Value-Added Tax (VAT)
Invoice requirements
The following changes have been made with respect to invoice requirements:
- "Fiscal receipt" is now defined to have the meaning ascribed under the Tax Administration Act — that is, a receipt or invoice issued by using a fiscal device, Government electronic payment gateway system or any other electronic system approved by the commissioner general for Tanzania Revenue Authority (CG).
- The conditions in the law on the requirements for a tax invoice to support an input tax credit or a refund claim have now been repealed. Effective from 1 July 2023, a credit for input tax or a claim for refund should be supported by a fiscal receipt.
VAT deferment on capital goods
The following changes have been made with respect to VAT deferment on capital goods:
- The application of VAT deferment on capital goods has been extended to cover locally manufactured goods. Previously, VAT deferment was only applicable on imported capital goods and trailers and road tractors for semitrailers (heading 87.16 and HS Code 8701.20.90) locally manufactured or assembled in a customs bonded warehouse.
- The application of VAT deferment on imported capital goods will cease beginning 30 June 2026. This amendment could have the positive impact in boosting local production of capital goods. However, it may also pose a challenge in case of incapacity by local manufacturers to produce capital goods.
- A person approved for VAT deferment will be required to treat the tax payable on locally manufactured taxable supplies or imports as if these constituted output VAT payable by the person in the tax period in which the locally manufactured goods were supplied or imported goods were imported for home consumption.
- Goods purchased or imported for resale in the ordinary course of a person's economic activity do not qualify for VAT deferment, whether in or not in the state in which the goods were purchased or imported.
Electronic services
The definition of "electronic services" has been extended to include online intermediation and online advertisement services.
Zero-rated supplies
A supply of locally manufactured garments made from locally grown cotton is zero rated for a period of one year from 1 July 2023 to 30 June 2024. This amendment will promote local production of cotton and manufactured garments. However, implementing the amendment may pose a challenge as it could be difficult to distinguish between garments that are locally manufactured from locally grown cotton and other garments.
The period for zero rating of supplies of locally manufactured fertilizers is extended until 30 June 2024. The amendment will boost the local manufacture of fertilizers and lower the costs of farming through reduced prices of fertilizers.
Input tax credit
The Value Added Tax (VAT) Act has been amended to provide clarity on the timing of input tax credits. Previously, Section 69 of the VAT Act contained a reference to Section 70, which provides for computation of partial input tax credit by a taxable person who supplies both taxable and exempt supplies. However, the proper reference should have been Section 68 of the VAT Act (as currently amended by the Act), which provides for a credit for input tax.
VAT exemptions
Exemptions upon application to CG
The CG is empowered to grant VAT exemptions on importation of the following:
- Raw materials of polymers of propylene or of other olefins, in primary forms (HS code 39.02) and polyacetals, other polyethers and epoxide resins, in primary forms; polycarbonates, alkyd resins, polyallyl esters and other polyesters, in primary forms (HS code 39.07) to be used solely in the manufacturing of packaging materials for pharmaceutical products
- Prefabricated structures or supply of locally manufactured prefabricated structures (HS code 9406.20.90) to be used solely in poultry farming
Those entitled to apply for the above VAT exemptions must be local manufacturers of packaging materials of pharmaceutical products or engaged in poultry farming in mainland Tanzania and have performance agreements with the Government.
Exemptions on imports and local supplies
Imports and supplies of the following items are exempted from VAT:
- Raw materials (benzalkonium chloride and Glutaraldehyde) of HS Code 2916.32.00 for the manufacture of insecticides and acaricides that have been approved by the relevant Minister
- A house sold by a real estate developer at a value not exceeding TZS 50 million
- A supply of precious metals, gemstones, and other precious stones at refineries, buying stations or mineral and gem houses designated by the mining commission
- A supply of double refined edible oil from locally grown seeds by a local manufacturer until 30 June 2024
- A supply of automobile accessories used to convert motor vehicle fuel system to natural gas or electricity system to persons engaged in the conversion of such motor vehicles
- Moulds imported by a local manufacturer of pharmaceuticals for exclusive use in manufacturing pharmaceutical products in Mainland Tanzania
- A supply of aircraft, aircraft engines, aircraft parts and aircraft maintenance to a local operator of air transportation; however, the VAT exemption on importation of aircraft, aircraft engines or parts by a local operator of air transportation has been abolished
The Act has also amended the existing exemptions in the VAT Act to align the H.S. codes with the current version of the H.S. Codes as set out in the East African Community Common External Tariff, 2022.
