VAT Bad Debt Relief Tanzania: The 18-Month Rule, Write-Off and Claim
Can a supplier in Mainland Tanzania recover VAT on an invoice the customer never paid? Yes. Section 78 of the VAT Act, Cap. 148 R.E. 2023, allows a decreasing adjustment once the debt has been overdue for more than eighteen months and written off as bad. Regulation 25 of GN 225 of 2015 adds proof of failed recovery and limits the claim to the VAT element, 18/118 of the amount written off.
VAT bad debt relief in Tanzania answers a common cash problem. A VAT-registered supplier pays output tax to TRA when it issues the invoice, usually long before the customer pays. If the customer never pays, the supplier has funded VAT on money it never received. The law gives that VAT back, but only after a long wait and only with a clean evidence file.
This guide covers Mainland Tanzania under the Value Added Tax Act, Cap. 148. Zanzibar has its own VAT law, treated in a separate section below.
What the law says
The rule sits in section 78 of the Value Added Tax Act, Cap. 148 R.E. 2023, as published by the Tax Revenue Appeals Board. Its heading is "Post supply adjustments for bad debts". The same text appears as section 74 in the R.E. 2019 edition on the Ministry of Finance site. Both copies carry a margin note to Act No. 4 of 2017, section 69.
Section 78 has five parts:
- Subsection (1) applies the section where all or part of the consideration for a taxable supply has not been paid to the supplier.
- Subsection (2) allows the supplier a decreasing adjustment where the amount has been overdue for more than eighteen months and the supplier has written it off as a bad debt in its books of account.
- Subsection (3) requires a customer that claimed input tax on the supply to make an increasing adjustment once the payment is more than eighteen months overdue.
- Subsection (4) requires further adjustments if the customer later pays, so that output tax and input tax match the money that changed hands.
- Subsection (5) says no adjustment note is needed for these bad or overdue debt adjustments.
The detail sits in regulation 25 of the Value Added Tax (General) Regulations, 2015, GN 225 of 2015. Regulation 25 still refers to "Section 74 of the Act", the 2014 numbering. It adds conditions the Act does not state, covered below.
The Finance Act, 2026 amended sections 5, 6, 11, 51 and 71 of the VAT Act and its Schedule. It did not touch section 78. GN 714 of 2021, the 2021 amendment to the VAT Regulations, changed regulations 36A and 36B and did not touch regulation 25.
Who should read this
This guide is for VAT-registered businesses that sell on credit in Mainland Tanzania:
- Distributors and wholesalers with long trade receivables.
- Contractors and consultants billing government agencies, parastatals or large corporates.
- Landlords charging VAT on commercial rent that tenants stopped paying.
- Manufacturers selling to retailers on 30, 60 or 90-day terms.
It is also for customers. A VAT-registered business that owes a supplier for more than eighteen months must give back the input tax it claimed. Many do not know this until an audit.
VAT registration is compulsory at taxable turnover of TZS 200 million in 12 months or TZS 100 million in six months (register F0242). The standard rate is 18% (register F0239).
What is VAT bad debt relief in Tanzania?
VAT in Mainland Tanzania is charged on the supply, not on payment. Section 15 of the Act fixes when VAT becomes payable, and on a credit sale that point usually comes before the customer pays. A supplier on credit terms therefore pays output tax in its monthly return, due by the 20th of the following month (register F0245), before the customer pays.
Bad debt relief reverses that output tax when the money is lost. The supplier claims a decreasing adjustment in a later return. That reduces the net amount payable, or adds to a credit carried forward.
The relief is not a refund application in its own right. It is a line in the VAT return. If it pushes the return into credit, the ordinary carry-forward and refund rules apply. Our VAT refund guide covers that route.
When does a debt qualify for VAT bad debt relief?
