Tanzania Court of Appeal: Demurrage Not Subject to VAT

June 3, 2026

Conseillers en matière de TVA

On May 22, 2026, the Court of Appeal of Tanzania published its decision on the tax treatment of demurrage charges. Given that this ruling comes from the Court of Appeal, Tanzania's highest court, it applies immediately and settles the legal position going forward. The decision is particularly significant for businesses in the shipping and logistics sector, as it brings greater legal certainty.

Background of the Case and Courts' Decision

In 2023, following the tax audit and discussion with the Gulf Badr Group, the Tanzania Revenue Authority (TRA) assessed VAT on demurrage charges that the company had collected. These charges arise in the shipping industry when importers or consignees fail to return shipping containers within the agreed free period, known as laytime. The purpose of these charges is to compensate the carrier for the loss of use of the equipment while also encouraging timely returns to maintain efficient logistics operations.

The company argued that the demurrage is not payment for any supply but rather a penalty for the delayed return of containers, and therefore falls outside the scope of VAT. However, neither the TRA, the Tax Revenue Appeals Board, nor the Tribunal agreed with this argument. As a result, the company appealed to the Court of Appeal, which was asked to determine whether demurrage qualifies as a taxable supply under the VAT Law and whether it could instead be treated as part of a zero-rated international transport service.

After carefully examining the relevant articles of the VAT Law, the Court of Appeal ruled that such charges, which arise as penalties for breach of contract due to the delayed return of shipping containers, do not amount to a taxable supply. With this decision, the Court of Appeal overturned earlier decisions, which had accepted the TRA’s argument that demurrage should be treated as a form of rent and therefore subject to the 18% standard VAT rate.

Conclusion

Ultimately, the Court of Appeal determined that demurrage charges fall outside the scope of VAT. This has important implications not only for those operating in the shipping and transport sectors, but also for any business where similar charges arise. In addition to providing important legal clarity for businesses, the ruling also potentially reduces exposure to historical VAT assessments.

Source: EY

What did the Tanzania Court of Appeal decide about demurrage charges and VAT?

The Court of Appeal ruled that demurrage charges do not fall within the scope of VAT because they arise as penalties for delayed container returns rather than payment for a taxable supply.

Why were demurrage charges being assessed for VAT by the tax authority?

The Tanzania Revenue Authority had treated demurrage as a form of rent for container use, which they argued should be subject to the standard 18% VAT rate.

What was the taxpayer’s argument in the case?

The company argued that demurrage is not payment for any supply but a penalty for late return of containers, meaning it should fall outside the scope of VAT.

What did lower tax bodies decide before the Court of Appeal ruling?

The Tax Revenue Appeals Board and Tribunal initially agreed with the tax authority’s position that demurrage should be treated as taxable, leading to the appeal.

How does the ruling affect shipping and logistics businesses?

It provides legal certainty by confirming that demurrage charges are not subject to VAT, reducing compliance uncertainty for shipping and logistics operators.

Does the ruling have implications for past VAT assessments?

Yes, the decision may reduce exposure to historical VAT assessments where demurrage had previously been taxed as part of earlier disputes.

Conformité et déclaration de la TVA

TVA

Logistique et transport

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