TRA vs ZRA: Who Taxes What, and Where Businesses Get Caught in Between

Key takeaways

• Income tax and customs are Union matters, administered by the Tanzania Revenue Authority (TRA) on both the Mainland and in Zanzibar.
• Most other taxes in Zanzibar, including VAT, stamp duty and tourism-related levies, are administered by the Zanzibar Revenue Authority (ZRA).
• A business in Zanzibar therefore deals with both authorities, and each sees only part of the picture.
• The most common problems are VAT on goods and services crossing between the two, mismatched figures between TRA and ZRA returns, and staff-related registrations.
• Most of these problems are avoidable with the right registrations and one reconciled set of books from day one.

Introduction

Tanzania is one country, but for tax purposes it often behaves like two. The United Republic brings together Tanzania Mainland and Zanzibar, and the Constitution divides responsibilities between the Union Government and the Revolutionary Government of Zanzibar. Tax follows that divide.

On the Mainland, a business deals mainly with one tax authority: the Tanzania Revenue Authority (TRA). In Zanzibar, it deals with two: TRA for income tax and customs, and the Zanzibar Revenue Authority (ZRA), formerly the Zanzibar Revenue Board, for VAT and most other domestic taxes.

For a business operating only on the Mainland, this rarely matters. For a hotel in Zanzibar, a Dar es Salaam company supplying Zanzibar clients, or any group operating on both sides, it matters a great deal. Registrations, rates, returns and audits differ, and the two authorities do not always see the same numbers.

This guide explains who taxes what, and the places where businesses most often get caught in between.

How the Union shapes tax

The Constitution of the United Republic lists the Union matters: subjects handled by the Union Government for the whole country. Among them are income tax, corporation tax, and customs and excise duties on imports. Everything not on that list is, for Zanzibar, handled by the Revolutionary Government of Zanzibar under its own laws.

This produces a simple rule of thumb:

• Union taxes are administered by TRA everywhere, including in Zanzibar, where TRA has its own offices. The law is the same on both sides: the Income Tax Act, Cap. 332, and the East African Community customs laws.
• Non-Union taxes are administered on the Mainland by TRA (or local government) under Mainland laws, and in Zanzibar by ZRA (or Zanzibar local authorities) under Zanzibar laws. The two systems can have different rates, thresholds, forms and deadlines.

VAT is the most important non-Union tax. The Mainland has the VAT Act, 2014, at a standard rate of 18%. Zanzibar has its own VAT law at a standard rate of 15%, administered by ZRA.

Company registration follows the same pattern. It is not a Union matter: companies register with BRELA on the Mainland and with BPRA in Zanzibar. So a business can be one legal entity for income tax, but have separate registrations and obligations for VAT and company law on each side.

Who taxes what

The pattern to remember: what you earn is taxed by TRA; what you sell, sign and operate in Zanzibar is largely taxed by ZRA.

There is also a revenue link between the two. Some Union tax collected in Zanzibar, such as PAYE of Zanzibar-based employees, is credited to the Zanzibar Government under the Union's revenue-sharing arrangements. That affects government accounts, not your liability, but it is one reason the two authorities share information.

Where businesses get caught in between

1. VAT registered on one side only

A Mainland VAT registration with TRA does not cover taxable supplies made in Zanzibar, and a ZRA registration does not cover the Mainland. A Dar es Salaam company that opens a site, shop or office in Zanzibar, or starts delivering services there, may need to register with ZRA as well. Registration thresholds, return forms and deadlines differ, so a business can be compliant on one side and in default on the other without realizing it.

In Zanzibar, the general VAT registration threshold is TZS 100 million in annual taxable turnover, but not every business can wait for it. Service providers are generally required to register regardless of turnover, and hotels may have to register depending on the room rates they charge. Check your position with ZRA before you start trading, not when you reach the threshold.