Read the Act and the Regulations together. The Act sets two conditions. Regulation 25 adds more. TRA will test all of them.
| Condition | Where it comes from | What it means in practice |
|---|---|---|
| A taxable supply was made and VAT was charged | VAT Act s.78(1) | Exempt supplies carry no output tax, so nothing can be adjusted |
| The consideration is overdue for more than eighteen months | VAT Act s.78(2) | Count from the date payment fell due, not the invoice date |
| The debt is written off as bad in the supplier's books | VAT Act s.78(2); Reg. 25(3)(c) | A board-approved or management-approved journal, not a general provision |
| Consideration was payable in money | Reg. 25(2)(a) | Barter or in-kind deals do not qualify |
| The supply was declared in a VAT return | Reg. 25(2)(b) | Output tax must have been accounted for in an earlier return |
| Recovery action was taken | Reg. 25(3)(a) | The supplier pursued the debt itself or handed it to an attorney or debt collector |
| Recovery has "exhaustively proven futile" | Reg. 25(3)(b) | Evidence that the action failed, such as an insolvency, a failed execution or a vanished debtor |
The Act does not define "overdue". The natural reading is the day after the contractual due date. An invoice on 60-day terms is overdue from day 61, so the eighteen months run from there. Where a contract sets no due date, keep evidence of when payment was demanded.
The Regulations go further than the Act. A PwC Tanzania newsletter of August 2015 on the Regulations observed that the bad debt rules "effectively make meaningless the automatic adjustments contemplated in the Act". Whatever the policy debate, TRA applies the Regulations, so the recovery file matters as much as the calendar.
How is the bad debt adjustment calculated?
Regulation 25(2)(c) says the amount claimed is found by applying the tax fraction to the actual amount written off. Section 2 of the Act defines the tax fraction as R divided by (100 + R), where R is the rate. At 18% that is 18/118.
So the supplier recovers the VAT inside the unpaid balance, not the whole balance. The net sale value is a loss for income tax purposes, handled separately.
One wording point is worth knowing. Section 78(2) itself says the decreasing adjustment is "equal to the amount that remains unpaid". Read word for word, that would be the whole unpaid sum. Section 78(4), the Regulations and the logic of VAT all point to the tax fraction. We treat the tax fraction as the correct measure and recommend that clients do the same.
A partial write-off works the same way. If a customer paid part of an invoice, the claim is 18/118 of the unpaid part written off.
What must the customer do when it has not paid?
Section 78(3) is the mirror rule. Where the consideration has been overdue for more than eighteen months and the customer claimed input tax for the supply, the customer must make an increasing adjustment. It falls in the tax period in which the payment first becomes more than eighteen months overdue.
Three features stand out:
- The customer's duty does not depend on the supplier writing anything off. It turns on the calendar alone.
- No adjustment note is needed (s.78(5)), so no document from the supplier will prompt the adjustment.
- A dispute over the invoice does not switch the rule off. If the amount is overdue, the clock runs.
A customer that misses the adjustment has under-declared VAT. TRA can assess the shortfall with interest under the Tax Administration Act (register NEW-02-08). A penalty for a false or misleading statement can run at 50% of the shortfall, or 75% where the conduct was knowing or reckless (register NEW-02-11). Our guide to TRA penalties and interest explains the computation.
Finance teams on the buying side should run an ageing report on payables each month. Any VAT-bearing invoice crossing eighteen months overdue needs a reversal in that month's return.
What happens if the customer pays after the write-off?
Section 78(4) requires further adjustments when money arrives after a bad debt or overdue debt adjustment. The aim is that the supplier's output tax equals the tax fraction of the consideration received. The customer's input tax credit becomes the appropriate proportion of the tax fraction of what it paid.
Regulation 25(4) adds the timing for the supplier. Output tax is accounted for in the tax period in which the payment is received.
In practice, keep written-off debts on a memorandum ledger so any later recovery is caught and declared.
Worked example: a TZS 59 million unpaid invoice
A Dar es Salaam distributor, registered for VAT, sells goods to a registered retailer. The figures below are illustrative only.
- Invoice date: 15 January 2025. Net price TZS 50,000,000 plus VAT at 18% of TZS 9,000,000. Total TZS 59,000,000.
- Terms: 30 days, so payment falls due on 14 February 2025.
- The distributor declares TZS 9,000,000 output tax in its January 2025 return, filed by 20 February 2025.
- The retailer pays TZS 23,600,000 in April 2025, then stops. TZS 35,400,000 remains unpaid.
