VAT, GST and Sales Tax in Tanzania

Summary

Name of the tax Value-added tax (VAT)
Date introduced 1 July 2015 (effective date of VAT Act, 2014; VAT originally took effect on 1 July 1998)
Trading bloc membership SADC, EAC
Member of the Southern African Customs Union Yes (SADC)
Administered by Tanzania Revenue Authority (www.tra.go.tz)
VAT rates
Standard 18%
Special Relief See relavent section below
Other Zero-rated and exempt
VAT number format 00-111111-A
VAT return periods Monthly
Thresholds
Registration TZS100 million in a year
Recovery of VAT by non-established businesses No

Scope of the tax

VAT applies to the following transactions:

  • The supply of goods and services in Tanzania by a taxable person
  • Reverse-charge services received by a taxable person in Tanzania
  • The importation of goods from outside Tanzania

Who is liable

A registered person that makes supplies of taxable goods and services in Tanzania in the course of furtherance of economic activity is liable for VAT.

VAT registration is required on the attainment of annual turnover of TZS100 million. A taxable person must notify the Tanzania Revenue Authority of its liability to register for VAT within 30 days of becoming liable.

Cancellation of registration. A taxable person who ceases to be liable for registration must notify the commissioner in writing within 14 days after ceasing to become liable. Failure to make such notification, where such failure is made knowingly and recklessly, is punishable by a fine of 100 to 200 currency points (one currency point equals TZS15,000). In any other case, the penalty is from 50 to 100 currency points. Serious failures may lead to criminal proceedings that could result in a custodial sentence.

If the commissioner is satisfied with the notice and if the pay­ment of all VAT due is made, the commissioner cancels the reg­istration, effective from the date of the notification.

Divisions and branches. If an economic activity is carried on in divisions or branches, a taxable person shall have a single regis­tration that covers all economic activities undertaken by that person’s divisions or branches.

Changes in business activities. If the business activities of a tax­able person change, the taxable person must notify the commis­sioner within 14 days after the date of the change.

Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in Tanzania. The law requires a non-established business to appoint a resident person in Tanzania to act on its behalf in matters relating to VAT (also see Tax representatives below). A permanent establishment or branch of a foreign business must register for VAT if it makes taxable supplies of goods or services. A person importing goods or services from a nonresident must pay the Tanzanian VAT due.

Registration procedures. If a taxable turnover exceeds TZS100 million, a taxable person is obliged to apply for the VAT registration within 30 days of becoming liable to make such an application. A taxable person or anyone that the company appoints can submit the application. The application should be accompanied by the following documents: Copies of Memorandum and Article of Association, Certificate of Incorporation, Business license, Tax Identification Number (TIN) Certificate, Lease Agreement and two passport-size photo­graphs for one of the directors. Complete VAT Application Form No. ITX245.02.E, and submit either the hard copy or electroni­cally within 30 days. Online registration is available at www.tra. go.tz. Registration can be completed within 14 working days, if all the required documents are available.

Late-registration penalties. Traders that meet the registration threshold but do not register are liable for a fine of from 100 to 200 currency points where failure is made knowingly or reck­lessly and a fine of from 50 to 100 currency points in any other case.

Notwithstanding any penalties imposed for late registration, a person is liable to pay interest on the VAT due.

Group registration. Not applicable.

Tax representatives. According to the provisions of section 64 of the VAT Act, 2014, where a nonresident carries on economic activities in Tanzania without having a fixed place making tax­able supplies, the nonresident shall appoint a resident representa­tive in Tanzania to act on his or her behalf in matters relating to VAT. Upon acceptance of the representative appointed by the commissioner, the representative will perform on behalf of the taxable person all activities required under the VAT Act, 2014, including the following:

  • Applying for registration, canceling registration and fulfilling other obligations in relation to registration
  • Paying any VAT or fine, penalty, or interest imposed on the nonresident

The nonresident shall notify the commissioner, in writing, that a tax representative has been appointed. A resident person who is a VAT representative of more than one nonresident shall register separately for VAT with respect to each nonresident.

Reverse charge. Applicable for imported services whereby the receiver of the service will be assumed to be the service supplier, and so the input tax will be the same as the output tax for the service imported.

Digital economy. Effective 1 July 2015, nonresident suppliers of B2C telecoms and e-services are required to register for VAT.

