PwCs Insights and Analysis - preparing for the future

Value-Added Tax Act 2014 An

overview
24 June 2015

In brief
The commencement date of the VAT Act 2014 (the new Act), which received Presidential assent on
11 December 2014, is now confirmed as 1 July 2015. This Act, which repeals the existing VAT Act 1997
(the 1997 Act), will introduce fundamental changes to widen the scope of VAT, reduce exemptions,
adopt best international VAT practice and simplify administration. Regulations to be issued under the
new Act are still pending. Given the fundamental changes introduced, it is important that all taxpayers
ensure that they fully understand the implications for their particular business.

Commencement

persons economic
activities which have a
useful economic life of at
least one year and are not
(a) consumables or raw
materials, and (b) goods
imported for the principal
purpose of resale in the
ordinary course of
carrying on the persons
economic activity, whether
or not in the form or state
in which the goods were
imported.

A Government Notice
signed on 3 June 2015 by
the Minister for Finance
confirms that 1 July 2015 is
the commencement date
for the new Act.

Imports
Imports capital goods

Introduction of deferral of
VAT on imported capital
goods but subject to a
requirement for (i)
application for approval by
TRA and (ii) provision of
security; VAT deferral can
be refused where there is
any outstanding tax
liability or outstanding tax
return under any tax law.

The deferred VAT must be

accounted for as output tax
and input tax in the same
VAT return.

Capital goods are defined

as goods for use in the

Input Tax
Input tax deduction

Disallowable input tax Broader restrictions on

claiming input tax
(entertainment, sporting
social or recreational clubs
or associations; spare parts
and repair or maintenance
costs in respect of
passenger vehicles).

Employees - No input tax

restriction on costs
incurred on supplies to
employees if output VAT
has been accounted for on
the related benefit in kind.

Input tax claim time limit

Maintained at six
months. However, this time
limit starts to run not only
by reference to the date of
the relevant supporting
documentation (e.g. tax
invoice, fiscal receipt etc.)
but also by reference to the
date of the time of supply.

Imports services

Most taxpayers will no

longer be required to
account for VAT on
imported services; such
accounting will in practice
only be relevant where a
taxpayer has exempt
supplies of 10% or more of
total supplies.

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Pre-registration - Input tax

incurred in the six months
prior to VAT registration
can be claimed no later
than in the third VAT
return submitted following
registration.

Partial exemption

Full input tax credit For

a company with taxable
supplies of more than 90%
of total supplies.

No input tax credit For a

company with taxable
supplies less than 10% of
total supplies.

Partial input tax recovery

For a company with
taxable supplies between
10% and 90% of total
supplies. Where partial
input tax recovery applies,
there is only one
apportionment method,
namely the average
method. Imported services
are not taken into account
as supplies when
determining the allowance
of input tax for partial
exemption purposes.

Time limit to file VAT

refund claim Maintained
at 3 years.

Offset by TRA Maintenance of TRAs right

to offset VAT refunds
against other tax liabilities.

Threshold - Introduction of
a de minimis (minimum)
threshold for VAT refund
claim (otherwise the credit
must be carried forward).
The threshold will be set
out in the Regulations (as
yet unpublished).

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Default refund
qualification period - Six
months. However,
companies with 50% or
more of turnover that
relates or will relate to zero
rated supplies (normally,
exports) will automatically
qualify for refund on
monthly basis.
Time limit for the
Tanzania Revenue
Authority (TRA) to
respond to refund request increased to 90 days (from
30 days under the 1997
Act).

Exempt supplies

Types of supply
Zero-rated supplies

Exported goods - More

comprehensive definition
of export in relation to
goods.

Zero-rated services (use

and enjoyment outside
Tanzania) - Subject to
exceptions for certain types
of supply (e.g. services
related to land /
immoveable property,
essential services,
telecommunications, radio
and television, and
electronic services),
services will be zero-rated if
performed in Tanzania for
a person based outside
Tanzania who effectively
uses or enjoys the service
outside Tanzania.

Refunds

Tanzania, services
connected with temporary
imports, intellectual
property rights for use
outside Tanzania, supply of
telecommunications
services by a
telecommunications service
provider to a non-resident
telecommunications service
provider.

Zero rated services (other)

- Services subject to zerorating also include
international transport and
certain related services,
services supplied to a nonresident warrantor, services
directly related to land
outside Tanzania, certain
services physically
performed outside

There are significant

changes to supplies
classified as exempt
supplies. More detail in
relation to exemptions is
provided in the Industry
and other observations
section below.

