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

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

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

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

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fail to notify the Commissioner of any changes in business circumstances within the thirty-day period allowed. This is considered to be a less serious offence and if convicted the person will be liable to a fine not exceeding one hundred thousand shillings. 2.0. Persons liable to Register: The meaning of Taxable Person Taxable person means a person registered or required to be registered under the provisions of the Value Added Tax Act 1997. Taxable Persons to be registered are as follows: (a) Sole Proprietorships: The proprietor should be registered and the registration of a sole proprietorship should cover all the business activities of the proprietor unless a specific request for a separate branch registration is received (see Part 6). Where a sole proprietor has more than one business and uses trading styles, the registration should be affected in his natural name. All application forms for registration (VAT 101) in respect of Sole Proprietors must be signed by the Sole Proprietor. A single registration does not affect any separate accounting arrangements for the business and the totals in the accounts of all the businesses should be aggregated at the end of each tax period for the purpose of making only one VAT return. (b) Partnerships: The registration of partnerships can be in the natural names of the partners or a trading name, if certified. The names of the Senior Partners should be entered on the Form VAT 105 Advice of Additional Trader Particulars which should be signed by the Senior Partner. Partnerships in Tanzania must be registered under Business Names (Registration) Ordinance Chapter 213 if they use a business name. A business name certificate is issued by the Registrar of Companies from the date of registration. (Only when a partnership is dissolved should it be necessary to cancel the registration. Changes can be made to an existing partnership agreement but the legal entity remains the same). c) Companies incorporated under the Companies Ordinance. All such companies are required by the Companies Ordinance Chapter 212 to register with the Registrar of Companies and a certificate of incorporation is issued. The registration of a company for VAT will be in the name by which it is registered as a company. The names of all the Directors and Company Secretary will be obtained as Additional Trader Particulars on the first visit by using the form VAT 105 (see also Part 4, Paragraph 7). The application for registration (VAT 101) must be signed by one of the Directors or the Company Secretary. d) Other bodies (groups, associations, clubs, and cooperatives). In the event of an application for registration received from a cooperative, the body concerned is to be consulted to ascertain who is authorized to act on behalf of the organization. Other groups or associations use their constitutions to determine a person authorized to act on behalf of the organization. The application for registration, VAT 101, should be signed by a responsible person and in general terms the VAT registration will be in the name of the organization specified in the Act. Eligibility to register Before a person can be registered for VAT purposes he must satisfy the following conditions: a) He must be making or intending to make taxable supplies of goods and/or services in excess of the turnover figures prescribed in the Value Added Tax (Registration) Regulations; and b) The taxable supplies must be made or intended to be made in the course of, or furtherance of, a business carried on by that person. Each trader should be issued with only one copy of the application form. Form VAT 101 Application for Registration All applications for VAT registration must be made on an original Form VAT 101. .The Form VAT 101 is designed to help the registration process (both business community and the tax administration) by seeking the minimum information to effect registration. Once a properly completed and acceptable Form VAT 101 is received, it is not intended to subject the applicant to any further enquiry, at this stage, unless it is absolutely necessary. No other documents will be required to accompany the VAT 101. (See also Paragraph 7 below).

