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current notes on taxation 2
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4/20/2009
1
TAXATION
AC 321B
Value Added Tax
4/20/2009 1© Sando, James Mahanga
Value Added Tax (VAT)
• Introduction
• Advantages of VAT
• Shortcomings of VAT
• Basic principles of VAT in
Tanzania
4/20/2009 © Sando, James Mahanga 2
Value Added Tax (VAT)
• Introduction
– VAT was introduced on July 1, 1998.
– It partially replaces sales tax, stamp duty, hotel levy and entertainment tax
– Value Added Tax is a broad-based consumption tax
– It is charged on a wide range of goods and services and on imports (taxable supplies)
– Unlike sale tax it is levied at every stage in the production and distribution chain.
– The tax base is the value added (incremental value) to goods and services.
– The rate of tax is 20% standard rate or zero rate.
– The tax is collected and paid by VAT registered traders who remit it to the revenue authorities monthly.
4/20/2009 © Sando, James Mahanga 3
4/20/2009
2
Value Added Tax (VAT)
• Advantages of VAT
– VAT has been introduced as a tax reform measure.
– The tax has several advantages over sale tax from the point of
view of the government, business and the consumer.
– Broad tax base
1) In view of the broad tax base revenue yield is generally
higher and stable and is less susceptible to fluctuations.
Increased revenues are the major goal of VAT.
2) The tax has some elements of self-checking mechanism to
minimize evasion. One person’s out tax becomes the input
tax of another. VAT facilitates cross checking of sales
between traders.
4/20/2009 © Sando, James Mahanga 4
Value Added Tax (VAT)
• Advantages of VAT
– Broad tax base
3) As the tax paid on purchases of inputs if fully creditable it does not form part of the cost of business. Consequently, the tax does to some extent not influence business decisions. It creates a conducive climate for investors.
4) Zero rating provision encourages exports because the tax on exports is refundable in a transparent and simple manner. Zero rating ensures that exports enter the international market free of tax to make them more competitive.
4/20/2009 © Sando, James Mahanga 5
Value Added Tax (VAT)
• Advantages of VAT
– Broad tax base
5) Administrative advantages: VAT is relatively less complex than sale tax. There is no multiplicity of tax rates. The registration threshold eliminates small business to minimize administration costs. Culture of maintaining business records is encouraged for proper assessment of the tax.
6) Because of the wider tax base rates are likely to be generally lower
7) Lower tax may be payable by consumers as “no tax on the tax” effect is possible with VAT (cascading effect)
4/20/2009 © Sando, James Mahanga 6
4/20/2009
3
Value Added Tax (VAT)
• Advantages of VAT
– Broad tax base
8) VAT partly eliminates attempts by businessmen to split up
their businesses below the threshold in order to avoid the
tax because the tax paid on inputs is still payable and it can
not be claimed.
• Shortcomings of VAT
1) Regressivity:
• Like all other indirect taxes VAT is regressive. Regressivity
is partially minimized by exempting most essential
consumer items like food and health supplies and the
continued use of the more progressive direct taxation.
4/20/2009 © Sando, James Mahanga 7
Value Added Tax (VAT)
• Shortcomings of VAT
2) Inflationary
• If sufficient precaution is not taken during the
introduction of VAT inflation is likely to occur as prices
and wage rise.
• Because some goods and services will be taxed at the
lower or higher VAT rate than the previous sales tax
rate inflation may not necessarily follow the
introduction of VAT.
• Some of the precautionary measures against possible
inflation following the introduction of VAT are:
4/20/2009 © Sando, James Mahanga 8
Value Added Tax (VAT)
• Shortcomings of VAT
2) Inflationary
• Some of the precautionary measures against possible
inflation following the introduction of VAT are:
– Sales tax paid on business stocks at
commencement of VAT is set off against VAT
payable in the first month of VAT regime. The set
off removes double taxation on opening business
stocks at the commencement of VAT.
