ST AUGUSTINE UNIVERSITY OF TANZANIA

SCHOOL OF LAW

TAX LAW II (SLW 352)

Topic Two: Value Added Tax

a) Introduction
The value added tax is one of the indirect taxes that operate in
Tanzania. Indirect taxes are type of taxes which the taxpayers pay
without feeling the burden.
The term indirect tax has more than one meaning. But in the
conversational sense, an indirect tax (such as value added tax
(VAT)) is a tax collected by an intermediary from the person
who bears the ultimate economic burden of the tax (normally
the last consumer)1. This intermediary later files a tax return and
forwards the tax proceeds to government with the return. In this
sense, the term indirect tax is contrasted with a direct tax which
is collected directly by government from the persons (legal or
natural) on which it is imposed. Some commentators have argued
that "a direct tax is one that cannot be shifted by the taxpayer to
someone else, whereas an indirect tax can be." The tax concept of
tax incidence is a distinguishing line between the direct tax and
indirect tax.

b) The laws governing value added tax in Tanzania Mainland.

Legal regime of every concept is the combination under which that
appropriate concept is legally governed. In this part we are going
to explore briefly legal bases for value added tax in Tanzania.
a. Constitution of URT of 1977 (article 138)
b. Statutes
1
See the case of Tanzania Petroleum Development Corporation V. Commissioner General [VAT Tax Appeal No. 8 of 2002]
(DSM), pp. 120- 128
 c. Case law
d. Departmental practice
e. General guidelines
d. Administrative practice
a) Constitution
Article 138 of the Constitution of URT of 1977 makes a
constitutional base of the taxation in Tanzania.
138. (1) Hakuna Kodi ya aina yoyote itakayotozwa
isipokuwa kwa mujibu wa Sheria iliyotungwa na Bunge au kwa
mujibu wa utaratibu uliowekwa kisheria na uliotiliwa nguvu ya
kisheria na sheria iliyotungwa na Bunge. (2) Masharti yaliyomo
katika ibara ndogo ya (1) ya ibara hii hayatalizuia Baraza la
Mapinduzi la Zanzibar kutumia mamlaka yake ya kutoza kodi
ya aina yoyote kwa mujibu wa madaraka ya Baraza hilo.
This article forms the basis for tax matters in Tanzania
b) Statutes
Value added tax in Tanzania is effected under the Value Added
Tax Act 2014 as amended from time to time, (Value Added Tax Act
Cap.148 R.E 2019). This Act forms the backbone of value added
tax in Tanzania.
The Act is divided into eight (8) parts and each part is dividing into
various divisions.
PART I; which provides for the preliminary provisions like title
and interpretation.
PART II; which provided the tax imposing provision, that is, the
imposition of value added tax.

PART III; which provide for the registration requirement and

procedure.
PART IV; which provide for the place of taxation.
PART V; which provide for the requirement and procedures for
returns, payments and refunds.
PART VI; which provide for the required documents and records.
PART VII; which provided for the administration matters of the
Value Added Tax.
PART VIII; which provide for the general provisions.
Schedules to the Act:
The Act also constitutes a schedule which deals with supplies
and imports exempt from value added.

Also, there are other statutes like;

 The Value Added Tax Act, Cap 148, RE 2019
 The Tax Administration Act, Cap 438, RE 2019
 The Tax Revenue Appeals Act, Cap 408, RE 2019
 Tanzania Court of Appeals Rules, Cap 141
 The East African Community Customs Management Act,
2004
 The Excise Management and Tariff Act, Cap 147, RE 2019
 The Stamp duty Act, Cap 189, RE 2019
 Regulations
o The Value Added Tax (General) Regulations, 1998
o The Value Added Tax (Registration) Regulations, 1998
o The VAT (Correction of Errors) Regulations, 2000
o The VAT (Imported Services) Regulations, 2001

