VAT

VAT is an abbreviation for Value-Added Tax.

 It is an indirect tax on the consumption of goods and services in the economy.

 It is charged on value added at each stage of production and distribution.
 It is collected and paid to TRA by registered person for VAT purposes.
 The burden of VAT falls on the final consumer.

How VAT works

 Any person who is supposed to charge VAT must be registered under VAT. Thus each
registered person from manufacturer to retailer is supposed to charge VAT on taxable
supplies made by him (sales).

 At the same time, when that person makes purchases, is charged VAT on the taxable
purchases (Input VAT). Therefore the person should pay to or recover from an amount
from TRA on the difference between VAT charged by him on taxable sales (Output VAT)
and VAT charged by him on taxable purchases (Input VAT).

Therefore VAT payable = Output tax – Input tax

Output tax= VAT on taxable sales

Input tax= VAT on taxable purchases

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Types of VAT

The selection of an appropriate type of VAT is crucial in the formulation of a viable VAT
system. There are three possible VAT options: consumption, income, and gross domestic
product types.

(i) Consumption VAT

Under consumption VAT all supplies of goods and services including purchases of capital
goods are taxable and their input taxes are deductible in the period of acquisition .In this
case, the firm in question is allowed to deduct the gross value of its product not only the
noncapital inputs purchased from other firms but also the capital equipment so purchased
i.e. the tax base is sales proceeds minus (capital goods purchased + materials purchased).

(ii) Production VAT (Gross Product VAT)

Production VAT recognizes only revenue transactions and totally disallows input taxes
deduction on capital goods. The tax base under gross product VAT for any firm is just sales
minus materials (other than capital goods/fixed assets). This kind of VAT discourages
investment because the VAT paid on purchase of fixed assets is not refunded.

(iii) Income VAT

Input tax paid on purchases of capital goods is spread over the life span of the product or
Assets. In the income approach, all goods and services supplied are taxable but inputs paid
on the purchases of capital goods are spread over the span of the products or assets as
deprecation. Hence, the tax base is sales proceeds less material purchased + depreciation
of capital equipment.

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Arguments For and Against VAT

The advantages of Value Added Tax (VAT) include:

(i) It is a broad –based tax. VAT covers many goods and services.
(ii) VAT promotes efficiency in production
(iii) VAT has a neutral distributive effects
(iv) VAT is simple in administration e.g only two tax rates (0% and 18%)
(v) VAT minimizes tax evasion, as selling prices are inclusive of VAT. Therefore, the
customer has no option to evade VAT.

The disadvantages of value Added Tax (VAT) include:

(i) Generally, the VAT is regressive in nature. The rich and the poor have to pay the
same rate of VAT on commodities. This may further increase income disparities
among the rich and the poor.
(ii) VAT increases costs of goods and services for final consumers. This increase in
price might results in inflation.
(iii) There is need for appropriate record keeping and frequent crosschecking. This
tends to impose burden to small firms. E.g. monthly filling requirement, the
apportionment of input tax.

It is or consumption tax, therefore it may affect the Level of consumption in a country

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Methods of VAT computation

In the design of VAT, there are three options for VAT computation:

(i) Addition method

This method takes the total of rewards to factor of production and applies tax rates on that
figure. The rewards might include wages, interest, rents, and profits

(ii) Subtraction method

Under this method the tax base is found by deducting purchases from sales. Under this
method the tax base for a VAT is calculated as Gross receipts less purchases of goods (less
capital goods if VAT is consumption VAT)

(iii) Credit method/invoice method

The credit method requires the deduction of input tax from output tax in every VAT
accounting period.

This is the method Tanzania use for its VAT. Therefore, under the tax credit method, a
taxpayer is allowed to deduct all deductible taxes paid (and payable) from all taxes collected
(and collectible) in the respective reporting period.

Hence: VAT Payable/Refund = Output tax – Input tax

Calculation of VAT using credit method

Computation of VAT occurs at two levels:

 VAT on transactions

Under this level/stage, whenever a registered person makes sales the VAT will be calculated
and when the person makes purchases the VAT will also be calculated i.e. input tax

It is calculated by using VAT rate or VAT fraction.