2. Goods and services crossing the channel

Movements between the Mainland and Zanzibar are not ordinary domestic sales. The starting point is the rate difference: 18% VAT on the Mainland, 15% in Zanzibar.

• Goods from Zanzibar to the Mainland. VAT of 15% has already been paid in Zanzibar. When the goods enter the Mainland, you pay only the difference: 3%. For goods worth TZS 10 million, that is TZS 300,000 on entry rather than TZS 1.8 million, but only if you can prove the Zanzibar VAT was paid.
• Goods from the Mainland to Zanzibar. No VAT is charged when Mainland goods enter Zanzibar, because the higher Mainland VAT has already been borne. Other levies and charges may still apply on entry.
• Services across the channel. The question is where the service is supplied and used. A Mainland firm running operations in Zanzibar is usually supplying in Zanzibar, which points to ZRA, not TRA.

The real problem is the systems. TRA and ZRA run separate systems that are not integrated. In practice, moving goods across the channel works much like trading between two countries: neither authority can see what was paid to the other. The relief exists, but you must claim it, and you can only claim it with paper. For every movement, keep:

1. the tax invoice showing the VAT charged and the registration numbers on the correct side;
2. shipping or transport documents, such as the port manifest or bill of lading;
3. proof that VAT was paid on the other side.

Without these, you pay the full 18% on entry to the Mainland and absorb the 15% already paid in Zanzibar: VAT twice on the same goods.

3. Two returns, two sets of numbers

A Zanzibar business reports its sales to ZRA in monthly VAT returns and its profits to TRA in income tax returns. If annual turnover in the income tax return does not reconcile to the VAT returns, that gap is a classic audit trigger. The authorities do exchange information, and an unexplained difference invites a challenge from either side. Common causes are deposits, packaged rates, foreign-currency conversion, credit notes and year-end cut-off.

4. Levies on top of VAT

Hotels and tourism businesses in Zanzibar pay sector levies to ZRA in addition to VAT, often on a different base. Packaged prices that bundle rooms, meals, transfers and excursions must be split correctly, because each element can carry a different treatment. Rates quoted in US dollars to tour operators months in advance can leave a business absorbing a levy change it did not price in.

Levy rates change regularly. For the current Zanzibar hotel, tourism and infrastructure levies, check the Zanzibar Revenue Authority. We cover them in detail in a separate guide.

5. Staff on both sides

PAYE and the skills and development levy go to TRA on both sides, including for staff based in Zanzibar. Social security does not: Zanzibar employers contribute to ZSSF, not NSSF. Payroll systems built for the Mainland often get this wrong, especially when staff are transferred between sides mid-year.

6. Stamp duty on Zanzibar contracts

Leases, share transfers and many contracts signed in Zanzibar attract Zanzibar stamp duty, paid to ZRA, not TRA. An unstamped lease or agreement can be inadmissible as evidence in a dispute, which is often when the gap is discovered.

7. Withholding tax forgotten in Zanzibar

Because many day-to-day dealings are with ZRA, Zanzibar businesses sometimes forget that withholding tax on rent, service fees, interest and payments to non-residents is a Union obligation owed to TRA. Missed withholding becomes the payer's own liability, with penalties and interest.

8. Receipts and systems

Each authority runs its own electronic receipting system: TRA uses electronic and virtual fiscal devices (EFD and VFD); ZRA uses its Virtual Fiscal Management System (VFMS). A business selling on both sides must issue receipts through the right system for each sale. A receipt from the wrong system may not support the sale in your own return, or your customer's input VAT claim.

9. Two audits, two appeal routes

TRA and ZRA audit separately and resolve disputes through separate routes. On the Mainland, an objection to a TRA assessment is generally due within 30 days, then appeals go to the Tax Revenue Appeals Board and the Tax Revenue Appeals Tribunal. In Zanzibar, you generally have 30 days from the date of the notice to object or appeal, and the procedural requirements are technical. Missing a step can cost you the right to challenge the assessment, so take advice as soon as a notice arrives.