Deregistration. A taxable person who ceases to be liable for reg­istration must notify the commissioner in writing within 14 days after ceasing to become liable. A failure to make such notifica­tion is an offense punishable by a fine of from 100 to 200 cur­rency points where failure is made knowingly or recklessly and by a fine of from 50 to 100 currency points in any other case.

The commissioner will cancel the registration if satisfied that the following conditions exist:

  • The person is not carrying on an economic activity.
  • The person has ceased to produce taxable supplies.
  • The person’s taxable turnover falls below the registration threshold.

The cancellation of registration shall be effective from the date set out in the notice of cancellation/deregistration.

VAT rates

The term “taxable supplies” refers to supplies of goods and ser­vices that are liable to a rate of VAT, including the zero rate.

The following rates of VAT currently apply:

  • Standard rate: 18%.
  • Special Relief rates: removed. However, special relief remains for taxable persons who entered into a binding agreement relat­ing to exploration and prospecting of minerals, gas or oil with the government of Tanzania before 1 July 2015, the effective date of the VAT Act, 2014.
  • Zero rate (0%).

The standard rate of VAT applies to most supplies of goods or services in Tanzania. A zero rate applies to exports and certain other supplies (see below).

Examples of goods and services taxable at 0%

  • Exports of goods
  • Supplies of goods and supplies of immovable property to an address outside Tanzania
  • Exports of taxable services to an address outside Tanzania
  • Supplies of goods to a tourist or visitor by a licensed duty-free vendor who holds documentary evidence that the goods have been removed from Tanzania

Examples of exempt supplies of goods and services

  • Agricultural, horticultural or forestry machinery for soil prepa­ration or cultivation, except lawn mower or sports ground roll­ers and parts
  • Agriculture implements (e.g., liquid and powder sprayers, spades, shovels, mattocks, picks, hoes, forks, tractor trailers)
  • Agriculture inputs (e.g., fertilizers, pesticides, fungicides, her­bicides, rodenticides, fungicides)
  • Fishery implements (e.g., fishing nets, fishing vessels, factory ships and other vessels for processing or preserving fishery products)
  • Beekeeping implements (e.g., beehives, honey strainers, bee hive smokers)
  • Dairy equipment (e.g., milking machines, cream separators, milking machines)
  • Medicine or pharmaceutical products not including food sup­plements or vitamins supplied to the government entities
  • Articles designed for people with special needs (e.g., spectacle lenses, sunscreen for use by albinos)
  • Educational materials (e.g., dictionaries, encyclopedias, other printed books, instructional chats, diagrams)
  • Health care services (e.g., medical, dental, nursing, convales­cent, rehabilitation) provided by an institution approved to provide such services, under the supervision or control of a person who is registered as being qualified to perform the ser­vices under Tanzania laws or whose qualifications to perform the services are recognized in Tanzania
  • Transportation of persons by any means of conveyance other than taxicab, rental car or boat
  • Petroleum products and equipment for natural gas (e.g., petrol, diesel, kerosene, CNG plants equipment, natural gas pipes, transportation and distribution pipes)
  • Intermediary services (e.g., financial services supplied free of charge, insurance premiums for aircraft)
  • Import of goods by a registered and licensed explorer or pros­pector for exclusive use in oil, gas or mineral exploration or prospection activities, if also relieved from customs duties
  • Educational services
  • Immovable property (e.g., sale of vacant land)

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” The tax point is the earliest of the following events:

  • The time when the invoice for the supply is issued by the sup­plier
  • The time when the consideration for the supply is received in whole or in part
  • The time of supply, which is one of the following:
    • The time at which the goods are delivered or made available
    • The time at which the services are rendered, provided or performed
    • The time at which the immovable property is “created, trans­ferred, assigned, granted, supplied to the customer” or “deliv­ered or made available,” whichever is earliest

Imports. VAT on imported goods is charged and payable when the custom duty, tax or levy is payable in accordance with the customs law. VAT on imports of capital goods may be deferred.

Recovery of VAT by taxable persons

A taxable person may recover input tax, which is VAT charged on goods and services supplied for business purposes. A taxable person claims input tax by deducting it from output tax, which is VAT charged on supplies made. Taxable persons must claim input tax within six months (effective from 1 July 2015) after incurring the expense.

Input tax includes VAT charged on goods and services purchased in Tanzania and VAT paid on imports of goods and services for which input tax is deductible.