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Note:

Use VAT rate (r=18%) when consideration of a transaction is VAT exclusive.

Use VAT fraction (=r/100+r=18/118) when the consideration of a transaction is VAT

inclusive.

 VAT Payable or Refund=Output tax – Input tax

Tanzania VAT system

Tanzania VAT system is a consumption type, taxing all taxable transactions whether involving
capital or revenue expenditures.
Consumption tax system encourages investment as input taxes incurred on purchase of
capital goods are deductible in computation of value added tax liabilities.

Method of Computing VAT in Tanzania

Credit method is used in computation where a taxpayer is allowed to deduct input tax from
output tax in respective accounting period.
The VAT system has two rates (0%-zero rate and 18%-standard rate).
Persons Liable To Pay Value Added Tax (Taxable Persons)

Imposition
Value added tax is imposed and payable on taxable supplies and taxable imports. (Sec 3)

Person liable to pay VAT

Section 4 of the Act provides that, the following persons are liable to pay Value Added Tax-
(a) In the case of a taxable import, the importer;
(b) In the case of a taxable supply that is made in Mainland Tanzania, the supplier; and
(c) In the case of a taxable supply of imported services, the purchaser.

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SUPPLIES
A supply can be defined as something, goods or services available for another person either
for consideration or otherwise.
Types of supply
For VAT purposes, there are 3 types of supply. These are:
(i) Taxable supplies
 Standard rate - 18%
 Zero rate – 0%
(ii) Exempt supplies
(iii) Outside the scope

(i) Taxable Supplies

Are supplies which VAT is imposed. Under the Act, is defined as supplies other than exempt
supply.

Taxable supplies could be:

 At standard rate
 At zero rate

The zero rated supplies are specified from section 54 to 63 of the Act as follows:

1. A supply of immovable property, if the land to which the property relates is outside
the United Republic.-section 54
2. A supply of goods exported outside URT including goods supplied to a tourist or
visitor by a licensed duty-free vendor-section 55
3. A supply of goods by way of lease, hire, license, or similar supply, to the extent that
the goods are used outside the United Republic. However, if the goods are a means
of transport and the total period of the lease, hire, license, or similar supply is equal
to or less than thirty days, are not zero rated –section 56

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4. A supply of goods made in the course of repairing, maintaining, cleaning, renovating,

modifying, treating, or otherwise physically affecting temporary imported goods. (i.e.
goods imported for re-export)-section 57
5. A supply of goods or services ,relates to the repair or replacement of goods under
warranty, by warrantor, who is a non-resident and is not a registered person- section
58
6. Goods for use in international transport, (section 59) e.g
 Goods for use in repairing, maintaining, cleaning, renovating, modifying,
treating, or otherwise physically affecting an aircraft or ship engaged in
international transport.
 Goods for use in the aircraft or ship, fuel, and spare parts, and other articles
or equipment, whether or not for immediate fitting.
7. A supply of services directly related to land outside the United Republic including a
supply of services physically performed on goods situated outside the United
Republic at the time the services are performed. Section 60
8. A supply of services made in the course of repairing, maintaining, cleaning,
renovating, modifying, treating, or otherwise physically affecting temporary imported
goods.(i.e. goods imported for re-export)section 61
9. A supply of services consisting of filing, prosecuting, granting, maintaining,
transferring, assigning, licensing, or enforcing intellectual property rights for use
outside the United Republic.-section 62
10. A supply of telecommunication services by a telecommunications service provider to
a non-resident telecommunications service provider. – section 63

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(ii) Exempt Supply

It is a supply in which no VAT is chargeable. Section 2 of the VAT Act defines exempt supply
as a supply which is specified as exempt under the Act.

