13 June 2019

Tanzania: Vat Exemption On Sanitary Pads - a Blessing or a Curse?

Most girls in schools, who have hit puberty, do not use suitable sanitary pads during their monthly menstruation cycle, especially in the rural areas of Tanzania.

These girls use local means such as rags, raw cotton and maize cobs, which pose serious hygiene and health challenges due to lack of sufficient running water in most rural schools to wash and re-use the local pads.

In order to curb this hygienic problem, disposable sanitary pads, is a solution, since they provide quality assurance and certification for sanitation, hygiene and health safety of manufactured and imported pads as provided by the Tanzania Bureau of Standards.

Urban women are the main consumers of sanitary towels and very few school girls across Tanzania (mostly urban based) use the disposable sanitary towels.

The majority of the rural female students end up using inappropriate materials to manage menstrual flow and opt to stay at home, instead of attending school during their cycle, because when they attend school without proper sanitary wear, many girls tend to soil their uniforms and this may cause psychological torture to the girls due to shame and embarrassment.

According to the 2019 world population review, about sixty per cent of Tanzania's population is female and every adult female must go through menstruation and requires appropriate sanitary tools, which are very costly.

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It is undeniable that women need appropriate sanitary towels as much as they need clean running water.

Having comprehended the importance and need for appropriate sanitary pads, the Government of Tanzania devised various methods to ensure that sanitary pads are not only readily available but also affordable to women of all walks of life.

One of the initiatives from the Government was to exempt Value Added Tax (VAT) on sanitary towels in the financial year 2018/2019.

This initiative was designed to kill two birds with one stone, that is by promoting industrialization and also ensuring the availability and affordability of sanitary products to girls and women who on average come from low-income communities especially those in rural areas.

To everybody's dismay, this initiative did not yield the intended outcome of affordability, since the sanitary pads' prices kept on rising, hence curtailing the availability and affordability of the sanitary towels.

This begs the question why are sanitary pads' prices going up, despite the VAT exempt status?

The answer to the above question is in simple maths and logic, basically with a company selling VAT exempt products, the company does not charge any VAT on the products it sells, therefore, the company is neither liable to pay VAT to the Revenue Authority nor is it allowed to claim any input VAT on its purchases.

Bear in mind that, the targeted companies do not work in isolation, simply because their products have the VAT exempt status, does not mean they purchase goods and services from other VAT exempt companies. This basically means that, the VAT exempt company pays VAT on it purchases for goods such as material costs used to manufacture the sanitary pads and services such as consultancy services.

Hence, without a platform of claiming or netting off the already paid VAT, this becomes an additional cost to the company. This additional cost is then shifted on to the final consumer of the product that is, Tanzanian women, through increased costs of sanitary towels.

This defeats the purpose of exempting the products from VAT so as to minimize cost, and make the product affordable.

Having realized the futility of exempting VAT on sanitary towels, in the hopes of making the products affordable, the million dollar question is what should be a more effective approach.

I believe that in order to minimize sanitary towels' prices, the costs incurred by companies should be minimized and VAT expenses can be minimized by making the products zero rated supplies and not VAT exempt supplies.

By making the products zero rated supplies, a company charges VAT on the products, but at a zero rate and more importantly the company is allowed to claim the VAT it incurs from its purchases by claiming it through the monthly VAT returns filed with the Revenue Authority.

With the ability to claim input VAT, this is no longer a cost (if the refund is made in a timely manner) to the company and therefore the companies do not seek for a relief by shifting it to final consumers through higher pricing.

Asia Mti is a tax advisor at KPMG in Tanzania. The views expressed here are the author's and do not necessarily represent the views and opinions of KPMG

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