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November 17, 2021
2021-2099

Tanzania issues regulations on VAT exemption management procedures

Executive summary

Tanzania’s Minister for Finance and Planning issued Regulations on the Value Added Tax (VAT) (Exemption Management Procedures) by Government Notice No. 715 which was published on 8 October 2021. The stated procedures under the Regulations apply to VAT exemptions granted under Section 6(2) of the VAT Act, 2014.

The said section of the law provides the Commissioner General (CG) of the Tanzania Revenue Authority (TRA) the power to grant VAT exemptions on importation by or a supply of goods or services to various taxable persons including a Non-Governmental Organization (NGO) or to an entity executing a strategic project under an agreement with the Government which provides for VAT exemption on goods and services.

The stated regulations have revoked the Value Added Tax (Exemption Monitoring Procedures) Regulations, 2018.

This Alert summarizes key changes in the new regulations.

Detailed discussion

An application for VAT exemption has to be submitted to the Permanent Secretary of the Ministry responsible with the project. The application must be supported by the below listed documents whereby the Permanent Secretary shall verify that the application is in order, approve the application and forward it to the CG. The application must be submitted to the CG within a period of not less than 60 days before the commencement of the project and therefore the application process should start as soon as an agreement with the Government has been concluded. The listed documents include:

  • A contract between the Government entity and the contractor or level sub-contractor(s) approved by the Minister of Finance

  • Quotations, bill of quantities and list of goods and services to be exempted for the project

  • Tentative description of the place of procurement of goods or services where in the case of import the country from which goods are acquired needs to be specified, in the case of local supply the name, Tax Identification Number and VAT Registration Number of the supplier

  • List of contractors who shall execute the project, physical location and address of where the project is to be carried out

  • Proforma invoices, tentative analysis showing exact quantities, value of goods and services to be exempted with the corresponding amount of tax sought to be exempted

  • Where applicable, written confirmation from the Attorney General confirming that the agreement was vetted and verified

  • Written confirmation from the Ministry of Finance or Government entity executing the project confirming that the project exists, the quoted values are tax exclusive and any other information as may be required by the CG

The CG is obliged to issue an Exemption Certificate in Form No. ITX 281.01.E within 30 days from the date of receipt of the application which will include all the required details. However, if the application is rejected by the CG, he shall provide reasons for the rejection to the respective Permanent Secretary.

There are two processes in obtaining the VAT exemption i.e., an applicant will first obtain an Exemption Certificate and a separate application before the respective supply i.e., for each supply of goods and services for the exemption under the above-mentioned certificate has to be submitted.

Utilization of exemption

The applicant granted the Exemption Certificate shall process the utilization of the exemption by filing a prescribed form (i.e., Form No. ITX265.01. E) accompanied by a copy of the valid Exemption Certificate and submit the form to the TRA. The form must include all goods and services procured by the applicant and accompanied by a proforma invoice from the supplier for locally procured goods. For imported goods, a final invoice, packing list and bill of lading has to be attached.

The CG is obliged to verify and decide within seven days from the date of receipt to allow or reject the tax exemption despite of a valid Exemption Certificate. If the CG rejects, he shall provide reasons for the rejection within the prescribed time (i.e., seven days).

 Monitoring of granted exemptions

The TRA is obliged to monitor the granted VAT exemptions. The exempted applicant is required to submit to the CG an exemption utilization report in the prescribed form (Form No. ITX ITX282.01. E) within 30 days after a lapse of every:

  • Six months, for a 12-month project from the date of approval of the exemption by the CG

  • Twelve months, for projects of a maximum period of more than one year from the date of approval of the exemption by the CG

Where an applicant fails to submit an exemption utilization report within the prescribed period, the CG is obliged to immediately stop approving any further VAT exemption applications. In the case of any exemption misuse or failure to submit a utilization report, the CG may charge and demand tax unaccounted for by the applicant.

Dispute settlement procedures

In the case where an applicant is aggrieved by a decision or demand issued by the CG, the applicant may file an objection with the CG within 30 days from the date of such decision or demand.

Offenses

When an applicant contravenes with the VAT exemption management procedures and commits an offense, upon conviction, such offense attracts the following (may be either one or both):

  • A minimum fine of TZS3 million and a maximum fine of TZS4.5 million

  • Imprisonment for a term not exceeding three years.

If convicted of tax evasion, there is an additional fine of twice the amount of tax evaded or imprisonment for a term not exceeding three years.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young (Tanzania), Dar es Salaam

Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Ernst & Young LLP (United States), Pan African Tax Desk, New York

 

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