LECTURE 15

VALUE ADDED TAX (THEORY AND PRACTICE)

Objectives
At the end of this lecture you will be able to:
Define Value Added Tax and describe its types
Explain advantages and disadvantages of VAT
Explain the operational aspects of Tanzania VAT and its main features
Identify and describe types of taxable supplies
Describe tax invoice and its content
Distinguish between time and value of supply
Explain VAT registration requirements and procedures
Explain the causes and effects of cancellation of registration
Determine the amount of input tax and apply methods of apportionment of input tax
Explain offences under VAT Act 1997
determine penalties and interest resulting from non-compliance

Content
Meaning and types of VAT
Advantages and disadvantages of VAT
Operational aspects of Tanzania VAT and its main features
Taxable supplies
Tax invoice
Time and value of supply
VAT registration
Cancellation of VAT registration
Determination and apportionment of input tax
Offences, penalties and interests

15.1 INTRODUCTION

15.1.1 .Meaning of VAT

The Government of Tanzania collects tax revenue through the Tanzania Revenue Authority
(TRA). The taxes administered by the TRA include among other taxes, Import Duty, Exercise
duty, Corporation, Person income tax and VAT. Currently the VAT system operates in many
African countries including Kenya which adopted in (1966), South Africa (1991), Uganda
(1996), Cameroon (1998), Tanzania (1998) and Rwanda (2001).

The introduction of VAT in Tanzania is a major step in the expansion of the Tax base and the
improvement of tax collection. which was a result persistent budget deficits in the 1980s, the
United Republic of Tanzania in October 1989 appointed a commission of enquiry into public
revenue, taxation and expenditure to undertake an in-depth study of the country`s fiscal problems
and suggest remedies. The commission submitted its report to the president in December 1991.
The introduction of VAT in Tanzania was one of the major recommendations of the commission
The government United Republic of Tanzania accepted this recommendation and in May 1992
formerly reached a decision to introduce VAT in Tanzania. During the 1996/97, the Government
fiscal policy was set to enhance revenue collection and improve expenditure management
through expenditure control measures aiming at restraining the fiscal deficit. On the revenue side
the measures that were implemented included the strengthening of tax administration through the
establishment of the TRA.Various preparations have been going on since then including the
enactment of the VAT Law in August 1997

VAT is introduced in Tanzania mainland 1Jjuly 1998 and later Tanzania Zanzibar 1 January
1999 to replace other tax such sales tax, stamp duty, hotel levy and entertainment tax with the
main reason/motive of broaden the tax base and hence VAT is a broad-based consumption tax.Is
a multi-stage indirect tax that it is charge at every stage of production and distribution chain. It is
levied on both locally produced goods/services and imports. Is a consumption tax charged on
taxable goods and services whenever value is added at each stage of production and at the final
stage of sale. VAT is charged by business registered for VAT only.

VAT Is an indirect tax, which is levied upon the supply of any taxable goods and /or services by
any business that is registered for VAT purpose. These goods /services must be sold or supplied
in the course of or in the furtherance of the businesses.VAT is also levied on the importation of
goods and services.

15.1.2 Different kind of value added tax

There are three kind of value added tax:
1. value added tax of production type,
2. value added tax of income type,
3. value added tax of consumption type.

Each type of value added tax according to the basis of origin, starting point or destination can be
calculated. According to the origin of starting point, value added tax include the worth of all
goods and services produced in national economy in the calculation of tax, but in the origin of
destination, value added tax just include all the goods and services consumed in the national
scale.

15.2.1. Advantages Of Value Added Tax (VAT)

Following are the advantages of VAT:

1. As compared to other taxes, there is a less chance of tax evasion. VAT minimizes tax evasion
due to its catch-up effect.

2. VAT is simple to administer as compared to other indirect tax.

3. VAT is transparent and has minimum burden to consumers as it is collected in small
fragments at various stages of production and distribution.

4. VAT is based on value added not on total price. So, price does not increases as a result of
VAT.

5. There is mass participation of taxpayers.

6. The ease of auditing control

Due to the fact that in value added tax system, the invoices of sales are the base of tax calculation
and the amount of sales of goods and services recorded in the specified columns of invoice and
according to that value added tax calculated and collected and also because the invoices recorded
in the general journal and ledgers of the firms, so (especially in the case of unique tax rate) the
system of auditing is simple and effective.
7.The minimum negative effect on allocation of resources

From economical point of view, value added tax is a neutral tax; because it has no effects on
production factors ( investment, employment and etc..) and also has the minimum negative
effects on economical decisions of the business units. The reason is because in value added tax
system the tax calculated on value added generated by
Product/ion factors in production cycle and thus it hasn't any bias to an any kind of production
method

15.2.2 Disadvantages of Value Added Tax (VAT)

Following are the disadvantages of VAT:

1. VAT is costly to implement as it is based on full billing system.

2. VAT is relatively complex to understand. The calculation of value added in every stage is not
an easy task.

3. To implement the VAT successfully, customers, need to be conscious, otherwise tax evasion
will be widespread.
4. The effects of value added tax on increases of prices level

Sometimes the above mentioned sentence appear as a criticism against VAT, but the experience
of those countries which implement and used the VAT shows that there is not anything to be
worry about, because first of all the opposition of VAT can't propose any rational reasons for
increasing the general price levels and secondly
using the VAT system cause a deflation on economy and as a result has a deflation effect on
economy.
5. Practical difficulties of implementing VAT
One of the main reasons of opposition of VAT is the practical difficulties of implementing the
VAT. These problems are as follows:
1- The difficulties of calculating the VAT of retailers and small professional jobs
2- The way to deal with agricultural foodstuff
3- The way to deal with capital commodities
4- The problems of calculating VAT of services firms such as banking and insurance.

6. The economic effects of VAT

The economical effects of value added tax system can be categorized in two groups:
1. The macro economic effects such as the effects of VAT on economic growth, level of
prices, investments, government incomes, consumption and etc.and
2. the micro economic effects such as the effects on efficiency, social equity and etc

What is the scope of VAT?

The VAT shall be charged on any supply of goods or services in Mainland Tanzania where it is a
taxable supply made by a taxable person in the course of any business carried on by him. The
VAT on the importation of taxable goods or services from any place outside Mainland Tanzania
shall be charged VAT and the procedures applicable under the Customs Laws for imported
goods shall apply in respect of VAT on imports.

15.3.1 HOW VAT WORKS

Each registered person in the chain between the first supplier and the final purchaser or user is
charged tax on taxable supplies made to him (input tax) and charges tax on taxable supplies
made by him (output tax). He pays to the TRA the excess of output tax over input tax, or
recovers the excess of input tax over output tax from the Authority. The broad effect of the
scheme is that businesses are not affected by VAT except in so far as they are required to
administer it, and the burden of the tax falls to the final consumer.

Consider the following example to demonstrate the above explanation.

Manufacturer,

Let assume the producer sell goods to the wholesaler at 1,000/= as his price.
So

Sales price 1000 Tax on sales 180 VAT DUE

(output tax )
VAT 180 Less
Tax invoice 1180 Tax on purchases 0
(input tax )
180 180

So the wholesaler will buy the items from manufacturer at a price of 1180 of which 180 will be
input tax to wholesaler.

So to the side of wholesaler lets assume after adding its margin from the price of 1180 and sell it
at a price of 1400.

Sales price value 1,400 Tax on 252 VAT due

sales(output tax)
VAT 252 Less
Tax invoice 1,652 Tax on 180
value purchases(input
tax)
VAT payable 272 272

So the retailer will buy the items from wholesaler at a price of 1,652 of which input tax to the
retailer is 252.

So to the side of retailer let us assume after adding its mark up/margin from the price of 1,652
and sell it at a price of 2,000/=.

Sales price 2,000 Tax on sales 360 VAT due

(output tax)
VAT 360 Less
Tax invoice 2,360 Tax on purchases 252
value (input tax)
108 108
So the total VAT payable to the TRA is 180+272+108=560.

15.3.2 Who collect VAT.

VAT is collected by businesses and organization that have registered with the commissioner. A
business or organization, which has registered or required to be registered for VAT is called a
taxable person.
15.4. What are taxable supplies.

A taxable supply is any supply of goods or services made by a taxable person in the course or
the furtherance of business, which is not exempt supply.

A taxable supply can also be defined as any supply of goods and or services which is chargeable
to VAT at a positive rate including those chargeable to VAT at the rate of zero (Refer to section
5 of the VAT Act).

15.4.1 Supplies for VAT

All supplies of goods and service (including goods taken for own or private use) are taxable
supplies as per the provision of VAT Act 1997.

VAT is charged on good and service, and in the respect taxable goods and services. Clear
understanding of what is a taxable supply is of paramount importance for both practical and
theoretical purposes, to charge tax in any supply requires any understanding of where is taxable
or not.

Likewise the Minister has power under section 5 (5) of the VAT Act. Make regulations
providing for any description of transaction to be treated as a supply of goods or a supply
services, or neither a supply of goods none a supply of services.

Note also that under section 12 of the Act, the minister has power has power, after consultation
with Tanzania Revenue Authority, by order published in the gazette to emend, vary add to or
replace any schedule under the VAT A ct. It is important therefore to keep ablest of any tax
change or amendments taking place in the VAT Act so as to keep the VAT knowledge up to
date. Its is taxable supplies made which are taken into account when computing taxable turnover
of a person other otherwise liable for registration under the Act.

15.4.2 Taxable supply

A taxable supply is any supply of goods or services made by a taxable person in the course or the
furtherance of business, which is not exempt supply.

A taxable supply can also be defined as any supply of goods and or services which is chargeable
to VAT at a positive rate including those chargeable to VAT at the rate of zero (Refer to section
5 of the VAT Act).

Supplies

The ordinary meaning of a word supply in our day to day usage is to provide, furnish or sale.
Therefore, when a person is talking of winning a tender to supply item to a certain institution,
say a school, he is talking of providing, furnishing or selling items or services to that institution.
A supply therefore is a transaction
(an economic event worth recording) usually expressed in monetary term. A supply may,
however, be in the form of barter exchange.

