the time the deduction is claimed, or if the tax invoice is dated more than one year before the deduction is claimed.
Input tax expressly denied
The following supplies are specifically denied input VAT deduction:
‘motorcars’ as defined in the legislation; and
business entertainment, unless the business either carries out entertainment in the normal course of its business, or the costs relate to the provision to staff of food, accommodation and nonalcoholic beverages for exclusive business use.
If a business makes both exempt supplies and taxable supplies, it is said to be ‘partially exempt’. The amount of input tax it may reclaim will be restricted to that related to its taxable supplies.
There are two methods set out in regulations to calculate this amount:
Method 1 (Average Method)
Under this method, the deductible input tax is calculated under the apportionment formula, where:
the numerator is the total value of all zero-rated and standard rated supplies (VAT-exclusive); and
the denominator is the total value of all zero-rated, standard rated (VAT-exclusive) and exempt supplies.
Method 2 (Direct Attribution)
All VAT that is directly and wholly attributable to taxable supplies may be deducted in full as input tax. Any VAT that is directly and wholly
attributable to exempt supplies may not be deducted. The residual input tax is the VAT that cannot be wholly attributed to either taxable or exempt supplies. The deductible input tax portion is calculated by reference to the proportion of taxable sales to total sales.
Taxpayers may choose either of the above methods, but the method chosen must be used for the whole accounting year. At the end of the year, the input tax claim is recalculated on the basis of the whole year, using the method chosen, and any adjustments are made on the next VAT return.
No change of use adjustments are required or allowed in Tanzania.
Preregistration and post- deregistration VAT
VAT incurred on goods and services purchased for the purposes of the business up to six months prior to registration may be deducted. In the case of goods, they must be in the possession and ownership of the taxable person at the date of registration.
Repayment of tax incurred on services up to six months after deregistration may be claimed if those services were received for purposes that are directly connected with the reason the registration was cancelled.
VAT is chargeable at importation on all goods that are not exempt from VAT, do not qualify as capital goods, or are ineligible for special relief. The value for VAT is the CIF value plus any customs and/or excise duty. There is no VAT
deferment scheme. VAT, if applicable, must be paid before the goods are released by Customs.
The reverse charge applies to all services, which would be taxable if supplied in Tanzania, when supplied from outside Tanzania to a recipient who is a resident of Tanzania.
The recipient of the services, if registered for VAT, must account for VAT on the value of the imported services, when the service is performed or completed, an invoice is issued, or any payment is made, whichever is the earlier. The VAT is deductible as input tax subject to the normal rules, and any restriction imposed by a partial exemption method.
Recipients of imported services, who are not otherwise registered for VAT, will become liable for registration if they import taxable services to a value of over TZS40 million in any 12-month period.
Exports of goods are zero rated. This applies whether goods are standard rated or exempt when supplied for domestic consumption. Zero-rating is applicable only to the actual exporter, not to any preceding transactions. Zero rating is conditional on satisfactory proof of exportation being produced to the TRA if required.
Only the following services can qualify as an export of service subject to documentary proof acceptable to the Commissioner:
the supply of services and ancillary