REEVALUATING VAT PAYMENT POLICIES FOR SERVICE PROVIDERS IN TANZANIA

Respicius Mwijage · 2024-06-28T10:48:56+00:00

Introduction In his recent budget presentation, the Minister for Finance, Dr. Mwigulu Nchemba, emphasized the crucial role of withholding tax compliance by taxpayers. This underscores the importance of ensuring that all taxpayers adhere strictly to tax regulations. With the Parliamentary budget session officially closed and the Finance Bill 2024 passed, it is timely to focus on one aspect of the withholding tax system in our tax jurisdiction, specifically concerning VAT-registered taxpayers. VAT Withholding: Current Practices VAT-registered taxpayers act as agents of the government, responsible for withholding 18% VAT on goods or services rendered to consumers or customers. This VAT is then remitted to the Tanzania Revenue Authority (TRA) by the 20th of every month upon filing the VAT returns. For businesses where service providers receive cash upon delivering goods and services, this process poses no significant problems. These service providers can easily scrutinize input and output taxes and ascertain the payable VAT to the TRA. Challenges Faced by Service Providers However, a significant problem arises for taxpayers whose services and goods are payable upon issuance of tax invoices accompanied by EFD receipts to customers or consumers. At the point of issuing the tax invoice, the service provider charges VAT, which is not payable immediately. In many cases, payments can be delayed by two or three months. Despite this delay, the service provider is still required to pay VAT by the 20th day of the month after filing the VAT returns, even before receiving payment from the customer. Financial Strain on Service Providers According to the law, failure to pay within this due date attracts penalties and interests. In this situation, the service provider is compelled to seek other sources of funds or even take loans to pay VAT when the amount is substantial, yet to be received from the customer or consumer. This practice creates a significant financial strain on service providers. Proposed Adjustment to VAT Payment Timing To create a more realistic and fair tax environment, the payment of VAT for service providers who are paid upon the issuance of a tax invoice and EFD receipts should be due soon after the payment is received from the customer or consumer. In brief, VAT should be due at the point of payment rather than at the issuance of the tax invoice. Benefits of the Proposed Adjustment Given the current state of affairs under existing law and practices, the Minister, in addition to implementing strict and punitive measures, should consider adjusting the VAT payment point for service providers who charge VAT upon the issuance of a tax invoice and EFD receipts. If this adjustment is considered, it would make the Minister's efforts more objective and progressive in VAT management. Implementing this proposal would promote full tax compliance, make tax collection more realistic, and reduce the burden on service providers who are currently compelled to pay VAT that has not yet been collected from the consumer or customers. This change would not only support service providers but also enhance the overall efficiency and fairness of the tax system in Tanzania. Implementation and Conclusion This proposal can be implemented through our Value Added Tax (General) Regulations, 2015, as amended from time to time, which is within the confines of the Minister for Finance. Reevaluating the timing of VAT payments for service providers is a necessary step towards a more equitable and practical tax system. This adjustment would align the tax obligations of service providers with their actual cash flow, thereby promoting a more conducive environment for business operations and growth. It is imperative that the government considers this change to ensure a more effective and sustainable tax collection framework. The author (Respicius E. Mwijage) Tax lawyer with experience in Tax Dispute Resolution E-mail: remwijage@yahoo.com Mob: +255 688 526 718

Thread starter Respicius Mwijage
Start date Jun 28, 2024
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ministry for finance service tanzania vat

Respicius Mwijage

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REEVALUATING VAT PAYMENT POLICIES FOR SERVICE PROVIDERS IN TANZANIA

Respicius Mwijage

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