THE 15TH ANNUAL CONFERENCE OF THE VALUE ADDED TAX ADMINISTRATORS THE 15TH ANNUAL CONFERENCE OF THE VALUE ADDED TAX ADMINISTRATORS IN AFRICA (VADA) THE IMPORTANCE OF AUDIT TRAIL IN VAT INPUT CREDIT SYSTEM A CASE OF TANZANIA   Mrs. Mrema N.G.F. Commissioner, Large Taxpayers Tanzania Revenue Authority November, 2012 TID TID

COVERAGE Introduction Audit trail for VAT Input Credit System Legal framework for the Audit Trail in a VAT Input Credit System Types of audits in VAT audit trail Importance of audit trail Audit trail tools Conclusion

INTRODUCTION The Value Added Tax (VAT) was introduced in Mainland Tanzania and Zanzibar in 1998 under two separate legislations. The tax was introduced to replace Sales Tax. The Sales Tax was particularly notorious for its adverse effects on business due to its cascading effects, and lack of neutrality. It had multiplicity of rates.

INTRODUCTION cont…….. two systems of accounting for VAT. Invoice based VAT credit system Subtraction System. The VAT invoice based system was adopted by TRA as opposed to subtraction system . The main reasons was poor capability of record keeping for most of traders, who were under the sales tax regime and the same traders were registered for VAT. VAT administration in the world have two systems of accounting for THE tax. Invoice based VAT credit system and Subtraction System. Invoice based credit system VAT is charged at each stage of distribution chain and taxable person is allowed to claim input tax based on the tax invoice issued by the supplier.

AUDIT TRAIL FOR VAT INPUT-CREDIT SYSTEM VAT is a self-assessment tax, as such a registered trader charges, collects and accounts for the tax collected. As a self-assessment system, audit trail is an indispensable part of control. The most risky area is the determination and accounting for input VAT.

AUDIT TRAIL FOR VAT INPUT-CREDIT SYSTEM cont….. The Value Added Tax payable is always a difference between output and input tax Output tax is relatively not at higher risk as it can is easily be determined and monitored frequently and there is no incentive to the trader’s side to over declare the tax. VAT audits focus more on input tax than output tax.

AUDIT TRAIL FOR VAT INPUT-CREDIT SYSTEM cont……. Introduction of supplementary VAT return (Form VAT 201A) to the main return (Form VAT 201. Requires a registered trader to record in brief every supply made to him in the respective of tax period, TIN and VRN number of the supplier and value of the supply VAT exclusive.

LEGAL FRAMEWORK FOR THE AUDIT TRAIL IN A VAT INPUT-CREDIT SYSTEM Provisions of the laws applicable in Audit: Value Added Tax Act Cap 148. Required to issue a Fiscal Receipt or Electronic Tax Invoice. collect and record and account for the VAT

LEGAL FRAMEWORK cont….. Time allowed for claiming input tax The law provides for six months period from the date of invoice for input tax to be claimed. Time allowed for claiming excess credit Taxable person having excess credit for six months consecutively is allowed to claim refund from the Authority.

LEGAL FRAMEWORK cont….. Electronic Fiscal Device Regulations under VAT Act The Value Added Tax (Electronic Fiscal Devices) Regulations, 2010 were made under sections 30 and 69 of The Value Added Tax. The Regulations apply to any user doing business in Mainland Tanzania Income Tax Act provisions The Income Tax Act, Cap 332.

LEGAL FRAMEWORK cont….. The East African Community Customs Management Act, 2004 and The East African Community Customs Tariffs Act, 2004 The Acts facilitate administration of tax on imports.

TYPES OF AUDITS IN VAT AUDIT TRAIL There are two types of audits Desk Audits These are conducted to determine accuracy of declaration of returns submitted by taxable person. “Face vetting of returns”. Field audits These are being conducted at taxable person’s premises

IMPORTANCE OF VAT AUDIT TRAIL In our case the importance of the system cannot be measured or determined by comparing between the two system as we have not applied the other method, however the importance is embedded in general principles of each system. General importance Safeguarding Government revenue . In establishing concealed taxable person’s tax liability.

General importance cont…. Is a control tool which ensures that transactions are conducted transparently, honestly and under objectivity Identification of input tax claims related to exempt supplies. Useful tool in gathering evidence for prosecution of fraudulent person.

Specific importance Improvement in revenue collection The system, among other factors, improved revenue collection for VAT and Corporation tax through controlling underreported Sales and over claimed input tax. The following charts depict the VAT and Corporation tax collection trends.

Specific Importance (Contd.) VAT COLLECTIONS TREND (MILLION TSHS) TID

Specific Importance (Contd.) CORPORATION TAX COLLECTIONS TREND) (MILLION TSHS) TID

Specific Importance (Contd.) Gathering of evidences to be used for sanctions against fraud and tax evasion Monitoring and verification of the tax refunds as we are required to refund only the genuine claim Compatibility and works easily with other TRAs` automated systems TID

AUDIT TRAIL TOOLS ITAX System: various reports generated by the system and e filling of VAT Returns Electronic Fiscal Devices: Through facilitation of issuance of proper fiscal Tax Invoices/Receipts and respective reports generated i.e. Z reports Electronic fiscal devises provide a good input to tax audit trail.

ASYCUDA ++ Input tax on importation is claimable. Provides information on importation such Description, quantity , value, VAT paid, and date of the documents can be verified by collaborating with payments documents as input tax on importation when claimed.

Electronic Cargo Tracking System (ECTS) Through the Electronic Cargo Tracking System (ECTS) the authority is able to track value of goods in transit that was dumped in Tanzania and act appropriately.

CONCLUSION Audit trail in VAT input-credit system is very effective and efficient in administration of Value Added Taxes as it creates control, improves voluntary tax compliance and generates more government revenue. The system is also useful for Income Tax audit. The system have assisted Tanzania to rely mostly on the enforcement of domestic revenue and leaving behind the Customs and Excise to be used to facilitate business and trade.

Thank You For Listening GOD BLESS TRA GOD BLESS US ALL TID TID