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TYPES OF REGISTRATION Normal Registrations For many traders there is nothing optional about registering for VAT. Their turnover is above the threshold so they have no choice in the matter. For some traders, however, things are not quite so straightforward. In this session we shall be looking at how these traders are dealt with. There are six registration categories to consider:o Voluntary (V) o Intending trader (I) o Compulsory (C) o Branch registration (B) Divisional registration (D) Voluntary Registration Applications to register may be received from persons who do not fulfill the registration requirements e.g. their annual taxable turnover is below the threshold. This type of application is not normally encouraged but you are already aware that the Commissioner has the power to register any person on the grounds of National Economic Interest. The trader should be told that: 1. Registration brings with it obligations as well as benefits. 2. It will involve accounting for Vat on taxable goods and services supplied by him. 3. It will be necessary to keep proper accounts and records. 4. It will be necessary to furnish monthly returns with any tax due. Intending Traders The regulations require any person who has grounds for believing he will qualify for registration must apply for registration. Traders who intend to start trading fall into this category and may seek registration in order to recover any input tax incurred in setting up the business (e.g. equipment, office machinery, lawyers, and architects fees). 1. Full information about the nature and size of the business; and 2. Firm evidence of the stage reached in the development of the business such as contracts to supply, procurement of stock and or services and the degree of financial commitment. Branch Registration Many businesses operate from more than one set of premises, and it is important on any visit to the trader that details of all branches etc. should be obtained and recorded in traders folder. Normally all branch activities are part of one legal entity and all figures (turnover, VAT etc.) are amalgamated for completion of a single VAT return, but some businesses may with to have branches registered separately, and Sec.22 of the VAT Act gives Commissioner authority to allow such applications. The trader must apply in writing giving details and legal entity involved and breakdown of branches e.g. location/turnover/activity, and reason for requiring separate registrations. A separate VAT 101 must be completed for each branch. Divisional Registration Limited Companies may structure their organization and create autonomous units within same legal entity-and describe them as divisions. These can be separately registered in the same way as branches. The procedure is the same except that box 21 of the VAT 101s is codes D 5.0 Changes in traders Particulars A traders particulars/circumstances often change after registration. Quite often these changes can affect the legal entity of the business and action needs to be taken by the trader and by the VAT Department. Section 23 of the VAT Act and Regulations 13 and 14 deals with this situation. Under section 23 a

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

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

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

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

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What attributes to partially exempt trader? Types of Supplies these are Standard rated, zero rated, Exempt What makes exempt supplies different from the others? Input tax incurred in making exempt supplies cannot be reclaimed The registration position of trader who makes only exempt supplies cannot register for VAT purpose. If a trader makes a mixture of taxable and exempt supplies he must register if taxable supplies exceed the threshold. Trader is then faced with problem of apportioning the input tax between exempt supplies (not claimable) and taxable supplies. Method1: Advantages simple to operate No complicated bookkeeping required Disadvantages Crude method Recovery of input tax not related to use - may be significant amount of input tax not recovered. More suitable for smaller traders where books are simple, amount of tax not significant; Traders where taxable outputs are low compared to exempt outputs. Method 2: Advantages Better recovery of input tax Recovery related to use (attribution) Disadvantages Need better records (to analyze input tax into the three categories) More difficult calculation Suitable for use by larger traders with better bookkeeping systems. The trader is entitled to choose whichever method he/she wishes. First Method Step 1: Calculate the value of taxable supplies made in the prescribed accounting period. Step 2: Calculate the value of all supplies made in that period. Step 3: Calculate the amount of tax payable on supplies made to the registered person in that period. (Total input tax) Step 4: Divide the amount obtained in step 1 for the period by the amount obtained in step 2 (the value of all total supplies made in the period) Step 5: The amount of input tax to be claimed as a deduction or credit in the prescribed Accounting period is the product obtained by multiplying the amount obtained in Step 3 by the amount obtained in step 4. METHOD 1: FORMULAR Taxable supplies x Total Input Tax = Deductible Input Tax Total supplies Second Method Step 1: Divide input tax for the prescribed accounting period into categories:Category A: input tax that is directly attributable to taxable supplies /;Category B: Input tax that is directly attributable to exempt supplies Category C: Input tax that is paid for the purposes of the business but is not directly attributable to either taxable supplies or exempt supplies. Step 2: Calculate the value of taxable supplies made in the prescribed accounting period. Step 3: Calculate the value of all supplies made in that period. Step 4: Divide the amount obtained in step 2 for the period by the amount obtained in step 3 (the value of all total supplies made in the period) 11

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Step 5: The amount of input tax to be claimed as deduction or credit in the prescribed accounting period is the product obtained by multiplying the amount obtained in step 4 by the amount obtained in category C( found in step 1) and then add the input tax attributable to taxable supplies ( category A found under step 1) Second Method: Taxable Supplies x C+ A = Deductible input tax Total Supplies EXAMPLE: PARTIAL EXEMPT TRADER The taxable person indicates through his records that during the month of October 2006, VAT was paid on his purchases as follows: TABLE Value VAT VAT (Tshs) (Tshs) (Inclusive) aSugar 50,000 10,000 60,000 bCooking oil 75,000 15,000 90,000 c Laundry Soap 60,000 12,000 72,000 dTransportation of wheat flower and maize 10,000 2,000 12,000 eBags for re-packing wheat 12,500 2,500 15,000 f Tax invoice books 37,500 7,500 45,000 gElectricity 10,000 2,000 12,000 hTelephone 12,500 2,500 15,000 Total 267,500 53,500 321,000
Also during the same months, the taxable person supplies goods with the value indicated below:Value VAT VAT (Tshs) (Tshs) Inclusive aSugar 60,000 12,000 72,000

