By Godvictor Lyimo
In our article today, we will be discussing value-added tax on imports and how to compute the base for VAT on taxable imports.
As highlighted in our last article, in Tanzania VAT is regulated under the Value Added Tax Act [CAP.148 R.E. 2019] important to note, VAT on importation is covered under Section 8 of the VAT Act.
Value-added tax (VAT) VAT is chargeable on all taxable goods and services supplied in, or imported into, the United Republic of Tanzania.
The standard statutory rate of VAT is 18per cent in Mainland Tanzania and 15% in Tanzania Zanzibar, but the export of goods and certain services is eligible for zero rating. As discussed previously Value-added taxation is based on consumption rather than income.
In contrast to a progressive income tax, which levies more taxes on the wealthy, the VAT is charged equally on every purchase.
Nevertheless, it is not without controversy. Advocates say a VAT raises government revenues without charging wealthy taxpayers more, as income taxes which is based on progressive income brackets do.
It is also considered simpler and more standardized than a traditional sales tax, with fewer compliance issues.
Critics argue that VAT is essentially a regressive tax that places an undue economic burden on lower-income consumers while increasing the bureaucratic burden on businesses. Both critics and proponents of VAT generally argue it as an alternative to an income tax.
That is not necessarily the case. Tanzania, for example, has both income tax and VAT. Our Value Added Tax Act [CAP.148 R.E. 2019] requires payment of VAT on a taxable import where goods are entered for home consumption in Mainland Tanzania, in accordance with the provisions of the VAT Act and procedures applicable under the East African Customs Management Act; or in any other case, where goods are imported for use in Mainland Tanzania, on the day the goods are brought into Mainland Tanzania as prescribed by the VAT regulations.
The liability to pay value added tax on a taxable import vests on the importer of the goods or services and does not depend on the making of an assessment by the Commissioner General of the amount of value added tax to be paid.
Value Added Tax is collectable on imports at the time of import. Vatable goods between Mainland and Zanzibar Where in respect of any taxable supply of goods, the value added tax has been paid in Tanzania Zanzibar at the rate lower than the rate applicable in Mainland Tanzania, the difference in the value added tax will be deemed to have not been paid and will be collected by Tanzania Revenue Authority from the taxable person upon transfer of goods to Mainland Tanzania.
Where in respect of any taxable supply of goods, the supply is made directly by a taxable person in Mainland Tanzania to a recipient who is taxable person in Tanzania Zanzibar; the Tanzania Revenue Authority will collect the value added tax and remit it to Zanzibar Revenue Board.
Where in respect of any taxable supply of goods, the tax has been paid in Tanzania Zanzibar in accordance with the law for the time being in force in Tanzania Zanzibar, at the same rate as the rate applicable in Mainland Tanzania, the tax will be deemed to have been paid on the taxable supply and no tax will be payable on its transfer to Mainland Tanzania.
Calculation of VAT on importation The import VAT payable on goods is primarily based on the total customs value.
The customs value includes the cost of transport, loading, unloading and insurance of the goods, as well as other costs related to the importation to the first place of destination in Tanzania.
In most cases the total customs value comprises of the cost of the goods, the insurance costs and freight charges to the port at Tanzania for goods that are imported for home consumption.
Added to the total customs value are also the taxes, customs duties, customs processing fees, railway development levy and any other import charges payable to the Government in connection with the import customs clearance, excluding VAT.
The VAT on importation to be levied is calculated from this established total amount.
For purposes of clarity let’s look at an example, Company XYZ Limited, a local company that is an agent for an international tyre brand, is registered and operating in Tanzania.
The company imported tyres into the country (Tanzania) for home consumption. Upon arrival of the tyres the below information was declared by the imported to the customs officials for purposes of computing VAT on importation:
– Total Free On-Board cost (FOB) TZS 250,000,000.
– Freight TZS 7,000,000.
– Insurance TZS 2,000,000 For purposes of computing the Total customs value, one is required to sum the above costs.
In our example above the total custos value will be as below: Once the total customs value has been established, we need to compute the import, duty, customs processing fee, railway development levy and depending on what item has been imported there may be other taxes that may be included and will have to be computed and added to the total customs value to determine the VAT base.Close
For example, excise duty for items that are excisable. In our example above, the company has imported tyres which attracts import duty, customs processing fees, Railway Development levy and VAT.
To arrive at the VAT base, we will compute import duty using the prescribed statutory rate, customs processing fee using the prescribed rate and Railway Development Levy using the prescribed statutory rate, we will then add all these taxes to the total customs value to arrive at our VAT base as below: Our VAT base for the import above would therefore be the total customs value (CIF – value) plus the total taxes excluding VAT.
The total taxes as per our computation above are (12,950,000, 1,500,000 and 3,885,000) summing up to TZS 18,335,000.
The VAT base on importation would therefore be TZS 259,000,000 + TZS 18,335,000= TZS 277,335,000.00 The VAT thereon would be TZS 277,335,000.00 *18% which gives total payable VAT of TZS 49,920,300.00.
It should be noted that the customs processing fee is computed on the FOB value and not the CIF value. It is also important to note that the applicable duty rates are as per the specific legislations under which those duty/tax rates are enacted.
The writer, Godvictor Lyimo, is the President of Tanzania Association of Accountants (TAA), reachable via godvictorl@yahoo.co.uk, Phone: 0787514014