Tough rules for remission of tax penalties

A fortnight ago (8th May 2020), the Minister of Finance and Planning issued new tax regulations to govern remission of tax-related interest and penalties in Tanzania. The regulations have been issued to operationalize section 70 of the Tax Administration Act, Cap 438. The regulations may partly clear the lacuna tax existed in this area for some time now. The tax administration law (the Tax Administration Act, Cap 438) gives powers to the Commissioner-General of TRA to waive interest and penalties subject to the regulations made by the Minister. And the relevant regulations were lacking since 1st December 2018.

Remission of interest and penalties is one of the useful tax administration tools. This is especially so for a self-assessment tax administration system where taxpayers are expected to self-assess their tax liabilities and pay their tax dues to the tax authority. The self-assessment system implies that taxpayers can make mistakes in determining their tax liabilities. After all, tax laws have never been a cup of tea to everybody! Also, the self-assessment tax administration system is premised on the expectation that most taxpayers are likely to be faithfully most of the time. But there are unfaithful taxpayers or the would-be taxpayers.

Remission interest and penalties give honest taxpayers relief when they, for example, inadvertently have failed to abide by some provisions of the tax laws. Non-compliance with tax laws could be due to financial hardship, either temporary or long term. Non-compliance could also be due for reasons beyond the taxpayer's control. Take for example the social and economic impacts of the current pandemic facing Tanzania and the world, the COVID-19. Under the current environment, it may not surprise me if some taxpayers fail to fulfil some of their tax compliance obligations.

Remission of interest and penalties can cautiously be used to appeal to the noncompliant taxpayers. Think of the tax amnesty tax was offered back in the year 2018. It helped collect taxes. Taxes that, I think, could not have been collected in the absence of the firm assurance that voluntary disclosure of tax liabilities is something that is welcomed by the tax authority. The amnesty assured taxpayers that no interest or penalties would be charged if they voluntarily disclosure their “hidden” tax liabilities. With the prevalence of the informal sector in Tanzania, the remission can be a good bargaining tool for the tax administration.

The new regulations (the Tax Administration (Remission of Interests and Penalties) Regulations, 2020) now provides some guidelines on how remission interests and penalties should work. The regulations set out the manner for applying for the remission. A specific (prescribed) form must be used and a taxpayer shall disclose the reasons for the imposition of interest or penalty and justification for the remission. There are five eligibility criteria that all must be met by the taxpayers seeking remission. The Commissioner-General (“CG”) can accept or reject an application for remission. But the regulations require the CG to adduce reasons for rejection.  Unlike in the tax amnesty where remission was 100 per cent, the regulations gives the CG discretion on the amount of remission. The regulations put very stringent criteria to prove financial hardship. This is essentially akin to excluding prove financial hardship as one of the reasons for the CG to grant remission. The CG can remit the whole or only part of the interest and/or penalty. Also, the regulations disqualify several categories of interest or penalty. No remission if non-compliance is deliberate (fraudulent evasion of tax) or is in respect of VAT, withholding taxes, EFDs or failure to keep documents. Also, no remission if the interest or penalty arises from tax liability established as a result of tax audit or investigation. I will discuss these regulations in detail in my next articles.

By Shabu Maurus, Tax Partner, Auditax International.

The Need for Taxpayers to Undertake Tax Health Checks

Introduction

Matters related to someone’s survival and paying taxes have historically drawn comparison.  For instance, in his letter to Jean-Baptise Leroy, 1789, Benjamin Franklin earmarked that “in this world nothing can be said to be certain, except death and taxes”.

The importance of regular medical check-ups to track someone’s health has been told over and over again by doctors and other health experts. These check-ups enable identification of potential health problems at early stages and ensure prevention of long-term health illness which can sometimes lead to loss of life. Similarly, regular tax health checks can ensure the survival of a taxpayer’s business or organization.

Tax health check refers to the review of taxpayer’s tax and accounting records to establish the degree of compliance with applicable tax laws. Tax health check can lead into a number of benefits to a taxpayer which are discussed below.

Why Tax Health Checks?

