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Apt Financial Consultant

CPA Reviews

INTRODUCTION TO VAT
VAT is the Value Added Tax. It is the tax which is charged on the value added of goods or services at each stage of a business transaction and it is also collected on imports. The business transactions involve the supplies of goods or services. The VAT standard rate is 18% there is VAT at “0”%, Zero rated. The VAT registration threshold is where the taxable turnover exceeds or is likely to exceedForty million shillings in a period of twelve consecutive months and, or Ten million shillings in any period of three consecutive months The VAT is paid by the final consumer. It is the consumer who bears the tax burden .The taxable person deducts what he/she has paid as VAT when he / she was purchasing the taxable supplies for the furtherance of his /her business. The tax paid by consumer is the money of the government since the day or time she purchases goods or services. The tax on purchases is Input tax. Output tax is the tax on sales. The difference between the two i.e. out put tax and input tax is what is payable to TRA or refundable to taxpayer. TYPES OF VAT There are three types of VAT namely: (i) Consumption type (ii) Income type (iii) Gross produced (i) Consumption type: Capital goods purchased are treated like any other purchases of input i.e. Full credit of input tax are given. This type of VAT is practiced in Kenya, Uganda, Tanzania, Singapore and South Africa. (ii) Income type: Input tax paid on the purchases of capital a goods is spread over the life span of the products or Assets. The input tax credit with capital purchases against the liability in a particular tax period will take into account the depreciation portion only. This type of VAT is practiced in Argentina and Peru. (iii) Gross product type: Completely denies input tax deduction on capital goods against the firm VAT liability. VAT is computed by subtracting from the firms sales only purchases apart from capital goods. This type of VAT is practiced in Finland, Morocco and Senegal. METHODS OF CALCULATING THE CONSUMPTION TYPE OF VAT There are three methods of calculating the consumption type of VAT (i) Credit (invoiced based) method. (ii) Subtraction (accounts based) method. (iii) Additional (account based) method. (i) Credit Method: This is the most favored method where by the net VAT liability is computed by deducting the tax on purchases (input tax) from tax on sales (output tax) for each tax period. The tax on sales must be shown separately on all invoices to provide documentary evidence for credit claim by registered traders. (ii) Subtraction method: Under this method net liability is obtained by deducting the aggregate value of purchases from the aggregate value of sales and applies a VAT rate to the difference obtained. Figure of sales and purchases are obtained from final accounts. iii) Additional method: Value added is obtained by summing up the factors of production rewards like wages, interest, depreciation and net profit within the specified tax period. The tax rate is then applied to the summed value to establish the tax liability of the firm in the given period.

Apt Financial Consultant

CPA Reviews

Experience in Tanzania – Tanzania is using consumption type of VAT with credit (Income method) of calculation. Why Credit (invoiced based) method is most favored? (i) Tax liability is attached to the transaction and invoices become a crucial document. (ii) It creates a good audit trail (iii) It allows easy application of multiple rates of tax. (iv) VAT can be collected on monthly basis or any tax period. (v) Goods and services can be easily identified. (vi) Zero rated supplies can easily be applied. (vii) Credit methods have self-enforcing features. - Non-business transaction (e.g. private use and goods imported for private purposes). - Exempt transactions. - Outside the scope transactions (e.g. non-supplies, passive investment activities). VAT incurred on certain categories of expenditure is never eligible for deduction even if the expenditure is for business purposes. Value added tax shall in no circumstances be deductible on expenditure which is not strictly business expenditure such as that on luxuries, amusements or entertainment. Motor Cars: VAT on the supply, requisition or importation of a motor car is not deductible unless certain conditions are met. In general terms, VAT is not deductible unless the car cannot be available for any non-business use. VAT on the M/C is deductible if the car is to be use exclusively for business purposes and will not be available for private use. It is available for private use and not actual use for private use purposes that determines whether or not the VAT will be deductible. VAT on the supply acquisition as importation of M/C is also deductible if the M/C is to be used for specified purposes, namely:  As stock in trade  For letting  As a mini-cab. The black on deduction of input VAT applies to the VAT on the car and also any accessories fitted at the time of purchase. In put tax on accessories fitted subsequently may be deductible if they are for business purpose. The blocking provisions do not apply to other types of vehicles e.g. a company van. In respect of such vehicles, if there is any private use the business can either disallow a proportion of VAT on the purchase of the motor vehicle as representing the VAT on private use. Business entertainment. If deduction is not allowed on goods or services on which VAT is incurred if the goods and services are used for the purposes of business entertainment? Business entertainment is defined as entertainment including hospitality of any kind provided by a taxable person on by him. Example of what has been held to be business entertainment includes: A customer or perspective customer of any form of beverages, tobacco, accommodation, amusement, recreation, transportation or hospitality an employee of any form of alcoholic beverage, tobacco, amusement, recreation, or hospitality. Business gifts: Gifts of goods or service are not in principle subject to VAT because they are not provided for consideration. Samples or gifts of small value provided by a taxable person for the purposes of his business are not to be treated as made for consideration. Otherwise if VAT is chargeable on the gifts or sample the recipient can deduct that VAT as input tax subject to the normal rules. Advantage of VAT: it is a broad based tax which yields more revenue to the Government. It is charged on local as well as imported products which are not exempted. It a tax which is paid by the final consumer and therefore the business community does not bear the tax burden as they use to recover what they have paid on their purchases as input tax. It is a self administered tax and therefore it promotes voluntary compliance. Disadvantage of VAT

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3 . he WILL MAKE or HAS MADE taxable supplies in excess of the turnover figures prescribed in the Regulations made under this Act. the value of money decreases. and (c) Allow them charge output tax on their taxable supplies and to issue tax invoices. o These are probably more than those kept by most small businesses.Apt Financial Consultant CPA Reviews Is VAT “regressive? (A tax is regressive if it affects all levels of income equally by a flat rate A progressive tax affects high income earners more. Governments can reduce the effect of regressive ness by having the social scurity and the exemption in the tax system. are provided for each of the legal provisions listed above: a) Section 18 of the VAT Act 1997 This section requires the Commissioner to maintain a register of taxable persons. (b) Enable them to take credit of input tax on their purchases of taxable supplies. Does VAT involved complicated book keeping? o The regulations prescribe a number of books. It does not stipulate the type of register to be maintained or the details to be recorded. whose taxable turnover exceeds the threshold limits set in the regulations). which must be kept by all registered traders as a minimum. and can promote efficiency and profitability by providing a trader with more information about how the business is performing. Interpretation of the main legal provisions The under mentioned guidelines. A taxable person is a person WHO MAKES or who has reasonable grounds for believing. b) Section 19(1) to (4) of the VAT Act 1997 i) Sub-Section 1 This sub-section defines those persons who are required to apply for registration and the time limit for doing so. Basing on that. In practical terms the register is computerized and is compiled from the information provided by registered taxable persons on their application forms Form VAT 101. REGISTRATION AND DEREGISTRATION FOR VAT INTRODUCTION: The tax authority needs to know who is going to pay the tax and whom it can pursue in the event of non-payment. covering significance and meaning. and is accepted as a better system in that the better off part of the population bears a greater proportion of the tax burden). Is VAT “inflationary”? o Yes-if prices increase. the authority is assured of tax payments by obliging traders to register for the tax. The taxable turnover of all businesses under one legal entity must be added together to determined whether the person should be registered. Any person who exceeds the taxable turnover figures prescribed in the Regulations must apply for registration. Taxable supplies means any supply of goods or services made by a taxable person in the course of or in furtherance of his business and includes zero rated supplies. o Keeping basic records is good practice for any business. iii) Sub-Section 3: This sub-section compels the Commissioner to register every applicant who is eligible to register under sub-section 1 (that is. ii) Sub-Section 2: This sub-section requires all taxable persons to apply for registration in the manner and form prescribed by the regulations. Purposes of Registration: The purposes of registration are to: (a) Record the particulars of taxable persons for the purpose of control and collection of tax. The fact that such a person is liable to register under this sub-section means that such a person must account for VAT on any taxable supplies he makes from the date he becomes liable for registration.