4/20/2009 © Sando, James Mahanga 9
4/20/2009
4
Value Added Tax (VAT)
• Shortcomings of VAT
2) Inflationary
• Some of the precautionary measures against possible
inflation following the introduction of VAT are:
– Conduct intensive public educational programme
to inform businesses and consumers the expected
effects of VAT on the general price level.
3) Business records keeping
• The claim that small business may find it difficult to
maintain the required VAT records may be
exaggerated.
4/20/2009 © Sando, James Mahanga 10
Value Added Tax (VAT)
• Shortcomings of VAT
3) Business records keeping
• Proper business records are necessary for all
businesses.
• Adequate records are required for other taxes too
such as income tax
• It is more important to note that only businesses
with Tshs.20 million or more turnover are required to
register for VAT.
• This threshold excludes most of the small businesses
from registration.
4/20/2009 © Sando, James Mahanga 11
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Scope of VAT
• VAT is charged on:
– The supply of goods and services in Mainland Tanzania
made by any taxable person in the course of or furtherance
of his business. The supply of goods and/or services must
qualify as a “Taxable supply”
– The importation of goods and services by any person into
Mainland Tanzania. The importer need not be registered
for VAT purposes.
4/20/2009 © Sando, James Mahanga 12
4/20/2009
5
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– VAT Rate Structure
• VAT is charged at either 20% standard rate or zero
rate.
• Tanzania has opted for the single rate of 20%
standard rate because a multiple rate structure
complicates the administration of the tax leading to
extra compliance cost.
• The government has elected the use of exemptions
against the multiple rate structure in order to realize
specific social objectives
4/20/2009 © Sando, James Mahanga 13
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– VAT Rate Structure
• A single rate structure keeps the tax system simple
• It has the following advantages:
1) A single tax rate system minimizes compliance costs, as tax
administration is kept simple. The more the tax rates the
higher the compliance costs and lower revenue yield.
2) The choice of consumer items and production inputs is
neutral because the effective rate of tax is the same for all
taxable supplies. As a result there is no incentive for
substituting the high tax supplies in favor of lower taxed
supplies.
4/20/2009 © Sando, James Mahanga 14
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– VAT Rate Structure
• It has the following advantages:
3) A single rate structure avoids taxpayer attempts to forge tax
returns and misclassify supplies in order to evade tax
because all supplies are taxed at an uniform rate of tax.
4) It reduces the number of refund claims as inputs are taxed
at the same rate as outputs. Where inputs are taxed at a
lower rate than outputs many refund claims are likely to
arise. Such as a situation will tie up tax management
resources administering the refunds instead of
concentrating on resources to increase revenue collection.
4/20/2009 © Sando, James Mahanga 15
4/20/2009
6
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– VAT Rate Structure
• Where VAT has been paid in Zanzibar and the rate is
equal to the rate in Mainland Tanzania tax shall be
deemed to have been fully paid on the affected
taxable supplies of goods and services.
• However, if the VAT rate in Zanzibar is lower than that
in Mainland Tanzania the difference has to be paid to
Mainland Tanzania at the point of entry of the goods
into Mainland Tanzania.
4/20/2009 © Sando, James Mahanga 16
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– VAT Rate Structure
• This provision means that goods and services
imported from Zanzibar into Mainland Tanzania are
subjected to VAT. Zanzibar is thus treated as a foreign
country.
– Application of VAT
• VAT is a multi-stage indirect tax.
• It is levied by taxable persons on their taxable
supplied made out and deduct the amount of VAT
charged on inputs (supplies received by the business)
4/20/2009 © Sando, James Mahanga 17
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Application of VAT
• The balance is then paid or repaid to or from the
revenue authority.
• In other words the VAT agent pays the tax on his
purchases and charges or collects tax on his sales and
pays or remits the net amount to the government.
• The tax charged on sales is called “Output tax” while
tax charged on purchases including imports is
referred to as “Input tax”
4/20/2009 © Sando, James Mahanga 18
4/20/2009
7
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Application of VAT
• These two concepts are fundamental features of the
VAT system
• The netting off mechanism ensures that cascading or
the phenomenon of “Tax on tax” is avoided because
the value added only at each stage of production and
distribution is taxed only once.
