Tanzania’s 2016 Finance Act made two major changes to the VAT law:
- Elimination of the exemption for VAT on certain fees for Financial Services
- Elimination of the VAT exemption on tourism services
The first change has created confusion about which party should bear the VAT: the bank or the final consumer. Some banks argue they have to bear the charge but others are passing this on to consumers. Under the Act, all fees which are raised by banks or financial institutions should be subject to VAT at 18% and paid by the banks. However, the directives have not been issued to provide the full details on this point.
The second change impacts businesses which were largely unregistered for VAT and so had no ability even to issue VAT invoices. So now these businesses need to register for VAT and charge VAT going forward but what is difficult is the implementation of the change has occurred with little notice and trips are booked months in advance.
Another piece of this is that there is already a tourism charge which occurs in Tanzania at 7% and so the VAT implementation can increase the price of Tanzania Safari significantly compared to a safari in Kenya where the tourism services are exempt and there is no local tourism charge.
Now tourism operators who were previously unregistered for VAT have to register for VAT, adjust prices and begin the process of remitting VAT on their tours in Tanzania.
Along with the two changes discussed above, the revised VAT Act also created a zero-rating for the movement of goods from Mainland Tanzania to the Island of Zanzibar. Other changes include the reduction in the scope of exemptions for medicines and food products. The changes in the VAT regime will increase the number of tax payers by broadening the tax base and will increase the tax collection by increasing the number of products subject to VAT.