Similarly under sub-sections 4 and 5 the Minister may make regulations covering the bankruptcy and companies in liquidation/ receivership. Sub-section 3 provides some relief on the treatment of stock on hand at the EDD. Sub-section 2 requires the Commissioner. It is aimed primarily at facilitating existing business structure/practice but is can also be advantageous for revenue control purposes. Sub-section 2 means that any person who fails to register will also be liable for any arrears of tax and interest in addition to any penalty imposed. shillings. The provision is a concession and does not allow any applicant to register in branches/divisions by right. if he is satisfied. Sub-section 4 also requires the Commissioner to issue copies of the registration certificates for display at any additional business premises (branches). c) Section 20(1) to (4) of the VAT Act 1977 i) Sub-Section 1 & 2 These sub-sections require the Commissioner to notify the taxable person when he has been registered for VAT purposes and issue a certificate of registration showing the taxpayer’s name. It allows relief on any stock transferred as part of a going concern to another taxable person and also provides a limit for administrative convenience. It could also cover the case of someone trading below the threshold who applies to register on a voluntary basis. If convicted of an offence he is liable to imprisonment for a term not less than two months and not exceeding one year. No tax would be chargeable on any stock if the amount of VAT does not exceed five thousand (5000) T. or a fine not exceeding two hundred thousand shillings. The reasons for taking action under this sub-section are stipulated as being on the grounds of national economic interest or protection of the revenue. to notify the taxable person in writing of the effective date of deregistration (EDD).Apt Financial Consultant CPA Reviews iv) Sub-Section 4 This is a wide-ranging sub-section which gives the Commissioner the power to register a business whether or not an application has been made. e) Section 22(1) to (5) of the VAT Act 1997 i) Sub-section 1 This sub-section allows a business to register its divisions or branches separately rather than as one single legal entity. principal place of business. This could be where he has reasonable grounds for knowing that the person has exceeded the turnover figures prescribed in the regulations but has failed to register. ii) Sub-section 2 and 3 provide the Minister with power to make regulations defining the responsibilities of organizations like clubs managed by members or by committee. g) Section 44(1) to (3) Sub-sections 1 and 2: Sub-section 1 makes it an offence where a person fails to register within thirty days after qualifying. Sub-section 3 This sub-section extends the offence situation to those taxable persons who are registered but who 4 . f) Section 23(1) and (2) These sub-sections provide the Minister with the power to make regulations covering the type of changes in circumstances that a taxable person must notify in writing to the Commissioner and the time limit for doing so. or to both fine and imprisonment. the effective date of registration (EDR) and the Taxpayer Identification Number (TIN) and VAT Registration Number (VRN). It is only allowed if the Commissioner is satisfied and it could not be used as a means of avoiding registration. d) Section 21(1) to (3) of the VAT Act 1997 These sub-sections are concerned with deregistration for VAT purposes and places an obligation on the taxable person to notify the Commissioner within a thirty day period if he is no longer register able. In both cases the Commissioner should notify the business in writing of his actions and the reasons why they have been taken. ii) Sub-section 3 & 4 These sub-sections require the registered taxable person to use the unique VRN TIN allocated on all documentation including returns and tax invoices and to display the registration certificate in a prominent place at the principal place of business.

The Form VAT 101 is designed to help the registration process (both business community and the tax administration) by seeking the minimum information to effect registration. clubs. The application for registration. (See also Paragraph 7 below). and cooperatives). The application for registration (VAT 101) must be signed by one of the Directors or the Company Secretary. This is considered to be a less serious offence and if convicted the person will be liable to a fine not exceeding one hundred thousand shillings. A single registration does not affect any separate accounting arrangements for the business and the totals in the accounts of all the businesses should be aggregated at the end of each tax period for the purpose of making only one VAT return. (Only when a partnership is dissolved should it be necessary to cancel the registration. the body concerned is to be consulted to ascertain who is authorized to act on behalf of the organization. 2. Paragraph 7). Changes can be made to an existing partnership agreement but the legal entity remains the same). The names of the Senior Partners should be entered on the Form VAT 105 “Advice of Additional Trader Particulars” which should be signed by the Senior Partner. a business carried on by that person. Form VAT 101 – “Application for Registration” All applications for VAT registration must be made on an original Form VAT 101. Eligibility to register Before a person can be registered for VAT purposes he must satisfy the following conditions: a) He must be making or intending to make taxable supplies of goods and/or services in excess of the turnover figures prescribed in the Value Added Tax (Registration) Regulations. if certified. or furtherance of. unless it is absolutely necessary. (b) Partnerships: The registration of partnerships can be in the natural names of the partners or a trading name.0. All application forms for registration (VAT 101) in respect of Sole Proprietors must be signed by the Sole Proprietor. All such companies are required by the Companies Ordinance Chapter 212 to register with the Registrar of Companies and a certificate of incorporation is issued. A business name certificate is issued by the Registrar of Companies from the date of registration. d) Other bodies (groups. it is not intended to subject the applicant to any further enquiry. the registration should be affected in his natural name. Each trader should be issued with only one copy of the application form. In the event of an application for registration received from a cooperative. Other groups or associations use their constitutions to determine a person authorized to act on behalf of the organization. at this stage.Apt Financial Consultant CPA Reviews fail to notify the Commissioner of any changes in business circumstances within the thirty-day period allowed. “Taxable Persons” to be registered are as follows: (a) Sole Proprietorships: The proprietor should be registered and the registration of a sole proprietorship should cover all the business activities of the proprietor unless a specific request for a separate branch registration is received (see Part 6). and b) The taxable supplies must be made or intended to be made in the course of. 5 . associations. No other documents will be required to accompany the VAT 101. . Once a properly completed and acceptable Form VAT 101 is received. should be signed by a responsible person and in general terms the VAT registration will be in the name of the organization specified in the Act. Partnerships in Tanzania must be registered under Business Names (Registration) Ordinance Chapter 213 if they use a business name. Where a sole proprietor has more than one business and uses trading styles. The names of all the Directors and Company Secretary will be obtained as “Additional Trader Particulars” on the first visit by using the form VAT 105 (see also Part 4. The registration of a company for VAT will be in the name by which it is registered as a company. VAT 101. Persons liable to Register: The meaning of “Taxable Person” Taxable person means a person registered or required to be registered under the provisions of the Value Added Tax Act 1997. c) Companies incorporated under the Companies Ordinance.