With the increased tax risks i.e. (audit risk, compliance risk, operational risk etc.); frequent changes in tax laws, complexities of tax laws; ambitious revenue targets by the Government; recent rulings on tax cases etc. the need for tax health checks cannot be overemphasized.  Tax health checks can help taxpayers to achieve the following:

i) Preparation for a Potential TRA Audit

Taxpayers can undertake a tax health check as part of preparation for a potential tax audit by the revenue authority. This is a house keeping exercise to identify areas of non-compliance with tax laws e.g. returns not filed, taxes not paid, reconciliations not being done etc. and correct them before a visit by tax officers to avoid interests and penalties or manage cash flows on tax payments. For instance, the recently issued Tax Administration (Remission of Interest and Penalties) Regulations, 2020 exclude interest or penalty established from a tax audit or investigation from remission. Thus, identifying areas of non-compliance before a TRA audit may enable application of remission of qualifying interest or penalty.

ii) Identification of Tax Risks and Instituting a Robust Tax Risk Management Framework

Tax risks refers to the risk of losses resulting from overpayment of taxes (principal taxes, interest and penalties) or failure to take advantage of tax savings opportunities in the tax laws. Tax health check can identify areas of high-risks so as controls can be instituted to mitigate the risks. These can be on areas of non-compliance with tax laws e.g. on corporate income tax, withholding taxes, VAT, excise duty etc.  weak tax controls on tax management e.g. lack of policies, adequate staff etc. This can provide an opportunity to strengthen tax internal controls by evaluating the effectiveness of the existing tax risks management framework and instituting a robust framework. This will enable systematic identification, assessment and mitigation of tax risks.

iii) Opportunities for Tax Savings

Tax health check can identify areas where the organization is not fully exploiting tax saving advantages. These can for instance be failure to take advantage of tax benefits in tax laws e.g. on incentives, allowances etc.

iv) Done as part of Tax Due Diligence

Tax health check can save as a tax due diligence for cases where a potential investor is intending to acquire an entity. It will help to identify potential tax liabilities of the acquiree business and form one of the considerations in deciding whether to acquire the entity or not.

v) Assist in VAT and other Tax Refunds

Tax health checks can be undertaken as part of a process to obtain tax refunds. The health check will confirm whether the amount the entity expects to be refunded is genuine in terms of being fully supported and in compliance with the requirement of tax laws regarding refunds. Measures can be taken to ensure missing evidences are obtained to ensure appropriate refund is obtained.

Conclusion

Just as regular medical checkups for a person before illness is important, proactive regular tax health checks for taxpayers to avoid or minimize the costs associated with financial losses and missed tax savings opportunities are as important. The recently issued Tax Administration (Remission of Interest and Penalties) Regulations, 2020 which exclude interest or penalty established from a tax audit or investigation from remission has also raised the importance for taxpayers to regularly undertake tax health checks to avoid paying unnecessary interest and penalties among other advantages.

Mr Straton Makundi is a Partner with Auditax International

COVID-19 Tax Measures: A case for tax return delays

As the coronavirus (COVID-19) crisis continues to ruin economies around the world, countries are implementing various emergency tax and non-tax measures to support their economies during this crisis and ease the impact on both the businesses and individuals. Apart from the various administrative measures that TRA are taking, there are no emergency tax reforms that I am aware of in Tanzania (so far!). But what sort of tax relief measures other countries are taking? Various measures are being taken to suit individual countries situation. Some may seem overly expensive to implement and yet some are quite simple.

In response to the pandemic one of our closest neighbours, Kenya, has taken bold steps in reducing the tax rates for taxpayers. There is a 100 per cent tax relief for taxpayers earning a gross monthly income of up to KES 24,000 (around TZS 500,000). The upper band employment income tax (PAYE) rate has been reduced from 30 per cent to 25 per cent. Similarly, the resident corporate income tax rate is reduced from 30 per cent to 25 per cent. And the VAT rate from 16 per cent to 14 per cent.