c) The meaning of Value added tax

Value added tax means the tax imposed on taxable supplies or
taxable imports, and includes an interest, fine or penalty payable
in accordance with the provisions of the Act;
 d) The History of Value added Tax in Tanzania Mainland.
VAT was first introduced as a comprehensive national tax in
France in 1954. Since then it has been adopted as the main form
of indirect taxation by many countries in different parts of the
world and at different stages of economic development.
a) General Features of the VAT
The reasons why so many countries have adopted the V AT are
usually connected with the following assumed features of the tax;
neutrality, stability and flexibility, in addition to its revenue
potential.
i) VAT is considered to be neutral with respect to foreign trade,
and does not distort domestic production and distribution.
ii) VAT is considered to be neutral regarding the production
technique that a business adopts. In other words, it makes no
difference for the tax liability whether a product is
manufactured with a capital- or labour-intensive technology.
iii) VAT is considered not to be influenced by the forms or
methods by which business is conducted.
iv)VAT is considered to be a relatively stable source of government
revenue.
v) Since consumption as a share of GDP fluctuates little, by
implication the VAT is a stable source of revenue.
vi)VAT is a relatively flexible tax instrument; a change in the rate
translates immediately into more or less revenue.

b) Comparing VAT and Sales Tax

An increasing number of developing countries have converted
their sales taxes to value-added taxes (IMF, 1992, OECD, 1995).
From an economic point of view, there is, in principle, little
difference between VAT and the retail sales tax (RST).
Levied at the same rates and covering the same number of goods
and services, both taxes should raise the same amount of
revenues. If VAT is identical to a retail sales tax, why not collect
the full tax at the retail stage through a RST? While the economic
effects of the two taxes would be the same, the design and
administration of the taxes differ. A VAT is usually preferred for
four reasons:
 a) the potential coverage of the tax;
b) its ability to distinguish producer goods from consumer
goods;
c) its ability to (effectively) correct border tax adjustments; and
d) its administrative feasibility.
It is sometimes argued that the different ways in which a VAT and
a retail sales tax are collected may make enforcement of VAT more
efficient. Under a retailer sales tax system, producers, wholesalers
and retailers do not pay tax when they buy or sell from one
another. VAT in contrast, is paid throughout the production
chain. Registered intermediaries, but not the final consumer,
reclaim VAT by presenting a set of invoices to the tax authorities.
This may make VAT harder to avoid. While a good is being
produced, sellers have an interest in proving that they have paid
the tax on their inputs in order to reduce the tax liability on their
sales. With a retail sales tax system, in contrast, the burden of
collecting the tax lies entirely with the final seller of the good. If
(s)he fails to charge it, the tax on the whole value-added is lost. As
the tax rises, the incentive to avoid it increases.

