Real Estate update on recent changes in the premium and capital gain tax rated to property

In this legal update, we discuss the recent changes in the premium and capital gain tax rates for property related transactions in Tanzania. These changes stem from two key legislative amendments: the Land (Fees) (Amendment) Regulations Government Notice (GN) No. 448C of 2023 (the Land Amendment Regulations 2023), which modify the Land (Fees) Regulations GN No. 83 of 2001 (the Land Fees Regulations), and the Finance Act No. 2 of 2023 (the Finance Act 2023), which amends the Income Tax Act [Cap 332 R.E. 2019] (the Income Tax Act).

The rate of premium

In Tanzania, a granted right of occupancy (GRO) over land is granted at a premium which must be paid either in one or more instalments as may be determined by the Minister for Lands, Housing and Human Settlements Development (the Minister).

In determining the amount of premium, as per the Land Act [Cap 113 R.E. 2019] (the Land Act), the Minister is required to consider the following aspects:

• the use of the land permitted by the GRO which has been granted;
• the value of the land as evidenced by sales, leases, and other dispositions of land in the market in the area where the GRO has been granted;
• the value of land in the area as evidenced by the price paid for the land at any auction conducted by or on behalf of the Government;
• the value of land as evidenced by the highest offer made in response to a request made by or on behalf of the Government, a local authority, or a parastatal for a tender for the development of land in the area;
• any unexhausted improvements on the land; and 
• an assessment by a registered valuer given in writing of the value of land in the open market.

The premium is calculated using the following components:

• the value of land per square meter (sqm);
• the size/area of land; and 
• the rate of premium.

The rate of premium has undergone significant changes, with the rates being substantially reduced over time, as follows:

• from 2010 to 2015, the rate of premium was 15% of the land value as set out in the Land (Fees) (Amendment) Regulations GN No. 517 of 2010 and the Land (Fees) (Amendment) Regulations GN No. 264 of 2012.
• in 2015, the rate of premium was 7.5% of the land value as prescribed by the Land (Fees) (Amendment) Regulations GN No. 291 of 2015.
• in 2021, the rate of premium was 0.5% of the land value as prescribed in the Land (Fees) (Amendment) Regulations GN No. 496N of 2021 (the Land Fees Amendment 2021).
• in 2023, the rate of premium was revised further down to 0.25% of the land value as provided under the Land Amendment Regulations 2023.

The premium for regularised urban areas or properties was first introduced by the Land (Fees) (Amendment) Regulations GN No. 413 of 2018 at a rate of 1% of the land value and was reduced to 0.5% of the land value by the Land Fees Amendment 2021.

Significantly, the failure to pay a premium or any instalment by the due date shall be considered a breach of the conditions of the GRO, leading to the potential revocation of the said right.

Capital Gain Tax on Property

Capital gain tax on property is governed by the Income Tax Act, along with the Income Tax Act Practice Note on Taxation of Gains from the Realization of Interest in Land or Buildings, No. 03 of 2013. This tax is charged on the gains realised from interests in land or buildings in Tanzania (Property). When an individual disposes of an interest in Property through a sale, exchange, transfer, distribution, cancellation, redemption, destruction, or surrender, or when an entity's interest ends just before its termination, this constitutes a realisation of Property. Section 90(1) of the Income Tax Act mandates that individuals who realise their interests in Property located in Tanzania must meet their income tax obligations through a single instalment payment.

According to the Income Tax Act, a resident person is required to pay 10% of the gain and a non-resident person is required to pay 20% of the gain realised from the disposition of interests in the Property. The Finance Act 2023 introduces a capital gain tax rate of 3% of the incomings or approved value of the asset, whichever is greater, realised by a resident person from the interest in Property and does not have records of costs of assets. This change is expected to expedite property transactions and reduce the time typically spent in discussions with the Tax Revenue Authority (TRA) concerning property costs. However, it may also lead to increased tax liabilities, as it involves taxing receipts or the approved value of Property without verification of its actual cost.