A supply therefore would generally be a transaction consisting of:

 Cash or credit sales of goods,

 Installment credit agreements (hire purchase ) for sales or leasing of new or used goods

 Rental or movable or immovable property

 Provision of services

Goods or services for VAT purpose

 Goods for VAT purpose goods include all tangible movable and immovable terms. This
will, therefore, include merchandise of business concern, its land and buildings, motor
vehicles, Fixture and other assets. In addition, any form of energy is therefore a good for
VAT purposes, as per section. 5(3) of the VAT Act, 1997 and its subsequent
amendment’s which single the supply of any form of power, het or mention shall be
regarded as a supply of goods. However, it is important to note that for VAT purpose
money is neither a good none a service. Any supply of money is therefore not liable to
VAT.

 Services: These usually include all intangible things or supply made in the Couse of
business. Among other things services include:

 Professional and commercial services, such as services of the accountants,

engineers, architects, lawyers, electricians, plumbers transport, advertising etc.

 Intellectual property rights, such as patents, trademarks, copy rights, know how
etc.

 Any other supplies which is neither money nor goods

15.4.3 Taxable person

Remember that in preceding chapter we defined a taxable person for VAT purposes as a person
registered or required to be registered under the VAT Act 1997 or its regulation. However, for
easy of clarity throughout this book whenever we refer to the word taxable person reference is
made to a person who is registered under the VAT Act. In an examination question, however, the
above definition should be construed accordingly.

A supply is liable to VAT if any only if it is made in the course of a business or in the
furtherance of a business. This requirement ensures that VAT is not charged on person supplies.
For example if a taxable person sales a private owned asset such as a house, furniture and fitting,
or other assets which are used exclusively for private purposes. Since the supply is note made in
the course of or furtherance of business, accordingly VAT cannot be charged on such sale or
disposal. It is important to remember the definition of a business from our previous lesson. We
defined business to include any activities, carried on continuously or regular, by any person in or
partly in mainland Tanzania. In the course of or in the, furtherance of which goods or services
are supplied to any other person for some form of payment or a consideration whether or not
profit or gain.

15.5 Determining taxable supplies

The VAT Act, 2009 (revised) does not provide a list of taxable supplies as with the case of
exempt supplies. If you have properly gone through the Act, you will find out that in fact there is
no schedule to the Act, which lists taxable supplies. Therefore any supplies or import. Section 5
of the VAT Act, 2009 (revised) tries to list down, for avoidance of doubt, certain circumstances,
which are deemed to be taxable supplies when made by taxable supplies when made by a taxable
person. Under section 5(1) of the VAT Act, therefore goods by a taxable person another

 The sale or delivery of taxable goods by a taxable person to another person including
imports;

 The sale or provision of taxable services by a taxable to another taxable person

 The appropriation by a registered person of taxable goods for his personal use or for use
by other, for example, his family or friends.

 The making of a gifts or loans of any tax able supply in the course of business

 The letting of taxable goods on hire, leasing or other transfers

 The acceptance of a wager or stake in any form of gambling, including lotteries, bingo
and gaming machines.

 Barter trade i.e. exchange of goods.

Exempt supplies

These are supplies of goods of services and or services on which VAT is not chargeable. The
provision of the Act do not apply to exempt supplies and where business supplies of goods and
services consist of solely of exempt supplies it cannot register for VAT. The second schedule to
the Act, 1997lists goods and services, which are exempt, from the provisions of the Act if
supplied in the course of business.

It’s important to understand this schedule properly in order to be in a better position to attempt
any exempt any examination question on VAT. It is also important note that any supply. This
does not appear in the second schedule, is a taxable supply. The supply will only be exempt if it
appears in the second schedule.

Examples of exempt supplies include:

1. Food, crops and livestock supplies

 Livestock-live cattle, swine, sheep, goats, game, poultry and other animals of a
kind generally used for human consumption.

 Animal products-unprocessed edible meat and offal of cattle, swine sheep, goats,
game and poultry (including eggs), except- pate, fatty livers of geese or ducks and
any other produce prescribed by the minister by regulation.

 Unprocessed dairy products-cow or goat milk

 Fish- all unprocessed fish, except shellfish, and ornamental fish.

 Unprocessed agricultural product-edible vegetable, fruits nuts bulbs and tubers,

maize, wheat and other cereals, meal flour, tobacco cashew nuts, coffee, tea,
pyrethrum, cotton, sisal, sugarcane, seeds and plants thereof. Notes:

a) For the purposes of this item goods shall be regarded as unprocessed if

they have undergone only simple process of preparation or preservation
such as freezing, chilling, drying, salting, smoking, stripping or polishing.

b) None of the above can be exempted when they are supplied in the course
of catering by a restaurant, cafeteria except where such items are supplied
in Tanzania Defense Forces designed canteens.

2. Pesticides, fertilizers

Supply of fertilizers, pesticides, insecticides, fungicides, rodenticides, herbicides, anti-

spouting products, plant growth regulations, and similar products which are necessary
fops use in agricultural purposes

3. Health supplies

 Health and medical services by a registered medical practitioner, optician, dentist,

hospital or clinic.

 Human medicines, drug and requirements which have been approved by the
Minister responsible for Health upon recommendation of the Pharmacy Board.

 Articles designed for use by the blind or disabled.

  Mosquito coils.

 Sanitary pads, diapers, urine and hygienic for medical use.

4. Educational supplies

Educational services provided by an establishment registered by the Government.

Veterinary supplies

5. The supply of veterinary services by a registered veterinary practitioner

The supply of veterinary medicines, drugs and equipment which have been approved by the
Minister responsible for Health upon recommendation of the Pharmacy Board.

6. Books and newspapers

 Books, booklets, maps or charts

 Newspapers, journals, magazines or periodical.

7. Transport services

Transportation of person, by any means of conveyance including air charter but not
including taxi cabs, rental cars, boats or boat charters.

8. Housing and land

 The sale or leased of an interest in land.

 The sale of used or leased residential buildings.

For the purposes of this item “land” does not include any buildings thereon.

9. Financial and insurance services

 The provision of insurance services

 The issue, transfer, receipt of or other dealing with money. (including foreign
exchange) or any note or order for the payment of money

 The provision of any loan, advance or credit.

 The operation of any current, deposit or savings account.

  The issue, allotment or transfer of ownership of equity or security such as shares in
companies and members interest in corporations and in participatory security such
as unit trust.

 The issue, payment, collection or transfer of ownership of any note or order of

payment, checks or letter of credit or notification of the order of a letter of credit.

 The issue, drawing, acceptance or transfer of ownership of a debt or security

including debentures, mortgages, loans and other debts in money

 The supply or importation of currencies and travelers checks to a registered bank,

bureau de changes other financial instructions.

10. The supply of water, except bottled or canned or similarly presented drinking water.

11. Funeral services

 The transportation and disposal of human remains.

 The arrangements for disposal of the remains of the dead.

12. Petroleum products

 Aviation spirit, spirit type jet fuel and kerosene type jet fuel (jet A-1)

 Liquefied Petroleum Gel gas and LPG cylinders.

 Petrol (MSP and MSR), diesel (GO), kerosene (IK), heavy furnace oil (HFO),
industrial diesel oil (IDO) and AVGAS.

13. Agricultural implements

Tractor for agricultural use, planters, harrows, combine harvesters, fertilizer distributors,
liquid or powder sprayers for agriculture, spades, shovels, mattocks, picks, hoes, forks and
rakes, axes, combine harvesters, pick-up balers, hay making machinery and mowers and
other tools of a kind used in agriculture, horticulture or forestry.

14. Tourist services

Tourist guiding, game driving, water safaris, animal or bird watching, part fees and tourist
charter services and transport.

15. Postal supplies

Supply of postage stamps.

16. Aircraft
  Aircraft, aircraft engines, parts and maintenance.

 Lease of aircraft.

17. Fishing gear

 Fishing nets and accessories;

 Out boat engines for fishing

18. Games of chance

The provision of the conducting of games of chance by means of private lotteries, casinos or slot
or gaming machines.

19. Computers

The supply of computers, printers, parts and accessories connected thereto.

20. Winding Generator and liquid elevators

Liquid elevators and parts thereof including winding generator to 30 kw, battery charges,
special bearing, gear box yaw component, wind mill sensors brake hydraulics, flexible
coupling, brake, calipers, wind turbine controllers and rotor blades.

21. Photovoltaic and solar thermal

Solar energy system components including panels/ modules solar change controllers, solar
inverter, solar batteries, solar pumps, solar refrigerators, solar lights, vacuum tube solar
collectors, plastic solar collector, linear alienator for tracking system, concentrating solar
collectors, Fresnel lenses, solar cookers, solar water heaters, solar water distillation units, solar
cooking system components and crop dryers.

22. Firefighting equipment

The supply of fire extinguishers whether or not charged.

23. Bitumen jelly

The supply of jelly oil used as burning energy

24. Natural gas

Compressed natural gas (CNG) and CNG cylinders

25. Agricultural services

The supply of services of land preparation, cultivation, planting and harvesting

26. Dairy products and equipment

Teat insulated milk cooling tanks and aluminum jerry cans used for storage and collection of
milk in the dairy industry.

27. Airfreight charges for transportation of flowers;

28. Supply of packaging materials for fruit juice and milk products

29. Breeding services through artificial animal insemination;

30. VAT on breeding services through artificial animal inseminations

31. The supply of crude edible oil by local processor to local edible oil processing plant.

19. Computers

The supply of computers, printers, parts and accessories connected thereto

20. Winding generator and liquid elevators

Liquid elevators and parts thereof including winding generator up to 30 kw, battery
charges, special bearings, gear box yaw component, wind mill sensors brake hydraulics, flexible
coupling, brake, calipers, wind turbine controllers and rotor blades.

21. Photovoltaic and solar thermal

Solar energy system including panel/modules solar charge controllers, solar inverter, solar
batteries, solar pumps, solar refrigerators, solar lights, vacuum tube solar collectors, plastic solar
collector, linear inclinators, for tracking system, concentrating solar collectors, freshnel lenses,
solar cookers, solar water heaters, solar water distillation units, solar cooling system components
and crop dryers.