By limiting such incentives governments can set VAT at higher

rates than they could with retail sales tax.
c) Structural Issues of VAT

Before introducing a VAT, four major structural issues should be

addressed:
1. The rate structure: if a uniform rate is not acceptable because
of distributional reasons, how should rate differentiation be
effected?
2. The base; should the VAT extend through the retail stage, and
how should small traders, farmers, and public sector bodies be
treated?
3. Treatment of services: which services should be exempted?
4. Legal and administrative features: how to audit and punish
defectors?
 d) Economic Scope
The unique nature of VAT is its potential scope in identifying and
taxing the economic contribution – or added value – made by any
economic operator in connection with any activity of a business or
commercial nature. There are several ways in which that result
can be achieved. One of them is the invoice based method, which
is the most widely used. It requires the VAT to be identified in
respect of each transaction or group of transactions.
The formal principles of the method are as follows:
“The principle of the common system of VAT involves the
application to goods and services of a general tax on
consumption exactly proportional to the price of the goods and
services, whatever the number of transactions that take place in
the production and distribution process before the stage at which
tax is charged.
On each transaction, VAT, calculated on the price of the goods or
services at the rate applicable to such goods or services, shall be
chargeable after deduction of the amount of VAT borne directly
by the various cost components.”
VAT is indirectly paid. However, people have come to know that
they are paying tax hence no longer hidden.
In comparison to indirect taxes such as sales tax and excise taxes,
VAT has gained popularity in many tax jurisdictions the world
over, both in developed countries and developing countries.
VAT is supported because of revenue considerations,
administrative considerations, dictates of fairness in taxation,
economic and commercial consideration and tax reform
considerations.
e) Revenue Considerations
 VAT has high revenue yield because it is levied on a wider tax
base.
 it is imposed on all types of supply transaction for goods and
services, including imports.
 the scheme of the tax tends to discourage the erosion of the tax
base through indiscrimate use of tax exemptions. As such it
plugs revenue leakage which characterizes other forms of sales
tax.
 f) Tax Reform Considerations
 VAT is a tax measure which fills in revenue shortfalls.
 VAT offers an opportunity to broaden the tax base and increase
tax revenue yield.
 It abolishes other irksome taxes, rationalizes the tax regime by
correcting multiplicity of taxes.
g) Why VAT introduced in Tanzania
 Worldwide trend towards adoption of VAT.
 Obsolescence of the manufacturer’s sales tax. The Sales Tax
was applied on a very narrow base e.g. supply of services was
outside the ambits of the tax.
 Administratively, Sales Tax was cumbersome and relied more on
physical policing to ensure compliance.
h) Basic considerations in administering VAT
VAT is a tax on business transactions that potentially affects all
purchases and sales. It is not a tax on profits.
VAT works on an input and output system. This means that
instead of all the tax being levied at the final retail point, VAT is
levied as the value is added to the goods or services in the chain of
production.
The cost of producing a product can be divided into two
categories:
a) Purchased inputs i.e. goods and services purchased by the
producer.
b) Value added i.e. labour costs, profit, etc.
The two categories combined are the final value of the products.
Each producer in the chain of production sends VAT on their own
value added to revenue authority.
Value added = output value – cost of purchased inputs.
The VAT that the producer sends to TRA is output tax minus
input tax.
VAT works on the destination principle. This means that all
imported products are levied with VAT, while all exported products
have no VAT. In other words, Tanzanian VAT is levied on goods
and services that are consumed in Tanzania, not the goods and
services that are consumed elsewhere.
i) Tax Base
VAT is essentially a sales tax collected by installment whenever a
taxable transaction is carried out by a taxable person. It is applied
to all business transactions by which goods or services are
supplied except where some relief is given.
The scope of VAT includes imports. That is, all imports are subject
to VAT irrespective of whether the importer carries on business or
not. This is because otherwise imports direct to the consumer
would escape the tax.
j) Taxable Transactions
Supply of goods which include hire purchase and appropriation by
a trader of stock for his or her own use.
Goods may also be consumer goods or capital items supplied to
business since there is no basic distinction for VAT between
capital expenditure and expenditure on revenue account. In the
same way the services may be consumer services or services
supplied to business.
Excluding Persons With Low Levels of Business Activity
Most states require only some of the many persons active in the business
within the state to be taxable persons. This is normally achieved by setting
a minimum level or threshold of business activity and requiring only those
persons with levels of activity above the minimum to be taxable persons.
Those with levels of activity below that level are not required to be taxable
persons, although they are often given the right to voluntarily choose to be
taxable persons. The usual measure of business activity is the total
turnover of taxable goods and services supplied by the person over a set
period.
The total to be taken into account for the threshold is the total taxable
supplies of that person. This means the total of all supplies made by that
person that are treated as taxable supplies within the definition of the law.
The total does not include supplies exempted from VAT or outside the scope
of VAT. This means that a person conducting a business that is largely
exempt is outside the scope of the registration provisions if the taxable
activities reach a total less than the threshold, although the total economic
activity of the business is high. The precise level of threshold varies widely
from one state to another and, within a state, varies from one time to
another.
Incidence of the Tax
The liability of the tax arises at the time when goods or services are
supplied.
Only VAT payers under the law are required to pay tax.
NB: liability is shifted to the ultimate consumer (economic incidence).
Tax is paid on value added to an item. Eg. The buyer of logs from a miller is
required to pay for the value added. Note that the miller adds value to the
logs.
The ultimate consumer pays tax for the value added by the previous
consumer (theory behind VAT).
Assessment
In theory VAT is assessed by reference to the accounts of the business on
the value added to the taxable goods and services, broadly equivalent to the
cost of labour plus profit. In many countries the invoice system is in use.
A VAT invoice is an invoice that is issued by a taxable person who makes a
taxable supply and that records the supply and the amount of VAT payable
on it. In an invoice-based VAT system, the issue of invoices in the proper
form is an essential part of the procedure for imposing and enforcing the
VAT. The requirement that a special invoice be issued is feature unique to
VAT.
An invoice is a VAT invoice if it complies with the requirement of the VAT
law. Invoices issued for other purposes or that do not comply with these
requirement do not count as VAT invoices.
A VAT invoice is normally required to be identified as such (perhaps by
having the words “VAT Invoice” on it) and to contain a minimum of
information about the supply being invoiced. That information would
normally include:
1) The name, address, and VAT number of the taxable person making the
supply,
2) The nature of the supply made (type of supply, types of goods or
services, and quantity of goods or extent of services),
3) The time the supply was made,
4) The amount of payment for the supply,
5) The amount of VAT (however, if there is only one rate of VAT, then it is
redundant to state the amount of VAT),
 6) The name, address, and VAT number of the taxable person supplied,
7) The date on which the invoice is issued, and,
8) The serial number of the invoice.