A position agreed with one authority does not bind the other. A business can settle a TRA income tax audit and then face a ZRA VAT audit on the same transactions, on a different reading of the facts. Missing a deadline on either side can make an assessment final, whatever its merits.

Scenario: a Mainland company expanding into Zanzibar

An illustrative example, not a specific client.

A Dar es Salaam catering and facilities company wins a contract to run kitchens for two resorts in Zanzibar. It sends staff across, rents a small warehouse in Stone Town, and ships food and equipment from Dar every week.

Within a year, it faces:

• a ZRA assessment for VAT on its Zanzibar services, because it charged Mainland VAT at 18% on invoices to the resorts instead of registering with ZRA;
• unexpected entry levies on its weekly shipments from Dar, which it had not priced into the resort contracts;
• unstamped warehouse lease, discovered when the landlord disputed the rent;
• social security contributions paid to NSSF for staff based in Zanzibar, when ZSSF was due;
• a TRA query because turnover in its income tax return did not match the sum of its Mainland and Zanzibar VAT returns.

What it cost. Say the company billed the resorts TZS 800 million in the year. ZRA assesses Zanzibar VAT at 15%: TZS 120 million, plus penalties and interest. The TZS 144 million of Mainland VAT it wrongly charged and paid to TRA is not automatically refunded. It must claim it back, which takes time, and its resort customers may have to correct their own input claims. For a while, the company carries both bills.

None of these is a complex tax question. Each comes from treating Zanzibar as just another region of the Mainland. Mapped at the start, the fix would have cost a fraction of that: a ZRA registration, a documented transfer process, a stamped lease, a payroll set up for both sides, and one reconciliation each month.

Checklist for businesses operating on both sides

• Map every activity by side: where you sell, deliver services, store goods, employ staff and sign contracts.
• Hold a TRA TIN, and register for VAT with TRA, ZRA or both, according to where taxable supplies are made.
• Set up invoicing and electronic receipting for each authority's system.
• Document every movement of goods and services between the Mainland and Zanzibar.
• Stamp Zanzibar leases and contracts with ZRA at signing.
• Set up payroll for both sides: PAYE, skills levy, and NSSF or ZSSF as applicable.
• Apply withholding tax to TRA on rent, services, interest and payments to non-residents, wherever the payment is made.
• Reconcile monthly: VAT turnover on both sides against the general ledger and the income tax return.
• Keep one filing calendar covering both authorities' deadlines.
• When audited by one authority, check how the outcome affects your position with the other.

Before you act

Sources. Constitution of the United Republic of Tanzania (Union matters); Income Tax Act, Cap. 332; Tax Administration Act, Cap. 438; VAT Act, 2014 (Mainland); Zanzibar VAT legislation; Zanzibar Revenue Authority legislation; Stamp Duty Act (Mainland) and Zanzibar stamp duty legislation; East African Community Customs Management Act. Rates, levies and filing arrangements change through the annual Finance Acts of both governments, so confirm current figures before acting. This guide is general information, not advice on any specific business.

How Glenrich can help you

Glenrich Consultants is a finance and risk partner for foreign investors and growing businesses in Tanzania and Zanzibar. Our team brings together accountants, auditors, tax consultants, forensic examiners, and investment and legal advisors, working from Dar es Salaam and Zanzibar.

We handle the compliance, and we find the risks underneath it. For businesses operating across the Union, that means:

• mapping your activities and registrations with TRA and ZRA;
• setting up VAT, receipting and transfer documentation that works on both sides;
• payroll, withholding tax and stamp duty compliance for Zanzibar and the Mainland;
• monthly reconciliations that keep your TRA and ZRA figures in line;
• support through audits and disputes with either authority.

Talk to us before it becomes a problem

Tell us how your business operates across the Mainland and Zanzibar. We will come back with a clear view of your exposure and a fixed-price proposal within 24 hours.

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