A credit note is a formal memo from supplier to consumer, informing the customer why his/her account is credited. Any change in term of supply or cancellation may require a supplier to issue a credit note. This includes the return of goods from customers or overcharges in the original invoice price. Under the VAT Act, the cancellation or change in term of supply falls under an adjustment event and requires the supplier to file adjustment notice to the tax authority as an auxiliary to a credit note.
The point to note is, an EFD machine does not process a credit note (sale reduction) and it is impossible for the tax authority to realize an adjustment in sales figure without updating them with an adjustment notice. Therefore, in order for a credit note to be valid (accepted by a tax authority) it should be supported with an adjustment note. And this adjustment note should be issued for each tax transaction.
The process to be followed to validate credit note (assumed both supplier and customer are VAT registered)
1. A supplier should issue a valid adjustment note (three copies) equal to the amount of difference to the customer WITHIN 7 DAYS from the date of becoming aware of an adjustment event.
2. A original copy will be retained by a customer, the second copy will be retained by a supplier and the third copy to be retained by Tanzania Revenue Authority.
3. The supplier will make a reduction in sales (decreasing adjustment) in the accounts and VAT return.
4. A customer should make a reduction in purchases (increasing adjustment) in the accounts and VAT return.
Form to fill. Adjustment note has a prescribed form (ITX.254.02.E) which can be downloaded from Tanzania Revenue Authority website.
By Adam Kamulika on 17 May 2021