Some countries have taken simpler steps but certainly helpful such as extending the time for filing tax returns. In Ghana, for example, the time for filing annual income tax return has been extended by 60 days. Also, Nigeria has extended the deadline for filing VAT and withholding tax returns from the 21st day to the last working day of the month, following the month of deduction. In Mauritius, taxpayers that are unable to submit returns or pay their tax due to the lockdown will not be charged any penalty or interest for late submission or payment. Amid the COVID-19 crisis, the extension of time to file returns makes a lot of sense.

It is no longer business as usual. There is a slowdown in business and processes. Given the various preventive measures that are taken to fight COVID-19 such as the full or partial lockdowns, it is likely to take longer for some business and individuals to get their tax returns prepared on time. In Tanzania, for example, monthly VAT returns are due 20 days after the month-end. What if this time is extended to 30 days (or to the last working day of the month)? Due to the pandemic, the collection of VAT from customers takes longer. An alternative to a blanket extension, reform can be made to allow those severely affected to apply for an extension - say up to some 90 days.

Also, the annual income tax return is due 6 months after the year-end. But annual income tax returns (for companies at least), must be accompanied by audited financial statements. statutory audits are likely to take longer than normal. There is already a provision to allow the extension, but this is currently capped at only 30 days. Probably 90 days cap would be much more helpful. 

By Shabu Maurus, Tax Partner, Auditax International.

Q4 tax collection an uphill task

The coronavirus pandemic (COVID-19) continues to hit Tanzania and other countries.  According to the recent (April 22, 2020) reports, Tanzania has already recorded 284 coronavirus cases. Not yet as bad, if these numbers are compared to other countries that have been severely hit by the pandemic. The pandemic has now reached a community transmission stage. Like other countries, the authorities in Tanzania have taken various measures to stop or slow down the spread. Emphasis on general hygiene, wearing of appropriate masks, social distance, and avoidance of unnecessary gatherings, just to name a few. So far, Dar es Salaam appears to have been badly hit by the disease compared to other parts of Tanzania. I think it is for this reason, stricter measures are being taken in Dar es Salaam. For example, it is now mandatory to wear a mask in Dar es Salaam. But what does it mean, in terms of tax revenue, if the pandemic situation in Dar es Salaam gets worse?

Dar es Salaam is the commercial hub. It accounts for almost 90 per cent of tax collections in Tanzania (if tax from imports and tax collected by the Large Taxpayers Department are factored in). So, Dar es Salaam is, unfortunately, the main source of tax revenue for Tanzania. Going forward may be some efforts need to be made to start addressing this regional imbalance. This same message was echoed in the Economic Update report by the World Bank Group back in 2015 (Tanzania Economic Update, July 2015, 7th Edition - “Why Should Tanzanians Pay Taxes?”).

Around 60 per cent of Tanzania's budget for 2019/20 (33.1 trillion shillings) is expected to come from tax revenue.  That is 19.1 trillion shillings. In the first half of the fiscal year (when Tanzania had not recorded any COVID-19 case), tax collections reached 9.2 trillion shillings. In the third quarter (January to March 2020), tax collections reached 13.5 trillion shillings.  This makes an average collection per quarter of about 4.5 trillion shillings. To meet the 19.1 trillion shillings target, in the fourth quarter 5.6 trillion shillings needs to be collected. This is way above the quarterly average so far.

A month ago, I wrote about how the corona pandemic (COVID-19) may impact on tax collection in Tanzania. The pandemic impacts businesses differently. As social gatherings are banned, businesses and sectors stand to be badly hit. And this will translate into tax revenues. Also, some sectors like tourism, are unlikely to return to normal quickly when this pandemic subsides. Given that Dar es Salaam is the main source of tax revenue and the extent the pandemic is likely to affect businesses, the tax revenue target is very unlikely to be met. Already, there are several calls for some fiscal reforms or some sort of stimulus package to help businesses. These may be difficult to implement unless the government gets some funding from sources other taxes or some major projects postponed.

By Shabu Maurus, Tax Partner, Auditax International.

How fringe benefits are taxed?

