Introduction

Section 68(1) of the Value Added Tax (VAT) Act, Cap. 148 (now – section 72(1) of the VAT Act, R.E. 2023) stipulates eligibility criteria for a VAT registered person/taxable person to be allowed a credit for input VAT incurred.

The taxable person will be allowed a credit for input VAT incurred on the rationale that such incurrence was in the course of the person’s economic activity and for the purpose of making taxable supplies (emphasis is ours).

Section 68(3)(a) of the VAT Act (now – section 72(3)(a) of the VAT Act, R.E. 2023) restricts input VAT allowance on acquisition of goods, services or immovable property to the extent that it is used to provide “entertainment” (emphasis is ours).

The VAT Act interprets the term “entertainment” to mean the provision of food, beverages, amusement, recreation or hospitality of any kind.

Tax disputes have always prevailed in the context of the interpretation of the term “entertainment” with taxpayers normally arguing that such interpretation should not be “a one size fits all” rather a matter of circumstance of the specific case.

Background of the Case

Aggreko International Projects Tanzania Branch (“Appellant”), a local service provider, supplied technical staffs to a mining site in accordance with the executed service delivery agreement.

Due to the remote positioning of the mining site, the technical staffs had to secure accommodation / lodging to enable the service delivery. Thus, the Appellant incurred input VAT in the context of the corresponding tax invoices issued.

While ascertaining the compliance status of the Appellant’s tax affairs for the years of income 2010 to 2019 vide tax audit, the Commissioner General (CG) – Tanzania Revenue Authority (TRA) – denied the Appellant’s input VAT incurrence on the accommodation expenses, arguing that such expenses amount to “entertainment”.

Aggrieved by the TRA’s decision, the Appellant sought redress through objection, appealing before Tax Revenue Appeals Board (“TRAB”) and Tax Revenue Appeals Tribunal (“TRAT”) to no success.

The Appellant then preferred the matter to the Court of Appeal of Tanzania (“Court”) in a civil appeal No.175 of 2025 seeking to challenge the TRA’s denial of its input VAT incurred in relation to the accommodation expenses.

Gist of the Dispute

The dispute in the preferred appeal No. 175 of 2025 between Aggreko International Tanzania Projects Branch and the Commissioner General (CG) – Tanzania Revenue Authority rested on the interpretation of the provisions of section 68(3)(a) of the VAT Act (now – section 72(3)(a) of the VAT Act, R.E 2023).

Court’s Decision

In deliberating the above dispute, the Court:

• Reiterated that in the interpretation of the tax statutes, courts have to apply a plain meaning rule;
• adopted the “EJUSDEM GENERIS RULE” in interpretation of the disputed provisions i.e., general words following a list of specific, related items are limited to covering only items of the same genus or class;
• The Input VAT restriction in the VAT Act is intended for expenses incurred for luxury and personal enjoyment i.e., non-business consumption such as meals and recreation;
• Accommodation expenses incurred in the service delivery by the Appellant cannot qualify as “entertainment” for VAT purposes; and
• Allowed the VAT input incurred by the Appellant on the accommodation expenses incurred in the course of service delivery.

Our Commentary

This is a welcome and celebrated authority as it restores “tax equity” and champions the prevalence of a conducive business environment.

Authored by Benedict Kombaha
Tax Partner
bkombaha@victoryattorneys.co.tz
+255 715 117 346