22. Fire fighting equipment

The supply of fire extinguishers whether or not charged.

23. Bitumen jelly

The supply of jelly oil used as burning energy.

24. Natural gas

Compressed natural gas (CNG) and CNG cylinders

25. Agricultural services

The supply of services of land preparation, cultivation, planting and harvesting of crops

26. Dairy products and equipment

Heat insulated milk cooling tanks and aluminum jerry cans used for storage and collection of
milk in the dairy industry.

27. Airfreight charges for transportation of flowers;

28. Supply of packaging materials for fruit juices and milk products

29. Breeding services through artificial animal insemination

30. VAT on breeding services through artificial animal inseminations

31. The supply of crude edible oil by local processor to a local edible oil processing plant

Zero related supplies

It has been mentioned in chapter one that the tax rate for VAT purposes is 18% being charged on
all taxable supply which satisfies the condition stipulated under the first schedule of the VAT
schedule of the VAT Act, 1997, then its rate of tax zero. This however does not strip of them of
their legal status of being taxable supplies as they continue to be so. Zero rated supplies are
usually made up of taxable goods and services exported from the United Republic of Tanzania
the export of which is accompanied with documentary evidence acceptable to the Commissioner
for VAT.

1. Exportation of goods and services from the United States of Tanzania provided with
evidence of exportation is produced to the satisfaction of the commissioner for VAT.

2. The supply of goods, including food and beverages, for consumptions or duty free sale on
aircraft or ships on journeys to destinations outside the United Republic of Tanzania.

For the purpose of item 1 and 2 above:

a) Goods are treated as exported from the United Republic of Tanzania if they are
delivered or made available to an address outside the United Republic of
Tanzania as evidenced by documentary proof acceptable to the commissioner;

b) All supplies of services are treated as being supplied in the place where the
supplier belongs as defined in subsection (4), of section seven of the VAT Act,
1997 and its subsequent amendments, except supplies of services which may be
treated as exported, subject to documentary proof acceptable to the commissioner
for VAT as follows-
 i. The supply of services and ancillary services relating to cultural
artistic, sporting, scientific, educational, entertainment fairs and
exhibitions, including the supply of services of organizers of such
activities shall be treated as being exported only when such services
are physically carried-outside the United Republic of Tanzania.

ii. The supply of evaluation of, and work on movable tangible property
shall be treated as being exported only when such services are
physically carried out outside the United Republic of Tanzania;

iii. The supply of ancillary transport activities such as loading and

unloading handling and similar activities shall be treated as being
exported only when such services are physically carried out outside the
United Republic of Tanzania;

iv. The supply of services connected with immovable property, including:

a) The services of experts and estate agents;

b) The provision of accommodation in the hotel sector or in

sectors with a similar function such holiday camps or sites
developed for use as camp sites;

c) The granting of rights to use immovable property and

services for the preparation and coordination of
construction of firms providing on site supervision;

d) The supply of services rendered by an intermediary acting

in the name and on behalf of another person shall be treated
as being exported only when underlying transaction is
supplied outside the United Republic of Tanzania;

e) The supply of services of consultants, engineers lawyers,

accountants and other similar services, as well as data
processing and the provision of information, shall be
treated as being exported only when such services are
supplied to a person other than a related

person who is established or has permanent address or

usually resides outside the United Republic of Tanzania,
provided that such services are not related to business
established or to be established in the United Republic of
Tanzania.
 f) The supply of telecommunications services, radio and
television broadcasting services shall be treated as being
exported only if effective enjoyment of such services take
place outside the United Republic of Tanzania

g) The supply which comprises of the transport of or any

service ancillary to transport of a loading, unloading,
wharfage, shore handling, storage, ware housing and
handling, supplied with connection with goods in transit
through the United Republic of Tanzania, whether such
services are supplied directly or through an agent to a
person who is not a resident of the United Republic of
Tanzania.
c) The supply of services which comprise the handling, parking, pilotage, salvage or
towage of any foreign going ship or aircraft while Tanzania Mainland.

d) The supply of services which comprise of repair, maintenance, insuring, broking

or management of any foreign going or aircraft.

e) The supply of agricultural produce intended for export by co-operative union and
community based societies registered with the Tanzania Revenue Authority.

f) The supply of the local manufacturer of factors for agricultural use, planters,
harrows, combine harvesters fertilizer distributers, liquid or powder sprayers for
agriculture, spades, shovels, mattocks, picks toes, forks and lakes, axes and other
tools of a kind used in agriculture, horticulture or forestry.

g) The supply by a local manufacturer of fertilizers, pesticides, insecticides,

fungicides, rodenticides, herbicides, ant sprouting products and plant growth
regulators and similar products which are necessary for use in agricultural
purposes.

h) The supply by the local manufacturer or –(a) fishing nets and accessories; and (b)
out boat engines for fishing.

i) The supply by a local manufacturer of veterinary medicines, drugs and equipment

which have been approved by the minister responsible for health upon
recommendation of the Tanzania Food and Drugs Authority.

j) The supply by the local manufacturer or – (a) HUMAN MEDICINES, drugs and
equipment which have been approved by the minister responsible for health upon
recommendation of the Tanzania Food and Drugs Authority; (b) articles designed
for use by the blind or disabled; (c) mosquito coils; (d) sanitary pads.
 k) Supply of sacks by a local manufacturer of sacks.

l) Supply by a local manufacturer of animal feeds.

m) Supply of locally produced edible oil using local seeds by local processors

Selling a business as a going concern

A going concern is a concept that assumes that a business entity has a reasonable expectation of
continuing in business at profit or gain for an indefinite period of time. Now it happened that a
taxable person is selling part or all of his business as a going concern he should not charge VAT
on the sale price. This means that a sale of all or part of a business as going concern is not a
taxable supply according to section 61 of the VAT Act, 1997. This section categorically states
that no output tax shall be charged or input tax claimed in respect of the transfer where sale of a
business asset by taxable person is a taxable supply. A taxable person shall charge VAT on sale
of any of his business asset, such as furniture, vans, freezers, etc.

Tax invoice

Section 2(1) of the Act defines a tax invoice as document issue in accordance with section 29
and the regulation made under the VAT Act. Remember we said a tax invoice contains such
information about the supply (goods or services), the recipient (the person to whom the goods or
services are supplied), and the VAT (tax charged on the supply). A tax invoice therefore is a
document containing certain information about what a taxable person is supplying

Difference between tax invoice, receipt and normal invoice.

Receipt is it is a document used to acknowledge payments from customers. when goods sold on
cash the seller issue receipt to acknowledge that payments but when goods sold on credit seller
will initially issue invoice to the buyer to show amount due and when buyer pays then the seller
will issue receipt to acknowledge that payment while A tax invoice is quite different from the
normal invoice in the sense that the normal one notifies and obligation to make payment. Or in
other words, the normal invoice serves as a demand note, while a tax invoice is required to show
certain specific details, included the tax due on the on the taxable supplies. A tax invoice is not a
demand note or a notification of an obligation to make payment nor does it serve as receipt.

Note: tax invoice is the fact that as a VAT registered persons whenever you supply taxable goods
or services to another taxable person you must give him a tax invoice. It must also be issued
upon request to a customer who is not registered for VAT purpose.
Contents of tax invoice.

 The taxable person name, address, taxpayer identification number (TIN) and VAT
Registration Number (VRN)

 The date of supply;

 The number of invoice taken from a consecutive series

 The customer’s name address, TIN and his VRN;

 The description sufficient to identify the goods or services supplied, which includes the
quantity of goods or the extent of services supplied, tax inclusive price for each
description of goods or services supplied, rate of tax; and

 The rate of any discount. According to paragraph 9(3) of the VAT regulation, a tax
invoice shall indicate:

 The total charge exclusive of tax;

 The total tax charged; and

 The total charge inclusive of VAT

Example of tax invoice tax invoice

The Act its regulation does note prescribes how a tax invoice should look like. What is important
however is the information contained the tax invoice?

You may design your tax invoice to look the way you would like it to be alternatively it may be
in any color or size, but remember to include each and every detail required for a tax invoice

Invoice No 40 invoice Date 1/10/2014

FROM RAMS HARDWARE TIN 212---210---200

P.O. Box 124---------- VRN 110---300-094

GONJA

TO: TELEMUNYU ENTERPRISES

P.O.BOX 8366 TIN 101---900---850

MOSHI VRN 100--K 12 - 100

QTY DESCRIPTION AMOUNT VAT VAT AMOUNT
& PRICE EXCLUSTIVE NET RATE INCLUSIVE
OF VAT OF VAT

10 Silk ties 20,000 3,600 18% 23,600

5 Men’s suit@ 500,000 90,000 18% 590,000

5pairs Cuff links@ 25,000 4,500 18% 29,500

TATAL 545,000 98,100 643,100

Time and value of supply or tax point

Generally the time of supply also referred to as tax point is time when tax becomes due and
payable. S.6 (1) of VAT Act 2009 (revised) provides that the time of supply of goods and
services shall be the earlier of the date:

 Goods are removed from the premises of the supplier or

from other premises where the goods where under his control or the goods are made
available to the person to whom they are supplied or

when services are rendered or performed, or

 A fiscal receipt/ fiscal invoice is issued in respect of the supply, or

 Payment is received for all or part of the supply.

Therefore, Tax point implies the date when a transaction taken place for VAT. The basic tax
point is the date at which the goods are made available to the client (or for services the date they
are performed).

Example one

A taxable person receives an order to supply goods on 8 January 2012 worth Shs. 3 million. On 5
February 2012 he receives part payment of Shs. 1 million and all the goods were sent to
customer on 3 march 2012 and the balance of payment was receive on the same date.
 It this case since the advance payment was the first so the time of supply will be 5 February
2012 and must account for VAT at the month of February

Example 2

The Tanzania Electric Supply company, TNASCO sends its staff to your house for electricity
meter reading on 29 July 2012 and issues a tax invoice on 3 August 2012

The time of supply will be 29 and TANESCO must account for VAT in the July return

Example 3

On17 July the owners of the house go to TANESCO and make an advance payment of shs.
12,000 for the bill of August on the meter have not been read nor the tax issued. The time of
supply is 17 July and TANESCO must account for the tax in its VAT return for July. This is
typical example of LUKU where payment is made in advance before are received.