Accounting and Accounting Period

-at the end of the Accounting period, which may be a month or three
months, the taxable person will make a return showing the total of his or
her taxable transactions during the period, and also show the total of the
tax invoiced to him or her by his or her suppliers during the same period.
He/she will then pay to the VAT Commissioner the amount of his or her net
liability.
Collection
In simple terms, a taxable person adds tax at the appropriate rate to the
sale price of the goods or services and accounts to the Commissioner for the
amount of the tax. The sale price for this purpose, includes other duties
and not VAT itself. To prevent any cumulative effect the taxable person is
allowed, when accounting to deduct the tax he or she has suffered on what
are called his or her ‘inputs” i.e. taxable goods and services supplied to him
or her. His or her purchaser, if a business, operates in the same way, taking
credit for tax suffered against tax for which he or she is accountable on the
next transaction in the chain. If the purchaser is a consumer, he or she
bears the tax because there is no one else to whom he can pass it on.
Relief
Every tax ought to consider special circumstances of taxpayers and afford
relief in appropriate cases. In the case of value added tax relief can be given
either by exemption or by applying a reduced rate of tax or zero rating.
Exemptions may be granted to transactions in a particular class of
business. If a business is exempt it means that no tax is chargeable on its
sales. Zero-rating does not remove a person from the VAT system. It
operates to make a person to have less tax to account for.

TANZANIAN VAT

VAT is a consumption tax. The tax is paid by the consumer, at a rate of

20% of the value of the product bought. However, retailers are collection
agents for the tax. Therefore the retailer who sells the good sends the tax to
the TRA on the consumer’s behalf.

VAT works on an input output system. This means that instead of all the
tax being levied at the final retail point, VAT is levied as the value is added
to the good or service in the chain of production. The cost of producing a
product can be divided into two categories. One category of costs is
purchased inputs, that is goods and services purchased by the producer.
The other category of costs is value added, that is labour costs, profits,
rents and interest. These two categories combined are the final value of the
product. Each producer in the chain of production sends VAT on their own
value added to the TRA. The value added is the output value minus the
costs of purchased inputs. The VAT that the producer sends to TRA is
output VAT minus input VAT. The retailer will only send VAT on his/her
own value added (the service of making the product available to the
consumer) to the TRA the rest of the VAT has already been sent to the TRA
when the retailer bought the product and paid VAT on it. Tanzanians are
encouraged to ensure they receive a VAT receipt for all purchases from VAT
registered businesses.