There are various ways employees can be remunerated for the employment services they offer to their employers. The most common is a salary and allowances paid in monetary form. But it is also common for employers to provide some other non-monetary benefits to their employees in addition to the salaries. It is also possible (particularly in the informal sector) for employees to be purely remunerated in non-monetary terms.

Where an employer makes a payment for the personal needs of an employee through providing the employee with rights, goods or services (as opposed to money) these are called “benefits in kind”. Taxable benefits in kind typically include those benefits which are for the personal use or consumption needs of the employee.

The benefits in kind can take various forms including a housing, a company car for personal use by an employee, and an interest-free loan or a loan at an interest rate way below the market rates. It could also be airtime, data or cell phones for both business and personal use. Most of this kind of benefits are taxable but because no money goes to the employee, it is an area that some employers can easily overlook and forget their obligation to account for the pay-as-you-earn (PAYE). Of course, some employers and employees may not aware that those benefits in kind are taxable.

Not accounting for PAYE on the benefits in kind presents a tax risk to the employer and to some extent the employee. If the non-compliance is subsequently uncovered by the tax authority, the employer is likely to be assessed on the unpaid tax plus interest and penalties. To the employee, the risk is that his employer may, later on, seek to recover the amount of tax that was previously not deducted (assuming the employee is still with the same employer).  Depending on the amounts and the mode of recovery, this can be very frustrating to employee’s cash flow plans.

If PAYE is to be accounted for on the benefits in kind given to employees, first, the benefits need to be quantified in monetary terms. In general, the value of a benefit in kind is quantified according to a market value of the benefit. The market value means the amount that an independent person would have to pay in the market to receive the same good or service that the employee receives from his employer.

If for example, a manufacturer of plastic chairs decides to give each employee five chairs in a particular year, the benefit in kind to each employee will be determined by the market value of the chairs received. If a plastic chair is sold at shillings 100,000 to independent customers, then that is the market value. Hence, in this example, the benefit in kind to the employees will be quantified as shillings 500,000 and this amount needs to be included as part of employee’s income and PAYE deducted accordingly.

However, some special quantification rules apply to the provision of motor vehicles, provision of subsidized loans and provision of housing to employees. 

By Shabu Maurus, Tax Partner, Auditax International.

How the corona pandemic may impact tax collections

Tanzania has recently reported cases of people with the deadly coronavirus (COVID-19). Like other countries hit by the pandemic, Tanzania is already taking several necessary steps to combat the spread of the deadly virus. Schools have been closed for a month. Social distancing and personal hygiene are highly being emphasized.  Likely, further steps will be taken. Probably depending on the rate of spread and mortality. The economic impacts of the pandemic are far-reaching. Even to countries with no reported corona cases. The pandemic is likely to affect Tanzania’s 135 trillion shillings economy. But how the economy and hence tax revenue will be affected may be difficult to accurately predict. It will depend on several factors, including measures taken locally and globally in fighting the virus.

In this fiscal year (2019/2020), Tanzania expects to collect and expend 33.1 trillion shillings. The economy (GDP) is expected to grow by 7.1 per cent this year. But it is unlikely that this budget factored in the impact of the current pandemic. And out of this budget, 19.1 trillion shillings (almost 60 per cent) is to come from tax. The total tax collected for the first half of the fiscal year is 9.2 trillion shillings. An impressive 96 per cent tax collection performance. But if the economy is affected, tax collections will also be affected. There are several ways the pandemic may affect tax revenue including the following.

International trade: The pandemic will negatively impact international trade. Movement of goods and people become more restricted as one of the measures to combat the spread of the coronavirus.  The tax collection statistics show that around 40 per cent of tax is collected from importers. It is the biggest source of tax revenue. Accordingly, the extent of decrease in the imports will determine the impact on tax revenue.

Local consumption: VAT and excise duty are the biggest consumption taxes. Mainly coming from the use of mobile phones, beverages (particularly alcoholic drinks), cigarettes and petroleum products. How will the ‘social distancing’ measure impact consumption of these products? Well, I think it will depend on the extent of social distancing. A total lockdown (which I hope is unlikely), will have more impact. With less social events and similar gatherings, consumption of beverages may go down. The use of telecoms products (data, airtime) may go up for both individuals and corporates. Whether staying at home may make smokers take more cigarettes may be difficult to tell. Consumption of fuel may also go down. But staying at home may raise the consumption of other products.

