It is human nature to yearn for good things, some yearn for material possessions, others good health, academic success or business prominence. In a 2021 breakfast meeting involving the Confederation of Tanzania Industries (CTI) and the Government, the CTI highlighted the impediments to the pace of industrialization in Tanzania including but not limited to the delayed Value Added Tax (VAT) refunds.
Thus, it is fair to opine that the business fraternity in the country also yearns for good things including but not limited to expedited VAT refunds.
Furthermore, during my involvement with the Tanzania Private Sector Foundation (TPSF) specifically on preparing and analysing proposed tax reforms to be presented to the Task Force on Tax Reforms under the Ministry of Finance, the business fraternity has consistently advocated for expedited VAT refunds reforms and lamented the delayed VAT refunds which essentially tie up capital that could otherwise be re-invested in the business.
One might potentially ask, how does a VAT refund arise? In essence, VAT regime entails output tax i.e., VAT collected from sales and input tax i.e., VAT incurred on purchases, with the difference between output tax and input tax giving rise to VAT payment position (when output tax exceeds input tax) and VAT refund entitlement (when input tax exceeds output for six (6) consecutive tax periods).
Upon the prevalence of VAT refund entitlement, a taxpayer will be required to secure a Certificate of Genuineness from an independent auditor to verify the asserted VAT refund position and rely on such certificate to lodge her refund application before the tax authority. The taxman will then be required to verify the lodged refund application and issue a refund decision either granting or rejecting fully/partially lodged VAT refund application.
Taxpayers have been pushing for reforms regarding the time taken by the taxman to determine the lodged VAT refund applications. Based on my experience, it may take three (3) to twelve (12) months for the lodged VAT refund applications to be determined by the tax authority.
For instance, in Kenya, VAT refund claims are usually determined within 120 days equivalent to four (4) months after the application is lodged for refund claims that do not require an audit or 180 days equivalent to six (6) months after the application is lodged for refund claims that require an audit. Thus, it is pertinent for the business fraternity to push for reforms on the time taken to determine the lodged VAT refunds to align with other tax jurisdictions.
Against this background, the proposed reform tabled in the fiscal budget 2026/27 which intended to amend the VAT laws to require the Commissioner General (CG) of the Tanzania Revenue Authority (TRA) to determine the lodged VAT refunds within thirty (30) days and allow the accumulation of interest entitled to the taxpayer upon the lapse of such stipulated timeframe, was received with mixed reactions.
Some argued that the proposed timeframe did not afford the taxman ample time to fully verify the lodged VAT refunds, while others argued that the proposed reform would accelerate industrialization prospects as it would amplify the business and investment prospects in the country. In the end, such a proposed reform was not enacted.
However, the pertinent question still lingers. In the context of delayed VAT refunds, is it a matter of intent, technology, accountability or legislation prescribing a specific timeframe?
For instance, section 83(1) of the Tax Administration Act, Cap 438, R.E. 2023 clearly requires the Commissioner General (CG) to determine the refund applications for tax paid in excess within ninety (90) days equivalent to three (3) months from the date of receipt of the application, however, that timeframe is rarely complied with.
In this regard, one could potentially argue that the solution to the delayed VAT refunds may not necessarily be tied up to promulgating specific timeframe provisions.
By tabling the proposed 30 days determination requirement for VAT refunds in the fiscal budget 2026/27, the Government has shown its strong intent to address the issue of delayed VAT refunds that has been affecting the business fraternity, however, the failure to adopt such proposal into law may potentially depict practicality aspects that need to be addressed by both taxpayers and taxman.
In my opinion, to address the delayed VAT refund challenge, the Government should maintain the intent shown in this year fiscal budget, involve taxpayers and taxman in pertinent dialogues that will eventually prompt a balanced solution i.e., a practical timeframe for VAT refund determination, persist with technological transformations intending to simplify the verification exercise and curb fictitious receipts and strengthen accountability mechanisms for the tax authority to ensure timely determination of VAT refund claims.
The views and opinions expressed are those of the author and do not necessarily represent those of the Victory Attorneys and Consultants.