VAT works on the destination principle. That means that all imported
products are levied with VAT, while all exported products have no VAT. In
other words, Tanzanian VAT is levied on the goods and services that are
consumed in Tanzania, not the goods and services that are consumed
elsewhere.

The VAT turnover threshold is Tsh 40 million. This means that those with
total sales of less than Tsh 40 million are not required to register for VAT.
Those who are not registered for VAT cannot reclaim input VAT, and do not
charge output VAT. Businesses below the threshold may voluntarily opt to
register for VAT if they make sales to other VAT registered businesses.

The charge of VAT in Tanzania

VAT is one of the different types of commodity tax. It came to replace Sales
Tax.

VAT is imposed on the value that has been added on the commodity but not
the commodity itself. VAT is under the VALUE ADDED TAX. The Act applies
only to Tz Mainland.
Vat is a tax on the value added on taxable supplies.The name “value added”
reflects the base on which tax is levied.

Imposition of VAT – s. 3, VAT Act.

VAT is a tax imposed on any supply of goods and services by way of

business. The supply of goods and services must be in Mainland Tanzania.
It does not only apply to supply of goods and services but as well as to
importation of goods and services.

In any case, if tax has been paid in respect of any taxable supply in Tz Z’bar
at the same rate as the rate applicable in Mainland Tanzania, the tax shall
be deemed to have been paid on the taxable supply in accordance with the
Mainland VAT Act; hence no tax shall be payable on its importation to
Mainland Tanzania. [S. 3(2)].

In any case, if the tax has been paid in Tz Z’bar at the rate lower than the
rate applicable in Mainland Tz, the tax difference shall be deemed to have
not been paid and shall be payable on its importation to Mainland Tz . [S.
3(3)].

If a taxable supply is made directly by a taxable person in Mainland Tz to a

recipient in Tz Z’bar, the TRA shall collect the tax on behalf of the Tz Z’bar
Treasury and remit it to Tz Z’bar Treasury [S.3(4)]. This is in respect of all
products manufactured in Tanzania Mainland only. [S.3 (5)].

e) The scope and operation of Value added Tax in Tanzania

Mainland.

a) Taxable Persons
A person within the scope of VAT is usually described as a taxable
person. This terminology avoids the confusion caused in some
states by calling such persons “taxpayers.” The confusion arises
because the taxpayer, in the sense of the person bearing the
economic incidence of the tax, is the person receiving a taxable
supply.
VAT falls ultimately on the ultimate consumer. However, it is
assessed on the business supplying goods or services. All
businesses supplying goods or services which are subject to the
tax are registrable.
Importers of goods are automatically taxable persons although
they are not in the ordinary way taxable persons.
The administration of the tax makes it necessary to register all
VAT payers save for the importer who comes within chargeability
on the transaction basis.
b) Scope of VAT
It is imposed on any supply of goods or services in Mainland Tz
where it is a taxable supply made by a taxable person in the
course of or in furtherance of any business carried on by him - S.4
(1). in short it is imposed only on those transactions which have
taken place in Tz Mainland.
The VAT that is levied on the supply of goods or services is
payable by a taxable person at the end of a prescribed accounting
period or at any time the Commissioner may prescribe – S. 4(2).
For the imported taxable goods or services from any place outside
Mainland Tanzania, VAT is levied and payable in accordance with
the VAT Act and the procedures applicable under the Customs
Laws for the imported goods.
c) Taxable Supplies
The supplies must be “taxable supplies”. According to s. 2
(interpretation section) “taxable supplies” has the meaning
assigned to it under S. 5 and does not include exempt supplies.
S. 5 defines “taxable supplies” to mean and supply of goods or
services made by a taxable person in the course of or in
furtherance of his business after the start of the VAT and includes
making of gifts or loans of goods, the leasing or letting of goods on
hire, the appropriation of goods for personal us or consumption by
the taxable person or by any other person, barter trade and
exchange of goods – S. 5(1) (a)-(d).
Goods produced by a person by processing or treating the goods of
another person – the supply shall be regarded as supply of goods
S. 5(2).
Taxable supply includes also the supply of any form of power, heat
or ventilation – S. 5(3).
Anything which is not a supply of goods but is done for a
consideration including the granting, assignment or surrender of
all or part of any right is a supply of services – S. 5 (4).
Note also the powers of the Minister to make regulations for any
description of transaction to be treated as a supply of goods or
supply of services or neither a supply of goods nor a supply of
services – S. 5 (5).

