Understanding Value Added Tax (VAT) in Zanzibar Under the VAT Act No. 4 of 1998

Value Added Tax (VAT) It is a consumption tax charged on taxable goods, services immovable property of any economic activity whenever value is added at each stage of production and at the final stage of sale. VAT is charged on both locally produced goods and services and on imports. Value Added Tax is charged by persons registered for VAT only.

It is Governed by The Value Added Tax Act No. 4 of 1998, VAT serves as a key source of domestic revenue for the Government of Zanzibar and plays a vital role in ensuring fiscal sustainability and the effective delivery of public services.

Legal Framework and Administration

The Value Added Tax Act No. 4 of 1998 is the principal legislation governing the imposition, administration, and collection of VAT in Zanzibar. The Zanzibar Revenue Authority (ZRA) is the authority responsible for the enforcement and oversight of VAT in the region.

The Act provides for the taxation of goods and services at each stage of the supply chain— from production and importation to the point of final sale to the consumer.

Scope of VAT in Zanzibar

VAT applies to the following:

• The supply of taxable goods and services by a taxable person in Zanzibar;
• Importation of goods into Zanzibar, whether for personal or business use;
• Certain deemed supplies, including gifts or self-consumed goods in business.

Taxable persons are businesses or individuals whose turnover meets or exceeds the VAT registration threshold and who supply goods or services not exempt under the Act.

VAT Registration Threshold

Any person or business engaged in taxable activities in Zanzibar must register for VAT if:

• Their annual taxable turnover exceeds TZS 100 million,
• Hotels: To be registered for VAT, it should have the charging rate of atleast USD 100 and above for accommodation (BB) per person per night.

Upon registration, the taxpayer receives a VAT Registration Certificate and is required to:

• Display the certificate at the place of business;
• Charge VAT on all taxable supplies;
• File VAT returns and remit tax as required by law.

Withholding tax on VAT in Zanzibar

In Zanzibar there is also a requirement for government institutions to withhold VAT as follows:

• 50%- to a taxable person registered by Zanzibar Contractors Registration Board as a civil contractor
• 100% – to a taxable person not registered by Zanzibar Contractors Registration Board as a civil contractor
• Others – 25%

VAT Rates in Zanzibar

The standard VAT rate in Zanzibar is 15%, which is levied on most goods and services. Financial institutions, Telecommunications and Insurance are levied at 18%. Other rates are as follows:

• Zero-rated supplies (0%) – Provided under the First Schedule of the VAT Act No. 4 of 1998 includes exports and certain international services;
• Exempt supplies and imports – Provided under the Second Schedule of the VAT Act No. 4 of 1998, includes specific items such as financial services, residential rentals, and certain health and education services.
• Special Relief: Provided under the Third Schedule of the VAT Act No. 4 of 1998

Invoices and Record-Keeping

Every VAT-registered business must issue a tax invoice for every taxable supply. The invoice should include:

• VAT registration number
• Description of goods/services
• VAT amount charged
• Total value including VAT

Records must be maintained for at least five years and be available for inspection by ZRA officers.

Recent Developments and Reforms

To enhance compliance and transparency, the Zanzibar Revenue Authority has introduced:

• Electronic Fiscal Devices (EFDs) for VAT-registered businesses;
• Digital VAT filing systems to simplify reporting;
• Public awareness programs to educate taxpayers.

There are also other recent tax changes introduced in 2025 as follows:

• Amended Definition of “Resident” under the VAT Act, 1998

Section 2 of the Value Added Tax Act, 1998 has been amended by deleting the previous definition of the term “Resident” and replacing it with the following:

“Resident” means an individual, company, trust, association, partnership, government entity, or any other legal entity whose residence or establishment is in Zanzibar.

This amendment clarifies the scope of entities considered as residents for VAT purposes in Zanzibar.

• Simplified Registration for Non-Resident Suppliers

A new Subsection (5) has been introduced under Section 4A of the Value Added Tax Act, 1998, providing that:

“Where it is not practicable for a non-resident person to appoint a tax representative due to business circumstances, such person shall apply to the Commissioner General for registration in accordance with the procedures prescribed in the Tax Administration and Procedures (Procedures of Simplified Registration for Non-Resident Supplier of Electronic Services and Foreign Tour Operators) Regulations, 2022.”

This amendment aims to facilitate compliance by non-resident suppliers of electronic services and foreign tour operators.

• Restriction on Zero-Rating of Certain Services under the VAT Act, 1998

Section 9 of the Value Added Tax Act, 1998 has been amended by adding a new subsection (3) immediately after Subsection (2), which states:

“Notwithstanding the provisions of subsection (1) and (2), a supply of services is not zero-rated if:
(a) the supply is of a right or option to receive a subsequent supply of something else in Zanzibar; or
(b) the services are supplied under an agreement with a non-resident but are rendered to a person in Zanzibar who is not registered.”

This amendment clarifies conditions under which the zero-rating of services does not apply, particularly for supplies linked to Zanzibar and non-registered recipients.

Implications for Businesses and Investors

Businesses operating in Zanzibar must:

• Understand their VAT obligations and register when required;
• Properly account for VAT in pricing and contracts;
• Ensure VAT compliance to avoid financial and legal risks.

Foreign investors importing goods or offering services in Zanzibar should seek professional VAT advice, particularly where cross-border transactions are involved.

Conclusion

VAT under The Value Added Tax Act No. 4 of 1998 is a critical part of Zanzibar’s tax system. For businesses, proper understanding and compliance with VAT rules ensure smoother operations and avoid unnecessary penalties. For consumers, VAT contributes to funding essential public services.

For more inquiries and information on VAT in Zanzibar, reach us out through info@auditaxinternational.co.tz