1. Value Added Tax (VAT)

2. Introduction  VAT is a tax based on consumption of wide range of goods, services and imports  It was introduced 1 st July 1998  It is taxed on value added to goods and services by producers and traders at every stage of production and distribution  It is collected by VAT registered traders at various stages and remit it to tax authorities.

3. Scope of VAT (S.4(1))  The VAT shall be charged on any supply of goods or services in Mainland Tanzania 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  "taxable person" means person registered or required to be registered under the provisions of this Act

4. VAT registration threshold:  Taxable turnover (aggregate of both standard rated and zero rated supplies) exceeding Tsh. 40 million per annum, or taxable turnover exceeding Tsh.10 million attained during three consecutive months.

5. Types of Supplies  A supply is generally anything done for consideration  Types of supplies Taxable supplies  Standard rates supplies  Zero rated supplies  Special relief supplies Exempted supplies Supplies that are outside the scope of VAT, eg. Donations, dividends, salaries and wages and other staff subsistence allowances etc.

6. Taxable supplies (S.5(1))  Means any 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 – (a) the making of gifts or loans of goods; (b) the leasing or letting of goods on hire; (c) the appropriation of goods for personal use or consumption by the taxable person or by any other person; (d) barter trade and exchange of goods.

7. Types of taxable supplies  Standard rates supplies  Zero rated supplies  Special relief

8. VAT Rates  Description of goods/supplies and services  Supply of taxable goods and services in Mainland Tanzania ( Standard rated)  Importation of taxable goods and services into Mainland Tanzania( Standard rated)  Export of goods and certain services from the United Rep. of Tanzania (Zero rated)  VAT Rates  18%  0%

9. Zero rated supplies  Is a taxable supply but chargeable at zero rate.  The reg. trader charges tax on his sales at zero rate (nil output tax) but he is entitled to a refund claim of his input tax Exportation of goods and taxable services from URT Supply of food and beverages for consumption on ship or aircraft on journey to destination outside Tanzania

10. Exempt supplies S.10(1)  A supply of goods or services is an exempt supply if it is of a description specified in the Second Schedule to this Act.  Trader supplying exempt goods and services does not charge VAT to his customers (nil output tax)  VAT incurred/paid in on business purchases (raw materials) used in production of exempted supplies can not be reclaimed (non refundable input tax)  Where all output supplies are exempted from VAT, the business can not register for VAT.

11. Examples of exempted supplies  Un processed food  Health  Education  Untreated drinking water  Funeral services  Public transportation  Agriculture inputs etc. see Second schedule

12. Special relief S.11  The persons and organisations listed in the Third Schedule to this Act shall be entitled to relief from VAT within the limits and conditions prescribed in that Schedule subject to procedures which may be determined by the Minister.  The supplies eligible for the special relief are taxable supplies, but the tax is remitted to the recipient because of the social or economic status of the individual or org.

13. Example of persons/org with special relief  President of the URT  Diplomats and diplomatic missions  Supplies or importation of goods and services under technical or aid agreements. Note: Suppliers and importer of goods of special relief are allowed credit on their input tax and they will charge VAT on their taxable supplies.

14. Application  A registered trader is required to charge VAT on goods and services sold by him=Output Tax  A registered trader himself will be charged tax for goods and services sold to him by other registered traders=Input Tax  At the end of each period the reg. trader is allowed to deduct input tax from the output tax. The excess of the output tax over the input tax is payable to TRA.  the excess of input tax over output tax is refunded to the reg. trader by TRA

15. Payment of VAT to TRA  Amount payable/refundable to/from TRA = Output VAT- Deductible Input VAT Output VAT > Input VAT=PAID to TRA Output VAT < Input VAT = REFUND from TRA

16. Deductible Input VAT  Methods of computing: (Partial exemption schemes). VAT (general) regulation, 1998 Average method (Method I)R.8(1&2) Direct attributed method (Method II)R. 8(3)

17. Average method (Method I) R.8(1&2) 1.Find total taxable supplies 2.Find total supply for the period 3.Find input tax incurred for the period 4.Ratio of 1&2 5.Multiply 4 & 3 Taxable supplies x Total Input tax for the period Total supplies

