MANAGING TAX RISKS: Additional cost of disputing a tax assessment
In exercising its statutory powers to administer tax laws in Tanzania, the tax authority (TRA) makes various decisions including decisions over the amount of tax that should be paid by a taxpayer. If a taxpayer, for any reason, disagrees with a tax decision made by TRA, a tax dispute arises.
Generally, if a taxpayer disagrees with the TRA’s decision he is entitled, as a first step, to object against the decision to TRA. If the tax dispute is not fully resolved at TRA level, the tax administration laws provide for a three-tiered appeal system -the Tax Revenue Appeals Board (‘Board’), the Tax Revenue Appeals Tribunal and the Court of Appeal.
The Finance Act, 2017 has made two fundamental changes to the tax dispute resolution process that, in my opinion, will significantly impact the administration of justice in the tax space. First, is the requirement for a taxpayer to be issued with “a notice of final determination of objection” by the tax authority before the taxpayer can appeal against any tax decision. Whilst the amendment may be well intentioned, it falls short of prescribing time frame within which the tax authority should issue such a notice to the taxpayer to allow him to exercise his right of appeal. A fairer alternative would be to prescribe time frame within which a tax authority must determine the filed objection beyond which a taxpayer becomes entitled to file an appeal to the Board.
The second change is that the interest will now continue to accrue on the amount of tax assessed by TRA but remains unpaid due to delays in “court proceedings or any other dispute resolution”.
This will apply if the tax dispute is finally decided in favour of TRA. The amendment also precludes a delay due to a “court proceedings or any other dispute resolution” as a reason for a taxpayer to request a waiver of interest.Whilst this will deter frivolous disputes by some dishonest taxpayers, it also inhibits access to justice. It, effectively, penalizes genuine taxpayers who for good reasons opt to exercise their right of appeal.
There are various good reasons as to why a particular taxpayer may disagree with a decision or decisions made by the tax authority against that taxpayer. It could be because the taxpayer believes that TRA’s interpretation of the tax law flawed. It could be a dispute on facts or the accuracy of TRA’s tax calculation. It could be an incorrect application of the law or even in some cases, a wrong tax law has been applied.
Of course, there are also “bad” reasons a taxpayer may disagree with TRA’s decision. A taxpayer may not fully understand the tax law or he may not have money to pay the demanded tax. Other taxpayers may not fully comprehend why the government should take away from them their hard-labored money.
Tax disputes can take years to resolve at each level and the tax administration laws, unfortunately, do not prescribe a specific time for resolution or decision at any level. I know some few unresolved tax disputes going back as far as 2007. Interest accrued on a monthly compounding basis at statutory rates over a period of the dispute may become unbearably massive. Once a taxpayer has filed an objection or appeal within the prescribed time, there is so little that taxpayer can do to speed up a tax dispute resolution process.
To taxpayers, if these changes are here to stay, it means that decisions whether or not to challenge TRA’s assessment of tax should be well thought through taking into account the potential interest.
Mr Maurus is a partner with Auditax International