d) Time of Supply – S. 6
Goods or services are said to be supplied when:
(a) In case of goods, when they are removed from the premises of
the supplier or from other premises where the goods are under his
control to the person to whom they are supplied, or goods are
made available to the person to whom they are supplied.
(b) A tax invoice is issued in respect of the supply.
(c) Payment is received for all or part of the supply
(d) Service is rendered or performed.
In case supplies are measured by meter, the time of supply shall
be the date of the first meter reading following the introduction of
VAT and subsequently at the time of each meter reading, except to
the extent that a tax invoice is issued or payment is made for the
supply – S. 6 (3).
For imported goods, VAT is charged and payable at the time
custom duty, tax or levy is payable in accordance with the Custom
Laws unless the Minister makes regulations to prescribe otherwise
– S. 6 (4)
e) Place of Supply – S. 7
This provision is relevant for the determination whether goods or
services are supplied in Mainland Tanzania.

Goods
Goods shall be regarded as supplied in Mainland Tanzania if their
supply does not involve their removal from or to mainland
Tanzania.
Goods shall also be regarded as supplied in Mainland Tanzania if
their supply involves their installation or assembly at a place in
Tanzania to which they are removed.
Goods are regarded as supplied outside Mainland Tanzania if their
supply involves their installation or assembly at a placed outside
Mainland Tanzania to which they are removed.
Where goods, in the course of their removal from a place in
Mainland Tanzania to another place in Mainland Tanzania, leave
and re-enter Mainland Tanzania, the removal shall not be
regarded as a removal from Mainland Tanzania.

Services
Services are regarded as supplied in Mainland Tanzania if the
supplier of the services:
a) Has a place of business in Mainland Tanzania and no place of
business elsewhere
b) Has no place of business in Mainland Tanzania or elsewhere
but his usual place of residence is in Mainland Tanzania
c) Has places of business in Mainland Tanzania and elsewhere
but the place of business most concerned with the supply of the
services is the place of business in Mainland Tanzania.
TAX RATES
S. 8(1) provides for the rate of taxable value. However the Minister
has power to vary the rate S. 20(2).
ZERO – RATING
Applies where the supply fits with provisions of the 1st Schedule
to the VAT, Act.
Where a person makes a supply that is subject to zero-rating, the
supply is treated as taxable only that the rate is zero i.e. the
supply is, in all other respects to be treated as a taxable supply.
In any event, a zero rate does make the supply “taxable” in a
technical sense and therefore achieves the objective of bringing
these transactions within the operation of the VAT.
The list of zero-rated supply – 1st Schedule
1. Exportation of goods and services from the URT – evidence to
be produced to the satisfaction of the Commissioner.
In other jurisdiction, even supplies to Diplomatic Missions are
categorized as supplies outside the state. In Tz this is not the
case. They are under Special Relief provided for under the Third
Schedule to VAT Act, (Para 1).
If exports were to be taxed, this would have hindered export.
2. International transport business (Para 3). This is so in order
to promote inter-trade/transport business, etc.
Exempt Supplies
Most states have found it necessary, when introducing a VAT, to
create exceptions to the breadth of the potential scope of the
operation of VAT. The standard way of dealing with this is to
exempt certain forms of supply that are otherwise within the scope
of VAT from liability to VAT. By definition, exempt supplies are not
taxable supplies. By contrast, some states have adopted the
practice of listing those supplies that are subject to VAT rather
than adopting the approach of listing exempt supplies.
Specified under 2nd Schedule to VAT, Act.
No VAT is chargeable.
NB. The difference between Exempt Supplies and Zero – rated
supply lies in the fact that, where as zero-rated supplies are
deemed taxable, exempt supplies are tax free.

