Is your tax invoice valid?

“Upon scrutinizing tax invoices considered for input tax credit claim, we observed that some invoices didn’t meet the set-out requirements for claiming input Value Added Tax (VAT) hence such invoices will be disallowed accordingly”.

The aforequoted response is one of the disheartening responses that taxpayers wish to never receive from the taxman. This is due to the fact that such response indicates potential imposition of additional VAT liability with interest for late payment compounded monthly at statutory interest rate thereon.

For instance, you had output VAT worth TZS 100 Million with corresponding input VAT worth TZS 60 Million hence VAT payable position (100 - 60) worth TZS 40 Million for the relevant tax period. However, taxman’s scrutinization revealed existence of invalid tax invoices for input tax credit claim (ones that have not met the set-out requirements) worth TZS 20 Million.

On that basis, additional VAT liability worth TZS 20 Million will be imposed on the taxpayer with interest for late payment compounded monthly at statutory interest rate thereon. This scenario prompts the emergency of two necessary questions;

·         Which provision vests authority in the taxman to disallow invalid tax invoices for input tax credit claim? and

·        What are the set-out requirements for a valid tax invoice for input tax credit claim?

On addressing the first query, the provisions of section 86(2) of the Value Added Tax (VAT) Act, 2014 vest authority in the taxman to disallow any tax invoice that has not met the set-out requirements stipulated in such VAT law for input tax credit claim. The section apparently stipulates that such invoice shall be valid but shall not be used to support any input tax credit claim or refund claim.

The set-out requirements for a valid tax invoice for input tax credit claim includes;

    I.       Fiscalisation; such invoice should bear an Electronic Signature or be supported with fiscalised receipt. With the recent upgrade of the taxman’s Electronic Financial Data Management System (EFDMS), such receipt or Electronic Signature should have an embedded QR code for verification purposes.

  II.       Information on the supplier; such invoice should clearly detail Name, Tax Identification Number (TIN) and Value Added Tax Reference Number (VRN) of the respective supplier.

III.       Information on the supplied items; such invoice should clearly detail description, quantity and other relevant specifications of the items being supplied.

 IV.       Consideration information; such invoice should clearly detail total consideration payable for the supplied items and amount of VAT payable thereon.

For the sake of mitigating tax exposure, it is imperative for all traders to ensure they issue or receive tax invoice that has met the set-out requirements hence eligible for input tax credit claim.

Benedict is a tax enthusiast and the views expressed herein are his own personal views.