Nondeductible input tax. VAT may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use by a taxable person). In addition, input tax may not be recovered with respect to certain business expenses.

The following lists provide some examples of items of expendi­ture for which input tax is not deductible and examples of items of expenditure for which input tax is deductible if the expenditure is related to a taxable business use.

Examples of items for which input tax is nondeductible

  • Purchase of a passenger vehicle or of spare parts, repair ser­vices, or maintenance services for a passenger vehicle unless the person’s economic activity involves hiring out or providing transport services in passenger vehicles (with seating capacity of more than 16 persons) and the vehicle was hired for that purpose
  • Business entertainment unless involved in the ordinary course of the person’s economic activity
  • Membership or right of entry for any person in a club, associa­tion or society of a sporting, social or recreational nature

Examples of items for which input tax is deductible (if related to a taxable business use)

  • Purchases of goods for furtherance of economic activity
  • Payments for services, such as audit fees
  • Advertising
  • Consultancy fees
  • Accommodation

Partial exemption. VAT directly related to making exempt sup­plies is not recoverable. A registered person that makes both exempt and taxable supplies cannot recover VAT tax in full. This situation is referred to as “partial exemption.”

Under the Tanzanian VAT law, there is only one method for cal­culating the amount of credit recoverable for input tax purposes if a taxable person supplies both taxable and exempt goods, ser­vices or immovable property.

The following are the bases of recovery of input tax:

  • If taxable supplies are greater than 90% of total supplies, credit is allowed for all of the input tax.
  • If taxable supplies are less than 10% of total supplies, credit is not allowed for any of the input tax.
  • In all other cases, there will be partial recovery of the input tax.

Refunds. A taxable person may claim a refund of the excess of input tax over output tax on supplies within a tax period. The commissioner-General of the Tanzania Revenue Authority may grant a taxable person a refund within 90 days after the filing of a VAT refund claim. If excess credits arise in successive periods, the taxable person may apply to the commissioner for refunds to be made monthly.

Each VAT refund claim filed with the commissioner must be approved and supported by a certificate of genuineness issued by an auditor registered with the National Board of Accountants and Auditors (NBAA).

Repayments are made if the taxable person qualifies for a refund. The filing of VAT refund claims can be made within a period of three years after the VAT return is submitted.

Preregistration costs. Not applicable.

Recovery of VAT by non-established businesses

Tanzania does not refund VAT incurred by a foreign business unless the business is registered for VAT.

Invoicing

VAT invoices and credit notes. A supplier of taxable goods and services must issue a fiscal receipt to the purchaser at the time of supply.

Credit notes and adjustment notes may be used to reduce the VAT charged on supplies of goods or services. Adjustment notes must show the same information as fiscal receipts and the nature of or reason for the adjustment.

Proof of exports. Goods exported from Tanzania are zero-rated. However, to qualify for zero rating, exports must be supported by evidence that proves the goods left Tanzania. Suitable evidence includes the following documents:

  • A sales invoice
  • A bill of lading, road manifest or airway bill
  • Export permit
  • In addition to the above, any other evidence requested by the commissioner

Foreign-currency invoices. Foreign-currency invoices are treated in the same manner as invoices in local currency. The tax author­ities do not require the use of a standard exchange rate to convert the value of foreign invoices into Tanzanian shillings. In practice, the tax authorities accept the rate used by the taxable person if the rate is within the range of prevailing market exchange rates.

VAT returns and payment

VAT returns. The VAT tax period is one month. Returns must be filed within 20 days after the end of the tax period. Payment of VAT is due in full on the same date. A nil return must be filed if no VAT is payable (either because the taxable person has made no supplies or because input tax exceeds output tax in the period).

If the normal submission date falls on a public holiday or a week­end, the VAT return must be submitted on the last working day before that day.

An electronic document is considered filed by a person and received by the commissioner when a document registration number is created using the person’s authentication code.

Special schemes. Not applicable.

Electronic filing and archiving. VAT-registered persons are required to file monthly VAT returns by using the TRA web-based system. Daily reports (Z-reports) are filed electronically to record all transactions.

Annual returns. Tanzania only has monthly VAT returns.

Penalties

The late filing of a VAT return or failure to pay tax by the due date is subject to a penalty of 2.5% of the amount of tax assess­able with respect to the tax return less tax paid by the start of the period or 15 currency points, whichever is higher. The penalty is payable for each month or partial month for which the failure continues.