• Therefore, the value of goods and services at the
point of supply to the final consumer represents the
aggregate of all incremental values added by
successive businessmen
4/20/2009 © Sando, James Mahanga 19
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Application of VAT
• Similarly, the tax paid by the final consumer also
represents the aggregate VAT paid by successive
businessmen
• The final consumer bears the full tax as he has no
opportunity to sell to another person.
• The tax on the supply of goods and /or services is
generally the liability of the person making the
supply.
• The tax is normally payable at the time of supply.
4/20/2009 © Sando, James Mahanga 20
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Application of VAT
• When an agent supplies the goods and/or services he
is liable to pay the tax on behalf of his principal.
• Where a taxable person in Mainland Tanzania makes
a taxable supply directly to a person in Zanzibar the
Mainland’s tax authority will collect the output tax
from the supplier in the Mainland and remit in
Mainland Tanzania will deal with the Mainland tax
authorities only.
• Please note that Zanzibar and Mainland Tanzania
have separate VAT legislations
4/20/2009 © Sando, James Mahanga 21
4/20/2009
8
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Supplies
• A taxable supply is a supply of goods and/or services
made in Tanzania other than an exempt supply.
• Zero rated supplies are taxable supplies.
• A “supply” is generally anything done for a
consideration i.e. whether supply of physical goods or
services rendered.
• The most common type of supply is a sale of goods or
services made in the course of carrying on a business.
4/20/2009 © Sando, James Mahanga 22
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Supplies
• Although there is no clear distinction between a
supply of goods and a supply of services the law
makes it clear that anything that does not constitute a
supply of goods but is done for a consideration is a
supply of services.
• There are three major types of supplies
– Taxable supplies including zero rated supplies and special
relieve.
– Exempt supplies
– Supplies which are outside the scope of VAT.
4/20/2009 © Sando, James Mahanga 23
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Taxable Supplies:
• Taxable supplies are defined as “any supply of goods
and or services made by a taxable person in the
course of or in the furtherance of his business.”
• The list of taxable supplies includes the following:
– Gaming and betting of any kind such as gaming machines,
lotteries, bingo, horses racing etc.
– Gifts or loans of goods
– Appropriation of goods for personal use or consumption
– Barter trade and exchange of goods
– Processing or treating of another person’s goods
4/20/2009 © Sando, James Mahanga 24
4/20/2009
9
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Taxable Supplies:
• The list of taxable supplies includes the following:
– Supply of power, heat or ventilation
– Leasing or letting of goods on hire
– Anything done for a consideration
• A zero rated supply is a taxable supply but it is
chargeable at zero rate
4/20/2009 © Sando, James Mahanga 25
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Taxable Supplies:
• The tax on the registered businessman’s transaction is
zero (nil output tax) but he is entitled to a refund
claim of his tax paid on his purchases (input tax)
unlike exemptions which provide a partial relief of
tax, zero rating offers a complete
4/20/2009 © Sando, James Mahanga 26
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– The time of Supply
• The time of supply or tax point is when the supply of
goods or services is treated as having taken place.
• It is the date on which the tax on the taxable supply
(ies) becomes chargeable or due and payable.
• A taxable person must account for VAT in the
prescribed accounting period in which the supply
occurs.
4/20/2009 © Sando, James Mahanga 27
4/20/2009
10
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Place of Supply
• The place of supply determines where the VAT
liability arises.
• Goods are deemed to be supplied in Mainland
Tanzania if they are supplied within the country or if
they are assembled or installed within the country.
4/20/2009 © Sando, James Mahanga 28
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Place of Supply
• Services are deemed to be supplied in Mainland
Tanzania if the supplier has a place of business within
Mainland Tanzania and nowhere else or the supplier
is normally resident in Tanzania or the supplier has
several places of business Mainland Tanzania and
elsewhere but the place of business most concerned
with the supply of the service is in fact Mainland
Tanzania.
4/20/2009 © Sando, James Mahanga 29
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Value of Supply
• The value of a supply depends on whether or not it is
for monetary consideration.
• Where the consideration is not monetary or is partly
for monetary and partly non-monetary value the
open market value constitutes the taxable value.