Special Reliefs
Specified under the 3rd Schedule to VAT, Act. There are persons
and organizations listed in the 3rd Schedule entitled to relief from
VAT – see the limits and conditions as prescribed in the Schedule.
The procedures are also determined by the Minister.
However, the relief shall cease to have effect and the VAT shall
become due and payable as if the relief had not been granted if the
said goods are transferred, sold or otherwise disposed of in any
way to another person not entitled to enjoy similar privileges
under the VAT Act.
Accounting for VAT & Assessment
Ss 24-30 of the VAT Act.
Each supply to be recorded at the time of supply – s. 24. In order
to ascertain the time of supply this section should be read
together with S. 6 of the VAT Act.
See also obligation to keep records – s. 25
Tax returns – S. 26 imposes obligation on the part of the taxable
person in respect of each prescribed accounting period to lodge
returns with the Commissioner using VAT Form No. 201 which is
made under GN 177/1998.
The returns must be lodged by the last working day of the month
after the end of the calendar month – S. 26(3).

f) Registration and De-registration for Value Added Tax in

Tanzania Mainland
Registration is compulsory for those business persons whose
turnover exceeds the threshold.
Why threshold?
1. To have a manageable population of VAT traders.
2. To reduce compliance and administrative costs.
3. Administrative capacity of the TRA.
a) Registration
Registration is covered u/s 28. It is the duty of the Commissioner
for VAT to maintain a Register of all taxable persons.
It is an obligation of any trader whose turnover exceeds Tshs. 40m
to register for VAT – S. 19(1).
Application for registration is made in the manner and form as
prescribed in the Regulations – S. 19(2).
The commissioner is required to register every applicant for
registration who is eligible to be registered by law – S. 19(3).
The commissioner has power also, on grounds of national
economic interest or for the protection of the revenue to register
any person. This power may be exercised by the Commissioner
even where an application to be registered has not been made and
regardless of the taxable turnover of the person – S. 19(4).
Once registered, a Certificate of registration must be issued to the
taxable person by the Commissioner – S.20 (1). The Certificate so
issued must state the following
i. The name of the taxable person;
ii. Principal place of the business of the taxable person;
iii. Date on which registration takes effect;
iv. Taxpayer’s Identification Number of the taxable person; and
v. VAT Registration Number of the taxable person.
The Certificate of Registration must be displayed by the taxable
person in a conspicuous position at his principal place of
business.
The Commissioner, upon request, shall provide sufficient copies of
the Certificate of Registration, each clearly marked “copy” so that
they are displayed at all premises which are part of the business
for which the taxable person is registered - S. 20 (4).
b) Cancellation of Registration
Registration can be cancelled where:
i. The threshold falls below the requisite threshold;
ii. The business for which the taxable person was registered has
collapsed; or,
iii. The taxable person by mistake or false misrepresentation by
him was registered.
c) Agent – Principal Related Trade
Where goods are imported from a place outside Tz, the agent shall
be treated as a taxable person regardless of whether or not the
principal is a taxable person – S. 59.
d) VAT Representatives
In case a taxable person does not have a business establishment
in Mainland Tanzania or where an individual or partnership does
not have a usual place or residence in Mainland Tanzania, the
Commissioner may request the taxable person to appoint another
person resident in Mainland Tanzania to act on his behalf in
matters relating to tax – S. 60.
Representatives of Bankruptcy, Wound Up Companies and
Deceased Taxable Persons
In each of the above event, there are persons who will usually take
over r the business of the taxable person.
In case of bankruptcy the person who takes over is called a
trustee in bankruptcy and he becomes the taxable person.
Therefore, he is responsible to remit the tax to the revenue
authority. The same applies when a company is wound up. The
receiver will step into the shoes of the company as a taxable
person and as such all the tax liability will fall on the receiver.
Where an individual taxable person has died the representative
will step into the shoes of the deceased.
