Service levy (or municipal levy as known by some) is a charge imposed by Local Government Authorities (LGAs) on corporate entities or persons conducting businesses. A major source of funding for such LGAs, this levy is charged at a maximum rate of 0.3% of turnover. The LGAs have powers to make by-laws in the course of administering this levy - for instance, the Dar es Salaam City Commission (Service Levy) By-laws were introduced in 1997, setting out the service levy requirements as far as the area of jurisdiction of the city of Dar es Salaam is concerned. Other LGAs also have by-laws containing similar provisions.
However, whilst the levy in principle appears to be a simple one, it does come with some practical challenges. One particular challenge relates to the requirement set out in the Local Government Finances Act 1982 (LGFA 1982) for branches of corporate entities to pay service levy to the authorities in whose areas of jurisdiction they are located. Accordingly, a company with branches in Arusha, Dar es Salaam, Mbeya and Mwanza, would be required to account for service levy separately for each branch to the relevant authority based on the amount of revenue generated in their jurisdiction. However, this presupposes that an entity can always make such a determination of the amount of revenue generated by each branch.
Arriving at this determination should not be complicated for a normal retailer who can simply determine the split of sales from point of sale machines. For the banking industry, at least historically, it has been simple to determine the revenue generated by each of its branches and compute the service levy payable - though a question does arise as to what happens as this sector becomes more technology enabled and less “bricks and mortar” focussed. More immediately in terms of practical challenge is the position for a telecommunication service provider in finding a mechanism to determine an appropriate method to allocate revenue generated by infrastructure (telecommunication tower, server/network centre or warehouse) in a particular LGA location. Looking further ahead, if offshore gas is brought into production at some point in the future, the question would be to which LGAs such companies would remit service levy on their turnover, if at all they are required to do so under the LGFA 1982.
One benefit of the collection of this levy by LGAs is that it may facilitate quicker access to funds by the LGAs and so enable them to more promptly fulfill their financial commitments. It also is more consistent with ensuring more accountability by LGAs to their constituents. However, the challenges for business include the compliance burden of being required to remit the levy to various LGAs, and the risk of resultant disputes as to allocation of turnover and resultant conflicting tax demand notices from various LGAs.
Given the challenges highlighted, and against a background of technological advancements that have changed the mode of doing business, the question arises as to whether the legislation is still fit for purpose or is in need of some kind of update. One proposal might be for the Government to amend the LGFA 1982 to incorporate a centralised collection system of the levy that is in a way similar to how property rate/tax is now collected. In this case, corporate entities would only remit service levy to either the TRA office where one is registered or the President's Office - Regional Administration and Local Government (TAMISEMI) for onward distribution to the relevant LGAs. Such centralisation of payment of the levy as proposed above would (i) simplify the process and encourage more compliance by businesses (ii) create a central point of data collection that would provide a strong tool for enforcement of the legislation requirements during audits/review by the collecting Authority; and (iii) eliminate disputes between LGAs and businesses.
By Fabiola Ssebuyoya, Tax Manager – Indirect Taxes
The views expressed do not necessarily represent those of PwC. For PwC updates on tax and other matters do follow @pwc_tz or visit our website www.pwc.com/tz
Read the full article published in The Citizen (14.06.2019).