Tax Administration Act
Primary data server
A "primary data server" is now defined to mean a physical, virtual or any other server that stores data created or collected by a taxable or liable person in the ordinary course of business. However, this definition contradicts the law with respect to virtual server. All persons who store data in electronic form are now required to maintain a primary data server in Tanzania effectively from 1 January 2024.
The amendment has now provided some clarity that will assist in its implementation. In addition, the amendment will be effective from 1 January 2024 to give businesses some time to prepare and invest in Information Communication Technology (ICT) infrastructures. However, there are still uncertainties. While the Tax Administration Act requires maintaining in Tanzania a primary data server for storage of data in electronic form, the definition's reference to a virtual server suggests the possibility that the server could be outside Tanzania.
Application for refund
The time limit to apply for a tax refund has been extended to cover the date a tax decision or other decision giving rise to a tax overpayment is made. Previously, the time limit for an application for refund was three years from the date of payment of tax in excess.
Through the above changes, the date of a tax decision or other decision (e.g., determination of objections, decisions of Tax Revenue Appeals Board, Tax Revenue Appeals Tribunal or Court of Appeal of Tanzania) that results in a tax overpayment shall be considered in determining the three-year time limit on submitting an application for refund.
Storage facility
The following definitions are provided with respect to a storage facility.
- A "storage facility" means a warehouse, go-down or any other storage facility that is used to store goods for business purposes, provided that such warehouse, go-down or other facility is not part of a shop, factory, industry, or farm.
- An "owner" means a person who establishes or operates and is in control of the facility and possession of the storage facility or a person to whom the storage facility has been leased or sublet.
The above definitions provide clarity on the requirement for registering storage facilities, the kinds of storage facilities that are required to be registered, and the persons who are required to comply. After becoming law through the Finance Act, 2022, the requirement to register a storage facility was sometimes difficult to implement because definitions like these were lacking.
Fine for failure to use fiscal device
The following fines now apply with respect to failure to acquire or use a fiscal device or failure to demand a fiscal receipt.
- Failure to acquire and use a fiscal device or failure to issue a fiscal receipt results in a fine of 20% of the value of goods sold or services rendered, or TZS 1,500,000, whichever is greater.
- A fine of 20% of the tax evaded or TZS 30,000, whichever is greater, is imposed for failure to demand a fiscal receipt.
Disclosure of information on contracted services
An entity engaged in construction or extractive industry is now required to disclose to the CG the names of all persons contracted and subcontracted during performance of their duties or business or carrying out of any project within 30 days of executing the contract for contracted or subcontracted services. Previously, no timeline was provided for submission of the information to CG.
However, the CG has not prescribed any forms or manner of submission of the information.
Excise (Management and Tariff) Act
Periodic adjustments
Excise duty rates may be adjusted every after every three years from 2023/24 financial year. Previously, excise duty rates were adjusted annually depending on inflation rate or other key macro-economic indicators.
The amendment will help provide certainty around the application of excise duty rates; in the previous system, the rates were adjusted annually.
Adjustment of excise duty rate
The Fourth Schedule to the Act has been amended to adjust excise duty rates on a variety of goods, including the following.