Tax compliance: The pandemic and the measures taken against it will affect individuals and businesses in several ways which may impact both the amount of tax that can be paid and the extent of tax compliance. A complete lockdown, for example, would mean no business at all and hence no tax to pay. With social distancing, filing of tax returns may be affected. If due to, say quarantine, people are unable to go to the banks or if the bankers are not working then tax-paying will be a challenge.

Tax administration: What happens if tax collectors are restricted to work or meet taxpayers? Efficient digital tax administration platforms would have been so helpful. But even in the digital world, tax administration involves people. Social distancing may hence affect tax administration.

By Shabu Maurus, Tax Partner, Auditax International.

Handling Tax Uncertainties

Adam Smith, the father of modem political economy, argued that "the tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid all ought to be clear and plain to the contributor and to every other person". Uncertainty or absence of certainty is an undesirable characteristic of a good tax system.

There are various sources of tax uncertainties. Some stem from the practices of the tax authority, including their interpretations and applications of the tax laws. Some uncertainties may come from the dispute resolution processes, such as inconsistencies in decisions and also the length of time the courts take to decided tax cases. Other uncertainties may emanate from international transactions and interactions of different tax jurisdictions with differing tax laws and principles. Legislative and tax policy design issues can also be a major source of tax uncertainty, mainly through complex and poorly drafted tax legislation and the frequency of legislative changes.

It may be practically difficult to completely avoid tax uncertainties in the tax system. So, as a taxpayer, you will most likely have to deal with tax uncertainty. In Tanzania, there are various approaches, a taxpayer may deal with tax uncertainties. Of course, the approach will depend on the nature of the specific tax uncertainty that a taxpayer wants to address. One such approach is for the taxpayer to request a private ruling from the Tanzania Revenue Authority (TRA).

In the context of tax administration in Tanzania, a private ruling is a decision of the Commissioner-General of TRA on tax issues raised by a person (normally a taxpayer or a potential taxpayer). The conditions, modalities, and the legal status of a private ruling are provided for under the tax administration law (The Tax Administration Act, Cap 438) and the accompanying regulations. The objective of a private tax ruling system which is to provide certainty to taxpayers in connection with the application and interpretation of the tax laws in Tanzania.

A private ruling properly issued binds TRA. That is, TRA cannot make subsequent tax decisions that are inconsistent with the private ruling in respect of that taxpayer for an arrangement that is a subject of that ruling. For TRA to issue a binding private ruling, a taxpayer needs to apply in writing making full disclosure of all aspects of an arrangement and ensure that arrangement, materially, proceeds as described in the application. The ruling will only be effective for the period stated in that ruling or shorter if TRA decides to revoke it. A private ruling has no binding effect to TRA with respect to other taxpayers other the one who applied for it. Most importantly, a private ruling does not have a binding effect to the taxpayer who requested it and hence that taxpayer is also restricted from challenging the ruling unless the challenge is made in respect of a tax decision made in relation to an arrangement which is the subject of the ruling.

Timely issuance of private rulings increases predictability and consistency of tax administration, which in turn provides tax certainty to taxpayers. Without certainty, neither governments nor taxpayers can effectively budget or plan for their future actions. The state benefits from tax certainty, because it will be able to know in advance the tax revenue to be collected and the timing. If there is an element of arbitrariness in a tax, it tends to encourage misuse of power and corruption.

By Shabu Maurus, Tax Partner, Auditax International.

 

Getting your 2020 income tax estimates right

In Tanzania, generally, an annual tax on business or investment income is payable to the tax authority in four instalments during the year of income based on estimates. A taxpayer whose income tax is payable by instalments is required to submit a statement of tax estimate (“provisional income tax return”) for the year of income to the tax authority and pay the first instalment by the end of the first quarter of the year of income. So, if you or your entity has 31st December as its year-end, it means for the year 2020, you have about two weeks to hand in your annual income tax estimates for the year. And if you estimate that some tax will be payable, then the first of four instalments will also be payable by 31st March 2020.

