spouse of the individual and up to four
of their children to or from a place of employment which correspond to the actual
travelling cost where the individual is domiciled more than 20 miles from the place of
employment and is recruited or engaged for employment solely in the service of the
employer at the place of employment;
Items Excluded In Calculation Of Chargeable
Income From Employment S.7(3)
g) retirement contributions and retirement payments exempted under
the Public Service Retirement Benefits Act;
(h) payment that it is unreasonable or administratively impracticable
for the employer to account for or to allocate to their recipients and;
(i) allowance payable to a intramural private services to patients in a
public hospital;
(ii) n employee who offers (j) housing allowance, transport allowance,
responsibility allowance, extra duty allowance, overtime allowance,
hardship allowance and honoraria payable to an employee or the
Government or its institution whose budget is fully or substantially
paid out of Government budget subvention.
 Exempt income and Final withholding
payments
Second schedule and Section 86
Exempt income
Second schedule pg 131,
S. 52 relating to distribution of trust
Final withholding payment
section 86
 Allowable Deductions

I. Voluntary contribution of any amount to education establishment

made under Section 12 of the Education Fund Act by an employee
is deductible expenses in determining his or her taxable
employment income (Section 16(3)).
II. Retirement contributions to approved retirement fund S. 61
Defn of Retirement contribution fund S. 3
Approved retirement fund’ means a resident retirement fund having
a ruling under Section 131.