The tax authority needs to know who is going to pay the tax and whom it can pursue in the event of non-payment. Basing on that, the authority is assured of tax payments by obliging traders to register for the tax.
Purposes of Registration
The purposes of registration are to:
(a) Record the particulars of taxable persons for the purpose of control and collection of tax.
(b) Enable them to take credit of input tax on their purchases of taxable supplies; and
(c) Allow them charge output tax on their taxable supplies and to issue tax invoices.
Interpretation of the main legal provisions
a) Section 18 of the VAT Act 1997
This section requires the Commissioner to maintain a register of taxable persons. It does not stipulate the type of register to be maintained or the details to be recorded. In practical terms the register is computerized and is compiled from the information provided by registered taxable persons on their application forms Form – VAT 101.
b) Section 19 of the VAT Act 1997
i) Sub-Section 1
This sub-section defines those persons who are required to apply for registration and the time limit for doing so. A taxable person is a person WHO MAKES or who has reasonable grounds for believing, he WILL MAKE or HAS MADE taxable supplies in excess of the turnover figures prescribed in the Regulations made under this Act. The fact that such a person is liable to register under this sub-section means that such a person must account for VAT on any taxable supplies he makes from the date he becomes liable for registration. Any person who exceeds the taxable turnover figures prescribed in the Regulations must apply for registration. Taxable supplies means any supply of goods or services made by a taxable person in the course of or in furtherance of his business and includes zero rated supplies. The taxable turnover of all businesses under one legal entity must be added together to determine whether the person should be registered.
ii) Sub-Section 2:
This sub-section requires all taxable persons to apply for registration in the manner and form prescribed by the regulations.
iii) Sub-Section 3:
This sub-section compels the Commissioner to register every applicant who is eligible to register under sub-section 1 (that is, whose taxable turnover exceeds the threshold limits set in the regulations).
iv) Sub-Section 4
This is a wide-ranging sub-section which gives the Commissioner the power to register a business whether or not an application has been made. This could be where he has reasonable grounds for knowing that the person has exceeded the turnover figures prescribed in the regulations but has failed to register. It could also cover the case of someone trading below the threshold who applies to register on a voluntary basis. The reasons for taking action under this sub-section are stipulated as being on the grounds of national economic interest or protection of the revenue. In both cases the Commissioner should notify the business in writing of his actions and the reasons why they have been taken.
c) Section 20 of the VAT Act 1977
i) Sub-Section 1 & 2
These sub-sections require the Commissioner to notify the taxable person when he has been registered for VAT purposes and issue a certificate of registration showing the taxpayer’s name, principal place of business, the effective date of registration (EDR) and the Taxpayer Identification Number (TIN) and VAT Registration Number (VRN).
ii) Sub-Section 3 & 4
These sub-sections require the registered taxable person to use the unique VRN TIN allocated on all documentation including returns and tax invoices and to display the registration certificate in a prominent place at the principal place of business. Sub-section 4 also requires the Commissioner to issue copies of the registration certificates for display at any additional business premises (branches).
d) Section 21(1) to (3) of the VAT Act 1997
These sub-sections are concerned with deregistration for VAT purposes and places an obligation on the taxable person to notify the Commissioner within a thirty day period if he is no longer registerable. Sub-section 2 requires the Commissioner, if he is satisfied, to notify the taxable person in writing of the effective date of deregistration (EDD). Sub-section 3 provides some relief on the treatment of stock on hand at the EDD. It allows relief on any stock transferred as part of a going concern to another taxable person and also provides a limit for administrative convenience. No tax would be chargeable on any stock if the amount of VAT does not exceed five thousand (5000) Tshs.
e) Section 22 of the VAT Act 1997
i) Sub-Section 1
This sub-section allows a business to register its divisions or branches separately rather than as one single legal entity. It is aimed primarily at facilitating existing business structure/practice but can also be advantageous for revenue control purposes. The provision is a concession and does not allow any applicant to register in branches/divisions by right. It is only allowed if the Commissioner is satisfied and it could not be used as a means of avoiding registration.