Section 75 of the tax administration law (The Tax Administration Act, Cap 438), essentially, requires that taxpayer’s estimates for income tax be at least 80 per cent accurate. There is a penalty (“interest”) for underestimation. The penalty will apply at statutory rate compounded monthly from the due date of the first instalment to the due date of the final tax return. So, the question is what happens if, for any reason, the bases for your estimate changes during the year? The answer is simple. You can always review your estimates during the year to ensure that at least 80 per cent accuracy is achieved. So, if there are reasons to amend the estimates, the tax law allows such amendments at any time during the year.

The accuracy of tax estimate, now than ever, poses a significant risk to taxpayers if it is not managed properly. In the past, underestimation interest would be computed based on the difference between 80 per cent of the correct income tax and the estimated amount paid by instalments during the year of income. That is if the correct income tax is finally determined to be shillings 100 million, but your estimate was shillings 79 million, then interest would be computed on shillings 1 million (i.e. 80 per cent of 100 million less 79 million estimates). But this was changed by the Finance Act, 2017.

From 1st July 2017, if your tax estimate is less than 80 accurate, then underestimation interest will be computed based on the difference between the correct income tax and the estimated amount paid by instalments during the year of income. That is if the correct income tax for the year 2020 will be finally determined as shillings 100 million, but your estimate is shillings 79 million, then underestimation interest will be computed on shillings 21 million (i.e. the correct 100 million less the estimate of 79 million). You will notice, as this example depicts, the interest computed on shillings 21 million will surely be significantly higher than interest computed on shillings 1 million.

Whilst the 20 per cent range of accuracy may seem so wide for you to miss, in practice, it may easily be missed if there are no adequate internal controls for tax. For example, income tax estimate is essentially a by-product of your estimates of income and expenses. If you get either or both two wrong, your tax estimate is also likely to be wrong. With a wrong tax estimate, you may end up paying a higher amount of income tax than what would have been paid if the proper estimate was done or pay less and get penalized. Overestimation will, unnecessarily, strain your cash flow. Underestimation of tax, as demonstrated above, will attract potentially huge underestimation interest. So, you need controls in place that will ensure tax estimate is at least 80 per cent accurate. So, after filing your estimates for the year 2020 by the end of March, you need to review your business and financial plans periodically throughout the year to test the validity of your financial and tax estimates. This is important even if the exercise does not lead to revising your provisional income tax return.

By  Shabu Maurus, Tax Partner, Auditax International.

Beware of the tax rules on inbound services

Services play an important role in businesses. The services may include consultancy, IT, management, training, and many others. A person undertaking business in Tanzania has the liberty to either import services or acquire them from local providers. Normally commercial and technical factors would influence the decisions. But are there possible tax implications? The answer is yes. Most notably are the withholding tax and VAT implications. Not assessing the tax implications at early stages may, later, prove to be costly to your business. From my experience, failure to apply tax laws properly on services by taxpayers is amongst the most featuring findings in tax audits. In this article, I highlight some of the VAT considerations.

Importation of goods is subject to customs clearance and if VAT applies it will be collected at the point of importation. Therefore, whether to import goods or purchase them locally makes no difference in terms of the VAT cost. However, importation of services is a challenge. Services are intangible and the traditional customs controls cannot be applied. The VAT on services cannot be collected by customs. Therefore, it may be cheaper to import services than purchasing locally. However, the VAT law (The VAT Act, Cap.148) has been designed with rules that serve to achieve some degree of neutrality. And failure to conform to the rules poses a significant VAT risk to your business.

Taxable imported services: These refer to services consumed locally but supplied by a foreign supplier and that had the same services been supplied by a local supplier VAT would have been charged at a rate other than zero. I will give two examples to illustrate this, rather, simplified definition. Imported medical services would not qualify as taxable imported services because a local supply of medical services is VAT exempt. However, local supply of IT services is taxable and hence their importation would qualify as taxable imported services. I should, perhaps, also point out that the actual definition (of imported services) in the VAT law is much more detailed with some exclusions.

