On 22 May 2026, the Court of Appeal of Tanzania (CoA), in Civil Appeal No. 212 of 2025 involving Guld Bard Group (Tanzania) Ltd vs Tanzania Revenue Authority (TRA), overturned the decision of the Tax Revenue Appeals Tribunal (Tribunal), which had upheld a value added tax (VAT) assessment on demurrage charges in relation to containers transported under a bill of lading. The Court held that demurrage does not constitute a taxable supply for VAT purposes because it represents a penalty arising from contractual terms, rather than consideration for a service.
A copy of the judgment is available from TANZLII here.
The facts
The dispute arose following an audit of a shipping agent acting on behalf of a shipping line. Following the audit, the TRA assessed VAT on container demurrage charges collected by the shipping agent on behalf of the shipping line.
TRA argued that the charges represented consideration for services supplied in Tanzania and therefore attracted VAT. Specifically, TRA contended that demurrage amounted to rental income arising from a customer retaining a container beyond the prescribed period. On this basis, TRA treated the demurrage charges as subject to VAT and issued an assessment.
The taxpayer challenged the assessment before both the Tax Revenue Appeals Board (TRAB) and the Tribunal, albeit unsuccessfully. The matter was subsequently appealed to the CoA for determination of the proper treatment of demurrage charges under the VAT Act.
Issues before the Court
The Court considered:
- Whether demurrage charges constitute a taxable supply under the VAT Act;
- Whether demurrage forms part of zero-rated international transport services; and
- Whether interest was properly imposed.
The Court’s findings
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Demurrage is a penalty, not consideration for a taxable service
The Court rejected the Tribunal’s position that demurrage was analogous to rental income or payment for continued use of shipping assets.
In reaching its decision, the Court considered both industry usage of the term ‘demurrage’ and the contractual framework from which the charge arises. The Court held that demurrage arises where containers or equipment are retained beyond agreed periods and that, under shipping industry practice and Tanzanian regulations, it is treated as a late return or delay penalty rather than a separate charge for the use or rental of containers.
The Court further held that demurrage compensates a carrier for losses arising from delay rather than payment for a service voluntarily supplied. Accordingly, penalties for breach of contractual obligations are distinct from consideration for the supply of services. Demurrage therefore fell outside the scope of taxable supplies under the VAT Act.
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Demurrage forms part of international transport arrangements
Although the Court had already determined that VAT did not apply, it further held that demurrage was not an independent domestic transaction.
Instead, the Court found that demurrage arises from the bill of lading and forms part of the contractual framework governing international carriage. It was therefore integral to international transport arrangements rather than a separate ancillary service.
The Court accordingly concluded that the Tribunal had erred in finding that demurrage did not form part of the international transport service offered by the shipping line.
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Interest falls away where the underlying assessment is invalid
Since VAT had been incorrectly assessed, the Court held that no valid interest assessment could arise from that underlying tax liability.
Implications of the decision
The decision is significant for businesses operating within the shipping and logistics sectors because it:
- confirms that demurrage may properly be characterised as a contractual penalty rather than a taxable supply;
- limits attempts to characterise demurrage charges as consideration for services;
- recognises the relevance of industry-specific meanings in the interpretation of tax legislation; and
- reinforces the principle that VAT charging provisions should not be extended beyond their statutory scope.
