The new Value Added Tax Act 2014, which was assented to by the President in December 2014, is expected to come into force on 1 July 2015.
The Act applies to mainland Tanzania and its main objective is to maximise revenue collection by broadening the tax base, streamlining exemptions and removing the Minister of Finance’s power to grant VAT special relief.
New VAT registration threshold, which will be set out in the new VAT regulations, is expected to be TZS 100 million. Companies that fail to meet this threshold will struggle to become VAT registered for relief purposes unless they are able to fulfil the conditions set out in the Act.
Automatic registration requirement will however apply to professional service providers regardless of whether the provider’s annual turnover meets the registration threshold.
A non resident person providing a taxable supply in Mainland Tanzania without a fixed place of business will need to appoint a resident VAT representative to register the person for VAT, and pay any VAT imposed on the non resident person.
There is now clarity in the new Act on the definition of “capital goods”, but VAT special relief on capital goods will now only apply on imported goods by extractive industries conducting exploration or prospecting activities.
Other industries will need to apply for approval to defer payment of VAT on imported capital goods, which can be refused if the person or a connected person has an outstanding tax liability under any tax law.
The schedule of exempt supplies and goods has also been reduced, and list of exempt goods is now very specific and is based on customs HS Code.