VALUE Added Tax (VAT) development across the globe has been a major success story in taxation over the last half century, but even with its long existence there is a still need for more improvements in its administration globally.
The Organisation for Economic Co-operation and Development (OECD), an international organisation that works to build policies that foster prosperity, equality, opportunity, and international standards has been in the forefront in development of international standards and guidelines for VAT treatment across border trade to minimise risks of double taxation or un-intended non-taxation which to date remains to be a challenge.
In Tanzania VAT is regulated under the Value Added Tax Act [CAP.148 R.E. 2019]. A basic question that one may ask is-what is VAT?
The acronym stands for Value added Tax. Just like its name, it is a type of tax that is charged on every stage of value addition and it is collected on a product at every stage where value is added to the product from production to the point of sale.
For a manufacturer/ producer, for products, the VAT payable would be the difference between what the manufacturer/producer pays for her inputs e.g., raw materials and what the producer charges for finished goods at the point of sale.
Hence, it is correct to refer to VAT as one of the consumption taxes that is levied on taxable goods, services, immovable property of any economic activity wherever value is added at each stage of production and at the final stage of sale.
In Tanzania, VAT is charged both on locally produced goods and services and on imports. It is important to note that only registered VAT traders can charge VAT in Tanzania.
In the context of VAT, a taxable person means a registered person or a person who is required to be registered for value added tax under the VAT Act.
Who should register for VAT?
A person is required to be registered for value added tax, in respect of any month, if from the first day of that month, there is reasonable ground to expect that his/her turnover in the twelve months period commencing at the beginning of the previous month will be equal to or greater than the registration threshold.
The VAT Regulations have stated the registration threshold, it is therefore important to assess if you meet the below two conditions as far as threshold is concerned and determine if you are registrable.
(a) If your turnover is equal to or greater than Tzs One Hundred Million Tanzanian Shillings in the period of twelve months ending at the end of the previous month; or
(b) if your turnover is equal to or greater than Fifty Million Tanzanian Shillings in the period of six months ending at the end of the previous month. How do I determine my turnover? As per the Value Added Tax Act [CAP.148 R.E. 2019] a person’s turnover is determined as below: It is the sum of-(a) total value of supplies made, or to be made, by the person in the course of an economic activity carried out during that period; and
(b) total value of supplies of imported services made, or to be made, to the person during the period that would be taxable supplies if the person was a taxable person during that period. In determining the turnover for purposes of VAT registration, one should however exclude: (a) the value of a supply that would not be a taxable supply if the person were a taxable person; (b) the value of a sale of a capital asset of the person; (c) the value of a supply made solely because of selling an economic activity or part of that economic activity as a going concern; and (d) the value of supplies made solely because of permanently ceasing to carry on an economic activity.
Other persons required to be registered for VAT
The VAT Act has specifically categorized other persons who may be below the registration threshold but would still be required to be registered under the Value Added Tax Act [CAP.148 R.E. 2019] for VAT.
The categories are as below: (a) A person who carries on an economic activity involving the supply of professional services in Mainland Tanzania, whether those professional services are provided by the person, a member or employee of that person; and (b) the supplies of such services in Mainland Tanzania are ordinarily made by a person who (i) is permitted, approved, licensed, or registered to provide such professional services under any other written laws; or (ii) belongs to a professional association that has uniform national registration requirements relating to the supply of professional services of that kind.
Government entities or institutions which carry on economic activity are also required to be registered for value added tax. The Commissioner General may also register a taxable person as an intending trader upon fulfilling the following conditions- (a) providing sufficient evidence to satisfy the Commissioner of his/ her intention to commence an economic activity, including contracts, tenders, building plans, business plans, bank financing; (b) the person makes or will make supplies that will be taxable supplies if the person is registered; and (c) specify the period within which the intended economic activity commences production of tax able supplies.
Imposition of VAT
Value added tax is imposed and is payable on taxable supplies and taxable imports.
A taxable supply has been defined under the Value Added Tax Act [CAP.148 R.E. 2019] as a supply, which is not an exempt supply, (a schedule for exempt supplies is in the Value Added Tax Act [CAP.148 R.E. 2019]) that is made in Mainland Tanzania by a taxable person in the course or furtherance of an economic activity carried out by that person; or a supply of an imported services to a taxable person who is the purchaser and acquires the services in the course of an economic activity for a supply that is made in Mainland Tanzania by a taxable person in the course of furtherance of an economic activity.
Persons liable to pay
VAT (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.
The amount of value added tax payable is calculated by multiplying the value of the supply or import by the value added tax rate, which is eighteen percent (18%) and where the supply or import is zero-rated, the value added tax rate is zero percent. It should be noted that in an event a supply qualifies to be both exempt and zero-rated, then that supply will be categorized as zero rated.
However, where the supply is both exempt and taxable at standard rate, the supply will be treated as taxable at standard rate.
What is a VAT Return and when is VAT payable?
A VAT return is a form used to submit tax payments to TRA. Currently VAT registered traders are supposed to submit returns to TRA online through e-filing or in paper form.
VAT is payable on 20th day of the following month of the business that is a due date of submitting the return. If the 20th day falls on the Saturdays, Sunday, or public holiday the return will be due for lodging on the first working day following the Saturdays, Sunday, or Public day.
• Taxes on goods and services are commonly referred to as consumption taxes.
• Value-added tax is an example of a consumption tax.
• A consumption tax is charged when consumers spend money, while an income tax is assessed on earned income. It should be noted that a consumption tax is charged to people when they spend money whereas an income tax is levied on people when they earn money or when they receive interest, dividends, or capital gains from their investments etc. Ideally, a properly designed consumption tax system would reward savers and penalize spenders.
• You only incur VAT on the purchase of goods or services.
With VAT, consumers are taxed based on how much they consume rather than how much they add to the economy as opposed to Income tax.
• VAT stands for Value Added Tax.
• VAT registered traders must file a VAT return every 20th day of the following month.
The writer, Godvictor Lyimo, is the President of Tanzania Association of Accountants (TAA), reachable via godvictorl@yahoo. co.uk, Phone: 0787514014