Civil Reference No. 7 of 2004
The respondent, Ecolab East Africa (Tanzania) Limited, sold industrial property comprising land and buildings on Plots No. 33 and 34, Block 'A', Makuburi Industrial Area, Dar-es-Salaam, in May 2012 for USD 1,192,668, and paid capital gains tax and VAT on the disposition. Following a 2014 audit of the respondent's tax affairs for 2010–2012, the Commissioner General of Tanzania Revenue Authority (CGTRA) issued an additional VAT assessment of TZS 664,877,960 (principal TZS 585,811,573 plus interest of TZS 79,066,387) in respect of the buildings on the sold land, contending that while sale of bare land is VAT-exempt, sale of land with buildings is not. The respondent's objection was rejected, and its subsequent appeal to the Tax Revenue Appeals Board was dismissed, the Board holding that land and buildings sold together cannot be separated for VAT purposes and that the full consideration was taxable. On further appeal, the Tax Revenue Appeals Tribunal reversed the Board, holding that under section 10 of the VAT Act read with item 8(1) of the Second Schedule, sale of an interest in land is exempt supply, and that the Legislature intended to separate land and buildings under item 8(1) and 8(2). The Commissioner General appealed to the Court of Appeal.
Whether the Tribunal erred in interpreting section 10(1) of the VAT Act, 1997 together with item 8(1) of the Second Schedule as exempting the sale of an interest in land, without adequately considering the 'note' under item 8(2) which excludes buildings from the definition of 'land'; and, relatedly, whether such 'notes' can validly be invoked to impose additional VAT liability where they appear to create an ambiguity not clearly resolved by the plain wording of the substantive taxing provision.
The appellant (CGTRA) argued that the Tribunal wrongly interpreted section 10(1) and item 8(1) without regard to the 'note' under item 8(2), which excludes buildings from the exemption for 'land'; that since the respondent sold land with buildings as a whole, only bare land qualifies for VAT exemption and the buildings were taxable; and that a strict rule of statutory interpretation (per Cape Brandy Syndicate v IRC, Withers Brothers-Payne, and Pan African Energy Tanzania v Commissioner General) required giving full effect to the plain, unambiguous language of the notes, which formed part of the written law under section 25(2) of the Interpretation of Laws Act. The respondent countered that land and buildings sold together cannot be separated for VAT purposes, that the appellant's interpretation improperly read into the statute an exemption limited to bare/undeveloped land which the Legislature had not expressly created, that the Second Schedule did not clearly define what portion of a land sale was exempt, and that any ambiguity in a taxing statute must be resolved in favour of the taxpayer, citing Keroche Industries v Kenya Revenue Authority and Commissioner of Income Tax v Westmont Power (K) Ltd. The respondent also argued the true intention of the parties was that the old, valueless buildings were separately treated because they had no value, and demolition of old buildings was evidence of the respondent's interest in land.
The Court of Appeal dismissed the appeal, upholding the Tribunal's decision. It held that section 10(1) of the VAT Act requires only exempt supplies to be described in the Second Schedule and nothing more; therefore, the Board's approach of reading in a distinction between bare land (exempt) and land with buildings (non-exempt) impermissibly read into the statute what was not stated, contrary to the strict rule of interpretation for tax statutes. On the effect of 'notes', the Court held that although notes are part of written law under section 25(1) of the Interpretation of Laws Act and serve as an internal aid to construction, they are not independent substantive provisions and cannot enlarge or override the scope of the section they explain. The 'note' under item 8(2) purporting to exclude buildings from 'land' created ambiguity rather than clarity, was not harmonious with section 10(1), and could not be used to found a new category of taxable supply beyond the plain wording of the enabling provision. Since any ambiguity in a taxing statute must be resolved in favour of the taxpayer, and the appellant failed to establish that the additional VAT claim fell clearly within the words of the statute, the Tribunal was correct to reverse the Board and vacate the demand for additional VAT.
The judgment reinforces the strict/literal rule of statutory construction in taxation matters in Tanzania: tax can only be imposed by clear and unambiguous words, with no room for intendment, implication, or logical extension, whether in favour of the revenue authority or the taxpayer. It clarifies the limited interpretive role of 'notes' or explanatory provisions in tax schedules — such notes are internal aids to construction that can clarify but not expand or override the substantive provision they accompany. Where a note creates ambiguity rather than resolving it, the benefit of that ambiguity must go to the taxpayer. The decision distinguishes and confines the earlier Pan African Energy Tanzania case to situations where the taxing provision itself is clear, and provides guidance on the correct approach to interpreting VAT exemptions for sale of interests in land under section 10(1) and the Second Schedule of the VAT Act, 1997.
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