Supplies - single and

multiple; progressive and
periodic

Specific provisions are

introduced in relation to (i)
single and multiple
supplies, and (ii)
progressive and periodic
supplies.

Valuation,
Consideration
Supplies at open or fair
market value

Supplies to be valued at fair

market value if made (i) to
employees by way of
benefits in kind; and (ii) to
connected persons.

Deposits

Consideration includes any

deposit paid when goods
are sold in a returnable
container and where the
deposit is refundable on
return of the container.

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Discounts / rebates

Registration special rules

Discounts / rebates are

recognised in calculating
consideration whereby the
discount or rebate is
allowed and accounted for
at the time of supply.

Reimbursements

A reimbursement is
excluded from
consideration where it is
the exact reimbursement of
costs incurred by an agent
for a principal.

Rights, options and

vouchers

There are specific

provisions to deal with
rights, options and
vouchers.

Registration
Registration general

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New registration threshold

To be set out in
Regulations (not yet
published). Expected to
increase to TZS 100m pa
(from current TZS 40m
pa).
Continuation of existing
registration Registered
traders who filed VAT
returns 12 months prior to
commencement will
continue to be treated as a
registered person under the
new Act.
Confirmation of
registration TRA to serve
a notice of confirmation of
registration within three
months of commencement
and to inform taxpayers of
their option to cancel their
VAT registration if no
longer required to be
registered.

Automatic registration
Mandatory registration for
professional services
providers (e.g. lawyers and
accountants), and for
Government
entities/institutions
carrying on economic
activity.
Intending trader
registration Conditions
include: (i) provision of
sufficient evidence to
satisfy the Commissioner of
intention to commence an
economic activity,
including contracts,
tenders, building plans,
business plans, bank
financing; (ii) the person
makes or will make
supplies that will be taxable
supplies if the person is
registered; and (iii)
specification of the period
within which the intended
economic activity will
commence production of
taxable supplies.

Registration non residents

in Mainland Tanzania
who effectively uses or
enjoys the services in
Mainland Tanzania;

VAT representative - A
non-resident who carries
on economic activity in
Mainland Tanzania without
a fixed place and makes
taxable supplies in excess
of the VAT registration
threshold is required to
appoint a VAT
representative.
Deemed supply - There is a
deemed supply in Tanzania
where supplies are made to
an unregistered person if
the supplies are in the form
of:

Services performed in
Mainland Tanzania, if
the services are
received by a person

Services received for

radio or television
broadcasting at an
address in Mainland
Tanzania; and

Electronic services
delivered to a person
who is in Mainland
Tanzania at the time
when the service is
delivered.

Adjustment events
Bad debts

A supplier has the right to

make a decreasing
adjustment if:

Payment is overdue
for more than 12
months and the debt
has been written off.

Payment is overdue
for more than 18
months.

A customer has an
obligation to make an
increasing adjustment if
payment is overdue for
more than 18 months.

If payment is made
subsequent to the
adjustments above, then
further adjustments should
be made as appropriate.

Other adjustments

Other events that trigger

adjustments include
application for private use;
making/receiving insurance
payments; the correction of
minor errors; VAT registration
or cancellation of registration.

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Other matters
Transfer of Going Concern

The sale of an economic

activity as a going concern
is not a supply and so no
VAT is chargeable.
The definition of the term
economic activity appears
to be broader than previous
term (business).

Conditions for this treatment to

apply include the following:

The sale must be from one

taxable person to another
taxable person.
The sale must be of
everything necessary for
continued operation of the
economic activity.

A three year time limit is

introduced for the
correction of errors.

There is no longer
provision for the exclusion
of penalties and interest on
voluntary disclosure.

Industry and other

observations
Agriculture

Exemptions include agricultural implements (e.g.

tractors, harrows, spades,
forks); agricultural inputs (e.g.
fertilizers, pesticides,

Financial services

Financial services - There

is a very detailed definition
of financial services
which lists (in items (a) to
(h)) eight different
categories of supply that
fall within this definition
(see Appendix). However,
the definition concludes by
expressly excluding any
arrangement or facilitation
services in relation to the
supplies specified.

Finance leases These are

subject to the rules for
progressive / periodic
supplies.

Insurance exemption
limited to health and life
insurance / reinsurance, so
non-life is now taxable.

