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Finance Bill - Update

June 2016

Briefing

Significant setback on
challenging tax
decisions
Background
The 2016 Finance Bill (the Bill) was circulated to the public this Monday. Arguably, this is
the most comprehensive finance bill in recent years. There is a significant change to the
Income Tax Act, 2004 (ITA, 2004) as well as other fiscal statutes. By way of an example,
the Bill proposes to introduce a whole division in the ITA, 2004 which will deal with taxation of
mining and oil & gas industries. In addition and as anticipated by many and perhaps as advised by the
Court of Appeal, the Bill proposes to amend Section 69(i)(i) of the ITA, 2004. This is the section which
created a lot of controversy regarding the source of payments for services performed outside Tanzania.
The controversy ended when the Court of Appeal ruled in favour of the taxpayer in the case between
TRA vs. PanAfrican Energy in which Ako Law successfully represented the taxpayer. Amidst all the
hype, there are two small proposed amendments to the Tax Administration Act, 2015 (TAA, 2015)
which are perhaps more significant in ensuring the Government (through TRA) reaches its
collection target. These amendments seriously jeopardize taxpayers' right to challenge
adverse tax decisions.
The first amendment is in section 51(5) of the TAA, 2015. This section said that "an
objection to any tax decision shall not be admitted unless the taxpayer has paid the
amount of tax which is not in dispute or one third of the assessed tax whichever amount is
greater". The proposed amendment reads "an objection to any tax decision or assessment
shall not be admitted unless the taxpayer has, within a period of thirty days from the date
of service of tax decision, deposited with the Commissioner General the whole of the
amount of tax being disputed".
This proposed amendment is worrisome. Much as there is a need to ensure collection is
not tied up to disputes, equally there is a need to protect taxpayers' right to challenge unfair
tax decisions. It is therefore a balancing act. One way of making sure the right to challenge
unfair tax decisions is preserved is to make access to justice affordable. To put this in
context, initially, taxpayers were required to pay half of the amount assessed. Experience
and indeed good governance deemed this as excessive. As a result, the deposit was
brought down to one third of the assessed amount. In addition, there was a room to apply
for waiver of requirement to deposit one third completely or pay a lesser sum. Experience
shows that deposit of one third of taxes assessed can be quite difficult. The amount of
taxes assessed can be staggering. In addition, the demand/assessment itself can sometimes
be completely baseless. The proposed amendment aggravates the situation and might
prohibit taxpayers from exercising the right of objection/ appealing.

Further information
If you would like further information on any
issue raised in this briefing or any other tax
matter, please contact:

Dr. Kibuta Ongwamuhana


Partner
T: +255 754 292 200
E: kibuta.ongwamuhana@akolaw.com

Alan Kileo
Legal Director
T: +255 767 694 254
E: alan.kileo@akolaw.com

Wilson Mukebezi
Senior Associate
T: +255 766 645 690
E: wilson.mukebezi@akolaw.com

Salome Gondwe
Associate
T: +255 767 850 027
E: salome.gondwe@akolaw.com

Ako Law in association


with Clyde & Co
11th Floor, Golden Jubilee Towers Ohio Street
P O Box 80512
Dar es Salaam, Tanzania
T: +255 768 983 000/022
F: +255 222 103 004
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AkoLaw June 2016

The second proposed amendment is to section 70. This is the section which
empowered the Commissioner to remit interest or penalty where there is good
reason to do so. Sometimes taxpayers confronted with a commercial decision
to make, would agree to pay the tax assessed on without prejudice basis
provided interest was waived. This sounds like a sensible commercial
approach to both, TRA and taxpayers because a settlement guarantees an
early cash inflow to TRA. Taxpayers agreeing to this arrangement would
request for waiver of interest. After all, amicable settlement is give and take
i.e. win/win. What is proposed now reads "Where the Minister in consultation
with the Commissioner General is satisfied that there is good cause to remit
interest imposed under any tax law, he may remit the interest up to an amount
not exceeding [sic! not stated] per cent of the interest payable by the person.
Effectively, therefore the Commissioner alone cannot waive interest. Disputes
which could quickly be resolved amicably may be aborted because of time it
might take to have the Minister review grounds to grant remission of interest.
An additional question is, isnt TRA supposed to be seen to be autonomous?
Implications for business
If the amendment is to pass, it will be difficult to challenge tax decisions. This
is because of the staggering amount of money to be deposited and the fact that
once the deposit is made, it might be difficult to get a refund if a decision is
finally in taxpayers favour.
The question that must be asked is how will this amendment be viewed by
investors? Does the amendment make it easy to do business in Tanzania?