bCooking oil

90,000

18,000 16,000 20,000 Exempt Exempt

108,000 96,000 120,000 40,000 30,000

c Laundry soap 80,000 dToilet Soap 100,000 eWheat flour f Maize 40,000 30,000

APPORTION OF INPUT TAX FIRST METHOD Step 1: The value of taxable supplies made is: Tshs a Sugar 60,000 b c Cooking oil Laundry soap 90,000 80,000 100,000 330,000

d Toilet soap Total Step 2: Value of all supplies made is: Tshs eSale of wheat flour f Sale of maize

40,000 30,000

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gSale of taxable supplies ( refer the total at step 1 above) Total

330,000 400,000

Step 3: Tax paid to supplies made to the registered person:Tshs a Sugar 10,000 b Cooking oil 15,000 C Laundry soap 12,000 d Transportation of wheat flour and maize 2,000 e Bags for re-packing wheat flour 2,500 f Tax invoice books 7,500 g Electricity 2,000 h Telephone 2,500 Total 53,500

Step 4: 330,000 400,000 = 0.825 Step 5: the amount of input tax to be claimed is: 53,500 0.825 = 44,200/= SECOND METHOD Step 1: Category A: a) Input tax directly attributable to taxable supplies:Tshs a Sugar b Cooking oil c Laundry soap Total Category B b) Input tax directly attributable to exempt supplies: d Transportation of wheat flour 2,000 e Bags for re-packing wheat flour Total 2,500 4,500 10,000 15,000 12,000 37,000

Category C Input tax paid for the purposes of business but is not directly attributable to either taxable supplies or exempt supplies: f g h Total Tax invoice books Electricity Telephone 7,500 2,000 2,500 12,000

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

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a b c d Total

Sugar Cooking oil Laundry soap Toilet soap

60,000 90,000 80,000 100,000 330,000

Step 3 Calculate the value of all supplies made in that period = 400,000 aSale of wheat flour 40,000 bSale of maize 30,000 cSale of taxable supplies ( refer the total at step 1 above) 330,000 Total 400,000

Step 4 Divide the amount obtained in step 2 for the period by the amount obtained in step 3 ( the value of all total supplies made in the period) 330,000 400,000 = 0.825 Deductible input tax: Ratio obtained in step 4 of the first method is 0.825 Multiply the ratio by input tax in category C 12,000 x 0.825 = 9,900/= The amount to be claimed is Tshs 37,000 + 9,900 = 46,900/= RECORD TO BE KEPT BY THE VAT REGISTERED TRADERS 1) A VAT account, recording for each prescribed accounting period total VAT on outputs and inputs together with the net difference to be paid to or reclaimed from the Commissioner; 2) A record of each supply made related to the appropriate tax invoice or any other invoice; 3) A record of the value of each supply made excluding VAT, together with the VAT charged on each supply unless the taxable person is using one of the methods described in Regulation 13 in which case, the taxable person shall keep the records required under that regulation; 4) A record of each supply received related to the appropriate tax invoice, any other invoice or import document; 5) A record of the value of each supply received excluding VAT and the VAT charged; 6) a record of the total VAT recorded in paragraphs and (e) for each prescribed accounting period; 7) a record of each payment made or received showing the date, amount and the person making or receiving the payment; 8) a record of all goods appropriate or taken into personal use or into the use of others, the date of appropriation or taking into use, the description of the goods, the value of goods excluding VAT, and the VAT calculated on the goods. Tax Invoices (i) A Tax invoice shall prominently bear the words tax invoice on its face. (ii) A tax invoice for the supply of goods or services shall include the following particulars, namely: (a) The taxable persons name, address, TIN and VAT registration number; (b) The date of supply; (c) The number of the invoice taken from a consecutive series; (d) The customers name, address, TIN and his VAT registration number; (e) A description sufficient to identify the goods or services supplied which includes the quantity of goods or the extent of services supplied, tax exclusive price for each description of goods

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

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

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Outside the scope These are transactions, which are not covered by section 4. Possibly because there is no supply, no consideration, or the supply is not by way of business. Examples are insurance claims, licenses, compensation payments, and fines.