Charitable

Exempt imports include:

To correct an error (other

than a minor error) a
requirement is introduced
that application must be
made for such correction.

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Exemptions in respect of
agricultural products and food
for human consumption are
generally limited to
unprocessed supplies;
although unprocessed is not
defined, the exempt items listed
are identified with HS codes.
In addition, maize flour and
wheat flour are specifically
included in the list of
exemptions.

The purchaser makes the

acquisition in the course of
or for the purposes of an
economic activity it carries
on after the sale.

Correction of errors

insecticides); livestock, basic

agricultural products and foods
for human consumption;
implements for fisheries and
bee-keeping; dairy equipment.

Food, clothing and shoes

donated to non-profit
organizations for free
distribution to orphanages
or schools for children with
special needs in Mainland
Tanzania.
Goods imported by nonprofit organizations for the
provision of emergency and
disaster relief, and where
such goods are capital
goods, the goods shall be
handled to the National
Disaster Committee upon
aversion, completion or
diminishing of the disaster.
Goods imported by
religious organisations for
the provision of health,
education, water, religious
services in circumstances
that, if services are
supplied- (a) without fee,
charge or any other
consideration in a form of
fees; or (b) on payment of
any consideration, the fees
or charges does not exceed
fifty percent of the fair
market value.

Power is granted to the

Minister to make regulations to
prescribe input tax
apportionment methods for the
financial services sector.

Education

Exempt supplies include:

educational services
provided by a relevant
approved educational
institution; education
materials.

Exempt imports include:

laboratory equipment and
reagents imported by a
registered educational
institution and to be used
solely for educational
purposes.

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Extractive Industries

Exempt imports include:

Goods eligible for relief

under the East African
Customs Management Act
(where imported by a
registered and licensed
explorer or prospector for
exclusive use in oil, gas or
mineral exploration or
prospecting activities).
Various goods imported by
a natural gas distributor
(including CNG plants
equipment, natural gas
pipes, transportation and
distribution pipes, CNG
storage cascades, CNG
special transportation
vehicles, natural gas
metering equipment, CNG
refuelling of filling, gas
receiving units, flare gas
system, condensate tanks
and leading facility, system
piping and pipe rack,
condensate stabilizer).

Exempt imports include goods:

Exempt under an
agreement entered into
between the Government
and another Government
or an international agency.

Made available free of

charge by a foreign
government or an
international institution
with a view to assisting the
economic development of
Tanzania

Exempt supplies include:

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Non-commercial activities
by a Government entity or
institution (except to the
extent that the activity
involves making supplies of
goods, services or
immovable property that
are to be supplied in
Mainland Tanzania by a
person who is a nonGovernment entity).

Given, otherwise than for

the purposes of sale, as an
unconditional gift to the
State.

Health and Safety

There are transitional

provisions to stabilise
existing VAT reliefs where
these are the subject of a
commitment in an existing
agreement with
Government.
Government

Arms and ammunitions,

parts and accessories
thereof, supplied to the
armed forces.

Exempt supplies include:

healthcare (provided by an
appropriately approved
institution); medicine or
pharmaceuticals products,
not including food
supplements or vitamins;
articles designed for people
with special needs; funeral
services.
Exempt imports include:
fire fighting vehicles
imported by the
Government and
firefighting equipment;

Individuals

Exempt imports - Baggage or

personal effects if exempt from
customs duty under the Fifth
Schedule of the East African
Customs Management Act,
2004.

Petroleum products

Exempt petroleum products

(and the HS code where
relevant) are: aviation spirit
(2710.12.30); spirit type jet fuel
(2710.12.40); kerosene type jet
fuel (Jet A-1) (2710.19. 21);
petrol (MSP and MSR)
(2710.12.20); diesel (GO)
(2710.19.31); kerosene (IK)
(2710.1922); bitumen (27.14
8); liquefied petroleum gas
(LPG) (2711.11.00); compressed
natural gas (CNG); LPG or CNG
cylinder; gas cooker designed
for natural gas.
Heavy Furnace Oil (HFO) and
Industrial Diesel Oil (IDO) are
not included in the list of
exemptions and therefore are
subject to VAT.

Postal supplies

No exemption for postal

supplies (unlike the 1997
Act).

Property

Exempt supplies include:

A sale of vacant land.

A lease, license, hire or

other form of supply, to the
extent that it is a supply of
the right to occupy and
reside in residential
premises.