List of exempt supplies under the VAT Act are as follows:

1. Agricultural implements
2. Agricultural inputs
3. Livestock, basic agricultural products and foods for human consumption
4. Fisheries Implements
5. Bee-keeping implements
6. Diary equipment’s
7. Medicine or pharmaceuticals products, including food supplements or vitamins
supplied to the Government entities
8. Articles designed for people with special needs
9. Education materials
10. Health care
11. Immovable property
12. Educational services
13. Intermediary Services
14. Government entity or institution
15. Petroleum products
16. Supply of water, except bottled or canned water or similarly presented water.
17. The transportation of person by any means of conveyance other than taxi cabs,
rental cars or boat charters.
18. Supplies of arms and ammunitions, parts and accessories thereof, to the armed
forces.
19. Funeral services, for the purpose of this item funeral services includes: coffin,
shroud, transportation, mortuary and disposal services of human remains

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20. Gaming supply.

21. Supply of solar panels, modules, solar charger controllers, solar inverter, solar
lights, vacuum tube solar collectors and solar battery.
22. Supply of air charter services

(iii) Supplies outside the scope of VAT

A supply is out of VAT system if it results from an activity which is not an economic
activity. For instance, salaries, other government taxes, appropriation of cash from
businesses and other supplies made by non-VAT registered traders.

Examples:
-Depreciation –Donations, Gifts –Wages, Interest –Rent on land

Distinction Between Composite And Multiple Supplies

A composite supply
A composite supply occurs if a mixture of goods and/or services is supplied together in such
a way that it is not possible to split the supply into its component parts.

Thus, the supply as a whole must be considered in order to determine the rate of tax due (if
any). The composite supply applies where there is a principal element as well as an ancillary
element and where ancillary element would not be supplied on its own without the principal
element. An ‘ancillary service’ is defined as something that does not constitute for customers
an aim in itself but is a means of better enjoying the principal service supplied. Example
 Supply of mobile phone with an instruction manual
 Supply of lectures and learning materials
 Supply of Computer software coupled with training on how to operate

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Multiple supply
Multiple supply is defined as being two or more supplies made in conjunction with each
other to a customer for a total consideration covering all those where each of those supplies
are physically and economically dissociable from each other.
 For example a car dealer may sell new or used cars with one year’s free servicing.
 A computerized accountancy package is sold with one year's after sales support.
In this arrangement each of this supplies made in conjunction with others is treated
as an individual supply and taxable /exempt in its own right.
Place Of Taxation For Goods And Services.

VAT is a destination based tax, i.e., the goods/services will be taxed at the place where they
are consumed and not at the origin. So, the state where they are consumed will have the
right to collect VAT. This, in turn, makes the concept of place of supply crucial under VAT as
all the provisions of VAT revolve around it.

The Time When Value Added Tax Becomes Payable (Time of Supply)
The tax point is the time when a supply is deemed to have taken place for VAT purposes.
The tax point is important in respect of supplies for VAT purposes because:

 The tax point is used for determining the tax period in which VAT relating to the supply
should be accounted for and;
 The tax point is used to decide which scheme or VAT rate will apply to a supply when
there is a change in the VAT scheme of VAT rate.

 Section 2 of the VAT Act, 2014 provides the rules for determining time of
supply as follows Time of supply
 in relation to a supply of goods, the time at which the goods are delivered or
made available;

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 In relation to a supply of services, the time at which the services are rendered,
provided, or performed;
 In relation to a supply of immovable property, the earlier time at which the
property is created, transferred, assigned, granted, or otherwise supplied to
the customer; or delivered or made available.

The Concept of Consideration of Supply

Sec 13(1) For the purpose of VAT act consideration as used in relation to a supply means
sum of the following amounts:
a) the amount in money paid or payable by the person in response to, or for the
inducement of the supply; and
b) the fair market value of anything paid or payable in kind, whether directly or indirectly,
by any person in respect of, in response to, or for the inducement of the supply.
Taxable of Value of imports

The value of an import of goods is the sum of –

a) The value of goods for the purposes of customs duty under the East African Customs
Management Act, whether or not duty is payable on the import;
b) Of the amount of any customs duty payable on the import; and
c) To the extent not included under paragraph (a) or (b) in respect of
i. The cost of insurance and freight incurred in bringing the goods to Mainland
Tanzania; and
ii. The amounts of any tax, levy, fee, or fiscal charge other than customs duty and
value added tax payable on the import of the goods.

