This article is based on insights provided by Edwin Prosper (Partner) and Fredrickson Maboko (Tax Advisor), Bowmans Tanzania, following a recent Court of Appeal ruling on the VAT treatment of demurrage charges in the shipping sector.
Landmark Appeal Decision Provides Clarity for Shipping and Logistics Industry. Tanzania’s Court of Appeal has delivered a significant tax ruling that could have far-reaching implications for shipping companies, freight operators, logistics providers, and importers across the country.
In a judgment delivered on 22 May 2026 in Civil Appeal No. 212 of 2025 involving Guld Bard Group (Tanzania) Ltd and the Tanzania Revenue Authority (TRA), the Court overturned an earlier decision of the Tax Revenue Appeals Tribunal and held that container demurrage charges are not subject to Value Added Tax (VAT).
The Court concluded that demurrage charges represent contractual penalties for delayed return of containers rather than payment for a taxable service.
Background of the Dispute
The case arose after the Tanzania Revenue Authority conducted a tax audit on a shipping agent acting on behalf of an international shipping line.
Following the audit, the TRA assessed VAT on demurrage charges collected by the shipping agent from customers.
According to the tax authority, the charges represented consideration for services supplied in Tanzania and should therefore attract VAT.
TRA argued that where customers retained shipping containers beyond the agreed free period, the resulting demurrage charges effectively amounted to rental income derived from the continued use of those containers.
Based on this interpretation, VAT assessments were issued against the taxpayer.
The taxpayer challenged the assessment before both the Tax Revenue Appeals Board (TRAB) and the Tax Revenue Appeals Tribunal. However, both bodies ruled in favour of the TRA.
The dispute was subsequently escalated to the Court of Appeal.
Key Questions Before the Court
The Court considered three main issues:
Whether demurrage charges constitute a taxable supply under Tanzania’s VAT legislation;
Whether demurrage charges form part of zero-rated international transport services; and
Whether interest imposed on the disputed tax assessment was valid.
Court Finds Demurrage Is a Penalty, Not a Service
In its judgment, the Court rejected the Tribunal’s earlier position that demurrage charges were comparable to rental income.
The judges examined both shipping industry practices and the contractual arrangements governing the movement of containers.
The Court noted that demurrage charges arise when containers are returned later than the period agreed under shipping contracts.
According to the ruling, these charges are intended to compensate carriers for delays and losses resulting from late returns rather than to provide an additional service to customers.
The Court therefore determined that demurrage functions as a contractual penalty.
Because VAT generally applies to consideration paid for goods or services supplied, the Court held that a penalty arising from a contractual breach does not fall within the scope of taxable supplies.
As a result, demurrage charges cannot be subjected to VAT.
Demurrage Linked to International Transport Services
The Court further held that demurrage charges should not be viewed as a separate domestic transaction.
Instead, the charges arise directly from obligations contained in the bill of lading and are intrinsically linked to international shipping arrangements.
The judges found that demurrage forms part of the broader contractual framework governing international carriage of goods.
This finding reinforced the Court’s conclusion that the Tribunal had incorrectly treated demurrage as an independent taxable service supplied within Tanzania.
Interest Assessment Also Set Aside
Having determined that the underlying VAT assessment was invalid, the Court ruled that any interest charged on that assessment could not stand.
The judges therefore nullified both the VAT liability and the related interest charges.
Why the Ruling Matters
Tax professionals say the judgment provides important certainty for Tanzania’s maritime and logistics sectors.
The decision establishes that demurrage charges should generally be regarded as contractual penalties rather than taxable supplies.
It also limits the ability of tax authorities to classify such charges as payment for services merely because money changes hands between parties.
Importantly, the Court recognised the significance of industry-specific terminology and commercial practices when interpreting tax legislation.
The ruling further reinforces a key tax principle that VAT charging provisions should be applied strictly within the limits set by law and should not be expanded through administrative interpretation.
Implications for Businesses
The judgment is expected to be welcomed by:
Shipping lines;
Freight forwarders;
Port operators;
Logistics companies;
Importers and exporters; and
Tax practitioners operating within the transport sector.
Businesses that regularly deal with demurrage charges may now have stronger grounds to challenge similar VAT assessments where such charges are clearly punitive rather than payment for services.
The decision also highlights the growing role of courts in clarifying complex tax issues affecting international trade and cross-border commerce in Africa.
Attribution Notice
This article is based on insights provided by Edwin Prosper (Partner) and Fredrickson Maboko (Tax Advisor), Bowmans Tanzania. The views expressed are those of the authors and do not necessarily represent the views of Africa Tax Review.