VAT Registration threshold: This is the level of annual taxable turnover (taxable supply) at which registration for VAT becomes compulsory. Generally, the VAT registration threshold in Tanzania is 100 million shillings. The VAT law requires that the value of taxable imported services be considered as part of turnover when determining if a person has reached the threshold. Therefore, importation of services may trigger VAT registration. This calls for proper internal controls to track imported services and assess their implications on your VAT registration status.

VAT representative: If you are not a VAT registrant and have acquired services from a foreign supplier who is also not registered for VAT in Tanzania, then the foreign supplier is required to appoint a VAT representative in Tanzania who would charge and collect the VAT on those services. However, if the foreign supplier regularly supplies services in Tanzania, then the supplier is obliged to register for VAT.

Reverse charge procedure: If you are a VAT registrant (taxable person) and have acquired taxable imported services, then you may have to declare and account for VAT on the services using the "reverse charge procedure". Where a reverse charge applies for the services acquired, the person must act as if he is both the supplier and the recipient of the services. Failure to account for imported services properly may have costly implications. After six months has elapsed, the tax authority is likely to assess VAT on imported services as out tax and restrict the deduction of it as input tax.

 

By Shabu Maurus, Tax Partner, Auditax International

 

Handling taxman’s questions

As a taxpayer, tax-related enquiries from the Tanzania Revenue Authority (TRA) to you may come in many forms. An enquiry can be a question or request for information through a phone call, a text message, an email, a letter or even a one to one conversation. But some tax enquiries can be more serious. For example, audit, investigation, verification exercise, inspection, or even search of premises or your home. But, unlike enquiries from your other stakeholders, say your customers or suppliers, enquiries from a tax authority need to be handled with extra care.

Your obligations: You have various legal obligation obligations under the tax laws. The obligation to keep documents and information pertaining to your business for at least five years. The obligation to provide accurate and complete information. The obligation to grant free access, facilities and assistance to TRA. Providing false or misleading information to TRA is an offence. Failure to provide information, access, facilities or assistance may be charged as an offence for impeding tax administration.

TRA powers: You may decide not to, voluntarily, cooperate with TRA. But that may not be as helpful. Apart from your legal obligations and the possible sanctions thereof, tax laws give TRA massive powers to gather information from taxpayers or third parties. And TRA can exercise most of their powers without court orders. TRA have powers to access any of your assets, information or premises any time. The only exception is dwelling houses where a court order is required for access between 6 pm and 9 am. TRA can also use experts or officers from other government institutions such as police. TRA can also seize, retain and restrain assets or documents. TRA can also restrain persons.

Consequences: Simple tax enquires may also extend to more serious tax enquiries like a tax audit or even a tax investigation if a tax crime is suspected. Tax enquiries may not necessarily end in a tax liability. But most of the enquiries will do. Especially if they are not handled carefully. Either a new tax liability or an amended one. Even in cases where TRA is unable to gather information from you, TRA can use third-party information or use their best judgment to estimate tax liability. Again, TRA has massive powers to collect taxes. They have various tools at their disposal to collect the tax directly from you the taxpayer. In this respect, TRA can create a charge over your assets, sell your charged assets, restrain your assets or even restrain you if you are likely to flee. TRA is also empowered to collect from third parties. If you are an entity, TRA can collect the outstanding tax from managers or directors of the entity. TRA can also collect your debtors, guarantors, receivers or liquidators and agents.

Your rights: Despite the massive powers given to TRA, as a taxpayer you also have some rights. TRA, with limited exceptions, is obliged to treat information collected from you as “secret and confidential”. In the course of a tax enquiry, you may decide to be represented or assisted by your tax consultant. You may decide not to cooperate with TRA officials if they fail to properly identify themselves. You also have a right to reasonable compensation for lost or damaged documents, assets or sample retained by TRA. There is also a statute of limitation where TRA is barred from amending your tax return after five years.

By Shabu Maurus, Tax Partner, Auditax International.

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