office machinery. It will be necessary to keep proper accounts and records. Section 23 of the VAT Act and Regulations 13 and 14 deals with this situation. 3. 1.22 of the VAT Act gives Commissioner authority to allow such applications. and architects fees). their annual taxable turnover is below the threshold. however. Full information about the nature and size of the business. Branch Registration Many businesses operate from more than one set of premises. equipment. location/turnover/activity. Firm evidence of the stage reached in the development of the business such as contracts to supply.g. and reason for requiring separate registrations. Their turnover is above the threshold so they have no choice in the matter. and it is important on any visit to the trader that details of all branches etc. should be obtained and recorded in trader’s folder. Normally all branch activities are part of one legal entity and all figures (turnover. It will be necessary to furnish monthly returns with any tax due. There are six registration categories to consider:o Voluntary (V) o Intending trader’ (I) o Compulsory’ (C) o Branch registration (B) Divisional registration (D) Voluntary Registration Applications to register may be received from persons who do not fulfill the registration requirements e. The trader must apply in writing giving details and legal entity involved and breakdown of branches e. It will involve accounting for Vat on taxable goods and services supplied by him. In this session we shall be looking at how these traders are dealt with. The procedure is the same except that box 21 of the VAT 101s is codes ‘D’ 5. A separate VAT 101 must be completed for each branch. lawyers. Divisional Registration Limited Companies may structure their organization and create autonomous units within same legal entity-and describe them as divisions.g. This type of application is not normally encouraged but you are already aware that the Commissioner has the power to register any person on the grounds of “National Economic Interest”. Traders who intend to start trading fall into this category and may seek registration in order to recover any input tax incurred in setting up the business (e.Apt Financial Consultant CPA Reviews TYPES OF REGISTRATION Normal Registrations For many traders there is nothing optional about registering for VAT. Quite often these changes can affect the ‘legal entity’ of the business and action needs to be taken by the trader and by the VAT Department. Under section 23 a 6 . procurement of stock and or services and the degree of financial commitment. VAT etc. but some businesses may with to have branches registered separately. 4.0 Changes in trader’s Particulars A trader’s particulars/circumstances often change after registration. Registration brings with it obligations as well as benefits. and 2.) are amalgamated for completion of a single VAT return.g. For some traders. These can be separately registered in the same way as branches. Intending Traders The regulations require any person who has grounds for believing he will qualify for registration must apply for registration. things are not quite so straightforward. 2. and Sec. The trader should be told that: 1.

following a visit to the trader (traders will not always inform the VAT office of changes in particulars despite being required to do so by the legislation). Change on business name 4. as follows: 1. VRN & TIN 2. Changes which result in a change of legal entity. The scope of the tax is provided in section 4 of the Value Added Tax Act. Name. change of address or change of a director) it is only necessary to amend the particulars of the person on the registration file.g. There are different procedures for dealing with these two different circumstances. 2. Major change in nature or conduct of business. 5. Changes not affecting legal entity If the changes are in registration details which do not affect the legal entity (e. Period covered by the last VAT return submitted 7. Two situations can arise: 1. Ownership of business changes in part or whole. (VATA). Information Required The following information will be checked: 1. Minor changes which require amendment to the registered trader’s particulars but which do not change the legal entity of the business. Reasons for deregistration 5. 10 Second Schedule to the VATA) 7 . Estimated tax-free stock and assets on hand – value and amount of VAT. Notification of changes Changes in a registered trader’s particulars will be notified to the VAT officer by: 1. Changes caused by death or Insolvency Changes in a registered trader’s particulars may occur due to death of a sole proprietor or a partner and deregistration will need to be considered. Regulation 13 lists the changes that must be notified within 30 days of the change. 2. A registered trader contacting the VAT office by letters or telephone. Date of cessation of trading 4. and 2. Changes affecting the legal entity When the changes in a trader’s particulars affect the legal entity of the registered person it will be necessary to deregister (cancel) the old business and register the new legal entity. 1997. Taxable person ceases to trader of taxable turnover falls below the threshold. For the transaction to be within the scope of Mainland Tanzania VAT it must fulfill all of the following conditions:  It must be a supply of goods or services  It must be supplied in Mainland Tanzania  It must be supplied by a taxable person  It must be done in the course or furtherance of business  It should not be exempt (sec. Change of business address 3. address of purchaser 6. Address-present and/or future contact address 3. (The procedure for deregistering a trader is covered later).Apt Financial Consultant CPA Reviews taxable person must notify in writing any changes that take place within the business-within 30 days. A VAT officer. The death of a director in a limited Company would normally only lead to a variation to the trader’s registration file. Deregistration Section 21 of the VAT Act deals with deregistration and gives the Commissioner the power to deregister a business. If business sold-name. OUTPUT TAX AND INPUT TAX Points on Output Tax The transactions on which output tax is charged must fall within the scope of Tanzania Mainland VAT.

Definition as per the dictionary.g. The supply can be of goods or services and it is important to make the identification because the time of supply (sec. they have high volume of low volume transactions. No formal definition of retailer in the law or notice. Supply of goods or services: The term “supply” is not defined in the VATA. What are the schemes? Method 1 8 .this is the record. It rarely occurs without consideration e. They are mostly known as the Retailers. The traders are retailers selling to the general public. sale of assets. or achieving its goals. “to furnish or to serve”. 29 of the VAT Act. who do not normally require a tax invoice. sales to other registered traders must be excluded from the scheme calculations. “include all form of trade or commercial activity”.the sale of goods to the public for use or consumption rather than for resale.7) varies between goods and services. In most cases the supply is made for a consideration. Generally. There is no formal definition of retailer in the Law or notice. in the case of self-supply of goods or provision of gifts. Bath gate DJ said at p3366: “An act done for the purpose or object of furthering the (business).Apt Financial Consultant CPA Reviews If any of the above conditions is not met then the transaction does not fall within the scope of Mainland Tanzania VAT. Furtherance of business It is not defined in the VATA.g. Generally. Retailers are not relieved of the requirement to issue ‘receipts’ (see sec.) Is it feasible or Desirable that retailers issue receipts? Or Keep records? Yes. What are record keeping requirement? Regulation 12. Retail scheme have been described under Regulation 14 of the VAT General Regulation 1998. and thus a ‘furtherance’ of a taxable activity. Retail scheme is under General Regulation 14. Supplied by a Taxable Person: The provider of either goods or services must be either registered by the Commissioner or is required to be registered (sec. can be to help. For VAT purposes the term is taken to mean “to provide”. drawing attention to concession allowed in 12(C) . which forms the starting point for the scheme calculations. What is the purpose of retail schemes? To allow traders who are unable to issue tax invoices for every sale. to estimate their output tax by calculation. Supplied in Mainland Tanzania: In case of goods they should be situated in Tanzania at the time of supply and in case of services the provider should belong in Mainland Tanzania. to estimate their output tax by calculation. although it may not necessarily be always in the course of that taxable activity”. who do not normally require a tax invoice. rather than by the addition of tax charged on each transactions.6) and place of supply (sec. they have high volume of low value transactions. Must keep a record of payments as they are received Must not reduce gross takings by amounts taken out of till Cheques treated as cash on day received Must include deposits if advance payments Nonretail supplies e. The Primary record retailers must keep is the record of daily gross takings . The traders are retailers selling to the general public. or advance. RETAIL SCHEME The purpose of retail scheme is to allow traders who are unable to issue tax invoices for every sale.no requirement to keep ‘record of value of each supply made’). 2) In the course of furtherance of business: The term “business” is defined in section 2 as. New Zealand Case N43 (1991) 13 NZTC. rather than by addition of tax charged on each transaction.