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VAT REGISTRATION AND REGISTRATION

VAT is charged and thus payable by every person registered under the provisions of the VAT
Act, 2014 to become a VAT registered trader. Other traders or any other persons who are
not registered for VAT are not allowed to charge VAT whatsoever.

The purposes of registration are to:

(a) Record the particulars of taxable persons for the purpose of control and collection of tax.
(b) Enable them to take credit of input tax on their purchases of taxable supplies; and
(c) Allow them charge output tax on their taxable supplies and to issue tax invoices.

Types of VAT Registration

There are 3 main types of registrations: Normal registration, Voluntary registration and
intending traders’ registration.

(i) Normal registration / Compulsory

If a person’s taxable sales exceed the registration threshold or have the reason to believe
that it will exceed, then the person need to register.

The registration limit is currently a cumulative total taxable turnover of TZS 100,000,000 for
the last twelve consecutive months. Whether the threshold is exceeded or not may be tested
as follows:

Historic Turnover Test

The trader is required to look at the cumulative total of taxable sales for the last 12 months
if it exceeds TZS 100,000,000 (or for the last 6 months if it exceeds 50mil) or since the
commencement of business whichever is shorter. If the total exceeds the registration limit,
currently TZS 100 mil, then the trader must apply for registration by notifying the
Commissioner in writing within 30 days since the end of the month in which the turnover
exceeded the limit.

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Future Prospects Test

This test is considered at any time, when taxable supplies in the next 30 days are expected
to exceed a per annum cumulative total taxable turnover of TZS 100mil or a consecutive 6
months cumulative total taxable turnover of TZS 50mil.
Turnover for registration purpose:
Taxable turnover from sales of goods and services is considered.
The following turnover should be excluded when calculating turnover for registration purpose:
 Exempt supplies
 Sales of capital asset of a person
 Sale of economic activity as a going concern

(ii) Voluntary registration

It is when a person applies for registration even if has not yet reached the threshold. If the
commissioner accepts, the person would be registered.
 Conditions for voluntary registration:
 Person must have fixed place of business.
 Person must have proper accounting system.
 Particulars and address of the person should be present.

(iii) Intending traders registration

VAT Act, 2014 allows any person who has grounds for believing he will qualify for registration
to apply for registration. Traders who intend to start trading fall into this category and may
seek registration in order to recover any input tax incurred in setting up the business (e.g.
equipment, office machinery, lawyers, and architects fees).
Conditions:
(a) provide sufficient evidence to satisfy the Commissioner of his intention to commence an
economic activity, including contracts, tenders, building plans, business plans, bank
financing;

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(b) The person makes or will make supplies that will be taxable supplies if the person is
registered;
(c) Specify the period within which the intended economic activity commences production of
taxable supplies.

Rights and Obligations of Vat Registered Persons

Once registered, the taxable person will be issued with a registration certificate and the VAT
Registration Number (VRN).

The taxable person will be required to display the certificate at a conspicuous place in the
business premises. Moreover, he will be required to quote the VRN number on each tax
invoice issued. Then the person will be entitled to the following requirements:

i) Charge output tax on each taxable supply

ii) File returns
iii) Recover input tax (subject to some restrictions)on business purchases and
expenses
iv) Maintain appropriate VAT records
v) Use Taxpayer Identification Number and a Value Added Tax Registration Number
on all documents required to be issued.

On top of the above requirements, the registered person is required to notify the Commissioner
in writing in respect of “changes in business circumstances”.

 A Person’s particulars/circumstances often change after registration. Quite often these

changes can affect the ‘legal entity’ of the business and action needs to be taken by the
trader and by the VAT Department. Section 37 of the VAT Act and Regulations 16 deals

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with this situation, under section 37 ,a registered person shall, notify the Commissioner
General in writing; within fourteen days of the occurrence of the following changes-
a) The name of the registered person, business name, or trading name of the
person;
b) The address or other contact details of that person;
c) One or more places through which the person carries on an economic activity in
Mainland Tanzania;
d) The nature of one or more of the economic activities carried on by the person;
e) The person’s status as a registered person; and
f) Any other changes as prescribed in the regulations.

