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.
It is taxed on
the value added to goods and services by producers and trades at every stage of
production and distribution. 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 (aggregate of both standard and zero
rated supplies) exceeds or is likely to exceed- Forty 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/reject 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.
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)
The use of tax
invoice. 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.
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Non-business transaction (e.g. private use and goods
imported for private purposes).
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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:
ü
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.
ü
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.
ü
It is a self
administered tax and therefore it promotes voluntary
compliance.
ü
Zero rating encourages export because the tax on
export is refunded.
ü
Less evasion due to self-check mechanism
Disadvantage of VAT
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ü 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 security and
the exemption in the tax system.
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ü Is
VAT “inflationary”?
o
Yes-if prices increase, the value of money
decreases.
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Does VAT
involved complicated book keeping?
ü It
requires business record keeping, false books of account lead to penalties
etc.
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.
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REGISTRATION AND DEREGISTRATION FOR VAT
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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.
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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.
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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
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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.
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b) Section
19(1) to (4) of the VAT Act 1997
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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.
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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
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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 taxpayer’s name, principal place of business, the
effective date of registration (EDR) and the Taxpayer Identification Number
(TIN) and VAT Registration Number (VRN).
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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).
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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.
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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.
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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.
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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.
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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.
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i)
Sub-section 3
This sub-section extends the offence situation to those taxable persons
who are registered but who 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.
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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.
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“Taxable Persons” to be registered are
as follows:
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(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).
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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.
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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.
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Eligibility
to register
Before a
person can be registered for VAT purposes he must satisfy the following
conditions:
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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.
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Form VAT 101 –
“Application for Registration”
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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.
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There are six
registration categories to consider:-
o Divisional registration (D)
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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”.
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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.
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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).
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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 trader’s 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.
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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’
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5.0 Changes
in trader’s Particulars
A trader’s
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 taxable person must notify in writing any changes that take
place within the business-within 30 days.
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Regulation 13
lists the changes that must be notified within 30 days of the change, as
follows:
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Notification
of changes
Changes in a
registered trader’s particulars will be notified to the VAT officer by:
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Two situations
can arise:
There are
different procedures for dealing with these two different circumstances
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Changes
affecting the legal entity
When the
changes in a trader’s 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).
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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.
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Changes
caused by death or Insolvency
Changes in a
registered trader’s 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 trader’s registration
file.
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Deregistration
Section 21 of
the VAT Act deals with deregistration and gives the Commissioner the power to
deregister a business.
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Information
Required
The following information will be checked: -
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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)
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 Non-retail supplies e.g. sale of assets, sales to
other registered traders must be excluded from the scheme calculations.
What are the
schemes?
Method 1
·
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 year’s 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.
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.
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)
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
(Tshs)
|
VAT
(Tshs)
|
VAT
(Inclusive)
|
|
a
|
Sugar
|
50,000
|
10,000
|
60,000
|
|
b
|
Cooking oil
|
75,000
|
15,000
|
90,000
|
|
c
|
Laundry Soap
|
60,000
|
12,000
|
72,000
|
|
d
|
Transportation
of wheat flower and maize
|
10,000
|
2,000
|
12,000
|
|
e
|
Bags for
re-packing wheat
|
12,500
|
2,500
|
15,000
|
|
f
|
Tax invoice
books
|
37,500
|
7,500
|
45,000
|
|
g
|
Electricity
|
10,000
|
2,000
|
12,000
|
|
h
|
Telephone
|
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
(Tshs)
|
VAT
(Tshs)
|
VAT
Inclusive
|
|
a
|
Sugar
|
60,000
|
12,000
|
72,000
|
|
b
|
Cooking oil
|
90,000
|
18,000
|
108,000
|
|
c
|
Laundry soap
|
80,000
|
16,000
|
96,000
|
|
d
|
Toilet Soap
|
100,000
|
20,000
|
120,000
|
|
e
|
Wheat flour
|
40,000
|
Exempt
|
40,000
|
|
f
|
Maize
|
30,000
|
Exempt
|
30,000
|
APPORTION OF INPUT TAX
FIRST METHOD
Step 1: The
value of taxable supplies made is:
|
|
|
Tshs
|
|
a
|
Sugar
|
60,000
|
|
b
|
Cooking oil
|
90,000
|
|
c
|
Laundry soap
|
80,000
|
|
d
|
Toilet soap
|
100,000
|
|
Total
|
330,000
|
|
Step 2: Value of
all supplies made is:
|
|
|
Tshs
|
|
e
|
Sale of wheat
flour
|
40,000
|
|
f
|
Sale of maize
|
30,000
|
|
g
|
Sale of
taxable supplies
( refer the
total at step 1 above)
|
330,000
|
|
Total
|
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
|
10,000
|
|
b
|
Cooking oil
|
15,000
|
|
c
|
Laundry soap
|
12,000
|
|
Total
|
37,000
|
|
Category B
b) Input tax directly attributable to exempt
supplies:
|
d
|
Transportation
of wheat flour
|
2,000
|
|
e
|
Bags for
re-packing wheat flour
|
2,500
|
|
Total
|
4,500
|
|
Category C
Input tax paid for the purposes of business
but is not directly attributable to either taxable supplies or exempt supplies:
|
f
|
Tax invoice
books
|
7,500
|
|
g
|
Electricity
|
2,000
|
|
h
|
Telephone
|
2,500
|
|
Total
|
12,000
|
|
Step 2
Calculate the value of taxable supplies made
in the prescribed accounting period
|
a
|
Sugar
|
60,000
|
|
b
|
Cooking oil
|
90,000
|
|
c
|
Laundry soap
|
80,000
|
|
d
|
Toilet soap
|
100,000
|
|
Total
|
330,000
|
|
Step 3
Calculate the
value of all supplies made in that period = 400,000
|
a
|
Sale of wheat
flour
|
40,000
|
|
b
|
Sale of maize
|
30,000
|
|
c
|
Sale 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 person’s 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 customer’s 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 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.
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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
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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 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?
|
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Four
categories of untaxed goods and services
There are four categories of
untaxed goods and services:
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%.
|
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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.
|
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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:
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.
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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).
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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.
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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:-
|
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. 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.
|
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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) each month or part thereof.
(ii)
The
rate of interest shall be the bank-lending rate of Central Bank plus 5%.
(iii) 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.
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3.0 Particulars
of Return form (VAT 201)
|
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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.
|
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The VAT return
form is intended to cover only a trader’s 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.
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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
|
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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 trader’s 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
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 un-refunded 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 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
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 relief’s 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.
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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
2.
Traders submit returns, which are inaccurate.
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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’.
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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.
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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.
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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 arm’s 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.
(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 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.
(3) 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.
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.