Inclusion of services or ineligible transactions How might these be detected and combated? 1. Taxable purchases x DGT Total x VAT Fraction Total Purchases = Output tax • (Output figure for box 02 of the VAT return can be calculated by multiplying output tax x 5). 12 states that a record must be kept of each supply as it takes place. • Could also be achieved by writing down cash sale as it takes place. he must use it for one full ‘accounting’ year. Suppression of sales will depress the mark up achieved of both standard and exempt goods. (Reg. All taxable and exempt purchases are included. The trader is allowed to choose which method he wishes to use. Method 2 . • Would normally expect separation to be achieved by using a cash register with separate ‘department’ keys. The trader must carry out on annual adjustment similar to that required for partial exemption. 2.or can be used if standard rated goods only are sold. by recalculating at the end of the tax year. expenses and overheads are also included. 2. If the annual adjustment reveals any over or underpayment. Suppression of sales. and each payment received. 14 Step 1: Separate gross takings at the point of sale between taxable and exempt supplies Step 2: Each day at the close of business total the records of gross takings Step 3: At the end of the prescribed accounting period. the takings applicable to standard rated goods are totaled.Miskeying/misdescription 4.Sales of standard rates and exempt goods are apportioned in the same ratio as taxable and exempt purchases made in the period.) • At the end of the period. which can have a very distortive effect Step as per Regulation 14 • Step 1: Record total gross taking for each day • Step 2 : At the end of each prescribed accounting period total daily gross taking for that period • Step 3: Allocate those gross takings to taxable supplies in the same proportion that the value taxable purchases made in the period bears to the value of total purchases in that period. from the records of taxable daily gross takings. not just goods purchased for resale. an appropriate entry is made in the VAT account in the first period after the end of the tax year. calculate the tax using the tax fraction for the rate of tax in force and include the amount on the VAT return for that period. to give the output tax due.Apt Financial Consultant CPA Reviews • Separation of standard and exempt goods at ‘point of sale’ . Method 1 Standard Rated Taking X 1/6= Output Tax Method 2 Where trader is unable or unwilling to separate at point of sale. Steps as per Reg. using the whole year’s figures. Risk Involving Retail Schemes What are the risks involving retail schemes 1. • Step 4 : From the gross takings allocated to taxable supplies calculate the tax for the prescribed accounting period using the tax fraction in force and include the amount on the VAT return for the period. 9 . Suppression of both sales and purchases 3. VAT fraction applied. or by using different till for each class of goods. Method 1 . having chosen his method. . Suppression of both sales and purchases will not affect mark up.

Check if the supply was made to the taxable person or to a third party? For example. on behalf of his principal is an input tax of the principal. (i) In case goods. motorcars. invoices are often issued in advance. Is the expenditure for the purpose of the business of the taxable person? Goods or services must be used or to be used for the purpose of the business. It is important to establish whether there was an actual supply to the business? The existence of a tax invoice is not conclusive evidence that a supply has occurred. (iii) There is documentary evidence to support purchases and utilization of the goods or services on which input tax is claimed.  The person seeking to claim input tax must hold satisfactory documentary evidence of the supplies in support of his/her claim. The supplies must be to the taxable person not to someone else. payments made by a clearing and forwarding agent to third parties such as Customs.Apt Financial Consultant CPA Reviews 3. Note: The services should relate to the goods in ownership and possession by the taxable person at the date of registration.  The supplies received must not be subject to input tax restriction i. Inclusion of ineligible items in method 2 will increase standard rated mark up. he must register if the value of taxable supplies exceeds the registration threshold. (ii) In case of services.e. non-deductible i. the goods were in the ownership and possession of the taxable person at the date of registration and the same were received not more than six months prior to registration. Miskeying or miss-description of standard goods as exempt will depress standard rates mark up but inflate exempt mark up.e. the services were received not more than six months prior to registration. entertainment. Such a trader is a partially exempt . Firstly. DAHACO. Refer cases  The supplies must normally be received in the accounting period on which the claim is to be made.  The amount to be claimed must actually be VAT properly charged by another taxable person or relate to a taxable importation.Extended challenge of stock to detect suppressed purchases Questioning of trader and staff to determine knowledge and practice in liability/keying errors Examinations of records and interview with trader to discover any services or ineligible supplies provided Substantial suppression will probably be best dealt with by mark up exercise. but the wrongly included items will not be fully taxed. Reg 3-8 of the Value Added Tax. If he makes a mixture of exempt and taxable supplies. PARTIAL EXEMPTION If a trader makes only exempts supplies he is not liable to register for VAT. Secondly.The major disadvantage for traders making exempt supplies is that they cannot register and therefore they can not reclaim the tax they are charged by their suppliers if it relates to their exempt supplies. How can these problems be dealt with? By examination of mark ups achieved. 10 . the invoice could be fraudulent. METHOD 2: TAXABLE PURCHASES TOTAL PURCHASES X DGTX 1/6 = OUTPUT TAX INPUT TAX CONDITIONS GOVERNING INPUT TAX DEDUCTION Taxable persons may reclaim the VAT they incur on their purchases of goods and services subject to the conditions (rules) mentioned below: The law is provided under sect.  The supplies on which the tax was charged must be made to the person seeking to claim the input tax.16 of the VATA 1997 and General Regulations 1998 . whether the receipt is issued in the name of the agent or importer.  The supplies must have been incurred for the purpose of the business. 4. and comparison with mark up calculated from stock challenge . THA etc.

METHOD 1: FORMULAR Taxable supplies x Total Input Tax = Deductible Input Tax Total supplies Second Method Step 1: Divide input tax for the prescribed accounting period into categories:Category A: input tax that is directly attributable to taxable supplies /. Step 3: Calculate the value of all supplies made in that period. If a trader makes a mixture of taxable and exempt supplies he must register if taxable supplies exceed the threshold. amount of tax not significant. Method 2: Advantages – Better recovery of input tax – Recovery related to use (attribution) Disadvantages – Need better records (to analyze input tax into the three categories) – More difficult calculation – Suitable for use by larger traders with better bookkeeping systems. More suitable for smaller traders where books are simple.may be significant amount of input tax not recovered. Step 2: Calculate the value of taxable supplies made in the prescribed accounting period. (Total input tax) Step 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) Step 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. zero rated.Category B: Input tax that is directly attributable to exempt supplies Category C: Input tax that is paid for the purposes of the business but is not directly attributable to either taxable supplies or exempt supplies. Trader is then faced with problem of apportioning the input tax between exempt supplies (not claimable) and taxable supplies. The trader is entitled to choose whichever method he/she wishes. Step 2: Calculate the value of all supplies made in that period. Traders where taxable outputs are low compared to exempt outputs. Exempt What makes exempt supplies different from the others? Input tax incurred in making exempt supplies cannot be reclaimed The registration position of trader who makes only exempt supplies cannot register for VAT purpose. Step 3: Calculate the amount of tax payable on supplies made to the registered person in that period. Method1: Advantages – simple to operate – No complicated bookkeeping required Disadvantages – Crude method – Recovery of input tax not related to use . First Method Step 1: Calculate the value of taxable supplies made in the prescribed accounting period.Apt Financial Consultant CPA Reviews What attributes to partially exempt trader? Types of Supplies these are Standard rated. Step 4: Divide the amount obtained in step 2 for the period by the amount obtained in step 3 (the value of all total supplies made in the period) 11 .