Example 4

TANESCO issues a tax invoice on 3 august, 2012 estimating the units consumed by its client for
the month of July, 2012. The time of supply is 3 august, 2012 and TANESCO must include the
full consideration in its VAT return for august

Time of supply for imported goods

VAT on the importation of taxable goods from any place outside mainland Tanzania shall be
charged and payment in accordance with the customs laws, that is goods and deemed to have
been imported on the date goods are entered for home consumption. The time when goods are
entered for home consumption is the time when they case to be under custom control. This date
is reflected on the customs single bill of entry. The VAT on importation must be paid at the same
time when the customs duty is paid by the commissioner for VAT. Section 6(4) states that VAT
on important goods shall be charged and payable at the customs duty, tax or levy, is payable in
accordance with the customs law unless prescribed otherwise in the regulation made by the
Minister.

Example 5

A person imports motor vehicles from japan and arrives in mainland Tanzania on 12 February
2012 by ship. On 1 March 2012the person pays all the taxes under thecustoms laws including
VAT. He however collects the motor vehicles on 5 March. The time of supply in this case will be
1 March the date on which all taxes were paid under the customs law. It is also important to note
that VAT on importation is not charged and collected by taxable persons. It is charged and
collected directly by Tanzania Revenue Authority.
Consideration paid in money

If the consideration of the supply is wholly in monetary terms the taxable value is based on the
amount excluding VAT. If your terms allow your customer to pay by installments, the taxable
value is based on the total amount of the installment.

Consideration not paid in money

If the consideration for the supply is not wholly in money as in the case of barter trade, or the
consideration is partly in money and partly in something else, as in part exchange, the taxable of
the supply is `open market value`. This is the price excluding VAT. A customer would have to
pay for the supply if money was the only consideration no special relationship exists between
buyer and seller affecting the taxable value in any way.

Taxable for value imported goods

The taxable value of any imported goods in made up of the total of:

 Value for customs duty that is CIF value

 Amount of customs duty.

 Excise duty (where applicable): and

 Any other tax, levy payable

 (other than Vat)

Example: A person imports textiles worth Tshs.6.5 million from Thailand He pays shs. 0.5
Million as freight charges and Tshs.1million as insurance on freight. Import duty is 25% of the
value as determined for customs purposes: and excise duty is 20%

of the customs value. No other levy payable.

Therefore Cost Insurance Freight(CIF) value

=TSH. 6,500,000+500,000+1,000,000=8,000,000.

In this case the taxable value for Vat purposes is:

=CIF+ import duty payable +excise duty payable + other levy payable

= 8,000,000 +2,000,000+nil

=Tsh.12,000,000.
 =2,160,000

VAT payable is Tshs.= 12,000,000x 18%

Registration for vat

In Tanzania, Value Added Tax (VAT) is collected through registered persons such as sole
proprietors, companies, partnership or joint Venture, club or society and trust. Registered traders
are acting as collecting agents for the government.

The purposes of registration are to record the particular of taxable person for the purpose of
control and collection of tax, enable them to take credit of input on their taxable supplies and to
issue tax invoices.

Who is a person for VAT purpose

a. Sole proprietor
b. Company
c. Partnership or joint venture
d. Deceased estate or insolvent estate
e. Trust
f. A club or society
g. A cooperative
h. An association or
i. Any other body of a persons

Condition for registration

In Tanzania to be registered for VAT purposes a person should fulfill the following condition

Any person carrying on business, have taxable turnover which exceeds 40 million in a period of
12 consecutive months or 10 mlns in a period of 3 consecutive months is obliged to register as a
taxable person and has to apply for registration to the commissioner for Value Added Tax
(CVAT).

However, a person will not be obliged to register if the above stated turnover has exceeded, or
will exceed solely as a consequence of:

 The sale stock or other assets due to any cessation of or substantial and permanent
reduction in the size or scale of any business,

 The replacement of plant and machinery or other capital assets used in the business,

 Abnormal circumstances of the temporary nature. However, under Section 19 (4) of the
Value Added Tax Act, 1997 the CVAT may register any person whether or
 not an application to be registered has been made, and regardless of the taxable
turnover of the person.

For VAT purposes business includes any activity carried on:-

 Continuously or regularly

 By any person

 In or partly in mainland Tanzania

 In the course of or in furtherance of which goods or services are supplied for

consideration

 Whether or not for profit or gain. Business therefore includes:-

 Ordinary business- traders, contractors etc.

 Trades and Professions- builders, plumbers, lawyers etc.

 Activities or non-profit organizations-social and sporting clubs, charitable organization

etc. Business does not include the following:

 Services rendered by employee to his employers

 Private transactions, e.g. the occasional sale of domestic or household items

 Private of recreational pursuits or hobbies

Separate registration of businesses branches/divisions’

A registered person carrying on business in branches or divisions can register one or more of
branches/divisions separately provided that each branch/division meets the conditions for
registration and the following requirements have been fulfilled

i. It must maintain its own accounting system

ii. It must be in separate location or carry out different activities

Implications for separate registration are:

 Each separate registration business is treated as taxable person in its own right

 Business is considered to be carried on by that person, branch or division; it is

therefore no longer regarded as of parent business.

Obligation of registered person

  To submit VAT returns and pay tax last working day of the month following the
month of the business or within such other time as the commissioner may in
particular case determine by notice in writing according the two section 26 of the
VAT act;

 To provide their customers with a tax invoice or receipts or similar document to non-
registered person in accordance with section 20 of the VAT act;

 To maintain the purchases book, sales book and VAT account

 To keep their VAT records for a period of five years in accordance with section 25
(1) through (3) of the VAT act

 To inform the commissioner of changes to the business activities such as new

address, place of business, or organizational changes of business within 30 days by
virtue of section 23

 To display their certificate of registration in places where customers can see it, and

 To allow tax officers to enter the business to examine the business recording and
verify stock in hand.

Registration procedure

Any person whose taxable turnover exceeds, or the person has a reason to believe will exceed the
turnover mentioned at above must apply for VAT registration within 30 days of becoming liable
to make such obligation.

How

Application for registration must be made on form VAT 101. The form is obtainable from your
nearest TRA office or you may also register online via TRA website.

Once application for registration has been approved the commissioner will issue you with
certificate of registration for Value Added Tax which your VRN will be indicated if registration
has been refused you will also be advised.

Cancellation of registration

A taxable person can cease to be taxable or the registration is cancelled under the following
circumstances:

 Taxable turnover falls below the registration threshold. A registered person would
cease to be liable for registration when the Commissioner is satisfied that the level of
taxable supplies has fallen below the registration threshold. If such person wishes to
cancer his registration he must apply in writing to the Commissioner or domestic
 revenue department to have his registration cancelled. The registered person will be
notified of the commissioners’ decisional and informed of the date on which the
cancellation of registration takes effect.

 Cessation of all businesses

If the registered person ceases to carry to on all businesses and will no longer carry on any
business he must, within 30 days of ceasing to carry on all his business, notify the commissioner
of such cessation such person registration would then be cancelled unless there are reasonable
grounds for believing that he would carry on any other business after cessation

 Taxable person ceases to make taxable supplies

If a taxable person ceases to make taxable supplies such person would then be cancelled from
VAT registration.

 Granted an intending trade registration and no long intends to make taxable supplies
by way of business

A person who ceases to be registered remains liable for any liabilities or obligations incurred
under VAT act white was registered and required not pt. issue Tax Invoice or show VAT on all
his receipts for the whole period the remain deregistered.

Changes in business circumstances

A taxable person is required to notify the Commissioner in writing within 30 days after
occurrence of any of the following events:

 His cessation of making taxable supplies

 The taxable turnover falls below registration threshold

 The change in ownership of business

 The changes constitution of, or the terms government the business

 Change in the name or trading name of business premises

 Any other major change in the nature, control or conduct of the business

He/she has to fill the required forms to make official changes for notification of additional
information and changes of business particulars
 Adjustment to output and input tax

Section 24 of the VAT Act, states that “unless otherwise provided under this Act a taxable
person shall record each supply made and account for tax on it at a time supply”.

As taxable person shall charge and collect tax at a time of supply. However charging and
collecting only is not sufficient for VAT purposes, the taxable person shall account for VAT
charged and collected on supplies made. To account for in this respect means that documentary
evidence acknowledged as and when it is made.

Accounting for VAT by a taxable person

There are two methods by which a taxable person shall account for VAT collected. The taxable
shall account for VAT collected by:

 Either issuing a tax invoice, or

 A receipt or a similar document

This therefore means that a tax invoice or a receipt has to be issued when a supply is made.

Accounting for input tax

Where goods or services are acquired party for consumption, use or supply in the cause of
making taxable supplies and partly for other purposes or exempt, 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.

Under the VAT general regulation No8 provides two methods of accounting for input VAT in
case of retailers who are registered for VAT from which a taxable person may choose to use
either method. Once either method has been used in any lodged return, the same method must be
used thereafter in any return lodge in the same accounting year. These methods have been
designed to be used by retailer due to the fact that naturally, retailers businesses are made up of
large volume of transactions but of low value. It is therefore uneconomic or impracticable to
issue a tax invoice to every transaction.

To qualify for the two methods the retailer must satisfy the following conditions;

 Must be supply taxable goods

 The supply be in cash

A retailer who supplies both goods and services is allowed to use the chosen method on gross
takings received in respect of supply of goods only. That is to say the scheme does notes apply to
supply of services.

The retailer is however required issuing a tax invoice if a supply is made to a taxable person or
where a person has made a request there of.

