APPLICATION OF VALUE ADDED TAX ON FINANCIAL SERVICES

ISO 9001:2008 CERTIFIED

PRESS RELEASE

APPLICATION OF VALUE ADDED TAX ON FINANCIAL SERVICES

The Parliament of the United Republic of Tanzania has passed the amendments to the Value Added Tax Act, 2014 (“The Act”) that has the effect of imposing Value Added Tax on fee based financial services by deleting item 13 of the exemption Schedule to the Act.  

The objectives of this press release are to: 

   a)    Inform the general public, banks, financial institutions and other stakeholders on the intention and operationalization of the above amendment imposing Value Added Tax on fee based financial services;

   b)    Clear misunderstandings or misinformation regarding application of the Value Added Tax imposed with effect from 1 July 2016; and

    c)    Provide the correct applications of the Value Added Tax on financial services.

The implication of the amendment is to impose VAT at 18% on all fees raised by the bank or any financial institution on services offered by the same. For instance, assume the fees on a financial service is TZS 1,000/=, VAT thereon would be TZS 152.50 and the bank will remain with TZS 847.50. The VAT amount of 152.50 will be collected by the bank or financial institution supplying the service and shall follow normal rules of VAT accounting as per the Act.

There has been widespread reports in social media that customer deposits will also be charged VAT at 18% resulting from these amendments. Kindly be informed that, this is incorrect, as VAT at 18% is only levied on charges received by the bank or financial institution after rendering financial services to their customers. 

Furthermore, we have been informed that one of the banks operating in the country has instructed her customers to pay the expected VAT in cash over the counter if the customer does not have an account with the bank and the respective transaction did not pass through it. TRA insists that VAT shall be charged and collected in a normal way as fees on financial services are currently collected. 

Tanzania Revenue Authority will shortly issue directives regarding operationalization of the VAT mechanism and in particular, how fiscalized receipts on the above should be issued, and VAT return submission by the industry players.

The Banks, Financial Institutions or any other person, are hereby urged, through this press release, to refrain from issuing to the public, misleading statements aimed at bringing turmoil in tax compliance or else, shall face strong legal action against them.  All the Banks and Financial Institutions involved in issuing misleading statements are argued to correct their notification to the public immediately.

“Together we build our Nation”

A.J. Kidata

COMMISSIONER GENERAL

TANZANIA REVENUE AUTHORITY