• The “open market value” is deemed to be:
– The value at which the goods or services would fetch in the
ordinary course of business where the supplier and the
purchaser are not related (independent of each other) the
law sets out specific assumptions in the determination of
market value.
4/20/2009 © Sando, James Mahanga 30
4/20/2009
11
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Value of Supply
• The “open market value” is deemed to be:
– The supply is treated as delivered to the recipient at the
supplier’s place of business
– The recipient will bear freight, insurance and other costs
incidental to the supply and delivery of the goods.
– The supplier will bear any duty or tax (except VAT) and the
value covers the right to use the patent, design or
trademark in respect of the supply.
4/20/2009 © Sando, James Mahanga 31
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Exempt Supplies
• Where a supply of goods or services is exempt from VAT
no tax is chargeable on it.
• The supplier of an exempt good or service can not charge
VAT on these supplies to his customers.
• Exemption from VAT means that VAT incurred on business
purchases used in the production of the exempt supplies
can not be reclaimed.
• Exemption also means that where all output supplies are
exempt from VAT the businessmen can not register for VAT
and therefore no reclaim of VAT on inputs may be made.
4/20/2009 © Sando, James Mahanga 32
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Exempt Supplies
1. Food, crops and livestock supplies
2. Pesticides , fertilizers etc
3. Health supplies
4. Educational supplies
5. Veterinary supplies
6. Books and newspapers
7. Transport services
8. Housing and land
9. Finance and insurance
4/20/2009 © Sando, James Mahanga 33
4/20/2009
12
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Exempt Supplies
10. Water
11. Funeral services
12. Crude oil and petroleum products
13. Agricultural implementations
14. Tourist services and tourist charter services
15. postal supplies
16. Aircraft maintenance
4/20/2009 © Sando, James Mahanga 34
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Supplies which are outside the scope of VAT
• Unlike zero rated and exempt supplies there is no
comprehensive or statutory list of supplies that is
outside the scope of VAT.
– The sale of a business as a going concern
• Where the assets of a business are sold or transferred
the transaction generally constitutes a taxable supply
for VAT purposes
4/20/2009 © Sando, James Mahanga 35
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Special Reliefs
• The list of special reliefs is in the Third Schedule.
• The supplies eligible for the special reliefs are taxable
but the tax is remitted because of the social or
economic status of the individuals or organization
concerned.
– Taxable Persons and VAT Registration
• A taxable person is one making taxable supplies or
intending to make taxable supplies
4/20/2009 © Sando, James Mahanga 36
4/20/2009
13
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– VAT registration and de-registration
• A person is required to register for VAT if his annual
taxable turnover exceeds Tshs.20 millions in a year.
• In determining the taxable turnover he must
aggregate the taxable turnovers of all his businesses
carried out under the same legal entity including both
standard rated and zero rated supplies.
• Registration must be completed within 30 days after
incorporation and becoming liable for registration.
4/20/2009 © Sando, James Mahanga 37
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– VAT registration and de-registration
• The certificate of registration and his taxpayer
identification number (TIN) and VAT business, the
date of registration number.
• The certificate must be displayed conspicuously at
the principal place of business.
• TIN and VAT registration numbers must be quoted in
all returns
• Registration is required where a person is eligible for
registration
4/20/2009 © Sando, James Mahanga 38
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– VAT registration and de-registration
• There is no provision for group registration of
companies.
• Each company within the group must register
separately.
• Registration is a statutory requirements
• It is not voluntary or contingent upon realization of
taxable turnover in excess of the registration
threshold.
4/20/2009 © Sando, James Mahanga 39
4/20/2009
14
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– VAT registration and de-registration
• Where an investor is registered for VAT purposes the
VAT payable on any capital goods imported or
purchased locally is deferred to the date of
commencement of production.
• The VAT deferral is applicable whether or not the
investor holds a certificate of investment under the
Tanzania Investment Act, 1997
4/20/2009 © Sando, James Mahanga 40
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– VAT registration and de-registration
• De-registration: Section 21 provides that any person
who ceases to be liable for VAT registration is
required to notify the Commissioner for VAT (C-VAT)
within 30 days after ceasing to be liable.