ii) Sub-Section 2 and 3
These subsections provide the Minister with power to make regulations defining the responsibilities of organizations like clubs managed by members or by committee. Similarly under sub-sections 4 and 5 the Minister may make regulations covering the bankruptcy and companies in liquidation/ receivership.
f) Section 23(1) and (2)
These sub-sections provide the Minister with the power to make regulations covering the type of changes in circumstances that a taxable person must notify in writing to the Commissioner and the time limit for doing so.
g) Section 44
i) Sub-Sections 1 and 2:
Sub-section 1 makes it an offence where a person fails to register within thirty days after qualifying. If convicted of an offence he is liable to imprisonment for a term not less than two months and not exceeding one year, or a fine not exceeding two hundred thousand shillings, or to both fine and imprisonment. Sub-section 2 means that any person who fails to register will also be liable for any arrears of tax and interest in addition to any penalty imposed.
ii) Sub-Section 3
This sub-section extends the offence situation to those taxable persons who are registered but who fail to notify the Commissioner of any changes in business circumstances within the thirty-day period allowed. This is considered to be a less serious offence and if convicted the person will be liable to a fine not exceeding one hundred thousand shillings.
Persons liable to Register:
The meaning of “Taxable Person” – Taxable person means a person registered or required to be registered under the provisions of the Value Added Tax Act 1997.
“Taxable Persons” to be registered are as follows:
(a) Sole Proprietorships:
The proprietor should be registered and the registration of a sole proprietorship should cover all the business activities of the proprietor unless a specific request for a separate branch registration is received. Where a sole proprietor has more than one business and uses trading styles, the registration should be affected in his natural name. All application forms for registration (VAT 101) in respect of Sole Proprietors must be signed by the Sole Proprietor. A single registration does not affect any separate accounting arrangements for the business and the totals in the accounts of all the businesses should be aggregated at the end of each tax period for the purpose of making only one VAT return.
The registration of partnerships can be in the natural names of the partners or a trading name, if certified. The names of the Senior Partners should be entered on the Form VAT 105 “Advice of Additional Trader Particulars” which should be signed by the Senior Partner. Partnerships in Tanzania must be registered under Business Names (Registration) Ordinance Chapter 213 if they use a business name. A business name certificate is issued by the Registrar of Companies from the date of registration. (Only when a partnership is dissolved should it be necessary to cancel the registration. Changes can be made to an existing partnership agreement but the legal entity remains the same).
(c) Companies incorporated under the Companies Ordinance.
All such companies are required by the Companies Ordinance Chapter 212 to register with the Registrar of Companies and a certificate of incorporation is issued. The registration of a company for VAT will be in the name by which it is registered as a company. The names of all the Directors and Company Secretary will be obtained as “Additional Trader Particulars” on the first visit by using the form VAT 105. The application for registration (VAT 101) must be signed by one of the Directors or the Company Secretary.
(d) Other bodies (groups, associations, clubs, and cooperatives).
In the event of an application for registration received from a cooperative, the body concerned is to be consulted to ascertain who is authorized to act on behalf of the organization. Other groups or associations use their constitutions to determine a person authorized to act on behalf of the organization. The application for registration, VAT 101, should be signed by a responsible person and in general terms the VAT registration will be in the name of the organization specified in the Act.
Eligibility to Register
Before a person can be registered for VAT purposes he must satisfy the following conditions:
a) He must be making or intending to make taxable supplies of goods and/or services in excess of the turnover figures prescribed in the Value Added Tax (Registration) Regulations; and
b) The taxable supplies must be made or intended to be made in the course of, or furtherance of, a business carried on by that person.
Each trader should be issued with only one copy of the application form.
Form VAT 101 – “Application for Registration”
All applications for VAT registration must be made on an original Form VAT 101. The Form VAT 101 is designed to help the registration process (both business community and the tax administration) by seeking the minimum information to effect registration. Once a properly completed and acceptable Form VAT 101 is received, it is not intended to subject the applicant to any further enquiry, at this stage, unless it is absolutely necessary. No other documents will be required to accompany the VAT 101.