The balance becomes more than eighteen months overdue from 15 August 2026. The distributor sends demand letters, then instructs a debt collector in May 2026. In September 2026 the collector reports that the retailer has closed and has no traceable assets. The board approves a write-off in September 2026.
| Step | Supplier (distributor) | Customer (retailer) |
|---|---|---|
| Unpaid balance, VAT-inclusive | TZS 35,400,000 | TZS 35,400,000 |
| Tax fraction | 18/118 | 18/118 |
| VAT element | TZS 5,400,000 | TZS 5,400,000 |
| Adjustment | Decreasing adjustment of TZS 5,400,000 once written off and recovery failed | Increasing adjustment of TZS 5,400,000 in the August 2026 return |
| Return deadline | September 2026 return, due 20 October 2026 | August 2026 return, due 21 September 2026 (the 20th was a Sunday) |
| Net loss for income tax | TZS 30,000,000, deductible only if the Income Tax Act test is met | Not applicable |
Suppose the liquidator later pays TZS 11,800,000 in March 2027. The distributor declares output tax of TZS 1,800,000 (18/118 of the receipt) in its March 2027 return. The retailer, or its liquidator, can claim matching input tax of TZS 1,800,000 under section 78(4).
Cash effect: the distributor gets TZS 5,400,000 of VAT back roughly 20 months after the due date. Without the relief, that VAT would be a permanent loss on top of the unpaid net price.
The example assumes the September 2026 return is the right home for the supplier's claim. The Act measures the adjustment as at the end of the period in which the debt passed eighteen months or was written off. It does not state which return must carry it. Confirm the period with TRA before filing, and record the reasoning in the file.
How does bad debt relief differ from a credit note?
Suppliers often try to solve a bad debt with a credit note. That is the wrong tool. Section 75 covers adjustment events, which the Act defines as a cancellation, a change in price, a return of goods or a change in tax status. A customer failing to pay is none of these.
| Feature | Adjustment event (s.75 to 77) | Bad debt (s.78) |
|---|---|---|
| Trigger | Cancellation, price change, return of goods | Non-payment overdue for more than eighteen months |
| Document | Valid adjustment note within seven days, form ITX264.02.E (Reg. 31) | No adjustment note required (s.78(5)) |
| Supplier timing | Period in which the adjustment note is issued (s.77(2)(a)) | After the eighteen-month point and the write-off |
| Customer timing | Period it becomes aware, or one of the six later periods (s.77(2)(b)) | Period in which the debt first passes eighteen months overdue |
| Extra conditions | Note held, copy kept, excess tax repaid to unregistered buyers (s.76) | Write-off, failed recovery, money consideration, declared supply (Reg. 25) |
A credit note issued to an unpaid customer, with no real price change behind it, invites TRA to reverse the adjustment. If a genuine settlement reduces the price, that is an adjustment event. If the customer cannot pay, use section 78. Our VAT return guide shows where adjustments sit in the monthly return.
How does income tax treat the same bad debt?
Income tax runs on a separate track. Section 25 of the Income Tax Act, Cap. 332, deals with reversals, including bad debts. The Court of Appeal considered it in National Bank of Commerce v Commissioner General, TRA, Civil Appeal No. 52 of 2018. The judgment reproduces section 25(5), under which a financial institution may write off a debt claim only once it is bad under Bank of Tanzania standards.
For other businesses, PwC's Worldwide Tax Summaries for Tanzania state a two-part test. The taxpayer must show "all reasonable steps have been taken to pursue payment". It must also hold "a reasonable belief that the debt claim will not be satisfied". A Breakthrough Attorneys note on the NBC case adds that the amount must have been included in income and written off in the books.
The two tests overlap but differ. Income tax has no eighteen-month wait. VAT relief has no "reasonable belief" test but demands proof that recovery failed. A debt can therefore be deductible for income tax in 2025 and still wait until 2026 for VAT relief.
Only the net amount is an income tax loss. The VAT element comes back through the VAT return, so claiming it again as an expense double counts. Our guide to deductible expenses in Tanzania covers the general rules.
Does Zanzibar offer VAT bad debt relief?
Zanzibar runs its own VAT under the Value Added Tax Act No. 4 of 1998, administered by the Zanzibar Revenue Authority (ZRA). The standard rate is 15%, with a TZS 100 million annual threshold (register F0246).