18. Direct attributed method (Method II) 1Find input tax incurred for the period A.Input VAT direct attributable to taxable supplies B.Input VAT direct attributable to exempt supplies C.Input VAT not attributable to any supply 2.Find the ratio of A& A+B 3.Multiply the amount obtained in step 2 by input tax category C in step 1= (step 2*C)  Deductible input VAT is the amount obtained in step 3 together with input tax category A in step 1

19. Direct attributed method (Method II)  Formula

20. Retail Schemes (R.14)  Retail scheme deals with taxable persons who make supplies of goods and services by retail direct to the consumers.  Retailers generally have higher volume of low values transactions.  R.14 provide ways that allow traders who are un able to issue tax invoice for every sale to estimate their output tax by calculation rather than the addition of individual amounts of tax for each transaction.

21. Retail Schemes  Traders using retail schemes are relieved of the requirement regulation 12 (1) to keep a record of each supply excluding VAT, and the amount of VAT charged on each supply.  Instead they are required to keep a record of payments received each day (Daily Gross Takings (DGT)).

22. Daily Gross Takings (DGT)  The gross takings represents the total value of supplies made under the scheme so;. Should not include payments received for supplies made outside the scheme ie. Non retail supplies such as sale of assets or sale to other registered traders. Should not be reduced by any amount paid out of takings (drawings) Should include;  the tax inclusive retail value of goods taken out of the business for private use  the tax inclusive retail value of goods supplied for which you have received payment in kind

23. Daily Gross Takings (DGT)  the value of payments made by cheque or credit cards on the day the sale is made, as if cash had been received.  any deposit made which are advance or part payments for future supply, but not deposits received as security for safe return of for example bottles of soft drinks.

24. Retail schemes: Output VAT  A reg. trader may choose to any of the two methods Method 1R. 14 (7) Method 2 R. 14 (8)  Once a trader has chosen a method must use that method for a complete accounting year.

25. Method 1  Where a trader can separate standard rated and exempt supplies at a point of sale or can be used when only standard rated goods are sold.  At the end of period the takings from sale of std rated supplies are totalled, and the VAT fraction applied to give the Out put tax due  Formula: Taxable supplies x VAT fraction

26. Method 2  Used where a trader is un able or unwilling to differentiate between different classes of supplies at a point of sale.  Standard and exempt supplies are apportioned using taxable and exempt purchases of the period.  Formula: Taxable purchases x DGT x VAT fraction Total purchases

27. Note:  All taxable and exempt purchases are included not just goods purchased for resale, ie expenses and overheads, assets purchased are also included which will have a very distortive effect on output tax

28. Annual tax adjustment for VAT(R.14(5&6)  A taxable person using 2 nd method of calculation under sub-regulation (8) shall at the end of each accounting period, recalculate his output tax in respect of supplies made during that accounting period,  And shall in his next return adjust any difference in output tax previously attributed to taxable supplies during the year.

29. Annual tax adjustment for VAT(R.14(5&6)  Upon occurrence of any of the following events Cancellation of registration A change in tax rate A change in liability for tax Cessation of the used of the chosen method.  A taxable person using 2 nd method of calculation under sub- regulation (8) shall recalculate his output tax in respect of period commencing at the beginning of the accounting period ending on the date of occurrence of the said event and within thirty (30) days after the date of that event.  And shall in his next return include any adjustment to the output tax previously attributed to taxable supplies during that period.

30. Accounting for tax  Accounting for tax (S.24). Unless otherwise provided under this Act, a taxable person shall record each supply made and account for tax on it at the time of supply.  Records and accounts (S.25.(1)) A taxable person shall keep such records relating to his business as the Minister may by regulations published in the Gazette prescribe. (2) A taxable person shall keep the records required under subsection (1) for a period of five years or such longer period which the Commissioner may require in writing, in a particular case.

31. Lodging of returns  Tax returns (S.26.(1)) Every taxable person shall, in respect of each prescribed accounting period, lodge with the Commissioner a tax return. (2) For the purposes of this Act, the prescribed accounting period for a taxable person shall be the calendar month containing the effective date of registration and each calendar month after that, unless the Commissioner, by notice in writing, determines another prescribed accounting period for the taxable person.