• Failure to do so is an offence which is liable to a fine
of Tshs.50,000 upon conviction by a competent court
of law.
• If the C-VAT is satisfied that a person is no longer
required to be registered he may cancel the
registration and notify the taxpayer accordingly.
4/20/2009 © Sando, James Mahanga 41
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– VAT registration and de-registration
• Obviously the C-VAT will only cancel the registration
after ensuring that any outstanding VAT on supplies
or closing stocks is fully paid.
– Disclosure and Accounting for VAT
• VAT must be accounted for at the time of supply.
• In order to account for the tax appropriate accounting
records must be maintained for at least five years.
• The return must be filed on or by the last day of the
month following the end of a prescribed period.
4/20/2009 © Sando, James Mahanga 42
4/20/2009
15
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Disclosure and Accounting for VAT
• The return must contain information on the supply of
goods and services made by him or to him, imports,
tax deductions or credits and clearly show the net tax
payable or repayable.
– The Tax Invoices
• When a person supplies goods or services to another
person he must issue a tax invoice.
• This is a document containing information on what is
sold, the output VAT, TIN, and VAT registration
numbers of both the supplier and customers etc.
4/20/2009 © Sando, James Mahanga 43
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– The Tax Invoices
• The tax invoice must be supplied within 14 days of
making the supply
• Where the output tax exceeds the input tax payment
must be made to the Commissioner.
• In the case of a repayment i.e. the input tax exceeds
the output tax on supplies for the prescribed period
the Commissioner will refund the amount.
4/20/2009 © Sando, James Mahanga 44
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Calculation of VAT
• Output tax is VAT charged to customers on all taxable
supplies during the prescribed period of one month.
• The tax is not necessarily collected immediately in
cash because some of the sales are on credit
• Input tax is VAT paid on all goods and services
supplied to a taxable person during a prescribed
period of one month.
4/20/2009 © Sando, James Mahanga 45
4/20/2009
16
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Calculation of VAT
• It may include input tax paid in Zanzibar if the goods
are imported into Mainland Tanzania for use in
business as well as the input tax on goods or services
imported from overseas other than Zanzibar.
• The VAT claimed must be evidenced by a tax invoice
which must not be more than twelve months old.
• The input tax can only be fully claimed if all the
supplies are taxable supplies i.e. all the supplies are
standard or zero-rated
• If this is not the case the input tax requires
apportionment
4/20/2009 © Sando, James Mahanga 46
Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Input Tax Restrictions
• The input tax may be restricted in relation to sales or
purchases.
• Input tax can not generally be claimed on motor
vehicles constructed for over one up to 12
passengers, under 3 tons and not considered a special
purpose vehicle and on entertainment expenses.
• Where the business has exempt supplies as well as
taxable supplies the input VAT reclaims will be
restricted in relation to the sales.
• A business with wholly exempt supplies can not claim
any input tax
4/20/2009 © Sando, James Mahanga 47
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
– Documentary proof required to support deduction
of input tax
• A deduction of input tax can be made in respect of
supply only if:
– Tax invoice has been provided in relation to the supply and
has been retained as a record by the recipient as at the time
the VAT return is furnished
– In the case of the input tax on the importation of goods a
customs single bill of entry is produced as the documentary
proof and the extend of how it applies to the taxable supplies.
4/20/2009 © Sando, James Mahanga 48
4/20/2009
17
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
–Methods of apportionment of input tax
• Where goods or services are acquired partly for
consumption, use or supply in the course of making
taxable supplies and partly for other purposes, it will be
necessary for a taxable person to apportion the full
amount of VAT charged to him on the acquisition of the
goods or services in order to determine what portion of
the full amount of VAT qualifies as deductible input tax.
4/20/2009 © Sando, James Mahanga 49
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
–Methods of apportionment of input tax
• There are two methods of apportioning input tax
however, a taxable person may choose to use either
method, but once a method has been used in any
lodged return, the same method must be used
thereafter in any return lodged in the same accounting
year.