We read the ZRA consolidation of the Zanzibar VAT Act, revised to June 2025. We found no section on bad debts. We also read the Zanzibar VAT Regulations, 2012, as amended. The nearest rule is regulation 10, which allows a credit note within twelve months of the invoice where the value of a supply is reduced. That covers price reductions and returns, not unpaid debts.
| Point | Mainland Tanzania | Zanzibar |
|---|---|---|
| Law | VAT Act, Cap. 148 R.E. 2023 | VAT Act No. 4 of 1998 (2025 consolidation) |
| Administrator | TRA | ZRA |
| Standard rate | 18% (F0239) | 15% (F0246) |
| Bad debt provision | Section 78 and Reg. 25 of GN 225 of 2015 | None found in the texts read; confirm with ZRA |
| Credit or adjustment notes | Section 75; note within seven days | Reg. 10; credit note within twelve months |
A business registered with ZRA should not assume the Mainland rule applies. Ask ZRA in writing before claiming anything on an unpaid Zanzibar invoice. Groups trading on both sides should read our comparison of Zanzibar and Mainland VAT.
What evidence will TRA ask for?
A bad debt adjustment is a common audit target, because it reduces tax without any document from the customer. Build the file before filing the return. TRA will usually ask for:
- The original tax invoice or EFD receipt and the VAT return in which the output tax was declared.
- The contract or order showing the credit terms and due date.
- The customer ledger showing part payments and the unpaid balance.
- Demand letters, with proof of delivery.
- The engagement letter with the debt collector or advocate, and their final report.
- Court papers, a failed execution, or evidence of liquidation or bankruptcy, where they exist.
- The board or management approval of the write-off and the accounting journal.
- A schedule showing the 18/118 computation for each invoice.
Keep the file for the full record-keeping period under the Tax Administration Act. A missing file can also draw a record-keeping penalty of 10 currency points, TZS 200,000, per month for a body corporate (register NEW-02-07). Our EFD receipt rules guide covers the invoicing side.
What does recovery action cost?
Regulation 25(3) expects real recovery action. Where that means court, filing fees are government charges paid at the official rate. They sit apart from any professional fee, whether the advocate's or Zatra's.
| Item | Government charge | Register ID |
|---|---|---|
| Plaint in a Resident Magistrate's or District Court, claim TZS 30m to 50m | TZS 40,000 | F0163 |
| Plaint in the High Court, liquidated claim not exceeding TZS 400m | TZS 150,000 | F0154 |
| Objection to a TRA decision disallowing the claim | No fee; file within 30 days and pay the greater of the tax not in dispute or one third of the assessed tax | NEW-02-19 |
| Appeal to the Tax Revenue Appeals Board | Notice TZS 10,000; statement of appeal TZS 100,000 | NEW-02-20 |
Which court has jurisdiction depends on the amount and the parties. That is a question for an advocate. Our guide to debt recovery before litigation covers demand letters and settlement.
What to do now
- Run an ageing report. List every VAT-bearing receivable and payable by due date, and flag items past twelve months so recovery can start in time.
- Start recovery early. Send formal demands and instruct a collector or advocate well before month eighteen, because regulation 25 needs proof that recovery failed.
- Approve the write-off. Record a specific write-off of each debt by board or management resolution, with the journal reference.
- Compute the claim. Apply 18/118 to the unpaid amount written off, invoice by invoice, and tie it to the original return.
- Claim in the return. Enter the decreasing adjustment in the return for the right period and keep the schedule with the file.
- Reverse buyer-side credits. As a customer, make the increasing adjustment in the month an unpaid supplier invoice passes eighteen months overdue.
- Track recoveries. Keep written-off debts on a memorandum ledger and declare output tax on any later receipt.
- Escalate disputes properly. If TRA disallows the claim, object within 30 days. TRAB appeals, legal opinions and any prosecution or seizure go to an advocate.
Key dates and deadlines
| Event | Time limit | Source |
|---|---|---|
| Monthly VAT return and payment | 20th of the following month, next working day if a weekend or holiday | VAT Act s.70; F0245 |
| Supplier's earliest bad debt claim | After the debt is more than eighteen months overdue and written off | VAT Act s.78(2); Reg. 25 |
| Customer's input tax reversal | Tax period in which the debt first passes eighteen months overdue | VAT Act s.78(3) |
| Recovery after write-off | Output tax in the period the payment is received | Reg. 25(4); VAT Act s.78(4) |
| Objection to a TRA decision | 30 days from service | NEW-02-19 |
| October 2026 VAT return | 20 November 2026 | VAT Act s.70 |
How Zatra helps
Zatra reviews receivable and payable ageing against section 78, builds the evidence file regulation 25 requires, and computes the claim invoice by invoice. Our tax and regulatory compliance service prepares the monthly VAT return with the adjustment. Our outsourced CFO service sets up the credit control and write-off approvals behind it.