Types of Registrations
1. Normal Registrations
For many traders there is nothing optional about registering for VAT. Their turnover is above the threshold so they have no choice in the matter. For some traders, however, things are not quite so straightforward.
There are six registration categories to consider:-
Intending trader’ (I)
Branch registration (B)
Divisional registration (D)
2. Voluntary Registration
Applications to register may be received from persons who do not fulfil the registration requirements e.g. their annual taxable turnover is below the threshold.
This type of application is not normally encouraged but you are already aware that the Commissioner has the power to register any person on the grounds of “National Economic Interest”.
The trader should be told that:
1. Registration brings with it obligations as well as benefits.
2. It will involve accounting for Vat on taxable goods and services supplied by him.
3. It will be necessary to keep proper accounts and records.
4. It will be necessary to furnish monthly returns with any tax due.
3. Intending Traders
The regulations require any person who has grounds for believing he will qualify for registration must apply for registration.
Traders who intend to start trading fall into this category and may seek registration in order to recover any input tax incurred in setting up the business (e.g. equipment, office machinery, lawyers, and architects fees).
Full information about the nature and size of the business; and
Firm evidence of the stage reached in the development of the business such as contracts to supply, procurement of stock and or services and the degree of financial commitment.
4. Branch Registration
Many businesses operate from more than one set of premises, and it is important on any visit to the trader that details of all branches etc. should be obtained and recorded in trader’s folder.
Normally all branch activities are part of one legal entity and all figures (turnover, VAT etc.) are amalgamated for completion of a single VAT return, but some businesses may decide to have branches registered separately, and Sec.22 of the VAT Act gives Commissioner authority to allow such applications.
The trader must apply in writing giving details and legal entity involved and breakdown of branches e.g. location/turnover/activity, and reason for requiring separate registrations.
A separate VAT 101 must be completed for each branch.
5. Divisional Registration
Limited Companies may structure their organization and create autonomous units within same legal entity and describe them as divisions. These can be separately registered in the same way as branches.
The procedure is the same except that box 21 of the VAT 101s is codes ‘D’
Changes in trader’s Particulars
A trader’s particulars/circumstances often change after registration. Quite often these changes can affect the ‘legal entity’ of the business and action needs to be taken by the trader and by the VAT Department.
Section 23 of the VAT Act and Regulations 13 and 14 deals with this situation. Under section 23 a taxable person must notify in writing any changes that take place in the business within 30 days.
Regulation 13 lists the changes that must be notified within 30 days of the change, as follows:
Taxable person ceases to trade or taxable turnover falls below the threshold.
Change of business address
Change of business name
Ownership of business changes in part or whole.
Major change in nature or conduct of business.
Notification of Changes
Changes in a registered trader’s particulars will be notified to the VAT officer by:
A registered trader contacting the VAT office by letter or telephone, or
A VAT officer, following a visit to the trader (traders will not always inform the VAT office of changes in particulars despite being required to do so by the legislation).
Two situations can arise:
Changes which result in a change of legal entity, and
Minor changes which require amendment to the registered trader’s particulars but which do not change the legal entity of the business.
There are different procedures for dealing with these two different circumstances.
Changes affecting the legal entity
When the changes in a trader’s particulars affect the legal entity of the registered person it will be necessary to deregister (cancel) the old business and register the new legal entity.
Changes not affecting legal entity
If the changes are in registration details which do not affect the legal entity (e.g. change of address or change of a director) it is only necessary to amend the particulars of the person on the registration file.
Changes caused by death or Insolvency
Changes in a registered trader’s particulars may occur due to death of a sole proprietor or a partner and deregistration will need to be considered. The death of a director in a limited Company would normally only lead to a variation to the trader’s registration file.
Section 21 of the VAT Act deals with deregistration and gives the Commissioner the power to deregister a business.
The following information will be checked: –
Name, VRN & TIN
Address-present and/or future contact address
Date of cessation of trading
Reasons for deregistration
If business sold – name, address of purchaser
Period covered by the last VAT return submitted
Estimated tax – free stock and assets on hand – value and amount of VAT.