000 12.000 15.000 40.500 321.000 80.000 hTelephone 12.000 Total 267.000 120.000 72.000 90.000 96.000 30.000 dTransportation of wheat flower and maize 10.000 12.000 Also during the same months. the taxable person supplies goods with the value indicated below:Value VAT VAT (Tshs) (Tshs) Inclusive aSugar 60.Apt Financial Consultant CPA Reviews Step 5: The amount of input tax to be claimed as deduction or credit in the prescribed accounting period is the product obtained by multiplying the amount obtained in step 4 by the amount obtained in category C( found in step 1) and then add the input tax attributable to taxable supplies ( category A found under step 1) Second Method: Taxable Supplies x C+ A = Deductible input tax Total Supplies EXAMPLE: PARTIAL EXEMPT TRADER The taxable person indicates through his records that during the month of October 2006.000 eBags for re-packing wheat 12.000 12.000 Exempt Exempt 108.000 100.500 45.000 c Laundry Soap 60.000 20.000 APPORTION OF INPUT TAX FIRST METHOD Step 1: The value of taxable supplies made is: Tshs a Sugar 60.000 bCooking oil 90. VAT was paid on his purchases as follows: TABLE Value VAT VAT (Tshs) (Tshs) (Inclusive) aSugar 50.000 30.000 c Laundry soap 80.500 15.500 7.000 10.000 d Toilet soap Total Step 2: Value of all supplies made is: Tshs eSale of wheat flour f Sale of maize 40.000 330.500 53.000 2.000 18.000 b c Cooking oil Laundry soap 90.000 60.000 bCooking oil 75.500 2.000 12 .000 2.000 f Tax invoice books 37.000 eWheat flour f Maize 40.000 dToilet Soap 100.000 30.000 gElectricity 10.000 16.000 72.500 15.500 2.000 12.

000 e Bags for re-packing wheat flour Total 2.000 12.500 f Tax invoice books 7.000 b Cooking oil 15.825 = 44.000 Category C Input tax paid for the purposes of business but is not directly attributable to either taxable supplies or exempt supplies: f g h Total Tax invoice books Electricity Telephone 7.500 × 0.000 Step 2 Calculate the value of taxable supplies made in the prescribed accounting period 13 .500 Total 53.200/= SECOND METHOD Step 1: Category A: a) Input tax directly attributable to taxable supplies:Tshs a Sugar b Cooking oil c Laundry soap Total Category B b) Input tax directly attributable to exempt supplies: d Transportation of wheat flour 2.000 2.000 h Telephone 2.000 400.500 g Electricity 2.500 Step 4: 330.500 2.825 Step 5: the amount of input tax to be claimed is: 53.000 ÷ 400.500 4.000 Step 3: Tax paid to supplies made to the registered person:Tshs a Sugar 10.000 37.Apt Financial Consultant CPA Reviews gSale of taxable supplies ( refer the total at step 1 above) Total 330.500 10.000 d Transportation of wheat flour and maize 2.000 = 0.000 C Laundry soap 12.000 15.500 12.000 e Bags for re-packing wheat flour 2.

000 Step 3 Calculate the value of all supplies made in that period = 400. namely: (a) The taxable person’s name. the date of appropriation or taking into use. any other invoice or import document.825 = 9. 6) a record of the total VAT recorded in paragraphs © and (e) for each prescribed accounting period. 2) A record of each supply made related to the appropriate tax invoice or any other invoice.000 100. the value of goods excluding VAT.000 x 0. together with the VAT charged on each supply unless the taxable person is using one of the methods described in Regulation 13 in which case. Tax Invoices (i) A Tax invoice shall prominently bear the words “tax invoice” on its face.000 Total 400. (b) The date of supply. (c) The number of the invoice taken from a consecutive series. tax exclusive price for each description of goods 14 .900 = 46. 5) A record of the value of each supply received excluding VAT and the VAT charged. (e) A description sufficient to identify the goods or services supplied which includes the quantity of goods or the extent of services supplied.000 90. TIN and his VAT registration number. address.000 ÷ 400.900/= • The amount to be claimed is • Tshs 37.825 Deductible input tax: • Ratio obtained in step 4 of the first method is 0.825 • Multiply the ratio by input tax in category C • 12.000 80.000 330. amount and the person making or receiving the payment. 3) A record of the value of each supply made excluding VAT.000 bSale of maize 30.000 aSale of wheat flour 40. the taxable person shall keep the records required under that regulation. (ii) A tax invoice for the supply of goods or services shall include the following particulars. recording for each prescribed accounting period total VAT on outputs and inputs together with the net difference to be paid to or reclaimed from the Commissioner.000 cSale of taxable supplies ( refer the total at step 1 above) 330. TIN and VAT registration number. 4) A record of each supply received related to the appropriate tax invoice. the description of the goods. address. 8) a record of all goods appropriate or taken into personal use or into the use of others. 7) a record of each payment made or received showing the date.Apt Financial Consultant CPA Reviews a b c d Total Sugar Cooking oil Laundry soap Toilet soap 60. (d) The customer’s name. and the VAT calculated on the goods.000 Step 4 Divide the amount obtained in step 2 for the period by the amount obtained in step 3 ( the value of all total supplies made in the period) 330.900/= RECORD TO BE KEPT BY THE VAT REGISTERED TRADERS 1) A VAT account.000 + 9.000 = 0.

SCOPE AND COVERAGE OF VAT INTRODUCTION VAT is a tax on transaction. (b) The goods are returned to the registered taxable person. “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 or furtherance of any business carried on by him”. payment is received or a tax invoice is issued in respect of part of a supply. There is lots of scope for argument over the terms used in this definition – some words and phrases are specifically defined – and we also need assistance in considering. (j) A tax invoice shall indicate: (k) The total charge exclusive of tax. Whichever time shall be the earliest. in respect of any taxable supply. tax or levy is payable in accordance with the Customs Law unless prescribed otherwise in the regulations made 15 .  Time of supply – Section 6  Place of supply of goods and services . shall be when – (a) Goods are removed from the premises of the supplier or from other premises where the goods are under his control to the person to whom they are supplied. (b) The amount of credit. 7  Values of a supply – Section 13 & 14 Time of supply – Section 6 6. and outside the scope. in respect of any supply referred to in subsection (1). (3) Where supplies are measured by meter the time of supply shall be the date of the first meter reading following the introduction of VAT and subsequently at the time of each meter reading. A registered taxable person who has issued a tax invoice in respect of a taxable supply shall. (4) VAT on imported goods shall be charged and payable at the time custom duty.Apt Financial Consultant CPA Reviews or services supplied. (g) The amount of credit. Section 4 of the VAT Act states that. rate of tax. (2) Where. unless the Commissioner otherwise allows. (i) The rate of any discount. (b) a tax invoice is issued in respect of the supply. or goods are made available to the person to whom they are supplied. Time of supply and Value of supply of goods and services. (l) The total tax charged. and the tax on it shall be paid accordingly. The credit note mentioned under sub regulation (1) shall contain: (a) The particulars prescribed for tax invoices. at the time of supply or not later than fourteen days after the time of supply. (h) A statement of the reason for credit.Sec. issue a credit note if – (a) The supply is cancelled. Upon request by a customer who is not a taxable person. It is also important to know four categories of untaxed goods and services that is zero rated supplies exempt supplies special relief supplies. A registered taxable person shall issue a tax invoice. or (c) Payment is received for all or part of the supply. it is therefore important for an officer to be able to determine the Place of supply. and The credit note mentioned under sub regulation (1) shall contain: (f) The particulars prescribed for tax invoices. except to the extent that a tax invoice is issued or payment is made in respect of the supply. To a customer who is a taxable person in respect to any taxable supply of goods or services to that customer. (c) A statement of the reason for credit. (c) The value of the supply is reduced. paragraph (b) or (c) of that subsection shall apply to that part of the supply. (d) Service is rendered or performed.-(1) For the purposes of this Act the time goods or services are supplied. and (m) The total charge inclusive of tax.