Where TRA queries or disallows a claim, our TRA audit and dispute support prepares the response and the objection. Court recovery, TRAB appeals, legal opinions, seizures and prosecutions go to an advocate, who represents you. Zatra does not decide or guarantee any authority's outcome.
Government fees and court fees are paid at the official rate against the authority's control number. They are separate from Zatra's professional fee, which we quote in writing before work starts. To begin, contact Zatra with your debtor ageing report and your last three VAT returns.
Sources and status
Accurate as at 6 November 2026.
| Proposition | Status |
|---|---|
| Section 78 sets the eighteen-month overdue and write-off conditions; no adjustment note needed | Settled (R.E. 2023 and R.E. 2019 texts read) |
| Regulation 25 adds failed recovery and the 18/118 measure | Settled (GN 225 of 2015 read; not amended by GN 714 of 2021) |
| Which return period carries the supplier's claim | Verify with TRA |
| Whether any later amendment changed regulation 25 | Verify (2023 and 2025 amendments not read) |
| A bad debt rule under Zanzibar VAT law | Unknown (none found in texts read) |
- The Value Added Tax Act, Cap. 148 R.E. 2023. Tax Revenue Appeals Board, R.E. 2023 (2025 print). Accessed 6 Nov 2026.
- The Value Added Tax Act, Cap. 148 R.E. 2019. Ministry of Finance, 2019 edition. Accessed 6 Nov 2026.
- Value Added Tax (General) Regulations, 2015, GN 225 of 2015. TanzLII, gazetted 19 June 2015. Accessed 6 Nov 2026.
- Value Added Tax (General) (Amendment) Regulations, 2021, GN 714. Tanzania Revenue Authority, published 8 October 2021. Accessed 6 Nov 2026.
- The Finance Act, 2026. Tanzania Revenue Authority, assented 30 June 2026. Accessed 6 Nov 2026.
- National Bank of Commerce v Commissioner General, TRA, Civil Appeal No. 52 of 2018. Court of Appeal of Tanzania via TanzLII, 9 July 2018. Accessed 6 Nov 2026.
- The Value Added Tax Act No. 4 of 1998, Revised Edition 2025. Zanzibar Revenue Authority, consolidated to June 2025. Accessed 6 Nov 2026.
- VAT Regulations 2012, as amended. Zanzibar Revenue Authority, 2012 as amended. Accessed 6 Nov 2026.
- Value Added Tax (General) Regulations, 2015: newsletter. PwC Tanzania, August 2015. Accessed 6 Nov 2026.
- Tanzania: Corporate deductions. PwC Worldwide Tax Summaries, reviewed 9 September 2026. Accessed 6 Nov 2026.
- The fate of bad debts affecting the taxation of banks. Breakthrough Attorneys, 30 August 2018. Accessed 6 Nov 2026.
Figures to confirm before you act
- The tax period in which TRA expects the supplier's decreasing adjustment to be entered.
- Whether the VAT (General) (Amendment) Regulations of 2023 or 2025 changed regulation 25.
- TRA's current evidence list for "action for recovery" and "exhaustively proven futile".
- The income tax deduction conditions in section 25 of the Income Tax Act, R.E. 2023, for non-bank businesses.
- Whether ZRA allows any VAT relief on unpaid Zanzibar invoices.
- The record-keeping period under the Tax Administration Act for the write-off file.
- Court pecuniary jurisdiction for the claim value, confirmed by an advocate.
This article is general information based on official sources available at the date of publication. It is not legal, tax or financial advice. Laws and notices change. Verify with the issuing authority or consult Zatra before acting.
Frequently asked questions
Can a supplier claim bad debt relief on an invoice to an unregistered customer?
Yes, on the Act's wording. Section 78(2) looks at the supplier's position, not the customer's registration. The customer-side reversal in section 78(3) applies only where the customer claimed input tax, so an unregistered buyer has nothing to reverse.