A sale of immovable
property, to the extent that
the property relates to
residential premises, not
including: (a) the first sale
of newly constructed
residential premises; or (b)
a subsequent sale if the
premises have been
occupied as a residence for
less than two years.

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Technology

No exemption for
computers (unlike the 1997
Act).

Telecommunications

Detailed definition of
telecommunication
service and
telecommunications
service provider see
Appendix.

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No VAT between the

provider and
intermediary as
transaction is treated
as a non-supply (and so
outside the scope of
VAT).
Consideration of
supply by the provider
is the intended retail
price, i.e. disregard any
discount to the
intermediary.

Place of supply of
telecommunication services
is generally consistent with
the destination principle.
Services initiated in
Tanzania - where the
initiator of the supply is a
person in Mainland
Tanzania who is not a
telecommunications
company, the place of
supply will be Mainland
Tanzania.

charters; air charter

services.

Tourism

Exemptions have been

reinstated on the following
tourist services: supply of
tourist guiding, game
driving, water safaris,
animal or bird watching,
park fees, and ground
transport services.

A supply of goods is zerorated if the goods are

supplied to a tourist with
documentary evidence and
establishing that the goods
shall be removed from
Tanzania without being
effectively used or enjoyed
in Tanzania.

Prepaid telecommunication
services:

Inter-carrier services
Inter-carrier services from
a resident provider to a
non-resident provider are
subject to the zero rate. A
telecommunications service
provider based in Zanzibar
is regarded as nonresident.

Transport / International

Zero-rated supplies:
International transport but
with exclusion of ancillary
transport services as
defined (see Appendix).

Exempt supplies:
Transportation of person
by any means of
conveyance other than taxi
cabs, rental cars or boat

Exempt imports: aircraft,

aircraft engine or parts
imported by a local
operator of air
transportation; railway
locomotive, wagons,
tramways and their parts
and accessories imported
by a registered railways
entity; goods shipped or
conveyed to United
Republic for transhipment
or conveyance to any other
country; goods previously
exported with no
subsequent change of form
or use and no change of
ownership, and provided
not zero-rated when
initially exported.

Water /Power

Exempt supplies include:

Water (except bottled or

canned water or similarly
presented water).

Solar equipment ( in
particular, solar panels,
modules, solar charger
controllers, solar inverter,
solar lights, vacuum tube
solar collectors and solar
battery). (However, wind
generators and liquid
elevators are no longer
included in list of
exemptions (unlike the
1997 Act)).

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PwCs Insights and Analysis - preparing for the future

This publication is provided by

PricewaterhouseCoopers Limited
for information only and does not
constitute the provision of
professional advice of any kind. The
information provided herein should
not be used as a substitute for
consultation with professional
advisers. Before making any

decisions or taking any action, you

should consult a professional
adviser who has been provided with
all the pertinent facts relevant to
your particular situation. No
responsibility for loss occasioned to
any person acting or refraining
from action as a result of any
material in this publication can be
accepted by the author, copyright
owner or publisher.

Lets talk
Indirect Taxes in Tanzania

For further advice on how the new VAT Act 2014 might affect your business, or advice on other indirect tax matters,
please contact our specialist Indirect Tax team:
Rishit Shah
Partner
+255 22 219 2601
rishit.shah@tz.pwc.com

Joseph Lyimo
Tax Director Indirect Taxes
+255 22 219 2613
joseph.lyimo@tz.pwc.com

Joseph Waziri
Tax Manager Indirect Taxes
+255 22 219 2617
joseph.waziri@tz.pwc.com

Miriam Sudi
Senior Consultant Indirect Taxes
+255 22 219 2648
miriam.sudi@tz.pwc.com
Indirect Taxes in East Africa

For advice on indirect tax developments across East Africa, please contact:
Job Kabochi
Partner - Indirect Taxes
+254 20 285 5653
job.kabochi@ke.pwc.com