First method

Under the VAT general regulation 8(1), the first method of calculating input tax should be as
follow:

Step 1: Calculate the value of taxable supplies made in the prescribed

accounting period. (I.e. calculate the value of taxable sales only)

Step 2: Calculate the value of taxable supplies made for that period (i.e. calculate

the value of all sales)

Step 3: Calculate the amount of tax payable on supplies made to the registered person in that
period (i.e. calculate VAT paid on purchases of inputs)

Step 4: Divide the amount of taxable supplies made for the period to the value of

all total supplies made for the period.( i.e. amount obtained in step 1 is divided by
amount obtained in step 2)

Step 5: The amount of input tax to be claimant as a deduction or credit in the

prescribed accounting amount obtained in step 3 by the amount obtained in step 4

Example (Adapted VAT General Guide 2012 )

The taxable person indicates through these records that during the month of November 2012, Vat
was paid on his purchases as follows:-

S/N Item Value VAT VATInclusive

(Tshs) ( Tshs) (Tshs)

(a) Sugar 50,000 9,000 59,000

(b) Cooking oil 75,000 13,500 88,500

(c) Laundry soap 60,000 10,800 70,800

(d) Transportation of wheat,

flour and maize 10,000 1,800 11,800

(e) Bags for repacking wheat 12,500 2, 250 14,750

(f) Tax invoice books 37,500 7,500 45,000

(g) Electricity 10,000 2,000 15,000

(h) Telephone 12,500 2,500 15,000

Also during the same moths, the taxable person supplied goods with the value indicated below:-

No Item Value VAT VAT Inclusive

(Tshs) (Tshs) (Tshs)

(a) Sugar 60,000 10,800 70,800

(b) cooking oil 90,000 16,200 106,200

(c) Laundry soap 80,000 14,400 94,400

(d) Toilet soap 100,000 18,000 118,000

(e) Wheat flour 40,000 16,200 40,000

(f) Maize 30,000 14 ,400 30,000

Apportionment of input tax will be:-

Using the first method:

Step 1: the value of taxable made is:-

S/N Item Tshs

1. Sugar 60,000

2. Cooking oil 90,000

3. Laundry soap 80,000

4. Toilet soap 100,000

Total 330,000
Step 2 value all supplies made is:-

S/N Item Tshs

5. Sale of wheat flour 40,000

6. Sale of maize 30,000

7. Sale of taxable supplies (refer the total at step one above) 330,000

Total 400,000

Step 3 Tax payable on supplies made to the registeredperson:-

S/N Item Tshs

8. Sugar 9,000

9. Cooking oil 13,500

10. Laundry soap 108,000

11. Transportation of wheat,

four and maize 1,800

12. Bags for reparking wheat 2,250

13. Tax invoice books 6,750

14. Electricity 1,800

15. Telephone 2,250

Total 48,150

Step 4: 330,000 divide by 400,000=0.825

Step 5: Amount input tax to be claiming is 48,150*0.825=Tsh. 39,724 Apportionment of input

tax will be:-

Second method

Under the VAT general regulation 8(3), the second method of calculating input tax as follow:
 Step 1: Divide input tax for the prescribed accounting period to categories viz;-

A). Category A- input tax that is directly is directly attributable to taxable

supplies

b). Category B- input tax is directly attributable to exempt supplies

c). Category C- Input tax that is paid for the purposes of the business but is

not directly attributable either to taxable or exempt supplies

Step 2: Calculate the value of taxable supplies made in the prescribed accounting period.

Step 3: Calculate the value of all supplies made for the period.

Step 4: Divide the amount calculated under step 2 to that step 3

Step 5: the amount of input tax to be claimant as deduction or credit in the

prescribed accounting period is the products obtained by multiplying the

amount obtained in category C and then add the input tax attributable to

taxable supplies.

Using the same illustration above the second method will be as follows:

Step 1: (a) Category A: Input tax direction attributable to taxable supplies

S/N Item Tshs

16. Sugar 9,000

17.Cooking oil 13,500

18. Laundry soap 10,800

Total 33,300

(b) Category B- input tax directly attributable to exempt supplies

S/N Item Tshs

19. Transportation of wheat, flour and maize 1,800

20. Bags for repacking wheat 2,250

 Total 4,050

(C) Category c input tax paid for the purposes of the business but not is note directly attributable
either to taxable exempt supplies:-

S/N Item Tshs

21. Tax invoice books 6,750

22. Electricity 1,800

23. Telephone 2,250

Total 10,800

Step 2: Value of taxable supplies made in the prescribed accounting period.

S/N Item Tshs

1. Sugar 60,000

2. Cooking oil 90,000

3. Laundry soap 80,000

4. Toilet soap 100,000

Total 330,000

Step 3: Value of all supplies made is:-

S/N Item Tshs

5. Sale of wheat flour 40,000

6. Sale maize 30,000

7. Sale of taxable supplies (refer the total step one above

In method) 330,000

Total 400,000
Step 4: Divide the amount calculate under step 2 to that of step 3

330,000 divide by 400,000= 0.825

Step 5: Multiply step 4 by the input tax on category “C”Tsh. 10,800

0.825 X 10,800= 8,910

Amount to be claimed is sh. 8,910+33,300= 42,210

Note: the second method of apportionment was made by the VAT general regulation
amendments of 2000. Input tax attributable directly to exempt supplies cannot be included in the
calculate and is not allowed to be claimed.

Accounting for output tax

The method stipulate under paragraph 14 of the VAT general regulation applies to taxable person
who makes supplies of good or services by retail direct to the consumer. The are two method
provided under the regulation 14 first under paragraph 14 (7) is as follows;

Step 1: Separate gross taking 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, from the records of taxable daily gross
takings, calculate the tax using the tax fraction for the rate of tax in force and include in the
amount on the VAT return for that period

second method under paragraph 14(8) is as follows:

Step1: Record the 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 of the value
of taxable purchases made in the period bears to the total purchases in the period.

Step 4: From the gross taking allocated to taxable supplies calculate the tax for the prescribed
accounting period using the tax fraction for the rate of tax in force include the amount on the
VAT return that period.

In summary, the following records must be kept for VAT purpose:-

 Copies of all fiscal receipt/invoice issued to customs;

 Originals of all fiscal receipt/invoice received from suppliers;
  Credit notes
 Debit notes
 VAT account i.e total of output and input tax in each prescribed accounting period and a
net total of tax payable or repayable
 Orders and delivery notes
 Relevant business correspondence
 Job cards
 Purchase and sales books
 Cash books, petty cash vouchers, and other account books
 Manufacturing or stock records (where appropriate)
 Annual accounts, including trading, profit and loss accounts and balance sheets
 Import and export entries
 Bank statements and pay –in slips and;

A taxable person shall retain these records for a minimum period of five years or such a longer
period as the Commissioner may require in a particular case. Failure to keep or retain records as
required or in a manner prescribed in an offence and is punishable with a fine not exceedingTsh.
500,000/=, or a term not exceeding six months or to both fine and imprisonment.

Offence, penalties and interest resulting from non-compliance

Section 46 false return statements.

Any person who knowing makes a return or other declaration, or furnishes false statements,
commits an offence and upon conviction is liable to a fine note exceeding five hundred thousand
shilling imprisonment to a term not less than three months but not exceeding two year or both
(Table 2 provide more information on offences and penalties available under the Act).

Offence Penalty VAT Act 1997

Late lodgment. Late payment of Failures to produce books,

Submission of return and assessed tax and records or provide
payment Penalties information or
obstructing an authorized
officer
Failure to comply with an
agency notice
Making false statement,
producing false
document, providing
false information
 Section 27 that deduction or credit
will falsely be claimed
Spot penalty of shs. 50,000
or 1% per month of the
tax payable, whichever is
greater and a further Failure to notify the
penalty of shs, 100,000 or commissioner about
2% of the outstanding tax Section 28 changes in registration
whichever is greater. details.

Interest of commercial Late application for

Section 32 registration, Contravention
bank lending rate of the
central Bank plus 5% of any conditions or
Compounded. registration or a non-
registered person who
holds himself out as a
registered person.
Fine not exceeding shs
100,000 or10% of the Section 40
amount exceeded
whichever is greater.
Failure to notify the
Commissioner on cessation
Fine not exceeding shs of dealing in taxable
500,000 and/or three Section 46 supplies within the
months to two years required time.
imprisonment

Fine not exceeding shs Fraudulent evasion or

500,000 and/or three recovery of tax
months to two years
imprisonment

The tax so evaded plus a

83. fine of shs 2,000,000 and
Knowingly dealing in imprisonment for two
supplies that proper tax Years. Te goods are liable
has not, will not paid or to forfeiture
 Section 47 (1) Division of capital goods
for which VAT had been
Fine not exceeding shs, deterred
1,000,000 or six times the
amount evaded, whichever
is greater and/ or
imprisonment for less than
six months but not more Section 47 (2) Failure to submit a return
than three years. or pay Tax at the due date.

Fire ups to shs 100,000

Failure to issue a tax

involve as required
Section 47 (3)
Fine up to shs 200,000 Fine up to shs 200,000 or
and/or imprisonment for imprisonment up to 2
not less than two months years; and The VAT
but not more than twelve deferred becomes payable.
months. Any tax arrears
must be paid and interest
Section 44 (1) & (2)
charged as through it as Fine up to shs 200,000
late payment of tax. and/or imprisonment for
not less than two months
but not more than twelve
Fine up to shs50,00 months

.Fine up to shs 200,000

Section 21
and/or imprisonment up to
twelve months.

Section 19 (7)

84.
Section 45

Section 29
Sources: VAT ACT, 2009.
 Where a company commits an offence, every director and officer of the company
concerned with the management of the company shall also be guilty of the offence
unless he proves his innocence (section 50).
 The commissioner is empowered, subject to specified condition, compound offences
under the Act (section 48).

CURRENT ISSUE IN VAT

EFD

What is Electronic Fiscal Device? (EFD)

Electronic Fiscal Device (EFD) means a machine designed for use in business for efficient
management controls in areas of sales analysis and stock control system and which conforms to
the requirements specified by the laws.

Types of Electronic Fiscal Devices (EFDs)

Electronic Tax Register (ETR)

The device is used by retail business that issue receipts manually

Electronic Fiscal Printer (EFP)

The device is used by computerized retail outlets. It is connected to a computer network and
stores every sale transactions or details made in its fiscal memory.