Registrations of Branches And Divisions

Many businesses operate from more than one set of premises (branches) or may structure
their organization and create autonomous units within same legal entity and describe them
as divisions. However, the registration by a kind of business shall be a single registration,
which shall cover all economic activities undertaken by that person’s branches or divisions.

DE-REGISTRATION
Is the process of removing or cancelling a registered person from the VAT registration.
Circumstances for deregistration
(i) Taxable person ceases to make taxable supplies. If a taxable person ceases to
make taxable supplies such person will then be cancelled from VAT registration.
(ii) Taxable turnover falls below the registration threshold. A registered person ceased
to be liable for registration when the Commissioner is satisfied that the level of
taxable supplies has fallen below the registration threshold.
(iii) Cessation of economic activity /business. If a registered person ceases to carry
on an economic activity and will no longer carry on a business, the registration

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may be cancelled. Section 41(1) (b) gives powers to the Commissioner General to
cancel the registration of a person who is not carrying on an economic activity;
(iv) Provision of false or misleading information. Section 41(1) (a) provides that, the
commissioner may cancel the registration of the person obtained registration by
providing false or misleading information.

Procedures for Calculating and Payment of Net Amount (VAT Payable or Refundable)
 VAT on a taxable supply of goods or services shall be payable by a taxable person at
the end of a prescribed accounting period or at any time which the Commissioner
may prescribe.
 The prescribed accounting period currently prescribed by the Commissioner is each
calendar month.
INPUT TAX DEDUCTION
A taxable person is entitled to claim as a deduction any VAT he has incurred on acquisition
of goods or services for the purpose of business.

The input tax is claimed by deducting it from the output tax in the VAT return.
Conditions for input tax deductions
i. A person seeking to claim input tax must hold satisfactory documentary evidence
e.g fiscalized involve or receipts.
ii. The supply must be incurred for the purpose of business.
iii. The amount that is claimed must be VAT charged by another taxable person or
related to taxable importation. iv. The input tax claimed should not been incurred
for more than six months from the date of invoice.
iv. The purchases must not be subject to restrictions i.e. should not be non-creditable
purchases as defined in VAT

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Non creditable purchase

a) Purchases of passenger vehicle including its spare parts and subsequent repair and
maintenance. Note: passenger vehicle is the vehicle which its passenger sitting
capacity is 16 persons or less, such as saloon cars.
b) Entertainment expenses e.g. provision of food prwelages, hospitality, recreation, and
amusement to employees, customers or suppliers.
c) Subscription fees for membership. A taxable person shall not be allowed an input tax
credit for acquisition of membership of a club or right of entry in a club or association.
Other restrictions
No input tax shall be claimed
i. For purchases without documentary evidence
ii. Purchases from non-registered person
iii. Time bared purchases i.e. purchases made more than six months from the date
of claiming input tax.

Bad debts relief s.74 of VAT Act

When the taxable person makes taxable sales on credit charging VAT on that sales, may
claim an input tax for VAT on any bad debts written off.
Conditions for bad debts relief:
1. The consideration to a taxable supply must be payable in monetary terms
2. The taxable person must have accounted for a sale on the VAT return.
3. The amount of debt has become overdue by more than 18 months from the due date. 4.
The person has undertaken all necessarily actions to recover the debt unsuccessfully. 5. The
entry in the books of accounts to write off the debts has been made.
Pre-registration input tax. S.79
Generally the person who is not registered for VAT is not entitled to claim input tax in respect
of goods of services purchased. However when such person becomes registered, input tax
incurred on purchases, of goods prior registration, may be claimed in the following conditions:

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i. The goods are still in the stock at the date of registration

ii. The goods were purchased not more than 6 months before registration.
iii. The person has necessarily supporting documents to support the claim.