after consultation with the Authority and by order published in the Gazette. and (c) as supplied outside Mainland Tanzania if their supply involves their installation or assembly at a place outside Mainland Tanzania to which they are removed. by order published in the Gazette and after consultation with the Authority.Apt Financial Consultant CPA Reviews by the Minister. Four categories of untaxed goods and services There are four categories of untaxed goods and services:  Zero rate (1st Schedule)  Exempt (2nd Schedule)  Special relief (3rd Schedule)  Outside the Scope. (3) For the purposes of subsection (2) where goods. the Minister may. in relation to goods and service generally or in specific goods or services. so the low earning people are relatively unencumbered by VAT. but in certain circumstances are relieved of tax. make provisions in respect of the time at which a supply is to be treated as taking place. because the supplies they are making are taxable – but at a rate of 0%. Reasons for certain supplies to be relieved of tax: Nowhere in the world is there a “pure” VAT system. exports or infrastructure. leave and re-enter Mainland Tanzania. Special reliefs are largely conditional on the status of the consumer and the use to which the goods and services are put. Exemption – Exempt goods and services never bear tax. The goods and services involved normally bear tax. where all transactions are taxed. or for social and economic reasons. rather than the nature of the goods and services supplied. Zero rating has a great advantage over exemption in that traders who make zero rated supplies can deduct the VAT they have been charged. the removal shall not be regarded as a removal from Mainland Tanzania. There is also a fourth type of supply: 16 . finance.Sec. (4) Services shall be regarded as supplied in Mainland Tanzania if the supplier of the services (a) has a place of business in Mainland Tanzania and no place of business elsewhere. (2) and (3). or (c) has places of business in Mainland Tanzania and elsewhere but the place of business most concerned with the supply of the services is the place of business in Mainland Tanzania. as are domestic rents. In Tanzania. (b) as supplied in Mainland Tanzania if their supply involves their installation or assembly at a place in Mainland Tanzania to which they are removed. (5) Notwithstanding the provisions of subsections (1). e. relief is granted only after the appropriate procedures have been followed.  Difficulty in administration – It is costly to trace the small traders and tax the financial services. Why not? Why are certain supplies or transactions relieved of tax?  Government policy – to improve economy. basic foodstuffs are exempt. encourage investment. There are very few zero rated supplies in the Tanzania VAT system. (5) The Minister may. healthcare and education.-(1) This section shall apply for determining whether goods or services are supplied in Mainland Tanzania. but at a rate of 0%. Zero Rate: These goods and services are taxed.g.  Social and economic reasons – by relieving items like food. (2) Goods shall be regarded – (a) As supplied in Mainland Tanzania if their supply does not involve their removal from or to Mainland Tanzania. Place of supply of goods and services . in the course of their removal from a place in Mainland Tanzania to another place in Mainland Tanzania. (b) Has no place of business in Mainland Tanzania or elsewhere but his usual place of residence is in Mainland Tanzania. public transport and agricultural implements. 7 7. vary the rules for determining where a supply of such goods and service is made. Why do we have exemptions? In areas where the tax is difficult to administer.

If he makes a mixture of exempt and taxable supplies.000 or 2% of the tax shown as payable in respect of the prescribed accounting period covered by the return. the July 1998 return must be submitted at the latest. say on the last Friday in each month. compensation payments. are provided for each of the legal provisions listed in paragraph 1:. every taxable person must. covering the significance and meaning. by the last working day of the month after the end of the prescribed accounting period or such other time as the Commissioner may determine. For example a shop owner who buys a freezer to keep meat in. This provision allows the business community to link their VAT tax periods to their existing accounting arrangements. It is more likely to be used by the large multi-national organizations with standard accounting periods.000 or 1% of the tax shown as payable in respect of the prescribed accounting period covered by the return. the rate of interest to be applied. which has not been refunded by the due date. the trader will have an incentive to send in the return at the earliest possible date. or a mill to grind maize. Examples are insurance claims. he must register if the value of taxable supplies exceeds the threshold. the taxable person is responsible for computing his own tax liability and filling returns. 50. he cannot register for VAT. These traders are “partially exempt” The major disadvantage for traders making exempt suppliers is that although they do not account for tax on their sales. might want that date to be the end of the prescribed accounting period.g. compounding of interest and the interest to be paid to registered traders on tax. no consideration. which are not covered by section 4. Possibly because there is no supply. d) Section 27(1) In terms of section 27(1) a person who fails to submit a return or pay tax for a specific period. whichever is greater. Submissions of returns and money will probably be delayed until the very last minute unless the return is for a repayment when. or the supply is not by way of business. In other words VAT collected at the beginning of a month can remain with the trader until the end of the following month. and (ii) A further penalty of T. All registered traders are required under the law to submit returns for each tax period even when no trading has taken place. becomes liable: (a) To pay a penalty of T. obviously. (i) Interest is levied on any unpaid amount of tax (including penalties and any unpaid interest) 17 . a firm which closes its books monthly. shall be payable for each month or part month thereafter. b) Section 26(2) Traders may be allowed to have a different prescribed accounting period other than the calendar month but only with the written authority of the Commissioner – e.0 Partially exempt trader: If a trader makes only exempt supplies. which is sold as flour. c) Section 26(3) In terms of Section 17(1) and 26(3) of the VAT Act.shs.shs. a) Section 26(1) This section requires returns to be submitted monthly in arrears – i.Apt Financial Consultant CPA Reviews Outside the scope These are transactions. 100. 1. they cannot reclaim the tax they are charged by their suppliers if it relates to their exempt supplies.e. Interpretation of the main legal provisions The under mentioned guidelines. whichever is greater. VAT RETURN AND OTHER FORMS Since VAT is a self-assessment tax. by 31st August 1998. licenses. pay the tax payable by him. 2. e) Section 28(1) to (5) This section covers the charging of interest. How we deal with these ‘partially exempt’ traders is covered in more detail on later courses). and fines.