Electronic Signature Device (ESD)

The device is designed to authenticate by signing any personal computer (PC) produced financial
document such as tax invoice. The device uses a special computer program to generate a unique
number (Signature) which is appended to and printed to every invoice issued by the user’s
system.

NOTE:

You are obliged to issue receipt or invoice on each sale and notify any changes/malfunctioning
of the machinery to Commissioner within 24 hours. The supplier of the machine will install,
configure and attend the malfunctioning of the machine within 48 hours
WHY EFDs is preferred?

 It has in-built Fiscal Memory which cannot be erased by mechanical, chemical or

electromagnetic interferences;
 Automatic self-enforcing Issuing of daily “Z” report after every 24 hours;
 Transmits tax information to TRA system automatically;
 It has irreversible date mechanism
 Issues fiscal receipts/invoice which is uniquely identifiable;
 It can be used as a stand-alone and configured into a network;
 It has at least 48 hours power backup, and it can use external battery in areas with no
electricity supply;
 It saves configured data and records on permanent fiscal memory automatically
 It has tax memory capacity that stores data for at least 5 years or 1800 day transactions

OTHER ISSUES RELATED TO VAT IN PRACTICE

VAT RETURN

What is a VAT return?

A VAT return is a form used to submit tax payments to TRA. Currently VAT registered traders
are supposed to submit returns to TRA online.

A VAT return is to be completed and submitted to the Commissioner not later than the last
working day of the month following the month of business together with payment of any tax due
if any.

VAT RELIEF

What is VAT relief?

Is a tax relief granted to bodies and persons due to social, status and economic reasons in order to
equitably provide quality services.

Who is entitled for VAT reliefs?

The Third Schedule to the VAT Act, Cap 148 lists persons and organizations entitled for VAT
reliefs. These persons and organizations will enjoy reliefs of VAT on their purchases and / or
importations of taxable goods and / or services so long as they fulfill the conditions laid down for
each respective group.

rate under the VAT relief

Basically there are two rates:

 100% Applies to full relieved persons and organizations

45% Applies to partially relieved persons and organizations

Who qualifies under 100%

Bodies and persons who qualify 100% are:

1. Diplomatic or Diplomatic Missions

2. Technical Aid or Donor Funded agreement
3. Travelers or deceases personal effects
4. Supply of specified goods to Armed Forces
5. Registered licensed explorer or prospector
6. Armed Forces
7. Religious Organizations
8. Red Cross
9. Water and sewage Authorities
10. Investor under export processing zones
11. Supply of destination inspection to TRA
12. Water pump or generator used by a farmer on irrigation
13. Supply of capital goods to any person
14. Supply of railway locomotives and its spares
15. Supply/importation of fire fighting vehicles
16. Supply of goods and services to organized farming
17. The importation or supply of tractor tyres
18. The importation or supply of trailer and spare parts for tractor trailer.

Who qualifies under 45%

Bodies and persons who qualify under 45% are:

1. Registered practioner, optician, dentist, hospital, or clinic, patient

2. Registered veterinary practitioner
3. Registered manufacturer of spectacles lenses
4. Registered water drilling company
5. Registered pharmaceuticals manufacturing company.
6. Supply to the Bank of Tanzania
7. Supply of greenhouse to horticulture
8. On the basis of this arrangements relieved bodies under this category will have to pay tax
to the tune of 55%.

Procedure to be followed by each group/persons for VAT relief

it is mandatory to fulfill some conditions before granting relief.

Local Purchases:
VAT relieved persons and organizations other than those mentioned below are required to
complete application forms VAT 220/223/224 in duplicate. The forms are obtained and
submitted to TRA Regional Offices for approval. When making the application, the applicant
must submit a schedule showing the quantities and values of the goods or services together with
the supporting documents.

NOTE: Each approved form is valid for a single transaction and expires on the
date shown thereon.

 Imported goods:

1. Capital goods

The applicant will submit an application for reliefs using form VAT 220/223/224,
providing a description of capital goods to be imported

The application is to be accompanied by the Bill of lading, invoice, packing list

and any other documents to confirm the nature and ownership of those goods.

The goods will be checked against the HS Code by the Customs officer, who after
being satisfied he/she will approve form VAT 220/223/224 by signing and
stamping.

The Applicant will be provided with the approved form as an evidence for VAT
relief for lodging at the Customs Service Centre or any other Customs point of
entry.

2. Investors registered under the Tanzania Investments Centre

In order to be granted with VAT reliefs, investors registered under TIC are
required to complete form VAT/220/223/224. The forms are obtained from the
Commissioner for Customs and Excise. When making application, the applicant
must submit a letter from TIC confirming the existence or registration of the
project, proposed list of goods/materials that are to be imported, profoma invoice/
invoice, packing list, bill of lading, airway bill, consignment note and in the case
of building materials, the proposed list of goods must be certified by a registered
quantity surveyor. form VAT/220/223/224

Upon receipt of the application the Customs officer will go through the list to
establish if they correspond to the goods approved andalso if thequantities
requested are in accordance with the nature and size of the project.

The Applicant will be provided with the approved form as an evidence for VAT
relief for lodging at the Customs Service Centre or any other Customs point of
entry.
 The same procedure will continue to apply until the entire list of approved
goods/material is exhausted.

3. Mining Companies

In order to be granted with VAT reliefs, mining companies are required to

complete form VAT 220/223/224. The forms are obtained from the
Commissioner for Custom and Excise. When making application the applicant
must submit copy of mining license, a list of materials and equipment duly
endorsed by the Commissioner for Minerals and TIN certificate. Form VAT
220/223/224

The Commissioner for Customs and Excise if satisfied with the information
submitted will approve the application.

The Applicant will be provided with the approved form as an evidence for VAT
relief for lodging at the Customs Service Centre or any other Customs point of
entry.

Note: For new mines or existing mines, by which additional information is

required, the Customs and Excise officer in charge of the region in which mining
activities are carried should be instructed to carry out inspection.

Local Purchases:

Diplomats:

Diplomats are required to make upfront payments of VAT and claim for refunds on
monthly basis. They must demand to be issued with EFDs receipts whenever they
purchase taxable supplies from traders registered to charge VAT. The claim for refunds
must be made by using form VAT 207. The application must be routed through the Head
of the Mission after which it must be endorsed by the Ministry of Foreign Affairs and
International Co-operation before being submitted to the Domestic Revenue Department.

Diplomatic Missions:

The Diplomatic Missions are required to complete the form VAT 222 obtainable from the
Ministry of Foreign Affairs and International Co-operation. This form must be endorsed by the
Ministry of Foreign Affairs and International Co-operation before it is submitted to the Domestic
Revenue Department. Upon approval by the Commissioner for Domestic Revenue, the applicant
will present an original copy to his supplier who after supplying the goods and/or services will
retain that copy for his records and produce it to TRA officers for verification whenever required
to do so. However in certain circumstances, the Diplomatic Mission may be obliged to buy
goods or services inclusive of VAT depending on how urgent the goods / services are needed. In
such cases, the Mission may claim for refunds by using form VAT 207.VAT forms 207

Payment for electricity, security services and telephones:-

The Diplomats and Diplomatic Missions will be required to complete form VAT 222 only once
at the beginning of each financial year for each of these services. Once the form VAT 222 has
been approved by the Commissioner for Domestic Revenue, the applicant will submit a copy to
the provider of the service and this will form an authority to continue enjoying VAT relief for
each subsequent purchase of the service within the financial year. VAT form 222

Technical aid agreements or donor/government funded

Projects

Local Purchases:

Technical aid agreements or donor/government-funded projects are required to complete

application forms VAT 220/223/224 in duplicate. The forms are obtainable and submitted to
TRA Regional Offices for approval. Each authority is valid for a single transaction and expires
on the date shown thereon. When making application, the applicant must submit a schedule
showing the quantities and values of the goods or services together with Proforma invoice. Form
VAT 220/223/224

Imported Goods

The applicant submits an application in form VAT 220/223/224 describing the type of the goods
to be imported and the project where the goods willbe used. The application should be endorsed
by the mother Ministry under which the project concerned is related. The application should be
accompanied with the Bill of Lading, Invoice, packing list and any other relevant documents to
confirm ownership of the goods.

The Customs officer will scrutinize the application with keen interest of establishing the
authenticity of the exemption. The Agreement entered between a Donor agency and Government
of Tanzania is to be scrutinized to see if there is a clause, which exempts taxes. Documentary
evidence or rather a letter of approval from the Ministry of Finance must be availed in case the
agreement was signed by a person other than the Minister of Finance. All agreements, which
exempt taxes, must be approved by the Ministry of Finance. The officer also will have to check
the authenticity of the signatory. Each Government Ministry submits a list of signatories of the
forms to the Commissioner for Customs and Excise. After the customs officer has been satisfied
with the applications, he/she approves the form 220/223/224 by signing and stamping.
Travelers or deceased personal effects

What are deceased Person’s Effects?

Used personal effects, subject to such limitations as the Commissioner may impose, which are
not for re-sale and have been the property of the deceased person and have been inherited by or
bequeathed to the person to whom they are consigned should be exempted from payment of
VAT. The personal effects include one motor vehicle which the deceased owned and used out-
side a Partner State.

Passenger’s Baggage and personal effects:

Goods imported by passengers arriving from places outside the Partner States shall be the
property of and accompany the passenger, for the personal or household use of the passenger in a
Partner State, and of such kinds and in such quantities as the proper officer may allow be
exempted, as bagged by a person on first arrival in a Partner State whom the proper officer is
satisfied is a bona fide changing residence from a place outside a Partner State to a place within a
Partner State, where the person has neither been granted an exemption before his arrival. The
attachments to the application are; Passport, Importation documents, death certificates.

Armed Forces

Local Purchases:

For the purpose of category Armed Forces are required to prepare an annual requirement for
each Armed Force that are to be purchased from time to time during the year. Upon purchases
they will fill forms VAT 220/223/224 and present them to the Regional Manager for approval.
The approved goods should be purchased only from a local manufacturer of or from their
branches.