Does a disputed invoice count as a bad debt?
Not by itself. A dispute is not proof that recovery failed. If the dispute ends with a price reduction, that is an adjustment event under section 75. If it ends in a judgment that cannot be enforced, the failed execution supports a section 78 claim.
Can a supplier claim relief on a debt owed by a related company?
The Act has no special exclusion, but TRA looks hard at write-offs between connected persons. Expect questions on why recovery failed inside a group. Keep board minutes and proof of the debtor's position, and check the transfer pricing angle.
What if the supplier has deregistered from VAT before the debt goes bad?
The Act does not address this case clearly. A deregistered person no longer files VAT returns, so there may be no return to carry the adjustment. Raise outstanding debts with TRA during the cancellation process. Our VAT deregistration guide covers that process.
Is the decreasing adjustment paid out as cash?
Not directly. It reduces the net VAT payable in the return. If the return ends in credit, the credit carries forward and may later be refunded under the refund sections, subject to TRA's review and any offset against other unpaid taxes.
Does selling the debt to a factoring company qualify for relief?
Selling a receivable is not a write-off after failed recovery. The supplier receives consideration from the buyer of the debt, so regulation 25 is unlikely to be met. Take advice before factoring old receivables if VAT relief is part of the plan.
Do withholding VAT agents follow different bad debt rules?
Section 78 makes no special provision for withholding VAT. Where the customer never paid, it usually never withheld either. Where part was paid and VAT withheld, reconcile the withholding certificates before computing the claim. Our withholding VAT guide explains the agent rules.
Can a business claim relief on debts that went bad before 2017?
The margin note links section 78 to the Finance Act, 2017, but we have not read the earlier wording. Old debts raise transitional questions about which version applies. Confirm the treatment with TRA in writing before claiming.
Sources & regulators
Verify before filing: Rates, forms and thresholds move by Finance Act, Government Notice and portal revision. Confirm the live schedule on the mandate-holder portal before you budget or submit. Law-firm alerts and Big Four notes are discovery only.
- The Value Added Tax Act, Cap. 148 R.E. 2023: Tax Revenue Appeals Board, R.E. 2023 (2025 print). Accessed 2026-11-06.
- The Value Added Tax Act, Cap. 148 R.E. 2019: Ministry of Finance, R.E. 2019 edition. Accessed 2026-11-06.
- Value Added Tax (General) Regulations, 2015, GN 225 of 2015: Ministry of Finance via TanzLII, gazetted 19 June 2015. Accessed 2026-11-06.
- Value Added Tax (General) (Amendment) Regulations, 2021, GN 714: Tanzania Revenue Authority, published 8 October 2021. Accessed 2026-11-06.
- The Finance Act, 2026: Tanzania Revenue Authority, assented 30 June 2026. Accessed 2026-11-06.
- National Bank of Commerce v Commissioner General, TRA, Civil Appeal No. 52 of 2018: Court of Appeal of Tanzania via TanzLII, judgment of 9 July 2018. Accessed 2026-11-06.
- The Value Added Tax Act No. 4 of 1998, Revised Edition 2025 (Zanzibar): Zanzibar Revenue Authority, consolidated to June 2025. Accessed 2026-11-06.
- VAT Regulations 2012, as amended (Zanzibar): Zanzibar Revenue Authority, 2012 as amended. Accessed 2026-11-06.
- Value Added Tax (General) Regulations, 2015: newsletter: PwC Tanzania, August 2015. Accessed 2026-11-06.
- Tanzania: Corporate deductions: PwC Worldwide Tax Summaries, reviewed 9 September 2026. Accessed 2026-11-06.
- The fate of bad debts affecting the taxation of banks: Breakthrough Attorneys, 30 August 2018. Accessed 2026-11-06.
Disclaimer
This article is informational orientation. It is not legal, tax or investment advice and not a government decision. Tanzanian instruments move by Act, Government Notice, Finance Act and portal revision. If a sentence here disagrees with the live mandate-holder, the mandate-holder wins. Zatra Consultants Limited does not issue licences, permits, tax clearances or approvals, and gives no assurance of any regulatory or banking outcome. Professional fees are published only on /pricing/.