That means it should require the minimum amount of information from a registered trader and should.g. The provision also spells out the time limit during which repayment should be effected. based on the normal supplies made and received (outputs and inputs) for a specific period. three months etc Tax Period The period covered by a tax return is known as the tax period. 3. INTERPRETATION OF THE MAIN LEGAL PROVISIONS (a) Section 17(2) of the VAT Act.1) Where: I= interest P= Principal plus any penalty R=bank lending rate of the central bank Plus 5% n=period for VAT i. output tax and the difference between the two as contained in the trader’s VAT Account. be reasonably easy to complete. Calculation of Interest I = P (1 + R/12)n . The Commissioner shall pay interest to the taxable person at the commercial bank lending rate for the time being determined by the Central Bank. In other circumstances input tax may exceed output tax. REFUND AND REPAYMENTS In the normal VAT system at the end of tax period the registered traders deducts input tax from output tax and pays the difference to TRA.0 Particulars of Return form (VAT 201) The VAT Return Form (VAT 201) The VAT return form has been designed to be “user friendly”. The VAT return form is intended to cover only a trader’s tax liability. These will be calculated by the computer system and by vetting officers and the amounts due notified by use of penalty and/or interest notice All VAT forms. including the VAT returns. months e. 1997 This section requires the Commissioner General to remit to the taxable person the amount of tax to which the taxable person stands in credit by reason of excessive input tax over the output tax in respect a particular prescribed accounting period. In this case repayment situation occurs – whereby the credit amount has to be refunded according to the provisions under section 17 of the VAT Act. The registered trader should not use the VAT return to account for any interest or penalties payable. 1997 18 . Completion of the Return Form (VAT 201) The taxable person must complete his return form using the information extracted from his accounting records. The rate of interest shall be the bank-lending rate of Central Bank plus 5%. (b) Section 17(3) of the VAT Act.e. are available free of charge. It does not make provision for the adjustment of any over/under payments or over/under declarations of tax. In the Tanzanian system this is one calendar month.Apt Financial Consultant CPA Reviews (ii) (iii) each month or part thereof. Any errors discovered by the trader should be notified in writing and adjusted in the VAT account for the next tax period. The form should reflect the summary totals of input tax. with some familiarization. Interest shall be paid to traders where any tax due to be repaid by the Commissioner remains un-refunded after the due date in accordance with the provision of section 17(2) and (4).

1997 This provision defines the “regularly results in excess credits” to apply to a situation where over a six month period the total input tax credit for the prescribed accounting periods exceeds the total tax charged and paid on supplies. (h) Section 35 of the VAT Act. The TRA must repay money legitimately claimed as due by registered traders promptly. 1997 This provision defines the “half-year” to imply any successive period of six calendar months commencing in the month for which a repayment return is first submitted. otherwise interest becomes payable. 1. the taxable person must accordingly be informed in writing. Regular repayment returns Normally the Commissioner is approving the regular repayment traders. repayments are processed and payment made within the time limits specified in the VAT Act. by using the information contained in form VAT 201A or even having a quick check on taxpayers records.0 TYPES OF REPAYMENTS: Half-year repayment claims Once half yearly repayment claims are received. 1997 This section gives the Commissioner General a leeway to repay or remit the VAT. (f) Section 17(7) of the VAT Act. The security measures may range from requiring the taxable person to produce documents relating to input tax or financial bond (guarantee). These traders will not be required to apply for repayment i. It also spells the time limit of repayment to be within thirty days after the due date for lodging the return for the prescribed accounting period.g. or VAT due which is not charged and paid by the taxable person because of misunderstanding arising from incorrect or misleading advice by an officer. These officers should make a quick but thorough verification e.0 REPAYMENT CLAIMS CAN ARISE:  On exportation of goods and taxable services by a taxable person (exports are zero rated).  When input tax exceeds output tax in a prescribed accounting period (e. they will not be required to complete form VAT 208. (e) Section 17(6) of the VAT Act. when taxable goods are bought in large quantities or when high value capital goods liable for VAT are bought). 2. repayments will be made on half yearly basis. 1997. 1997 This section allows the Commissioner to impose some security measures (where he believes there is a risk to the revenue) before repaying the tax.e. which is paid to the Tax Authority. 1997 This section requires the Commissioner General to remit to the taxable person approved to be repaid on monthly basis the amount of tax to which the taxable person stands in credit.g. 1997 This provision gives warning to the Tax Authority to expedite verification of repayment cases and effect refunds within the time spelt out under section 17(2) and (4) of the same Act. It is therefore essential that claims for. This implies that unless the taxable person applies for refunds to be made on monthly basis.Apt Financial Consultant CPA Reviews This provision puts an option to the taxable person to apply to the Commissioner for refunds to be made on monthly basis. Upon doing this. (g) Section 28(5) of the VAT Act. (i) Section 69 of the VAT Act. (c) Section 17(4) of the VAT Act. (d) Section 17(5) of the VAT Act. otherwise the Authority will be subjected to pay interest to the taxable person on any unrefunded amount. the RRO should ensure that they have been entered into a register and have been assigned to officers responsible for refunds. 1997 This section authorizes the Commissioner General to reduce the amount of repayment by any sum owing to the TRA by the taxable person before making repayment. Once their 19 . or the date of receipt of the return. whichever is later.

1997 (i) Sub-sections (1) & (2) These sub-sections provide for interest to be charged automatically at the commercial bank lending rate of the Central Bank plus 5% per annum. (b) Section 27 of the VAT Act. (g) Section 34 of the VAT Act. It also requires the taxable person to lodge his return to the VAT office within the time determined by the Commissioner by notice in writing (in particular cases).g. (c) Section 28 of the VAT Act. 1977 20 . This section requires the taxable person to lodge the VAT Return to the VAT office by the last working day of the month following the month of business. The effective enforcement of debts is essential if revenue flow is to be maintained. It acts against taxable persons increasing their tax liabilities before the due date for tax payment with little chance of being able to pay on the due date. that prompt action is taken each month to ensure that trader’ debts are collected. (d) Section 31 of the VAT Act. which could have been spent in prosecuting such cases in the courts of law. either willfully or through negligence. utilizing the full range of powers available under the law. It is very important. if tax returns are not lodged on time. payment and enforcement are as follows: INTERPRETATION OF THE LAW (a) Section 26(3) of the VAT Act. The aim of these provisions is to discourage delay in making tax payments and returns to the Government. 1997: This section provides for automatic penalties without recourse to the courts. efficient enforcement/debt management action has a vital role to pay in achievement of these objectives. while it remains unpaid. This lesson covers the procedures to be followed when dealing with VAT debts. (e) Section 32 of the VAT Act. The main legal provisions in the VAT Act 1997 relating to the rendering of returns. 1997 This section provides for VAT debts of a taxable person to be recovered from any funds of the taxable person held by another party. attracts interest as if it forms part of the unpaid tax.Apt Financial Consultant CPA Reviews returns have been submitted. if payment is made after the due date. The interest payable. they must be verified within two to three days and must also undergo the normal channels of returns processing up to the final stage of debatching/ filling ASSESSMENT AND ENFORCEMENT INTRODUCTION: The key objectives of the VAT Department are to maximize revenue collection and improve trader compliance. Non-Filers and Missing Traders. E. 1997. The imposition of automatic penalties saves time. 1997 This provision authorizes the Commissioner to request immediate payment of tax where there are grounds for believing the tax is at risk. therefore. It explains the steps to be taken to effect recovery of all tax arrears and action to be taken to obtain returns. It also saves time in terms of tax administration. a bank or customer of the taxable person. (f) Section 33 of the VAT Act. 1997 This section provides for all monies owing to the Commissioner General to be recovered as a civil debt. Sub-sections (3) & (4) These provisions are also important if the Government revenue income is to be improved or maintained.

