Should a new excise legislation be enacted?

Excise is one of the oldest taxes in Tanzania and is an important source of revenue for the Government. The current legislative framework governing excise duty charging and collection  in Tanzania is the Excise (Management and Tariff) Act, CAP 147 (“excise Act/excise legislation”) (a consolidated version of the previously known Excise Tariff Ordinance, CAP 332 and the Excise Management Act, CAP 28 of Community Laws). Though originally designed to administer locally manufactured and imported excisable goods, particularly alcohol (beers and spirits) and cigarettes, in more recent years amendments have been made to extend this legislation to some services (including electronic communication services,  financial services and pay-to-view services). These are charged at different rates and under differing bases. But such extension of the tax base has come with challenges, and raises the question as to whether the Act is still fit for purpose.

Firstly, several provisions in the current Act make reference to “scheduled articles”(goods specified in the Fourth Schedule of the Act) or “excisable goods” and it is not clear whether these provisions should be interpreted to automatically include excisable services that were subsequently added to the Act. For instance, the Act provides for mandatory licencing of manufacturers of excisable goods before commencement of production - however, it is unclear whether this requirement also applies to suppliers of excisable services.  

Further, upon introduction of excisable services, the Act should also have defined service providers responsible for payment of excise duty, taking into account that certain services may not necessarily be delivered through a face-to-face interaction between suppliers and final consumers. In other words, the Act should recognise the role played by different parties in the supply chain so as to avoid double taxation that may result from duty being paid in various stages within a supply chain of the same product. For instance, the Act does not currently define who an electronic communication service provider or a financial institution is from an excise duty perspective. Lack of definitions of such terms may result in unintended parties being included in the excise net and forced to comply with provisions that were intended for other classes of suppliers. 

Also, the current Act does not specify under what circumstances services would not be subjected to excise duty. For example, the recently enacted Zanzibar Excise Duty Act 2017 clearly defines excisable services to mean local and imported excisable services as specified under the Second Schedule of the Act. This definition makes clear that exported services would not be subject to excise duty in Zanzibar. Similarly, the Kenya Excise Duty Act 2015 provides that excisable services exported from Kenya should not be subject to excise duty.

Additionally, while the Act contains specific provisions in respect to alcohol and tobacco manufacturers, it does not sufficiently cover other excisable goods such as soft drinks and cosmetics. For instance, the Act allows for remission, rebate or refund of duty paid on spoilt or unfit for use beer but does not provide what would happen to duty that was paid in respect of other excisable products that were never sold to final consumers due to similar reasons. 

Challenges also apply as regards interaction with legislation in Zanzibar. For example, where a scheduled article manufactured in Mainland has been transferred and received in Zanzibar there is a requirement for remission of the relevant tax to the Zanzibar Treasury. The question then arises as to whether the introduction of the Zanzibar Excise Duty Act 2017 renders this provision irrelevant because a taxpayer supplying products in both the Mainland and Zanzibar will also be required to comply with the requirements of the Zanzibar legislation including paying duty directly to the Zanzibar Revenue Board (ZRB).  

Lack of clarity on compliance and administration requirements in the current excise legislation creates a potential for disputes with the Revenue Authority. The application of excise duty to services is particularly problematic, and the question arises as to whether it might not be better to remove excise duty on services and instead have a differential higher VAT rate applied to such services.  If not, consideration should be given to introducing new excise legislation that is broad based to capture all the intended goods or services and that will stand the development in technology including the increasing emergence of e-commerce.

Fabiola Ssebuyoya is a Manager, Tax Services at PwC Tanzania. The views expressed do not necessarily represent those of PwC.