Deductibility of Depreciation Allowances in Tanzanian Extractive Industry

Court of Appeal of Tanzania has issued a judgment in Commissioner General – Tanzania Revenue Authority (TRA) v. Beach Petroleum (Tanzania) Limited 2026 concerning the deduction of depreciation allowance under section 17(1) of the Income Tax Act (Act) read together with Item 1(3) of the Third Schedule to the Act.

• Section 17 reads: For the purposes of calculating a person’s income for a year of income from any business, there shall be deducted in respect of depreciation of depreciable assets owned and employed by the person during the year of income wholly and exclusively in the production of the person’s income from the business the allowances granted under the Third Schedule.
• Item 1(3) reads: To the extent not otherwise provided, expenditure incurred by a person wholly and exclusively in the production of the person’s income from a business in respect of natural resource prospecting, exploration and development shall be treated as if it were incurred in securing the acquisition of an asset that is used by the person in that production.

Facts of the case

• Beach Petroleum (Tanzania) Limited (Company) deducted from its income depreciation expenditures of its assets for 2015 year of income.
• TRA disallowed the deducted depreciation on account that the Company’s project was at pre-production stage and the assets for which the depreciation allowance was deducted were not employed in the production of the Company’s income.
• Company appealed to Tax Revenue Appeals Board (TRAB) which held in favour of the Company that, being in the extractive industry, the Company’s activities prior to the production stage constituted business deemed to amount to the use of its assets in the production of income under Item 1(3).
• TRA appealed and the decision was upheld by Tax Revenue Appeals Tribunal (TRAT).
• TRA further appealed to the Court of Appeal.

Issue before Court of Appeal

• Whether TRAT erred in law in its interpretation of section 17(1) read with Item 1(3).

Arguments of the parties

• TRA argued that depreciation allowance is deductible upon fulfilment of conditions stated under section 17 and that Item 1(3) does not provide for exception to the extractive industry.
• Company argued that section 17 cannot be construed independently and that Item 1(3) gives specific provision to extractive industry to ensure taxpayers recover costs of their investments in assets.

Decision of the Court

• Court of Appeal decided in favour of TRA that expenditure of a capital in respect of natural resource prospecting, exploration and development does not qualify for deduction of depreciation allowance.
• Item 1(3) does not dispense with conditions set in section 17.
• The assets would qualify for depreciation allowance if they were used in production of income.
• Appeal allowed and TRA entitled to the adjusted amount of TZS 6,403,621,73.90 interest inclusive.