Civil Reference No. 7 of 2004
The appellant, Etablissments Maurel & Prom, is a Tanzania-registered branch of a French company conducting oil and gas exploration under a Production Sharing Agreement (PSA) executed in 2004, rights to which were assigned to the appellant. Under Article 12(a) of the PSA, the appellant is relieved from payment of certain taxes, subject to procedures to be prescribed by the Minister of Finance. In 2013, the respondent (TRA) conducted a tax audit for the 2010–2011 years of income and found that the appellant had not filed returns for imported services received from its French head office, as evidenced by invoices. The respondent issued an additional VAT assessment of TZS 6,662,076,100.56 (comprising principal tax and interest). The appellant objected, claiming exemption under the PSA and the VAT Act's Third Schedule, but the respondent maintained the assessment, asserting that although the appellant was entitled to relief in principle, it had failed to comply with statutory procedures. The Tax Revenue Appeals Board found the appellant entitled to the PSA exemption but held that the appellant failed to record the tax due on imported services as required, justifying the assessment. The Tax Revenue Appeals Tribunal upheld the Board's decision, holding that the appellant, as a taxable person, was required to file VAT returns for imported services under section 26(1) of the VAT Act and Regulations 5 and 6(1) of the VAT (Imported Services) Regulations, 2001, and that failure to do so attracted liability under section 43(1)(b) of the Act. The appellant appealed to the Court of Appeal.
(1) Whether the Tribunal erred in holding that the appellant, as a taxable person and recipient of imported services otherwise relieved under Article 12(a) of the PSA, was obligated to file VAT returns in respect of imported services under section 26(1) of the VAT Act read with Regulations 5 and 6(1) of the VAT (Imported Services) Regulations, 2001. (2) Whether the Tribunal erred in holding that section 26(1) of the VAT Act addresses the effect of a recipient's failure to record imported services in the VAT account. (3) Whether the Tribunal erred in concluding that, to enjoy the reliefs under section 11 of the VAT Act, the appellant was first required to account for imported services under section 26(1) of the Act.
The appellant argued that section 26(1) of the VAT Act does not require a taxable person to file VAT returns for imported services—only for imported goods—since the statutory language distinguishes 'supply of goods or services' (domestic) from 'importation of goods' as a separate category, and imported services are not listed. It contended that VAT returns and the VAT account are distinct: the VAT account, not returns, is where imported services and related input/output tax adjustments under Regulations 5 and 6 should be recorded, and if the net effect after set-off was nil, no additional tax was payable. The appellant further argued that section 43(1) applies only where a taxable person fails to pay tax actually due, which was not the case here. It urged the Court to depart from its earlier decision in Mbeya Cement Company Limited v. Commissioner General TRA, arguing that case wrongly conflated VAT returns with the VAT account and was factually distinguishable because, unlike here, the taxpayer in that case was not entitled to special relief. On the relief issue, the appellant argued that under section 11 and item 9 of the Third Schedule to the Act, it was automatically entitled to relief absent any conditions prescribed by the Minister of Finance. The respondent countered that section 26(1) required the appellant, as a taxable person, to include imported services in its VAT returns, and that the VAT account is merely the internal record from which returns are prepared. It argued that Regulations 5 and 6(1) impose a mandatory obligation to account for tax on imported services, and that section 43(1) empowers the Commissioner to assess tax and interest where returns are not properly filed. The respondent relied heavily on Mbeya Cement Company Limited as directly applicable and correctly decided, rejecting the appellant's attempt to distinguish it. On relief, the respondent argued that the exemption under section 11 was not automatic but conditional on procedures to be prescribed by the Minister of Finance, which were not yet in place, so the appellant remained obligated to comply with standard VAT conditions.
The Court of Appeal dismissed the appeal and upheld the Tribunal's decision. It held, on the first and second issues, that section 26(1) of the VAT Act, read with Regulations 5 and 6(1) of the VAT (Imported Services) Regulations, 2001, imposed an obligation on the appellant, as a taxable person, to include imported services in its VAT returns, not merely in an internal VAT account. The Court found no ambiguity in section 26(1) warranting the appellant's proposed interpretation and reaffirmed its earlier decision in Mbeya Cement Company Limited v. Commissioner General TRA as correctly decided and applicable, rejecting the appellant's attempt to distinguish or have the Court depart from it, since both cases involved taxable persons who lodged improper VAT returns omitting imported services. Consequently, the respondent was entitled under section 43(1)(a) and (b) to assess additional tax and interest due to the appellant's failure to properly file returns. On the third issue, the Court held that the relief under section 11 of the VAT Act was not automatic but was subject to procedures to be prescribed by the Minister of Finance, which had not yet been established; therefore, in the absence of such procedures, the appellant remained bound by the standard conditions attaching to taxable persons, and the respondent was justified in issuing the additional assessment. All three issues were answered in the affirmative against the appellant, and the appeal was dismissed with costs.
The judgment reaffirms and applies the Court of Appeal's earlier precedent in Mbeya Cement Company Limited v. Commissioner General TRA, solidifying the principle that under section 26(1) of the VAT Act, taxable persons must include imported services—not just imported goods—in their VAT returns, and that the VAT account (used for recording input/output tax under Regulations 5 and 6) does not substitute for this statutory return-filing obligation. It clarifies that failure to properly file such returns exposes a taxpayer to assessment of tax and interest under section 43(1), regardless of whether a net-zero tax effect might otherwise apply through input/output tax set-off. The decision also establishes that special tax reliefs granted under agreements such as a PSA, and referenced in section 11 of the VAT Act, are not self-executing or automatic where the enabling legislation contemplates procedures or conditions to be prescribed by the Minister of Finance; in the absence of such procedures, taxpayers remain subject to the general compliance obligations imposed on taxable persons. The case thus reinforces strict adherence to VAT return-filing requirements even for entities otherwise entitled to tax relief, pending the formal prescription of implementing procedures.
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