For the purposes of category the Armed Forces are required to complete forms VAT
220/223/224 that are obtained from Regional Manager.

After completion of the form, the beneficiary will lodge it to the TRA Regional Manager
accompanied by Proforma Invoice issued by the supplier of goods, which clearly indicates VAT
chargeable.

The Regional Manager, will upon being satisfied with the application, approve it and hand it to
the applicant.

The supplier of goods will then supply the items without VAT and retain one form as evidence
of the foregone VAT amount.
Imported Goods:

On importation, Armed Forces operate under the procedure of Customs Bonded Warehouse
where goods are entered for warehousing and removed as they are consumed and these goods are
solely for consumption by Armed Forces.

TPDF Duty Free Shops

Local Purchases:

Operators of TPDF Duty Free Shops are required to complete forms VAT 220/223/224, which
are obtained from TRA Regional Offices.

After completion of the form, the Beneficiary lodges to the TRA Regional Manager
accompanied by Proforma Invoice issued by the supplier of goods, which clearly indicates VAT
chargeable. Also to be attached: A copy of a valid business license,

A copy of a valid agreement entered into between the operators of duty free shops and the
Tanzania Peoples Defense Force (TPDF).

The Regional Manager, will upon being satisfied with the application, approve it and hand it to
the applicant.

Operators of Duty Free Shops will then present the form to the supplier of goods who in return
will supply the items without VAT and retain the form as evidence of the foregone VAT amount.
Currently the items that have been specified to be supplied to Duty free shops are sugar,
corrugated iron sheets, steel bars and cement.

Note:Whenever purchasing the specified goods;

The purchasing officers from the contracted companies must possess identity cards issued by the
TPDF.

The requisition forms will be printed in quadruplicate and supplied to the companies operating
army duty free shops by TPDF. The four copies will be distributed as follows:-

Original – To the supplier of goods

Duplicate – To be retained by TRA

Triplicate – To be retained by TPDF;

Quadruplicate – Book copy.

Imported goods:
On importation, Military Duty Free shops operate under the procedure of Customs Bonded
Warehouse where goods are entered for warehousing and removed as they are consumed and
these goods are solely for consumption by military personnel.

Religious Organisations/ Charitable Organisations

Local Purchases:

The VAT reliefs to NGOs are granted upon submission of the proof that the goods or services on
which tax relief is sought are to be wholly and exclusively used for the purpose of the project.

The registered religious, charitable community based, or non-profit driven organizations or

institutions are required to submit to the Tanzania Revenue Authority their annual plans detailing
each of the projects intended for implementation before the commencement of the Government’s
fiscal year.

The registered religious, charitable community based, or non-profit driven organizations or

institutions are obliged to account for the utilization of the previous granted tax reliefs.
Moreover, on the basis of the utilization report and upon being satisfied with the usage of the
previous reliefs, the Commissioner will issue a certificate on yearly basis signifying the
credibility of the respective NGO. Reliefs cannot therefore be granted unless such an NGO has
been issued with the Commissioner’s certificate that will be covering one fiscal year.

Religious organizations/Charitable organizations are required to complete forms VAT

220/223/224, which are obtained from the Regional Manager. The form will be lodged to the
TRA Regional Manager accompanied by the letter from the District Commissioner who will
confirm the existence of the institutions and the project in which the requested goods will be
used and a Proforma Invoice issued by the supplier of goods, which clearly indicates VAT
chargeable.

The Regional Manager will, upon being satisfied with the application, approve and dispatch it to
the Accountant’s General Office at the Treasury for issuance of the Treasury Vouchers and
Cheques (TVCs).

All Treasury Vouchers and Cheques are collected by the Regional Manager. The Regional
Manager will on receipt of the TVC, inform the respective Regional Manager to finalize the
process of relief by issuing the approved form to the applicant.

Religious Organization/Charitable Organization will then present the form to the supplier of
goods who in return will supply the items without VAT and retain the form as evidence of the
foregone VAT amount.

Note (i) Treasury Vouchers and Cheques system (TVC) does not apply to the local purchases of
electricity and telephone services. The organizations have to make upfront payment of VAT and
apply for refund of the same from the Commissioner for Domestic Revenue.
 4. Charitable organizations are not entitled to VAT reliefs on purchase of motor
vehicles, household consumables and goods and services for office use, such as stationeries,
office cleaning.

Imported goods:

The beneficiary has to submit a letter of application to the Commissioner for Customs and
Excise detailing the reasons for the application and the status of the applicant.

The application should be accompanied by a letter from the District Commissioner who will
confirm the existence of the institutions and the project in which the requested goods/services
will be used.

Certificate of Registration should also accompany the letter from the Ministry of Home affairs,
Ministry of Justice and Constitutional Affairs, Administrator General Office or any other legal
document, which confirm that the applicant falls under this category.

The letter should also be attached with the Bill of Lading/Airway Bill, Invoice, Packing list, Tax
Identification Number and any other documentary evidence to confirm the ownership of goods.

After the Customs officer has scrutinized and is satisfied with the information submitted, the
exemption letter is issued and copied to the Manager and Officer In charge of the Region and
entry station where goods will be cleared.

With exception of the Religious Organizations, non-religious institutions will be required to pay
VAT at the standard rate of 18% on motor vehicles.

Registered medical practitioners, opticians and dentists

 A copy of the certificate of registration from the Medical Council of Tanganyika;

 A copy of a valid business license

 A copy of the certificate of registration from the Optical Council of Tanzania;

Private registered hospitals/clinics

A copy of the certificate of registration from the Advisory Board for Private Hospitals and
Voluntary Agencies.

Registered veterinary practitioners

 A copy of the certificate of registration issued by the Tanzania Veterinary Board;

 A copy of a valid business licence

 Registered manufacturers of pharmaceutical products

 A copy of the certificate of registration / incorporation issued by the Ministry of Trade and
Industries:

 A copy of a license to manufacture pharmaceuticals issued by the Tanzania Food and Drugs
Authority.

 A copy of a valid business license

Registered licensed drilling, mining, exploration or Prospecting companies

 Licenses issued by appropriate Authorities.

 A copy of a valid business licence;

 Proforma invoice.

Provider of water and sewerage services for public

 A copy of a valid business license;

 Agreement for the contracts with government

 Proforma invoice for locally purchased goods

 Importation documents

Registered water drilling companies

 A copy of a valid business license;

 Proforma Invoice for locally purchased goods

 Importation documents

Duty free shops

 A copy of a valid business licence

 Proforma invoice for locally purchased goods
 Importation documents

REVIEW QUESTION
QUESTION ONE

Mjomba co ltd deals with garments and was registered for VAT since july 2003. The company
accurately lodged the respective VAT returns up to October 2004.

However the returns for November 2004 to April 2005 were all submitted on 1 may 2005. The
VAT due for each month were as follows

November 2004 400,000

December 2004 800,000

January 2005 10,000,000

February 2005 14,000,000

March 2005 nil

April 2005 11,000,000

REQUIRED

a. Specify the due dates for each transaction 8marks

b. Calculate the total penalty due 7marks

QUESTION TWO

MR KIONGOI OF TARAKEA business is registered for VAT effective 1/7/1998 with the
following particulars

1. VAT Registration number: 67H

2. Tax period :july 1998
3. Trade Name: TARAKEA
4. Postal address: P.O.BOX 1129
5. Town :Moshi
6. Street: kikelelwa
The details on the first month of trading are as hereunder:
a. 2/7/1998 sold goods to B fashion at shs 1,400,000 ( VAT exclusive)
b. 15/7/1998 sold goods to W. company at shs 2,400,000 ( VAT exclusive)
c. 20/7/1998 sold goods to jamal and co at shs 860,000 ( VAT inclusive)
d. 25/7/1998 sold goods worth shs 4,000,000 to K fashion ( VAT inclusive)
e. 5/7/1998Purchased goods worth shs 6,000,000 (excluding VAT)
 f. 10/7/1998 Purchased goods worth shs 800,000 ( excluding VAT)
g. 28/7/1998 purchased goods worth 200,000 ( VAT excluding )
h. 29/7/1998 imported gaming machines worth shs 1,000,000
i. Paid postal, telephone, electricity worth shs 500,000
REQUIRED
Determine the company VAT final liability.

QUESTION THREE

Mrs masalakulangwa carries on business of a retail grocery in URU kishumundu since January
2007. The following information is available for the period of july 2007.

a. Supplies made by mrs masakulangwa during the prescribed period are as follows:
Items gross payment
received
VAT
INCLUSIVE
Cooking oil 6000,000
Sugar 4,500,000
Toilet soap 6,300,000
Laundry soap 5,100,000
Wheat flour 2,000,000
Green vegetables 1,600,000
Beer and spirits 2,900,000
Soft drink
1,600,000
Fresh milk
2,000,000
b. Purchases made and expenses paid during the period which are VAT exclusive are as
follows
Items tshs
Cooking oil
8000,000
Bags for packaging wheat
1,750,000
Electricity
1,500,000
Sugar
5,500,000
Telephone
2,000,000
 Tax invoince books
2,500,000
Transportation of milk
1,500,000
Refrigerator
2,700,000
Wheat flour
4,000,000
Green vegetable
1,500,000
Beer and spirits
3,000,000
Soft drinks
2,500,000
Fresh milk
2,000,000

The following additional information is also available:

1. The amount of beer and spirits supplies includes deposits for bottles taken out by
customers amounting to shs 200,000
2. There was a cash loss of payment received in respect of supply of soft drinks of
which tshs 400,000 has not been included in the payments received during the month.
3. One crate of beer worth 140,000 was taken for personal consumption by the owner of
the grocery. The amount was not included in the payments received during the month.
4. Milk worth tshs 200,000 was returned by customers during the month for various
reasons. This has not been subtracted from the shown above.
5. No cash discounts were allowed or received during the year.
REQUIRED
Calculate the output tax payable for the month of july 2007 using two methods
provided under regulation 14 of the value added tax ( General)

QUESTION FOUR

a. According to the VAT act 1997 “ taxable supplies “ means any supply of goods or
services made by a taxable person in the course of or in furtherance of his business after
the start of the VAT. What are the four specific activities included in that definition
b. Briefly explain any four of the following terms
1. Zero rated
2. Excempt
3. Special relief
4. Outside the scope
 5. Partially exempt
c. The figures provided below were extracted from the cashbook of the VAT registered
trader for the month of august 2006.

