Attachment J.5. Value Added Tax Allowability Guidance.pdf

Office of Acquisition and Assistance (OAA)

OAA-IP Notice: 2018-04

May 25, 2018

TO: All USAID/Tanzania Implementing Partners

FROM: Ayana Angulo, Director, OAA/Tanzania

SUBJECT: Value Added Tax Allowability Guidance

USAID/Tanzania is aware of the challenges Implementing Partners (IPs) have faced due to changing requirements for Value Added Tax (VAT) exemptions and reimbursements since the 2014 VAT Act took effect and pushed implementing partners toward VAT reimbursement rather than up-front exemptions. Despite diligent efforts to comply with the changing requirements, most IPs have been unable to obtain exemptions or receive reimbursements since early 2016. In order to assist the IP community with this financial burden, the memorandum provides guidance for outstanding VAT reimbursement claims associated with USAID awards.

Going forward, USAID/Tanzania may deem unpaid VAT reimbursement claims to be allowable costs and permit them to be charged to awards provided that the following criteria are met:

● the reimbursement claim was submitted to TRA at least six (6) months prior to seeking reimbursement from USAID or applying advanced funds to cover VAT expenses;

● the IP shows that it has diligently pursued reimbursement, including using proper forms and following the procedures outlined by the TRA;

● the IP provides to their Agreement/Contracting Officer Representative (AOR/COR) and Agreement/Contracting Officer (AO/CO) a copy of all reimbursement documentation sent to TRA.

The AO/CO will make the allowability determination on a case-by-case basis.

If an unreimbursed VAT claim is determined to be allowable and charged to an award, the IP must nevertheless continue to seek reimbursement from TRA. If and when reimbursement is received from the Government of Tanzania for VAT paid by USAID, IPs are required to notify their AO/CO and request instructions on what to do with the reimbursement.

VAT reimbursement claims charged to USAID awards are programmatic costs not originally budgeted. As such, IPs should inform their AOR/CORs if they foresee any programmatic impacts associated with expending program funds for VAT reimbursements (i.e. decrease in months of implementation). Prompt coordination between USAID and IPs will help to minimize any negative programmatic effects.

Because of the difficulty in pursuing VAT reimbursement, IPs are encouraged to seek upfront

VAT exemptions pursuant to section 2(b) of TRA Operational Circular No. 4 of 2015 (VAT

Exemptions to Projects Funded by Foreign Government Institutions Having Agreement with the Government), when practicable. (See Attachment 1). Per Operational Circular No. 4, activities funded by USAID remain eligible to seek and obtain VAT exemptions on local purchases.

USAID/Tanzania reminds IPs that it is their responsibility to seek and obtain VAT exemptions and reimbursements, and strongly encourages IPs to work with competent local counsel to make sure that the IP is following the most up to date TRA guidance and pursuing

VAT relief as effectively as possible.

Additionally, IPs are reminded to adhere to all tax reporting requirements found in their awards.

For any questions regarding this guidance, please contact the Acquisition and Assistance

Specialist associated with your award.