The findings of an informal sector assessment in Tanzania conducted by the Institute of Liberty and Democracy in 2005 showed that 98% of business in Tanzania was in the informal sector. Furthermore, the report revealed that complex laws, rules, and regulations significantly contributed to such a high level of informality.
Under the leadership of the then president of the United Republic of Tanzania, the Late H.E Benjamin William Mkapa established a Program in the name of Property and Business Formalization, popularly known by its Swahili acronym MKURABITA to work on the problem and accordingly advise the government systematically.
In this article, you will learn the meaning and steps for business formalization, the parties involved, and the One stop center approach.
What Is Business Formalization?
Business formalization refers to transforming businesses operating in the informal sector into the formal sector. The process involves, among others, business licensing, business registration, and taxpayer registration via tax identification number certification.
Steps for Business Formalization in Tanzania
Business formalization in Tanzania as a transformation process is not different from the rest of the world as it requires passing through some authorities. Thus, steps of business formalization denote the process of passing through authorities as detailed below.
Step 1: Registering Your Business
The Government of Tanzania mandated the Business Registration ad Licensing Agency (BRELA) to register companies, partnerships, and business names. BRELA is also responsible for the registration of intellectual property rights. Intellectual property rights include patents of inventions, industrial designs, trade, and services. BRELA uses an online registration system that is simple, fast, and friendly.
How BRELA’s Online Registration System works
- A Sole Proprietor can use the BRELA’s online system to register a business name, change your business particulars, pay annual maintenance fees, and cease business where necessary.
- A Company can use BRELA’s online system to register and incorporate the company, change of particulars, and file company-related documents and annual returns.
- Industries owners use the online system to register Industrial Licenses, change particulars, file annual progress reports, and cancel.
- The online system is also used to undertake Mark registration and to file Mark-related documents.
- Patent registration and filing patent or utility model-related documents
- Information services about your business name, company, industrial license, mark, or patent.
2nd Step: Registration with Tanzania Revenue Authority (TRA)
Registration with TRA as a Taxpayer is necessary for any person, partnership, and limited liability company wanting to start a new business in Tanzania. Essential steps for TRA registration for all categories include the following:
- Visit nearby TRA offices (regional, district, or tax centers)
- Fill TIN application form to apply for Taxpayer Identification Number.
- Suppose the individual has National Identity Number (NIN).
- For an individual requesting Business TIN, the Online TIN applicant must physically visit a nearby TRA office (having lease agreement/title deed, introduction letter from local Authority) to collect TIN Certificate and provisional tax assessment and Tax Clearance).
- The partners must register for the firm at BRELA and acquire the registration certificate.
- The partners visit TRA along with the partnership deed which shows the number and names of partners with their respective distribution ratios.
- In applying for TIN the partnership firm shall apply for its Certificate by submitting a copy of the Certificate of registration obtained from BRELA, partnership deed, lease agreement/title deed, and introduction letter from the Local Authority.
- Each partner shall apply for TIN unless has one.
Limited Liability Company
Starting a corporation requires a person to apply for the Certificate of incorporation from the Business Registration and Licensing Authority (BRELA). The company’s Directors shall draw a Memorandum and articles of association and submit the Certificate of incorporation, lease agreement/title deed, and introduction letter from the Local Authority. The limited company shall apply for a TIN certificate by filling TIN application forms as follows:
- Application for the company. The applicant shall attach the Certificate of incorporation, memorandum, and Articles of association to the TIN application.
- Application for each shareholder director except if the director(s) has one.
- For Noncitizens, the law requires the directors to fulfill all immigration procedures and obtain a business permit. The Immigration Department working under the Ministry of Home Affairs is the one responsible for a work permit.
3rd Step: Obtaining a Business License
Obtaining a business license is a step after the TIN certificate registration. The applicant should apply for a business license from the Trade office in the District, Municipal, City council. Some other businesses, the business license application goes as far as the Ministry of Industry, Trade and investment.
Obtaining a business license is mandatory to operate a formal business in Tanzania. Issuance of business licenses In Tanzania is vested in two authorities, namely the Business Registration and Licensing Agency for Class “A” Business Licenses and Local Government Authorities (LGAs) for Class B Licenses.
Pre-requisites for Obtaining a Business License in Tanzania
For Any Entity to Obtain a Business License in Tanzania, it should have:-
- Acquired a Business Premise by Renting or Owning a Premise
- Register a Company or a Business Name to the Business Registration and Licensing Agency (BRELA)
- Register for Tax Identification Number (TIN) to Tanzania Revenue Authority (TRA)
- Register to the Sector Ministry/ Agency for the Permit to operate in the sector
- Apply for a Business License at the Ministry of Industry Trade and Investment (MITI) of Local Government Authorities (LGAS)
- Pay the Business License Fee, depending on the type of Business Fee through Bank
The One Stop Center Approach
One of the reasons for the growing number of the informal businesses informal is the long and complicated formalization process. The business owner who wants to formalize business must visit more than three offices. The cumbersome process reduced business owners’ appetite to formalize enterprises.
The Property and Business Formalization Program for Tanzania invented a ‘One Stop Center’ approach to formalization in 2016. The process involved mobilizing all the business formalization stakeholders under one roof. In this context, the business registration services, tax identification and registration, and licensing services are all obtained under one roof.
Nevertheless, the centers include financial institutions to facilitate access to capital for business growth. For industrial development purposes, the One stop Center involves the Small Industries Development Organisation (SIDO) to help small business owners who want to transform their businesses towards industrialization.
Advantages of using the One Stop Center approach to formalization
- Saving time and money for the owners of businesses
- Friendly environment
- Easy access to knowledge hence Mindset change
- Easy access to capital
- Easy access to markets
- The centers are used as training grounds for the business owners.
- Massive formalization
- Increased government revenue through license and registration fees
- Increased government revenue through taxes from the increased number of formal business