Zero rating VAT on ancillary transport services commendable

While writing this article, I remembered one of the famous quotes by former US President Barack Obama regarding waiting. He said; “Change will not come if we wait for some other person or some other time. We are the ones we’ve been waiting for. We are the change that we seek”. For the past few years we have been writing, presenting, consulting and even lobbying for this change and at last change has ultimately come!

The issue of Value Added Tax on ancillary transport services has been in the headlines since the new VAT Act, 2014 came into force. The law imposed 18 per cent additional VAT on such services. You may recall that all stakeholders including Tanzania Truck Owners Association (Tatoa), Tanzania Association of Freight Forwarders (TAFFA) and Tanzania Shipping Agents Association (Tasaa) were very active to engage and address the issue with Tanzania Revenue Authority (TRA).

Due to its magnitude and importance, TRA issued few statements and press releases on the VAT treatment of ancillary transport services. Impressively, the press releases no longer exist in the TRA website.

It has to be remembered that this is not the first amendment with regards to VAT on ancillary transport services. Back in 1998 the Finance Act withdrew VAT on ancillary transit cargo services. The letter by the then Commissioner General dated July 16, 1998 contained the following extract;

“We wish to inform you that, while appropriate action is being taken to rectify the implementation of the law to accommodate the problems affecting the handling of exports and the service of the industry with regard to the zero-rating of service supplies, you are requested to take note that Value Added Tax (VAT) should be charged at Zero-rate for services rendered to a non-resident person directly or through his agent.”

According to the budget speech read by the minister for Finance and Planning Dr Philip Mpango last Thursday in Parliament in Dodoma, the objective of this tax reform is to reduce the costs incurred by the transporters when using our ports and make them affordable and competitive. He went further and concluded that this measure will make Tanzania a preferred route for the landlocked countries’ imports and therefore increase employment opportunities and Government revenue. I fully agree with him.

We have precedence here, when Kenya enacted its new VAT Act in 2013 it imposed VAT of 16 per cent on ancillary transport services. To attract more business towards the Mombasa port the government decided to change the VAT treatment on ancillary transport services by zero rating those services in their 2015 Finance Act.

It is not my intention to analyze whether its impact has been negative or positive in charging VAT on ancillary transport services, but it is very evident that Dr Mpango’s proposal came at the right time and the change was necessary to guarantee affordability and competitiveness of our services. This reform will enable our port to successfully compete regionally since the proposed change will align our VAT treatment on ancillary transport services to international practice.

The proposed reform will start to apply with effect from July 1, 2017. All stakeholders are keen to see this change in operation since they will be able to attract new and old clients who withdrew from using Tanzania for their transit cargo due to the VAT burden from 2015. Zero rating VAT on ancillary transport services is a notable and welcome tax reform in the 2017/18 Budget. The Minister’s proposal is indeed commendable and impressive not only to the stakeholders but also to the national economy whose growth will be highly enhanced.

Alais Mwasha is Tax Partner at Basil & Alred. The views expressed here are his own. Email: [email protected]