4/20/2009 © Sando, James Mahanga 50
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
–Methods of apportionment of input tax
• First Method
1) Calculate the value of taxable supplies made in the
prescribed accounting period
2) Calculate the value of all supplies made in that period
3) Calculate the amount of tax payable on supplies made to
the registered person in that period. (Total Input Tax)
4) Divide the amount (obtained in step 1 for the period) by the
amount obtained in step 2 (the value of all total supplies
made in the period)
4/20/2009 © Sando, James Mahanga 51
4/20/2009
18
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
–Methods of apportionment of input tax
• First Method
5) The amount of input tax to be claimed as a deduction or
credit in the prescribed accounting period is the product
obtained by multiplying the amount obtained in step 3 by
the amount obtained in step 4
4/20/2009 © Sando, James Mahanga 52
Value Added Tax (VAT)
• Basic Principles of VAT in Tanzania
–Methods of apportionment of input tax
• Second Method
1) Divided input tax for the prescribed accounting period into
categories viza . C a t e g o r y A : I n p u t t a x t h a t i s d i r e c t l y a t t r i b u t a b l e t ot a x a b l e s u p p l i e sb . C a t e g o r y B : I n p u t t a x t h a t i s d i r e c t l y a t t r i b u t a b l e t oe x e m p t s u p p l i e s ( t h i s h a s b e e n a m e n d e d i n 2 0 0 0 )c . C a t e g o r y C : I n p u t t a x t h a t i s p a i d f o r t h e p u r p o s e s o ft h e b u s i n e s s b u t i s n o t d i r e c t l y a t t r i b u t a b l e e i t h e r t ot a x a b l e o r e x e m p t s u p p l i e s4/20/2009 © Sando, James Mahanga 53
Value Added Tax (VAT)T h e T a x a b l e p e r s o n i n d i c a t e s t h r o u g h h i s r e c o r d s t h a t d u r i n g t h e m o n t h o f J u n e 2 0 0 5 , V A T w a s p a i d o n h i sp u r c h a s e s a s f o l l o w s :NO ITEM VALUE VAT TSHS. VAT INCLUSIVE TSHS.
a Sugar 50,000 10,000 60,000
b Cooking Oil 75,000 15,000 90,000
c Laundry Soap 60,000 12,000 72,000
d Transportation of whet Flour & Maize 10,000 2,000 12,000
e Bags of re-packing wheat 12,500 2,500 15,000
f Tax invoice books 37,500 7,500 45,000
g Electricity 10,000 2,000 12,000
h Telephone 12,500 2,500 15,000
4/20/2009 © Sando, James Mahanga 54
4/20/2009
19
Value Added Tax (VAT)A l s o d u r i n g t h e s a m e m o n t h s , , t h e t a x a b l e p e r s o n s u p p l i e d g o o d s w i t h t h e v a l u e s i n d i c a t e d b e l o wNO ITEM VALUE VAT TSHS. VAT INCLUSIVE TSHS.
