VAT Offsetting between Tanzania Mainland and Tanzania Zanzibar
Pursuant to the Finance Act 2021 various changes have been introduced across a range of tax laws, among which are some notable amendments to the Value Added Tax Act [CAP 148 R. E. 2019] (the “VATA”). It should be noted that whilst income tax is a Union Matter, as prescribed under the First Schedule of the Constitution of the United Republic of Tanzania as has been amended, matters related to Value Added Tax (“VAT”) are not a Union Matter. As such VAT, is governed under separate legislation in Tanzania Mainland (the “Mainland”) and Tanzania Zanzibar (“Zanzibar”).
VAT is a consumption tax imposed on taxable supplies or taxable imports (this being goods, services, immovable property or in the course or furtherance of any economic activity). The standard rate of VAT is eighteen percent (18%) on the Mainland and fifteen percent (15%) in Zanzibar. An entity is required to register for VAT, when it has generated or there are reasonable grounds to expect it to generate an annual taxable turnover of more than Tanzanian Shillings one hundred million (TZS 100,000,000/=) on the Mainland and Tanzania Shillings fifty Million (TZS 50,000,000/=) in Zanzibar, over a period of twelve (12) consecutive months.
VATA being applicable to the Mainland, has been amended by the inclusion of provisions with regards to VAT charged on any taxable supply on goods, where such goods are supplied and transferred between Zanzibar and the Mainland. Essentially, where VAT has been paid in Zanzibar at a rate equal to that applicable on the Mainland (i.e., eighteen percent (18%)), no VAT will be payable on goods and/or services being imported into the Mainland. However, additional VAT must be paid where the rate paid is lower, in order to offset the difference. Further to this, the Tanzania Revenue Authority (“TRA”) is entitled to collect VAT charged on the Mainland, on goods supplied to a recipient who is a taxable person in Zanzibar and will thereafter remit the same to the Zanzibar Revenue Board (“ZRB”).
Granting of Exemptions on the Mainland
The Commissioner General of the TRA (as opposed to the Minister of Finance), is now empowered with the authority to exempt VAT with respect to various goods and services, as provided below:
- Importation of raw materials used solely for the manufacture of long-lasting mosquito nets;
- Importation by or supply to a Government entity of goods or services to be used solely for the implementation of project(s) funded by the Government, concessional loans, non-concessional loans or grants through an agreement between the Government and another government; donor or lender of a concessional loan or non-concessional loan; or a grant agreement duly approved by the Minster of Finance in accordance with the Government Loans, Grants and Guarantees Act [Cap 134 R. E. 2002] entered between a local Government Authority and a donor, provided that such agreement provides for VAT exemption on goods or services;
- Importation or supply of goods or services for the relief of a natural calamity or disaster;
- Importation by or supply of goods to an entity having an agreement with the Government for the purpose of operating or executing a strategic project;
- Importation by or supply of goods or services to a non-governmental organisation having an agreement with the Government solely for projects implemented by the respective non-governmental organisation, provided that such agreement provides for VAT exemption on goods and services.
It should be noted that the Minister of Finance may make regulations prescribing the manner of application, granting and monitoring of such exemptions as provided above, and has duly done so, vide the Valued Added Tax (Exemption Management Procedures) Regulations 2021.
Deferment on the Mainland
Further, the definition of Capital Goods for the purpose of VAT deferment under VATA has now been aligned with those provided under Annex 1 to the Protocol on the Establishment of the East African Community Customs Union, thereby improving harmonisation efforts in line with the objects of the East African Community. Such deferment only applies where the capital goods are not imported for the purpose of resale by the importer as part of the importers business.
Strategic Projects Zero Rating
With an eye on important strategic infrastructure projects, notably the East African Crude Oil Pipeline (“EACOP”), VAT on supply of transportation and incidental services to an international pipeline has now been zero rated. This is however caveated in that an “international pipeline” means a cross border pipeline for transportation of crude oil from a foreign country to a port facility on the Mainland for the purposes of export from the Mainland and not to be utilised onshore.
Other Supplies and Imports Exempt from VAT
Other notable amendments, include the extension of supplies and imports exempt from VAT to a number of imported products, such as:
- Aluminium and stainless-steel milk cans;
- Livestock farming insurance;
- Crude oil;
- Solar lights;
- Smart phones,
- Various minerals for processing, smelting, refining or sale in Mineral Gem Houses;
- Contactless smart cards and consumables, by the National Identification Authority;
- Cold rooms; and
- Artificial grass for football pitches located in City or Municipal council, approved by the National Sports Council of Tanzania.