Taxing services has never been simple. For example, applying value-added tax (VAT) on financial services has been a practical nightmare. And when services and transactions are provided electronically, the problem becomes even worse. Think of transfer of your money from your bank account to your mobile money wallet and vice versa. Or withdrawing cash from ATM.
From 2015, Tanzania made some VAT reforms to start collecting VAT on fees charged by financial services providers to their customers. However, the implementation of it has seen several glitches. With the advent of e-commerce and the emergence of new business models, some provisions of the tax laws are becoming redundant or practically unsuitable.
The VAT system in Tanzania is dependent on tax invoices and fiscal receipts. These are mainly physical in nature. When you transfer money from your bank account to mobile money wallet using your phone (mobile banking) or online (internet banking), there is VAT on the fee that a bank charges you. But, practically how do you get an EFD receipt (a piece of paper) for that electronic transaction? Also, the number of financial transactions happening electronically makes the issuance of physical EFD receipts practically impossible. But the VAT law requires customers to support their VAT claims by using fiscalised tax invoices or EFD receipts.
Last year the Minister of Finance issued regulations that clarified some of these questions. The Value Added Tax (General) (Amendment) Regulations, 2018. Recently (on 23rd August 2019), TRA also issued a notice that emphasizes compliance with those regulations by financial institutions and their customers. The VAT regulations, among other things, require financial institutions to issue “periodic statements” to its customers.
The VAT Regulations prescribe the contents of the periodic statements. The required contents make periodic statements fundamentally different from the traditional “bank statements”. In addition to the standard contents such as a date, the periodic statements need to have name, address, TIN and VAT number (VRN) of both the customer and the financial institution. The periodic statement also needs to show all transactions, the value of each transaction excluding VAT, the VAT rate applied, the amount of VAT charged and the total amount payable by the customer. So, the concept here is pretty much the same as a tax invoice.
By Shabu Maurus, Tax Partner, Auditax International
From 2015, Tanzania made some VAT reforms to start collecting VAT on fees charged by financial services providers to their customers. However, the implementation of it has seen several glitches. With the advent of e-commerce and the emergence of new business models, some provisions of the tax laws are becoming redundant or practically unsuitable.
The VAT system in Tanzania is dependent on tax invoices and fiscal receipts. These are mainly physical in nature. When you transfer money from your bank account to mobile money wallet using your phone (mobile banking) or online (internet banking), there is VAT on the fee that a bank charges you. But, practically how do you get an EFD receipt (a piece of paper) for that electronic transaction? Also, the number of financial transactions happening electronically makes the issuance of physical EFD receipts practically impossible. But the VAT law requires customers to support their VAT claims by using fiscalised tax invoices or EFD receipts.
Last year the Minister of Finance issued regulations that clarified some of these questions. The Value Added Tax (General) (Amendment) Regulations, 2018. Recently (on 23rd August 2019), TRA also issued a notice that emphasizes compliance with those regulations by financial institutions and their customers. The VAT regulations, among other things, require financial institutions to issue “periodic statements” to its customers.
What are “Periodic Statements”?
Ideally, the periodic statements are intended to serve the same functions as “tax invoices”. According to the VAT Regulations, “periodic statement” means a statement issued every month by a supplier of financial services. The VAT Regulations makes it mandatory for financial institutions to issue periodic statements to its customers who are registered for VAT within ten days after the month-end. For customers who are not registered for VAT, issuance of periodic statements is optional.Mandatory contents
The VAT Regulations prescribe the contents of the periodic statements. The required contents make periodic statements fundamentally different from the traditional “bank statements”. In addition to the standard contents such as a date, the periodic statements need to have name, address, TIN and VAT number (VRN) of both the customer and the financial institution. The periodic statement also needs to show all transactions, the value of each transaction excluding VAT, the VAT rate applied, the amount of VAT charged and the total amount payable by the customer. So, the concept here is pretty much the same as a tax invoice.
Implications for financial institutions
To comply with the new regulations, financial institutions need to know the VAT status of all its customers. Both existing and new. The new requirements may also call for some system changes. Changes that will enable them to issue the periodic statements with the prescribed contents.
Implications to customers
According to the VAT Regulations, a customer of a financial institution who is registered for VAT will not be entitled to claim VAT charged by a financial institution unless such VAT is supported by a periodic statement at the time of filing the monthly VAT return. Under the new regulations, a periodic statement is deemed to be a tax invoice. So, if you are VAT registered, you should demand a periodic statement from your banker
By Shabu Maurus, Tax Partner, Auditax International