to produce books. 1997 This section authorizes an officer to enter business premises and examine goods and business records thereon. (h) Section 37 of the VAT Act. and its amount. a penalty is also imposed to encourage the trader to comply in the future.g. any correspondence relevant to the transactions and to furnish information about them. he considers appropriate for the prevention or diminution of the tax benefits sought to be obtained by the scheme. including records held on computer. (j) Section 39 of the VAT Act. and (b) by means or in a manner that would not normally be employed for bona fide business purposes. 1997 This section authorizes assessments of tax to be made when there are grounds for believing that a tax return is incorrect. or a taxable person has not kept proper and adequate records for his business. the Commissioner may determine the liability for any tax imposed by the VAT Act. Case 1 is revealed because the computer is expecting a return from every trader. An authorized officer may take copies of any records or documents. Traders submit returns. If the return is not forthcoming. A report is generated every month of traders whose returns have not been received by a certain date. as if the scheme had not been entered into or carried out. without charge. in the circumstances of the case. (k) Section 43 of the VAT Act. or remove them. or where the taxable person refuses to pay the tax assessed by the Commissioner. CIRCUMSTANCES UNDER WHICH ASSESSMENTS ARE RAISED. an assessment will be issued. providing a receipt. Action is taken by the ‘enforcement section’ in the VAT office to chase up these traders and get returns from them. records. if they are needed for the business. for any tax or interest due from a taxable person. or a tax return has not been made by the due date. The person from whom the records or documents are taken will be provided with copies. or by means of the creation of rights or obligations that would not normally be created between persons dealing at arm’s length. Interest can also be charged. Assessments of either type are due for payment within one month of issue. or evidence of the fraud are on the premises. 1997 This section gives authority for access to records held by a Public Officer. Why. in tracing missing traders or verifying eligibility to special relief’s or exemptions. 21 . Compensation will be paid if anything removed is lost of damaged. which remains unpaid. then should we need to issue ‘assessments’ of tax? Because sometimes 1. It also provides for search of premises where a magistrate is satisfied that there is reason to believe there has been a tax fraud and that the goods involved. 1997 This provision requires anyone involved with supplies or imports. (i) Section 38 of the VAT Act. Traders fail to submit their returns. or in such manner as. These traders are known as ‘non filers’. or 1.Apt Financial Consultant CPA Reviews This section provides for distress action on the authority of the Commissioner. The provisions also relate to records and information stored on computer. E. accounts. SCHEMES FOR OBTAINING UNDUE TAX BENEFITS Where the Commissioner is satisfied that any scheme that has the effect of conferring a Tax benefit on any person was entered into or carried out– (a) Solely or mainly for the purpose of obtaining that benefit. if he does so. Section 34 (6) makes it an offence at interfere with items on which distress has been levied. The VAT system depends on traders making returns and paying the tax due on a regular basis. which are inaccurate. Failure to comply with the requirements of this section is an offence. and in the case of non-submission of returns.

(2) A person who deals in or accepts the supply or importation of any goods. 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 not exceeding twelve months. or to both the fine and imprisonment. Fraudulent Evasion or Recovery Section 47 -(1) Any person who is involved in fraud or who takes steps with a view to fraudulently evading tax or recovering tax. furnishes any document or information or makes any statement. (b) Any increase in the entitlement of any taxable person to a refund of tax. or to both the fine and imprisonment. whether in writing or otherwise. Failure to pay tax or Lodge Returns Section 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. or the supply of any services. Whichever amount is greater. shall apply accordingly. pay a fine twice the amount of tax involved or two million shillings. (3) In this section “bona fide business purposes” does not include the obtaining of a benefit and “tax benefit” includes – (a) Any avoidance or reduction in the liability of any person to pay tax.Apt Financial Consultant CPA Reviews (2) A determination under subsection (1) shall be deemed to be an assessment. (2) Notwithstanding any penalties which may be imposed on a person failing to apply for registration. but not more than twelve months. : Any person who in purported compliance with any requirement under the VAT Act. or (c) holds himself out as being a taxable person when he is not. and the provisions of section 43 and any other provisions made by or under the VAT Act in relation to assessments. or on any arrears of tax due to be paid. or to both the fine and imprisonment. in addition to payment of tax which would have been paid. or (b) contravenes any term or condition of his registration. (c) Any reduction in the consideration payable by any person in respect of any supply of goods and services or the importation of any goods. 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. Section 44 (1) Any person who – (a) being required to apply for registration under the VAT Act fails to do so within thirty days after becoming liable to apply. the person shall be liable to pay interest on the arrears in accordance with section 28. or to imprisonment for a term of two years or to both. commits an offence and upon conviction is liable to a fine not exceeding one million shillings or six times the amount 22 . or (d) Any other avoidance or postponement of liability for the payment of any tax. False Returns and Statements Section 46. that is false in any material particular. OFFENCES AND PENALTIES Failure to register for VAT. and having reason to believe that the proper tax has not been or will not be paid or that any deduction or credit has been or will falsely be claimed in relation to it. commits an offence and upon conviction shall. knowingly makes a return or other declaration. (3) A taxable person who fails to notify the Commissioner of any change in business circumstances under section 23 of this Act within thirty days of becoming liable to do so commit an offence and upon conviction is liable to a fine not exceeding one hundred thousand shillings.

(3) If the fine imposed under subsection (1) is not paid on demand the Commissioner may institute court proceedings or may take steps for recovery of the fine in any manner permitted by this Act for the recovery of unpaid tax. whichever is greater. no prosecution for the alleged offence shall be instituted or maintained. if the court convicts and so orders be forfeited. the date or period of its occurrence. or 47. (2) A person accepting a fine under subsection (1) shall be provided by the Commissioner with a certificate setting out the nature of the offence. (b) Particulars of the conduct complained of. Detention of Goods Section. or to both the fine and imprisonment. Any goods which are the subject of an offence under this section shall. provided that. 48 (1) The Commissioner may publish a notice in the Government Gazette or any other newspapers circulating in Tanzania a list of persons who – (a) fails to comply with the provisions of section 17(1). or (c) have conducted himself in a manner which amount to an offence which is an offence referred to under paragraph (b). (d) The amount of the tax involved.Apt Financial Consultant CPA Reviews (3) of the tax evaded. 46. (c) Tax period during which the conduct complained of occurred. or to imprisonment for a term not less than six months but not exceeding three years. the fine paid. and any conditions to the compounding agreement. the Commissioner may compound the offence and impose the fine. (3) Every such list may specify – (a) The name and address of the person complained of. 50 (1) Where there is reason to believe that VAT has been fraudulently evaded or claimed or deducted the goods concerned may be taken from the possession of any person involved in the suspected offence and detained by the Commissioner pending the outcome of his inquiries or the completion of offence proceedings. 23 . if criminal proceedings have been instituted against the alleged offender for such offence. 47A] Compounding Of Offences Section 49 (1) If a person alleged to have committed an offence under this Act agrees in writing to pay a fine determined by the Commissioner which does not exceed the maximum fine provided by this Act for the offence. (2) A receipt listing any item detained shall be provided. (e) The particulars of the fine or sentence imposed. Publication of List of Persons who Commit Offences Section.[s. provided the fine is paid in full. (4) The imposition of a fine under subsection (1) shall not be regarded as conviction for the alleged offence and. (b) have been convicted of an offence against sections 45. (3) The person from whom the goods are taken under subsection (1) may appeal against the detention or continuing detention to an Appeals Tribunal. (2) Publication of a name of a person in pursuance of subsection (1)(b) or (c) shall be done after any proceedings in respect of appeal or review thereof have been completed or not been instituted within the period provided for. the power conferred by this subsection shall not be exercised without the written consent of the Director of Public Prosecutions. (5) Nothing in this section shall in any way affect liability for the payment of tax or interest due under this Act.

agent or an officer. 24 . partner. any person who. whether corporate or unincorporated. was concerned with the management of the affairs of the body of persons as director.Apt Financial Consultant CPA Reviews Offence by Body Corporate Section 51 Where any offence under this Act or any regulations made under it has been committed by a body of persons. shall be guilty of the offence. at the time of the commission of the offence.