East Africa: Dar Port Still Cheap

Value Added Tax (VAT) on auxiliary services, widely referred to as VAT on Transit Goods has of recent attracted a lot of criticisms from stakeholders, mainly those using Dar es Salaam Port. Brought by the new VAT Act of 2014, the VAT on transit goods became operational from the last financial year.

Since the Tanzania Revenue Authority (TRA) started applying such tax, the interested parties of the Dar es Salaam port were displeased. Their concern was always that the VAT on transit goods has added the cost at Dar es Salaam port, thus scaring away the importers who were opting for Mombasa Port as an alternative.

But, to the TRA, their sentiment appears to miss a point as the taxman defends that the newly introduced tax had no hand in reduced cargo by making the Port being costly.

TRA's Commissioner for Domestic Revenue, Mr Elijah Mwandumbya, gave a realistic situation on the ground, noting that comparatively the Dar es Salaam port is still cheaper than its competitor, Mombasa port. "Let's take an example of cargo imported through Dar es Salaam or Mombasa port to the land-locked Rwanda," Mr Mwandumbya said.

According to the recent comparative data available to TRA and of which the 'Daily News' acquired a copy, the importer pays a total of 4,169 US dollars for the 20-foot container that is subjected to all costs including VAT on auxiliary services at the Dar es Salaam port while the same container is charged a total of 4,465 US dollars at the Mombasa Port.

For 40-foot container imported through the Dar es Salaam port is charged 4,123 US dollars after aggregation of all charges while the importer could cough up 4,341 US dollars for the same container. "The problem here is not about VAT at all, it's about complications in trade, how the port could facilitate speedy handling of cargo," he said.

Principal Researcher of TRA, Mr Beldon Chaula, elaborates that the VAT is imposed on three things: goods, services and new house on sale that are locally used. According to the VAT Act, the goods on transit is charged zero per cent, but services offered to the on transit goods are subjected to the VAT as long as the services are given when the cargo is still within the country.

Such services include stevedoring, which is a charge on loading or unloading the cargo in a ship while lashing consists of securing a loaded container aboard a vessel by means of bars, bridges, or rods to the whims of the captain.

Mr Chaula also sees it baseless to link the VAT on transit goods to the decline in the cargo volume at the Dar es Salaam port, saying that the cargo reduced by only 15 per cent while Kenya, which has not enforced such VAT has seen the cargo volume going down by 25 per cent for the past one year.

He attributes the decline of cargo in the port to China's export shrink, noting that the situation has affected not only Tanzania, but the globe. According to the data, China's exports contracted sharply last April, deepening worries over slowing growth in the world's second-largest economy.

China's February exports shrank by 20.6 per cent from a year earlier to 821.8 billion yuan (126bn/ US dollars), according to data from China's General Administration of Customs. That's a steeper drop than the 6.6 per cent contraction the previous month.

China's economy is now registering its slowest pace of growth in 25 years after decades of breakneck expansion. Investors are worried about the scale of the slowdown, which has set off waves of volatile trading in stocks, commodities and currencies in recent months.

But, he says, the good news is that though the cargo volume has dropped, the revenue from customs at the Dar es Salaam port has gone up after managing to plug tax loopholes that the dishonest traders were using to evade tax.

It was good news to hear that the taxman was usually collecting between 200bn/- and 300bn/-annually from the port previously, but for last April and June, the authority pocketed 458bn/- and 517bn/- respectively.

"The businessmen who are complaining over the VAT on transit goods are those who were importing goods without paying tax," he says, insisting that the move to control tax evaders has seen the revenues growing despite drop in cargo volume.

"Currently, a person who is not a genuine trader cannot continue using the Dar es Salaam port. Let genuine business people use the port and the revenue will increase," he says.

He wonders that why the issue of VAT on transit came hot this time while the law came into effect since 2015 before President John Magufuli took the office. He argues that it could make sense if currently people could discuss on how the traders comply with the law.

Source: Tanzania Daily News