- A 10% increase in excise duty rate on soft drinks such as mineral water and juices, and a 20% increase on beer; the amendment could reduce the demand for these products and ultimately affect the Government's efforts in increasing revenue
- Excise duty at a rate of TZS 20 per kg of cement locally manufactured or imported; the amendment could adversely impact construction activities due to increase in costs
- Excise duty at a rate of 30% on cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes under HS code 2402.90.00
- Excise duty at a rate of 30% on electronic cigarettes and personal electric vaporising devices under HS code 8543.40.10 and HS code 8543.40.90, respectively
- Excise duty at a rate of 30% on smoking pipes (including pipe bowls) and cigar or cigarette holders, and parts thereof under HS code 9614.00.00.
- Excise duty at a rate of 10% on various motor vehicles for transporting 10 or more persons, under heading 87.02
- Excise duty on various motor cars and other motor vehicles principally designed for transporting people at a rate of 5% for those with cylinder capacity exceeding 1000cc but not exceeding 2000cc and 10% for those with cylinder capacity exceeding 2000cc, under heading 87.03
Vocational Education and Training Act
The following changes have been made with respect to Skills Development Levy (SDL).
- The SDL rate has been reduced from 4% to 3.5%.
- The obligation to file SDL returns has been removed for an employer who is not under obligation of paying SDL.
- The minister for finance has been granted powers to exempt any person from paying SDL upon consultation with the Minister for Education, provided that the exemption is in the public interest.
The above changes will reduce costs to employers. In addition, the removal of the obligation to file SDL returns for an employer who is not required to pay the levy will reduce an administrative burden for these employers.
Changes in other laws
The Act has also amended the following laws:
Mining Act
The following changes are made in the Act
- Exempt refineries from paying inspection fee of 1%
- Reduction of royalty rate for salt from 3% to 1%
Gaming Act
The following terms have been defined in the Act.
- "Commercial gaming undertaking" means any gaming activity that is subject to gaming tax.
- "Gross gaming revenue" means the collective amount of wagering or staking placed by players minus the collective amount of winnings paid out to players.
Gaming licenses for operating commercial gaming undertakings are now issued to companies that have at least 5% paid-up share capital owned by Tanzanian citizens.
Export Tax Act
An investor whose commercial undertaking in an Export Processing Zone is the export of meat shall not be liable for an export tax on exported raw hides or skins.
Electronic and Postal Communications Act
The airtime levy has been removed.
National Payment Systems Act
The Act is amended to remove a levy on electronic transfer of money. The levy is now only applicable on electronic money withdrawal transactions.
Local Government Finance Act
The following changes have been made.
- Holders of electronic money issuance licenses are included among entities required to pay a service levy.
- The Tanzania Revenue Authority (TRA) will remain obligated to evaluate, assess, collect, and account for property rates until 31 December 2023; beginning in 2024, the obligation shall be vested in local government authorities.
- The mandate to collect and account for advertising fees on billboards, posters and "hoarding" is vested in the local government authority.
Local Government Authorities (Rating) Act
The following changes have been made.
- Mud huts, thatched houses, mud houses and other similar houses used for residential purposes are excluded from rateable properties.
- Applicable rates for property tax are increased as follows:
- From TZS 12,000 to TZS 18,000 for property situated in city council, municipal council, town council and district council
- From TZS 60,000 to TZS 90,000 for each storey in a multi-storey building in city, municipal and town councils and a multi-storey building in a district council
Road and Fuel Tolls Act
The rate of road and fuel toll has been increased from TZS 413 to TZS 513 per liter of petrol and diesel.
Foreign Vehicles Transit Charges Act
The transit charge for a foreign-registered vehicle from a country that charges a higher rate than the one set out in the Act shall be charged at the rate applicable in that respective country.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Tanzania), Dar es Salaam
- Nsanyiwa Donald
- Beatrice Melkiory
- Fredy Rugangila
- Happiness Emmanuel
- Roselian Manaiya
- Eliphal Fussi
Ernst & Young Société d'Avocats, Pan African Tax — Transfer Pricing Desk, Paris
- Bruno Messerschmitt
- Alexis Popov
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
- Kwasi Owiredu
- Byron Thomas
Ernst & Young LLP (United States), Pan African Tax Desk, New York
- Brigitte Keirby-Smith
- Dele Olagun-Samuel
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.