Purchases value( tshs)

Leather ( imported) 3,000,000
Paper 3,000,000
Cardboard sheet 3,200,000
Glue 20,000
Sales
Handbag: leather imported 2,000,000
Children books 2,000,000

Newsprint 9,000,000
Diaries 5,000,000
Newsprint ( export) 2,000,000
REQURED
From the information provided above as an auditor calculate the amount of VAT due to
TRA or to be refunded to the trader. Assume a 20 % VAT

QUESTION FIVE

a. Referring to VAT ACT 1997 briefly explain the time in which goods or services are
regarded as supplied.
b. MANDINDA CO LTD is engaged in the manufacturing of tobacco for exportation and
domestic consumption. During the financial year ended December 31, 2007 it had the
following information.
Purchases ( VAT at 20%)
TAS
Importation of machines for tobacco processing CIF value 700mln
Import duty
7mln
Other purchases
400mln
Supplies:
Export sale of processed tobacco leaves
5,200mln
Sale of VAT excempt supplies
300mln
Local sale of processed tobacco leaves
200mln
 Other non tobacco leaves sales
60mlns
Input tax
Directly attributable to zero rated sales
220mlns
Directly attributable to excempt supplies
20mln
Directly attributable to standard rated taxable supplies 40mln
Not directly attributable to excempt or taxable supplies 40mln
REQUIRED
What is the total net of VAT payable to or repayable from TRA by using method one
QUESTION SIX
a. Explain the types of supply in determining VAT chargeability.
b. Clarify and differentiate the concepts of input tax and output tax under the VAT
system
c. Distinguish between allowable and non allowable input tax.
d. Mwendapole Co ltd deals with garments and was registered for VAT since july, 2003.
The company accurately lodged the respective VAT returns up to October 2004.
However the returns for November 2004 to 2005 were all submitted on 1 may 2005.
The VAT due for each month were as follows:
November 2004 tshs 400,000
December 2004 tshs 800,000
January 2005 tshs 10,000,000
February 2005 tshs 14,000,000
March 2005 tshs NIL
April 2005 tshs 11,000,000
REQUIRED
a. Specify the due dates for each return
b. Calculate the total penalty due.

QUESTION SEVEN

a. The operation of VAT system depends very much on declaration made by VAT
registered person that is done on monthly basis. To ensure compliance from registered
taxpayers, the VAT law does provides punitive measures for the person who does not
comply with the law.

REQUIRED
What measures are taken against a person who fails to submit a return or pay tax within the time
allowed under the law?

b. Compute penalty and interest and final liability from the given information
ABC is a registered taxpayer that did submit a return for June 2005 on 30 October 2005
with the payment of tshs 650,000 as VAT payable. The prevailing rate of interest was
10%
c. What are the obligation of VAT registrants as stipulated in the VAT Act 1997?

QUESTION EIGHT

a. What do you understand by the term “ export of services” for VAT purposes.
b. Mr JJ OKOCHA is the owner of ABC Co ltd, A VAT REGISTERED PERSON with
VRN 27J and TIN 0032H that deals with purchasing and selling different articles locally
and overseas. The following purchases and expenses were made during the month of
March 2005.
1. Imported human medicines containing antibiotics that have been approved by the
minister for finance and recommended by the Tanzania Food and Drugs Authority for
tshs 1.5 blins
2. Purchased journals and news paper to be used by the international academy owned by
him for tshs 350,000 and 300,000 respectively.
3. Acquired residential building for tshs 3.5 mlns that has to be used similar purposes.
4. Imported an automatic an automatic Toyota mark 11 for tshs 8mlns to be by disabled
employees of his company free of charge.
5. An International NGO has provided the business a subsidy of tshs 20mlns two
quarters which represent CIF value has been used to purchase one min bus for official
use and quarter for the purchases of computer and printers.
6. Paid tshs 1.7mln as park fees in respect of the tourists that have commercial interests
with the company in the UK
7. Mr JJ is also a sub contractor of the project under the international donor Agencies,
relieved entity under the third schedule of the VAT act 1997. He therefore purchased
motor vehicles for the project in his name for tshs 25mln CIF Value. Form VAT
220A has not been filled for that purposes.
8. Paid electricity tshs 750,000 telephone bills tshs 250,000 and owned refrigerator for
official use tshs 450,000
9. Given sanitary pads worth tsh 560,000 by one of the NGOs to be allocated to
employeesof the company.
10. In the same period the following supplies were made
Items tshs
Cooking oil 600,000
Beer and spirits in one of his groceries 290,000
Soft drinks ( supplied free to employee) 750,000
 Fresh milk 400,000
Transportation of goods 360,000
Toilet soap 890,000
Mosquito coils 700,000
The following additional information is also available
a. There was an opening stock of tshs 3,290,000 which is the closing stock for the
month of February 2005.
b. Crates of beer worth tshs 180,000 was taken for personal consumption in the extra
ordinary meeting of the company. the amount was not included as part of stock in
the month of February.
c. No cash discount was given during the month.
d. All values are VAT inclusive except imports.
REQUIRED
By using the second method of appointment, compute input tax to be claimed or
credited during the month of March 2005.
(note : use the current rates of VAT, import duty and excise duty and ignore the
issue of depreciation).

QUESTION NINE

Specify whether the following supplies that are made by a VAT registered taxpayer, are either
taxable or exempt or zero rated or special relief supplies.

1. A supply of goods to be used for water drilling to a registered water drilling company .
2. A supply to a sewerage authority of goods to be used in the performance of the statutory
function of such authority.
3. Supply of agricultural produce intended for export by a cooperative union
4. The supply of computers
5. A supply to a non profit driven organization of goods to be used by the organization for a
project related to the advancement of the community
6. Transportation of person by taxi
7. A supply which comprises of warehousing and handling of goods in transit to Burundi
8. The sale of a new residential status
9. A motor vehicles resold at a loss
10. Supply of goods or services to the government.
11. Tourism guiding and game driving
12. Supply of specified goods to armed forces.
13. Lease of aircraft
14. Supply by a local manufacturer of human medicines and drugs.

QUESTION TEN
Adumba imported a VAT taxable item from german. On the arrival of the cargo adumba could
not produce valid documents acceptable by the customs department. For that case, customs
officers came out with the following values for such imported items

Values for identical items

A –Tshs 40mlns

B – Tshs 50mlns

C – Tshs 45 mlns

Values for similar items

D – Tshs 30mlns

E – Tshs 35mlns

F - Tshs 60mlns

The cargo is subject to 25% import duty, 10% excise duty and 18% VAT.

REQUIRED

a. Compute the amount of import duty, excise duty and VAT on importation of this item.
b. State tax point for VAT on imports.

QUESTION 11

The following are the transaction for January 2009 for GALAGALAUKA financial services ltd.
The amounts are stated inclusive of VAT where applicable.

Revenue

Commission receivable invoiced to non-VAT registered persons

……………………………………….7,624,400

Commission receivable invoiced to VAT registered person

…………………………………………………13,889,500

Residential rent
received…………………………………………………………………………………500,000

Proceeds on sale of furniture to non VAT re glistered....

………………………………………………………………………….1,650,000
Interest received from NBC LTD (BANK)
……………………………………………………………………………..9,682,800

Fees received invoiced to VAT taxable

persons……………………………………………………………………………..20,270,800

Credit notes received from suppliers ( non-VAT registered suppliers)

………………………………………………………………………..……514,800

Settlement discount received ( taxable persons)

……………………………………………………………………………….239,800

Profit on sale of saloon car ( non-commercially vehicle)

……………………………………………………………………..………2,800,000

Office rent received from VAT registered persons

……………………………………………………………………………………..2,365,000

Insurance recovery paid by VAT registered

persons…………………………………………………………………………...4,639,8000

EXPENDITURE

Sundry office expenditure ( all taxable)……………………………..

………………………………………………1,842,500

Interest paid to non-VAT registered ………………………………………………..

……………………………………5,378,400

Salaries and wages ………..

…………………………………………………………………………..10,583,000

Capital expenditure ( on generator)

………………………………………………………………………….22, 000,000

REQUIRED

a. Categorize the above the revenue transactions into the following categories and state the
output taxable amount and the tax charged on them.
1. Exempt supplies
2. Zero rated supplies
3. Standard rated supplies
b. Calculate the VAT payable or refundable for the VAT period of January 2009, giving
brief reasons where there is no input tax on expenses.

QUESTION 12
MOLLEL LTD a taxable person for VAT an has been supplying both taxable and exempt
supplies. For the period commencing year 2006 to 2008 MOLLEL LTD neither filed any return
nor paid any tax. In may 2009 NDAMALYA an auditing firm audited the books and records of
MOLLEL LTD for the period under review and prepared a schedule of inputs as under

Year 2006 2007 2008

Tshs Tshs Tshs
Taxable supplies 90.7 100.400 120.7
Exempt supplies 35.4 45.7 53.2
Output tax 13.605 15.060 18.105
Total input tax 8.7 10.5 11.2
Commercial lending rate 19% 19% 19%

NOTE: all figures are in millions

MOLLEL LTD is ready to pay the principal tax liability arising out of its failure to comply with
the relevant tax legislation. On the other hand NDAMALLYA is of the option that MOLLEL is
supposed to pay the principal tax including penalties under section 27 and interest under section
28 of the VAT ACT 1997.

MOLLEL has elected to use the first method of input tax apportionment for the period under
review.

REQUIRED

Compute tax payable to or refundable by TRA as well as penalties under section 28 assumimg
failure commenced at the end of respective calendar year and ended in may 2009.

QN 13

Explain the following terms as related to VAT

a. Excempt supplies
b. Zero rated supplies
c. Special relief
d. Taxable person
e. Tax invoince
f. Partially excempt @ 2.5