Did you know Withholding Tax (WHT) is applicable on reimbursements?

Applicability of withholding tax on reimbursements has been an area of contention during TRA audits which has resulted to disputes between taxpayers and taxman.

However, this is now preceded by a recent decision from the Court of Appeal in the dispute between Kilombero Sugar Company Limited / KSCL (Appellant) and Commissioner General (CG) for Tanzania Revenue Authority / TRA (Respondent).

In the aforesaid dispute, the contention arose from the CG’s decision to consider cost reimbursements by KSCL to Illovo Project Services Limited (“IPSL” or “Illovo”) as part of service fee and subject the same to requisite WHT. The cost reimbursements were in relation to costs incurred by Illovo while rendering requisite services to KSCL.

The Court of Appeal Justices Rehema Mkuye, Jacobs Mwambegele and Mwanaisha Kwariko upheld the prior decisions of Tax Revenue Appeals Board (TRAB) and Tax Revenue Appeals Tribunal (TRAT) in establishing that cost reimbursements by KSCL to Illovo formed part of service fee, hence, should be subject to requisite WHT, which confirmed the taxman’s assertion that cost reimbursments are susceptible to WHT.

Therefore, taxpayers should take note of the decision and ensure WHT is deducted on reimbursements component when making such payments to avoid inherent exposures which could result to imposition of additional tax liabilities