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

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(ii) (iii)

each month or part thereof. The rate of interest shall be the bank-lending rate of Central Bank plus 5%. Interest shall be paid to traders where any tax due to be repaid by the Commissioner remains un-refunded after the due date in accordance with the provision of section 17(2) and (4). The Commissioner shall pay interest to the taxable person at the commercial bank lending rate for the time being determined by the Central Bank.

Calculation of Interest I = P (1 + R/12)n - 1) Where: I= interest P= Principal plus any penalty R=bank lending rate of the central bank Plus 5% n=period for VAT i.e. months e.g. three months etc Tax Period The period covered by a tax return is known as the tax period. In the Tanzanian system this is one calendar month. 3.0 Particulars of Return form (VAT 201) The VAT Return Form (VAT 201) The VAT return form has been designed to be user friendly. That means it should require the minimum amount of information from a registered trader and should, with some familiarization, be reasonably easy to complete. The VAT return form is intended to cover only a traders tax liability, based on the normal supplies made and received (outputs and inputs) for a specific period. It does not make provision for the adjustment of any over/under payments or over/under declarations of tax. Any errors discovered by the trader should be notified in writing and adjusted in the VAT account for the next tax period. The registered trader should not use the VAT return to account for any interest or penalties payable. These will be calculated by the computer system and by vetting officers and the amounts due notified by use of penalty and/or interest notice All VAT forms, including the VAT returns, are available free of charge. Completion of the Return Form (VAT 201) The taxable person must complete his return form using the information extracted from his accounting records. The form should reflect the summary totals of input tax, output tax and the difference between the two as contained in the traders VAT Account. REFUND AND REPAYMENTS In the normal VAT system at the end of tax period the registered traders deducts input tax from output tax and pays the difference to TRA. In other circumstances input tax may exceed output tax. In this case repayment situation occurs whereby the credit amount has to be refunded according to the provisions under section 17 of the VAT Act. INTERPRETATION OF THE MAIN LEGAL PROVISIONS (a) Section 17(2) of the VAT Act, 1997 This section requires the Commissioner General to remit to the taxable person the amount of tax to which the taxable person stands in credit by reason of excessive input tax over the output tax in respect a particular prescribed accounting period. The provision also spells out the time limit during which repayment should be effected. (b) Section 17(3) of the VAT Act, 1997

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This provision puts an option to the taxable person to apply to the Commissioner for refunds to be made on monthly basis. This implies that unless the taxable person applies for refunds to be made on monthly basis, repayments will be made on half yearly basis. (c) Section 17(4) of the VAT Act, 1997 This section requires the Commissioner General to remit to the taxable person approved to be repaid on monthly basis the amount of tax to which the taxable person stands in credit. It also spells the time limit of repayment to be within thirty days after the due date for lodging the return for the prescribed accounting period, or the date of receipt of the return, whichever is later. (d) Section 17(5) of the VAT Act, 1997 This section authorizes the Commissioner General to reduce the amount of repayment by any sum owing to the TRA by the taxable person before making repayment. Upon doing this, the taxable person must accordingly be informed in writing. (e) Section 17(6) of the VAT Act, 1997 This provision defines the half-year to imply any successive period of six calendar months commencing in the month for which a repayment return is first submitted. (f) Section 17(7) of the VAT Act, 1997 This provision defines the regularly results in excess credits to apply to a situation where over a six month period the total input tax credit for the prescribed accounting periods exceeds the total tax charged and paid on supplies. (g) Section 28(5) of the VAT Act, 1997 This provision gives warning to the Tax Authority to expedite verification of repayment cases and effect refunds within the time spelt out under section 17(2) and (4) of the same Act, otherwise the Authority will be subjected to pay interest to the taxable person on any unrefunded amount. (h) Section 35 of the VAT Act, 1997 This section allows the Commissioner to impose some security measures (where he believes there is a risk to the revenue) before repaying the tax. The security measures may range from requiring the taxable person to produce documents relating to input tax or financial bond (guarantee). (i) Section 69 of the VAT Act, 1997 This section gives the Commissioner General a leeway to repay or remit the VAT, which is paid to the Tax Authority, or VAT due which is not charged and paid by the taxable person because of misunderstanding arising from incorrect or misleading advice by an officer.