a Sugar 60,000 12,000 72,000
b Cooking Oil 90,000 18,000 108,000
c Laundry Soap 80,000 16,000 96,000
d Toilet Soap 100,000 20,000 120,000
e Wheat Flour 40,000 Exempt 40,000
f Maize Flour 30,000 Exempt 30,000
Use the two methods to compute the VAT Amount to be paid or claimed
4/20/2009 © Sando, James Mahanga 55
Value Added Tax (VAT)F i r s t M e t h o dStep 1 : The Value of Taxable supplies made is
a sugar 60,000
b Cooking oil 90,000
c Laundry soap 80,000
d Toilet soap 100,000T o t a l 3 3 0 , 0 0 0Step 2: Value of all supplies made is
e Sale of wheat flour 40,000
f Sale of maize flour 30,000T o t a l ( S t e p 1 a n d 2 ) 4 0 0 , 0 0 04/20/2009 © Sando, James Mahanga 56
Value Added Tax (VAT)F i r s t M e t h o dStep 3 : Tax payable on supplies made to the registered person
a sugar 10,000
b Cooking oil 15,000
c Laundry soap 12,000
d Transportation of wheat flour & maize 2,000
e Bags for re-packing wheat flour 2,500
f tax invoice books 7,500
g electricity 2,000
h telephone 2,500T o t a l 5 3 , 5 0 0S t e p 4 : 3 3 0 , 0 0 0 d i v i d e b y 4 0 0 , 0 0 0 = 0 . 8 2 5S t e p 5 : A m o u n t o f i n p u t t a x t o b e c l a i m e d i s 5 3 , 5 0 0 x 0 . 8 2 54/20/2009 © Sando, James Mahanga 57
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Value Added Tax (VAT)S e c o n d M e t h o d S t e p 1 : a . C a t e g o r y A : I n p u t t a x d i r e c t l y a t t r i b u t a b l e t o t a x a b l e s u p p l i e sa sugar 10,000
b Cooking oil 15,000
c Laundry soap 12,000T o t a l 3 7 , 0 0 0b . C a t e g o r y B . I n p u t T a x d i r e c t l y a t t r i b u t a b l e t o e x e m p t s u p p l i e sd Transportation of wheat flour and maize 2,000
e Bags for re-packing wheat flour 2,500T o t a l 4 , 5 0 0c . C a t e g o r y C : I n p u t t a x p a i d f o r t h e p u r p o s e s o f t h e b u s i n e s s b u t i s n o t d i r e c t l y a t t r i b u t a b l e e i t h e r t ot a x a b l e o r e x e m p t s u p p l i e r sf Tax invoice books 7,500
g Electricity 2,000
h Telephone 2,500T o t a l 1 2 , 0 0 04/20/2009 © Sando, James Mahanga 58
Value Added Tax (VAT)S e c o n d M e t h o d S t e p 2 :a Input tax in Category A 37,000
b Input tax in Category C 12,000T o t a l 4 9 , 0 0 0D e d u c t i b l e I n p u t T a x :•
R a t i o o b t a i n e d u n d e r s t e p 4 o f t h e f i r s t m e t h o d i s 0 . 8 2 5•
M u l t i p l y b y t h e i n p u t t a x o n c a t e g o r y “ C ” T s h s . 1 2 , 0 0 0•
0 . 8 2 5 x 1 2 , 0 0 0 = 9 , 9 0 0A m o u n t t o b e c l a i m e d i s T s h s . 3 7 , 0 0 0 + 9 , 9 0 0 = 4 6 , 9 0 0Note:
•The second method of apportionment was amended by the VAT (General Amendments) Regulations 2000
•Input tax attributable directly to exempt supplies can not be included in the calculation and is not allowed
to be claimed.
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Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Offences, Penalties and Interest
• As in all tax legislation’s various types of non-
compliance errors, mistakes or omissions committed
by a taxpayer attract specific penalties.
• It is therefore in the interest of the taxpayer to
comply with the law as far as possible.
• Some of the major offences and the appropriate
penalties are stated 1 . F a i l u r e t o r e g i s t e r» The penalty if a fine not exceeding 200,000 or
imprisonment for a term not less than two months but
not exceeding twelve months
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Value Added Tax (VAT)• Basic Principles of VAT in Tanzania
– Offences, Penalties and Interest2 . F a i l u r e t o f i l e a V A T r e t u r n o r p a y t a x» The penalty for failure to file is a fine of Tshs.50,000 or
1% of the declared tax payable which is ever the
greater.3 . F a i l u r e t o i s s u e a t a x i n v o i c e / r e c e i p t» The penalty is a fine not exceeding Tshs.200,000 or
imprisonment for a term not exceeding twelve month
or to both such fine and imprisonment.4 . P e n a l t y f o r f r a u d u l e n t r e t u r n o r t a x e v a s i o n» Upon conviction, such person shall pay the tax which would have
been paid had the offence not been committed and in addition shall
pay fine of Tshs.2,000,000 or be imprisonment for a term of 2 years
or both.
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Value Added Tax (VAT)
• Read about interest on tax overpaid /refund
• Appeal
• Powers of the Commissioner VAT
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