Limitations of input tax to be claimed on purchase made prior registration.

S.79 (2) provides that the maximum amount to be claimed it shall be the lesser of;

a) The input tax actually paid on purchases/import

b) The tax function of the fair value of the goods at the time the person becomes
registered.

Input tax on importation of goods and services

Imported goods
S.3 of VAT act states that VAT shall be payable and imposed on taxable imports.
Further S.4 (1) provides that the person liable for VAT in case of taxable imports is the
importer.
However the final burden may fall to consumers.

Value of imports for VAT purposes

Under S.9 (1) (2) provide that the value of imported good shall be the sum of
a) Custom value as determined under the EACCMA
b) Import duty
c) The amount of any tax levy payable on the import of goods e.g. Railway & development
levy, excise duty, etc.
Imported services
VAT on imported services is accounted for, by using the reverse charge method/system.
Under this method the relevant services are treated as being supplied both by and to the
importer.

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 The means that the importer of service is regarded, the purchaser as well as the seller
of the services.
 Hence the importer shall account both the output tax and input tax on the transaction.

 The effect of the procedure is that, there is no financial impact on the taxable importer
since the imported services is treated as the supply made to him, also as a supply
made by him (sales).
The rationale for reverse VAT system/reasons
i. The reverse VAT system moves/shifts the less responsibility for the reporting of
VAT transaction from the seller to the buyer of service to avoid multi-VAT
registration in the country of sales.
ii. . To prevent VAT fraud by not allowing foreigners to charge VAT and disappear
with the amount
iii.
Partial input tax credit s.70
The registered person who deals with both taxable and exempt supplies is subject to partial
input tax credit on goods and services incurred for making both exempt and taxable supplies.
The law limits the right to claim input tax incurred for the purpose of making both taxable
and exempt supplies and allow full credit on input tax credit for making taxable supply only.
Input tax incurred for making exempt supply only should not be allowed.
S.70 (2) together with regulation 27 provides the formula to apportion the input tax that is
incurred or making both taxable and exempt suppliers.
The regulation provides steps that are to be followed in order to calculate the deductible
input tax as follows:
Steps 1: Categorize input tax into the following categories;
Category A – Input tax that is directly attributable to taxable supplies in a given period
Category B – Input tax directly attributable to exempt supplies in a given period
Category C – input tax attributable to both taxable and exempt suppliers in a given period.

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Step 2: Calculate the proportion of taxable sales (VAT exclusive) to total sales i.e. taxable
and exempt sales.
Step 3. Multiply the proportionate obtained in step 2 by the amount obtained in category C
in step 1.
Therefore= input tax to be claimed
= A + Taxable sales x C All sales Where by A = input tax in category A
C = input tax in category C
Note: input tax in category B is totally derived, i.e. not deductible

Further S.70 (4) provides that

If: taxable sales > 0.9
All sales the taxable person shall be allowed to claim all input tax in category C.
If: taxable sales < 0.1
All sales the taxable person shall not be allowed to claim any of input tax in category C

ANNUAL INPUT TAX ADJUSTMENT

The amount of input tax deductible for a partial exempt trader shall be a provisional amount.
At the end of each accounting year annual input tax credit must be calculated to determine
the correct input tax deductible. Annual input tax adjustment is calculated as follows;
i. Calculate total input tax on monthly basis
ii. Calculate total input tax in reference to annual figures
iii. Work out the amount of adjustment by subtracting the amount worked in i from
the amount calculated in ii (ii-i).
iv. If the adjustment result to a positive amount this is VAT payable
v. If the adjustment result to a negative amount this is a VAT refund

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FILLING OF VAT RETURN

A taxable person is required to file a Vat return on the 20th day after the end of the tax
period. Note: tax period for VAT purpose is a calendar MONTH. If the 20th day falls on a
non-working day or a public holiday, the VAT return must be submitted on the 1st working
day following a non-working day or a public holiday. Consequences for future to file returns
on due date: A person who fails to file a vat return on the due date is liable for a penalty for
each month or part of the month during which the failure continues equal to the higher of: i.
2.5% of the amount of VAT shown on the return ii. 5 currency points in case of an individual
or 15 currency points in case of a company/entity.
Note: 1 currency point = TZS 15,000