32. Lodging of returns. Cont..  (3) The return shall be lodged by the last working day of the month after the end of the prescribed accounting period to which it relates or within such other time as the Commissioner may in a particular case determine by notice in writing.

33. Offence and penalties  Failure to keep records (S.25) A taxable person who fails to keep any records required by or under this Act, or who fails to retain them for the time so required commits an offence and upon conviction is liable to a fine not exceeding five hundred thousand shillings or to imprisonment for a term not exceeding six months, or to both the fine and imprisonment.

34. Offence and penalties. Cont….  Late lodgement of returns S.27.-(1) A taxable person who fails to submit a return or pay tax within the time allowed by or under this Act shall pay a penalty of fifty thousand shillings or one per centum of the tax shown as payable in respect of the prescribed accounting period covered by the return, whichever is the greater and a further penalty of one hundred thousand shillings or two per centum of the tax shown as payable in respect of the prescribed accounting period covered by the return, whichever is the greater, shall be payable for each month or part month thereafter.

35. Offence and penalties. Cont….  Interest on overdue tax S. 28.(2) The rate of interest to be charged under subsection (1) shall be commercial bank lending rate of the Central Bank together with a further five per centum per annum. (3) Interest payable under this section shall, while it remains unpaid, attract interests as if it formed part of the tax unpaid. (4) Interest payable under this section shall be compounded at the end of each prescribed accounting period, or part of such period, of the taxable person, during which the tax, and any interest due, remain unpaid, unless the Minister prescribes otherwise in regulations.

36. Offence and penalties. Cont….  Interest on repayment S. 28. (5) Where any tax due to be repaid to a taxable person by the Commissioner-General under this Act remains un refunded after the date, the Commissioner-General shall pay interest to the taxable person at the commercial bank lending rate for the time being determined by the Central Bank.

37. Offence and penalties. Cont….  Failure to issue a tax invoices and receipts A taxable person who fails to issue a tax invoice or a receipt commits an offence and upon conviction is liable to a fine not exceeding five hundred thousand shillings or to a term of imprisonment not exceeding twelve months, or to both the fine and imprisonment.

38. Offence and penalties. Cont….  Failure to register S.44 Any person who –  (a) being required to apply for registration under this Act fails to do  so within thirty days after becoming liable to apply; or  (b) contravenes any term or condition of his registration; or  (c) holds himself out as being a taxable person when he is not; commits an offence and upon conviction is liable to a fine not exceeding two hundred thousand shillings or to imprisonment for a term not less than two months but not exceeding twelve months, or to both the fine and imprisonment

39. Offence and penalties. Cont….  Failure to pay tax or lodge returns S.45. Any taxable person who fails to submit a return or pay tax by the due date commits an offence and upon conviction is liable to pay a fine not exceeding five hundred thousand shillings or to imprisonment for a term not less than two months, but not more than twelve months, or to both the fine and imprisonment.

40. Offence and penalties. Cont….  False returns and statements S.46. Any person who in purported compliance with any requirement under this Act, knowingly makes a return or other declaration, furnishes any document or information or makes any statement, whether in writing or otherwise, that is false in any material particular, commits an offence and upon conviction is liable to a fine not exceeding five hundred thousand shillings or to imprisonment for a term not less than three months but not exceeding two years, or to both the fine and imprisonment

41. Offence and penalties. Cont….  Fraudulent evasion or recovery S.47.(1) Any person who is involved in fraud or who takes steps with a view to fraudulently evading tax or recovering tax, commits an offence and upon conviction shall, in addition to payment of tax which would have been paid, pay a fine twice the amount of tax involved or two million shillings, whichever amount is greater, or to imprisonment for a term of two years or to both.

42. Advantages  Broader tax base, yield is higher and stable  Less evasion due self checking mechanism  Zero rating encourage export because the tax on export is refunded  Administrative advantage, less complex

43. Criticisms  Like all other indirect taxes, VAT is regressive  Business records keeping; false books of accounts in order to evade tax

44. The end  Thank you very much