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Appendix
Selected Definitions - Communications

electronic services means any of the following services provided or delivered through a telecommunications
network(a) websites, web-hosting, or remote maintenance of programmes and equipment;
(b) software and the updating thereof;
(c) images, text, and information;
(d) access to databases;
(e) self-education packages;
(f) music, films, and games, including gaming activities; and
(g) political, cultural, artistic, sporting, scientific, and other broadcasts and events including broadcast television.
telecommunication service means a service of any description provided by a company by means of any
transmission, emission or reception of signs, signals, writing, images and sounds or intelligible information of any
nature, by wire, optical, visual or other electromagnetic means or systems, including(a) voice, voice mail, data services, audio text services, video text services, radio paging and other emerging
telecommunication services;
(b) fixed telephone services including provision of access to and use of the public switched or non-switched telephone
network for the transmission and switching of voice, data and video, inbound and outbound telephone service to and
from national and international destinations;
(c) cellular mobile telephone services including provision of access to and use of switched or non-switched networks
for the transmission of voice, data, video and value added services, inbound and outbound roaming services to and
from national and international destinations;
(d) carrier services including provision of wired, optical fibre or wireless facilities and any other technology to
originate, terminate or transit calls, charging for interconnection, settlement or termination of domestic or
international calls, charging for jointly used facilities including pole attachments, charging for the exclusive use of
circuits, a leased circuit or a dedicated link including a speech circuit, data circuit or a telegraph circuit;
(e) provision of call management services for a fee including call waiting, call forwarding, caller identification,
multi calling, call display, call return, call screen, call blocking, automatic call-back, call answer, voice mail, voice
menus and video conferencing;
(f) private network services including provision of wired, optical fibre, wireless or any other technologies of
electronic communication link between specified points for the exclusive use of the client;
(g) data transmission services including provision of access to wired or wireless facilities and services specifically
designed for efficient transmission of data; and
(h) communication through facsimile, pager, telegraph, telex and other telecommunication service;
telecommunications service provider means a person licensed by the Tanzania Communications Regulatory
Authority or an equivalent foreign body to provide telecommunication services;

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PwCs Insights and Analysis - preparing for the future

Selected Definitions Financial Services

finance lease means a lease that is treated as a finance lease under the Financial Leasing Act, but does not
include a hire purchase agreement;
financial services means services of(a) granting, negotiating, and dealing with loans, credit, credit guarantees, and security for money, including
management of loans, credit, or credit guarantees by the grantor;
(b) transactions concerning money deposit, current accounts, payments, transfers, debts, cheques or negotiable
instruments, other than debt collection or debt factoring;
(c) transactions relating to financial derivatives, forward contracts, options to acquire financial instruments and
similar arrangements;
(d) transactions relating to shares, stocks, bonds, and other securities, but does not include custody services;
(e) transactions involving granting or transferring ownership of an interest in a scheme whereby provision is made
for the payment or granting of benefits by a benefit fund, provident fund, pension fund, retirement annuity fund,
preservation fund, or similar fund;
(f) transactions involving the provision of, or transfer of ownership of a health or life insurance contract or the
provision of reinsurance in respect of such contract; and
(g) making payment or collection of an amount of interest, principal, dividend, or other amount in respect of any
share, debt security, equity security, participatory security, credit contract, contract of life insurance, or futures
contract,
(h) foreign exchange transactions, including the supply of foreign drafts and international money orders, but does
not include supply of the services of arranging for or facilitating any of the services specified under paragraphs (a)
to (h);
progressive or periodic supply means(a) a supply made progressively or periodically under an agreement, arrangement or law that provides for
progressive or periodic payments;
(b) a supply by way of lease, hire, license or other right to use property, including a supply under a finance lease; or
(c) a supply made directly in the construction, major reconstruction, or extension of a building or engineering work;

Insights

Selected Definitions - Property

residential premises means an area occupied or designed to be occupied and capable of being occupied as a
residence, and includes- (a) any garage, storage space, or other space associated with the premises, so long as that
space is of a type commonly considered to be part of such residential premises; and (b) any land that is reasonably
attributable to the premises, but does not include any premises or part of premises that is used to provide
commercial accommodation;
commercial accommodation means accommodation in a building including part of a building or a group of
buildings operated as a hotel, motel inn, boarding house, guest house, hostel, lodge, cottage, serviced apartment or
similar establishment, or on sites developed for use as camping sites, where lodging is regularly or normally
provided for a periodic charge, or other accommodation offered for short term occupation by person other than as
the individuals main residence;
Selected Definitions - Transport
international transport services means the services, other than ancillary transport services of transporting
passengers or goods by road, rail, water, or air(a) from a place outside the United Republic to another place outside the United Republic;
(b) from a place outside the United Republic to a place in Mainland Tanzania; or
(c) from a place in Mainland Tanzania to a place outside the United Republic;
ancillary transport services means stevedoring services, lashing and securing services, cargo inspection
services, preparation of customs documentation, container handling services and the storage of transported goods
or goods to be transported;

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