Interest for failure to pay VAT

Where any amount of VAT due remains unpaid the interest shall be payable at a statutory
rate applied to unpaid amount compounded monthly for the whole period remaining unpaid.
Interest = P [(1+r) n - 1] p= unpaid tax r=Statutory rate (7% if not given BOT rate) n=number
of months in which tax remain unpaid

VAT OFFENCES S.90 TAA 2015

The following are offences specifically applied to VAT:
 Failure to apply for registration as required under VAT
 Failure to notify the Commissioner General of Changes in circumstances
 Failure to notify the Commissioner General about the changes in ownership
of the business.
 The person to hold himself as a taxable person where it is not eg. Charging
VAT while not registered.

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NOTE: The above offences attract a fine of 100 up to 200 C.P or imprisonment for 1 to 2
years or both.

Records to be maintained by VAT registered person/traders a. Electronic fiscal receipts and

invoices. All purchases and sales made shall be accompanied with electronic fiscal receipt
or invoice.

Tax Invoices

(1) A tax invoice shall prominently bear the words “tax invoice” on its face.

(2) A tax invoice for the supply of goods or services shall include the following particulars,
namely:-

(a) The taxable person’s name, address, TIN and VAT registration number.

(b) The date of supply

(c) The number of the invoice taken from a consecutive series;7

(d) The customer’s name, address, TIN and his VAT registration number;

(e) A description sufficient to identify the goods or services supplied which includes the
quantity of goods or the extent of services supplied, tax exclusives price for each
description of goods or services supplied, rate of tax, and

(f) The rate of any discount.

(3) A tax invoice shall indicate:-

(i) The total charge exclusive of tax.

(ii) The total tax charged; and

(iv) The total charge inclusive of tax.

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VAT REFUND

Refers to situation where the taxable person is being repaid the taxes by the tax authority.
Circumstances for VAT refund

 Excessive credit (i.e excessive input tax) in a particular period (i.e there are more
purchases than sales)
 Purchases of expensive capital goods
 Zero rated supplies i.e there is no output tax charged on zero rated suppliers, but the
input tax was incurred on their purchases.
 Supply made to relieved persons e.g. diplomats
 Over payment. This is when a taxable person over pay the amount of VAT required.

Approaches for VAT refund

a) Carry forward of negative amount In this approach taxable person is required to carry
forward excessive VAT credit for a specified period before a repayment can be claimed eg.
In Tanzania it is 6 months.
b) Outright refund this approach applies most to exporter i.e they are refunded immediately
when the refund arises.
Requirement for affecting refund claim
i) Refund shall be accompanied with documentary evidence
ii) Claim should be accompanied with certificate of genuineness from the registered tax
auditor with NBAA, who is also registered with TRA as tax consultant.
iii) Refund claim should not be accepted if it is beyond 3 years.
iv) It should contain computation workings of the refund amount.

Recap Persons liable to VAT (5.3 VAT Act)

 The following persons are liable to pay VAT
i. Importer – in case of taxable imports

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ii. Supplier – in case of taxable supplies that is meant tin mainland Tanzania
iii. Purchaser – in case of taxable supplier of imported services.

 When value added becomes payable VAT becomes payable at the earlier of
a) The time when the invoice is issued by a supplier
b) The time when the consideration for the supply is received
c) The time of supply. Note: time of supply means in relation to supply of goods the
time at which the goods are delivered.
 In relation to supply of services, the time in which the services are rendered.
Where does VAT apply?
 Taxable supplies
 Taxable imports

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REVIEW QUESTION

Question 1

Joshua Co. Ltd imported goods worth TZS 20,000,000 from London, after paying freight of
TZS 2,000,000; insurance for TZS 1,000,000 and TZS 200,000 for clearance at a UK port.
Determine the taxable value for VAT purpose given the import duty as 25%, excise duty of
20%, Railway and Development Levy of 1.5% and VAT rate of 18%.The taxable value of
imported goods is the value of the goods after including other expenses and taxes except
VAT according to customs valuation model.

