What is a VAT Refund?
VAT refunds refers to payments made by a tax authority to a trader. VAT refunds occur because some businesses will be in a situation requiring them to pay more VAT on their purchases than VAT collected on their taxable sales thus a need to claim the difference from TRA. This is because Tanzania uses a consumption-based VAT which requires that investment costs and intermediate inputs be effectively excluded from the VAT base. For instance new businesses tend to make large purchases as compared to current sales. Further, export sales are zero rated because the Tanzania VAT system applies the destination principle i.e. VAT for goods applies to the country in which consumption takes place. Thus most exporters will always be in VAT refundable position.
VAT Refunds Categories
1. VAT Refunds: Carrying forward of negative amount
VAT taxable persons are allowed to carry forward VAT payable and credits brought forward from earlier tax periods. The credits should be taken into account in chronological order from the oldest followed by the most recent. The remaining amount should be carried forward and applied as per above up to when it is reduced to nil. However a taxable person whose negative amount has been carried forward for six consecutive tax periods and still it has not been reduced to less than the minimum amount stipulated in the regulations may apply for refund of the unadjusted amount If the amount is equal to or greater than the minimum amount stipulated above; summation of all unadjusted amounts carried forward for over six tax periods exceeds that amount. The taxable person should continue to carry forward the unadjusted amount until it is reduced to nil or a refund arises. Further, the taxable person has also an option to continue to carry forward the unadjusted amount until application for refund is made.
2. VAT Refunds in Tanzania: Without carrying forward of negative amount
Refund entitlement of negative amount to a taxable person shall be granted without carrying forward negative amount if 50% or more of the person’s turnover is or will come from zero rated supplies; 50% or more of a person’s input tax is incurred on acquisitions or imports relating to making supplies that are or will be zero-rated and the Commissioner General is satisfied that the nature of the person’s business regularly leads to negative net amounts. However, taxable persons under this section may apply for refund or decide to carry forward under section 81 until a decision is made to apply for refund.
3. VAT Refunds in Tanzania: Overpayment
A taxable person who has paid more than what is in the VAT returns may apply for refund of the amount over paid. This include over payments in increasing or decreasing adjustments.
Procedures for Obtaining VAT Refunds in Tanzania
For VAT refund to be granted a trader will need to obtain the following:
- Complete application form i.e ITX260.02.E available in the VAT (General) Regulations, 2015.
- Auditors Certificates of Genuineness from an auditor registered by National Board of Accountants and Auditors (NBAA) and registered by TRA to act as Tax Consultant;
- A computational workings of the refund amount.
- A checklist of items regarding the refund application properly filled and completed by the applicant.
- Any other information required by the Commissioner.
A need to meet the requirements of fiscal tax invoice, also refunds cannot be made for claims on input tax incurred on spare parts and repair or maintenance costs of passenger vehicles, entertainment, membership to sporting, social or recreational clubs or associations.