1.0 REPAYMENT CLAIMS CAN ARISE: On exportation of goods and taxable services by a taxable person (exports are zero rated). When input tax exceeds output tax in a prescribed accounting period (e.g. when taxable goods are bought in large quantities or when high value capital goods liable for VAT are bought).
The TRA must repay money legitimately claimed as due by registered traders promptly, otherwise interest becomes payable. It is therefore essential that claims for, repayments are processed and payment made within the time limits specified in the VAT Act, 1997.

2.0 TYPES OF REPAYMENTS: Half-year repayment claims Once half yearly repayment claims are received, the RRO should ensure that they have been entered into a register and have been assigned to officers responsible for refunds. These officers should make a quick but thorough verification e.g. by using the information contained in form VAT 201A or even having a quick check on taxpayers records.
Regular repayment returns Normally the Commissioner is approving the regular repayment traders. These traders will not be required to apply for repayment i.e. they will not be required to complete form VAT 208. Once their

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returns have been submitted, they must be verified within two to three days and must also undergo the normal channels of returns processing up to the final stage of debatching/ filling

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

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

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(2) A determination under subsection (1) shall be deemed to be an assessment, and the provisions of section 43 and any other provisions made by or under the VAT Act in relation to assessments, shall apply accordingly. (3) In this section bona fide business purposes does not include the obtaining of a benefit and tax benefit includes (a) Any avoidance or reduction in the liability of any person to pay tax; (b) Any increase in the entitlement of any taxable person to a refund of tax; (c) Any reduction in the consideration payable by any person in respect of any supply of goods and services or the importation of any goods; or (d) Any other avoidance or postponement of liability for the payment of any tax. OFFENCES AND PENALTIES Failure to register for VAT, Section 44 (1) Any person who (a) being required to apply for registration under the VAT Act fails to do so within thirty days after becoming liable to apply; or (b) contravenes any term or condition of his registration; or (c) holds himself out as being a taxable person when he is not; commits an offence and upon conviction is liable to a fine not exceeding two hundred thousand shillings or to imprisonment for a term not less than two months not exceeding twelve months, or to both the fine and imprisonment. (2) Notwithstanding any penalties which may be imposed on a person failing to apply for registration, or on any arrears of tax due to be paid, the person shall be liable to pay interest on the arrears in accordance with section 28. (3) A taxable person who fails to notify the Commissioner of any change in business circumstances under section 23 of this Act within thirty days of becoming liable to do so commit an offence and upon conviction is liable to a fine not exceeding one hundred thousand shillings. Failure to pay tax or Lodge Returns Section 45.: Any taxable person who fails to submit a return or pay tax by the due date commits an offence and upon conviction is liable to pay a fine not exceeding five hundred thousand shillings or to imprisonment for a term not less than two months, but not more than twelve months, or to both the fine and imprisonment. False Returns and Statements Section 46. : Any person who in purported compliance with any requirement under the VAT Act, knowingly makes a return or other declaration, furnishes any document or information or makes any statement, whether in writing or otherwise, that is false in any material particular, commits an offence and upon conviction is liable to a fine not exceeding five hundred thousand shillings or to imprisonment for a term not less than three months but not exceeding two years, or to both the fine and imprisonment. Fraudulent Evasion or Recovery Section 47 -(1) Any person who is involved in fraud or who takes steps with a view to fraudulently evading tax or recovering tax, commits an offence and upon conviction shall, in addition to payment of tax which would have been paid, pay a fine twice the amount of tax involved or two million shillings, Whichever amount is greater, or to imprisonment for a term of two years or to both. (2) A person who deals in or accepts the supply or importation of any goods, or the supply of any services, and having reason to believe that the proper tax has not been or will not be paid or that any deduction or credit has been or will falsely be claimed in relation to it, commits an offence and upon conviction is liable to a fine not exceeding one million shillings or six times the amount 22

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(3)

of the tax evaded; whichever is greater, or to imprisonment for a term not less than six months but not exceeding three years, or to both the fine and imprisonment. Any goods which are the subject of an offence under this section shall, if the court convicts and so orders be forfeited.

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

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

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