Required: Compute taxable value

Question 2

Nchimunya started running a retail business making standard rated taxable supplies on 1
June 2017. She made sales of Tshs 6,000,000 in the month of June. Her sales increased by
Tshs 21,000,000 each month from July 2017 to November 2017. From December 2017, she
expects sales to be Tshs 17,000,000 per month. Her standard rated expenses were Tshs
35,000,000 per month and are expected to remain at this level in future. Nchimunya is not
sure whether she is required to register her business for Value Added Tax.

Required

i. Explain the Value Added Tax registration requirements to Nchimunya.

ii. State, giving reasons, when Nchimunya will be required to register for VAT.
iii. Explain three (3) obligations Nchimunya will have once she registers her business for
VAT

Question 3

Explain five circumstances where input VAT is not claimable

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Question 4

Maziku Limited is a cooking oil processing company located in Ndala, Tabora region, and is
registered for value added tax (VAT). Maziku Limited entered into the following transactions
in the month of September 2018:

1. Sold taxable supplies to customers as follows: Sales to VAT registered customers Tshs
3,835,000 (VAT inclusive) and Tshs 675,000 to unregistered customers.

2. Bought a brand new pick-up from Toyota at Tshs 3,250,000.

3. Bought stationery worth Tshs 65,000 from suppliers who are not registered for VAT.

4. Entertained major customers at a local hotel at a cost of Tshs 246,100.

5. Bought ground nuts from local farmers at a cost of Tshs 1,250,000.

6. Paid for electricity and telephone at Tshs 32,140 and Tshs 44,100, respectively.

7. A consultant on production processes was hired from South Africa. The consultant has no
local office; as a result he is not registered for VAT. He invoiced Tshs 1,650,000 for the work
done.

8. Bought an EFD machine from BMTL Suppliers at Tshs 175,800.

9. Received a deposit on sale to a customer amounting to Tshs 465,000. Unless specifically

stated, all the above persons are registered for VAT and the transactions are stated exclusive
of VAT.

Required:

Calculate the VAT payable or any excess carried forward for the period

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Question 5

State any four (4) conditions which must be met for a business to claim bad debt relief. (4
marks)

Question 6

(a) Daudi came to you for advice, he is about to commence a business on 1st December,
2019 as a sole trader. He will be engaged in selling motor vehicle accessories which are all
standard rated for VAT purpose. His business plan indicates that his turnover will be
approximately TZS.45, 000,000 for the first three months. He will have substantial
expenditure on equipment and stocks. He is new in the business and seeks your advice on
the VAT implication of running this sort of business.

REQUIRED:

Draft a report advising Daudi on the VAT implication on his business.

(b) Below is the extract of the business transactions from the shop of Asha for the month of
January 2019, who deals with mixed business and is VAT registered.

The purchases made (VAT Exclusive)

1. Sugar whole sale TZS.2, 750,000

2. Bags for packing wheat flour for retail selling TZS.759,000

3. Goat milk TZS.890, 000

4. Packed cow milk TZS.685, 000

5. Body lotion 50 pieces TZS.150, 000

6. Artificial hair for ladies TZS.850, 000

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7. Hay making machine TZS.2,100,000

8. Electricity TZS.260,000

Also, the sales book has the following detail (VAT Exclusive)

1. Sugar TZS.3,000,000

2. Bags for packing wheat flour TZS.720,000

3. Goat milk TZS.800,000

4. Packed milk TZS.590,000

5. Medicated soap TZS.600,000

6. Soft drinks TZS.200,000

7. Sorghum TZS.300,000

8. Rice TZS.200,000

Additional information

- Goat milk purchased was not processed.

- Owner took packed cow milk costing TZS.65,000 for home consumption

REQUIRED:

Calculate the amount of input tax refunded in the filing of the VAT return. (10 marks)

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