Attachment J.2.pdf

TAX AND DUTY TIPS FOR IMPLEMENTING PARTNERS

I. GENERAL

1. IP Responsibility. This Tip Sheet provides a broad outline of the current tax and duty relief landscape in Tanzania for USAID/Tanzania’s Implementing Partners (IPs). IPs are responsible for determining how to obtain, and obtaining, tax and duty relief for their activities. IPs are strongly urged to work closely with the tax counsel or tax advisor of their choice. Neither this Tip Sheet nor the USAID Mission can provide definitive advice.

2. In Flux. GOT practices and procedures for implementing tax and duty relief have been evolving, particularly since the effective date of the VAT Act, 2014. Practice sometimes varies from formal requirements, and may be inconsistent. It is recognized that development is more than provision of technical inputs; it also includes support for the Government of Tanzania’s (GOT) development of a viable system for collecting taxes that should be paid. Local tax counsel/advisors are the sources most likely to be aware of current procedures for obtaining agreed-upon tax relief.

3. Discrepancies. IPs are strongly urged to carefully follow GOT requirements and to avoid discrepancies and errors in their documentation. IPs whose documentation is sound and carefully-prepared generally receive tax and duty relief more readily.

4. Bases for tax/duty relief. USAID’s Framework Bilateral Agreement with the GOT, as well as the Strategic Objective Grant Agreements (SOAGs) and the Strategic Assistance Agreement (STAAg) between the two governments for specific activities, contain broad tax and duty relief for USAID assistance funds, except for taxes on the income of citizens and permanent residents of Tanzania. Their principles are reflected in the standard provisions of USAID’s contract and assistance agreements.

5. Is it a tax? The substance of a charge, rather than the label applied to it (e.g. “levy”), determines whether a charge is a tax. A fee for a service rendered which is commensurate with the cost of providing the service provided is not a tax. Your agreement officer can provide advice in case of uncertainty as to whether a specific charge is a tax.

6. De Minimus exception. Taxes on transactions below $500 are allowable costs, since the cost of obtaining an exemption/refund would exceed the benefit to the USG.

7. Scope of privileges; disposition. USAID expects that USAID-related tax privileges will be used for USAID-funded activities or as directed by USAID. Upon completion of an activity, disposition provisions in the USAID award and undertakings made to the GOT upon importation may need to be carefully meshed. IPs are expected to ensure that their employees dispose of their personal property imported with USAID-related tax privileges as specified in the USAID agreement or award.

8. USAID/Tanzania Executive Office’s “VAT Exemption Guide for USAID-Funded Partners), updated April 2014, was issued prior to the new VAT Act, 2014 and so does not fully reflect current laws or regulations. It nevertheless contains a significant

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Tanzania OVC Next Generation amount of procedural detail that is often followed, and thus should be helpful to IPs even if not fully current.

II. VAT AND CUSTOMS DUTY

9. Value Added Tax (VAT) and customs duty are the main taxes that affect IPs.

Currently, the GOT applies VAT to the procurement of local supplies (goods and services) and to the import of goods. Procedures for VAT relief for imports generally also include customs duty relief.

10. The VAT Act, 2014 and Operational Circular #4 (October 2015) currently constitute the regulatory basis for donor-based VAT relief. The Circular expressly interprets the Act to establish exemption as the means of tax relief for donor-funded projects for supplies (goods and services) for both imports and local procurements. However, sometimes in practice only refunds are used. Some regions use exemption more than others.

11. Letters of Introduction. As the first step, upon signature of a project USAID provides IPs with letters of introduction, for the IPs to submit to applicable GOT entities. The required GOT recipients, and accompanying documents, may vary, especially among regions. Usually IPs are required to submit requests for VAT relief to the region where the applicable portion of the project is being implemented. Thus, IPs need to keep USAID informed of each region of project implementation, including changes, so that appropriate regional letter of introductions can be prepared where needed.

12. VAT relief process. Broadly, for each procurement an IP prepares the tax relief application with supporting documentation, obtains approval for it from USAID and the technical ministry (where applicable), and submits it to the relevant tax authorities.

A variety of forms have been used, and where a new form is unsuccessful, sometimes resubmission with an old form has worked.

13. Non-donor processes. In addition to the process identified in Operational Circular #4 for donor-funded projects, GOT laws provide tax relief more generally for certain items, such as those contained in Schedules to the VAT Law, 2014. In some cases IPs have found the more general procedures easier to use. USAID does not object to their, although any gaps in their scope do not create allowable costs.

14. Timing. The GOT specifies 30-days’ advance notice to process exemption requests.

The time to receive refunds with properly prepared and submitted requests has varied significantly. Where refunds are requested, IPs may need to ensure that they maintain sufficient cash flow to cover the period. IPs should submit refund claims in sufficient time before the end of an activity if they plan to use the refund for the activity;

otherwise, it reverts to the underlying SOAG.

III. OTHER TAXES

15. IP personnel. Duty-free importation of personal effects is limited to the first six months after the later of arrival in country or obtaining a residence permit or Exemption Certificate (similar to embassy A&T personnel.) Going forward, USAID intends to

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Tanzania OVC Next Generation include IP employees who are not Chiefs of Party or Deputy Chiefs of Party in its approval of Form 220B’s, for importation of their personal effects, including POVs.

However, USAID cannot provide assurance that the form will be accepted. USAID also cannot provide compensation for past charges that may have been incurred by the absence of a USAID-signed Form 220B, or for any future costs incurred because the form is not honored. IP employees are not entitled to VAT relief on their local purchases.

16. Other taxes.

a. Historically, obtaining relief from other taxes, such as income tax (other than for Tanzanian nationals or permanent residents) has generally been achieved by presentation of the framework bilateral agreement and/or SOAG tax exemption provisions. Infrequent questions about exemption from the money transfer levy or skills and development levy have generally been resolved by providing an earlier exchange of letters between USAID and the TRA.

b. The $1.50 per bed night tourism levy in registered hotels is not considered to be a tax. Two taxes in connection with leases (10% withholding and 1% stamp tax) are viewed as taxes on the income of the (Tanzanian) landlord, for which the IP is merely a withholding agent, and thus may be included in allowable costs.

ANNEX 4 - TAX AND DUTY TIPS FOR IMPLEMENTING PARTNERS