Taxable Value (value of goods or services) S. 13
Taxable value = value of supply for purposes of VAT
Taxable value is the actual realized value i.e. it should not be a
sham value.
In any VAT related transaction there is a requirement of payment
i.e. there must be payment/consideration.
S. 13 lay down rules for determination of taxable value. There are
three different scenarios:
i) where the supply is for a monetary consideration the amount of
the consideration excluding the VAT.
ii) where the supply is not for a monetary consideration, or is only
partly for such a consideration, the open market value excluding
the VAT.
iii) where the supply is not the only matter to which a
consideration in monetary terms relates, the supply shall be
deemed to be for such part of the consideration as is properly
attributed to it.
e) Open Market Value
The value that the goods would fetch in the ordinary course of
business between the supplier and the recipient or any other
person trading at arm’s length.
The trading persons should be treated as being completely
independent from each other. It is the market force that should
determine the price and not the parties.
f) Assumptions Relating to Open Market Value
i) The goods are delivered at the supplier’s place of business.
Why? If they were to be delivered at the recipient’s place, the costs
involved in conveying them would be a value added and it could
not be readily attributable to either party.
ii) The recipient will bear several costs such as insurance,
freight, etc relating to the transaction. By so doing the recipient
will have added value to the supplies.
iii) The supplier will bear any duty or tax chargeable in Mainland
Tz other than tax chargeable under the VAT Act.
S. 13(5) empowers the Commissioner where he is of the opinion
that the value has been understated, to assess the taxable value
himself or engage an independent valuer to determine the taxable
value of a transaction and adjust the transaction accordingly i.e.
the commissioner has power to re-asses and adjust.
g) Associated Persons in Business – S. 13(4)
Where one has a direct/indirect interest in any business or
property of the other, or both have common interest in any
business or property or some other third person has an interest in
any business or property of both of them, these people cannot be
said to be completely independent from each other (they shall be
deemed to be associated in business with one another).
h) Rules of Apportionment in Cases of Imports
S. 3 – imposition of VAT – supply of goods/services and
importation of goods and services.
Taxable value on imported goods is the value declared and
determined in accordance with Customs Laws taking into account
the import duty, the excise duty and any other tax payable on the
goods except VAT.
As for the taxable value of imported services, S. 14(2) requires that
it be determined in accordance with the provisions of S. 13. The
Minister shall make regulations in that effect.
 i) Problems Related to S. 14
Why goods are treated separately from services?
- Imports of goods are identified by the physical entry of the
goods [see S. 7(2)].
- Services cannot be identified that way [S.7(4)]. The
consideration is on the supplier.
- Imports of goods is taxable regardless of the ID of the
supplier.
- Imported services means a supply of services on business
outside Mainland Tanzania to recipient who is a resident of
Mainland Tanzania for the purpose of any business carried by that
person. [see The Value Added Tax ( Imported Services)
Regulations, 2001 made under S.14 VAT Act] Regulation 2.
- The value of imported services shall be the total amount paid
for the supply or the value of any form of consideration, and shall
be included in the taxable turnover of any business in determining
liability for registration – Regulation 4.
- Where services are imported the same shall be treated as if
supplied by the recipient himself in Mainland Tanzania in the
course of or in furtherance of his business. This means traders
who receive imported services must account for VAT on the value
of the supply as if he had made the supply himself. This is known
as a”Reverse Charge” procedure.
- The recipient of the service must account for the tax on
imported service when: (Regulation 5)
(a) The service is performed or completed;
(b) The invoice for the service is issued;
(c) Any payment for the service made, whichever is earlier.
- With the importation of services the ID of the supplier is
important.
g) Filling of returns, Payment and Refund of Value Added
Tax in Tanzania Mainland