MANAGING TAX RISKS: Cash hurdles you may face in 2018

As we start the year 2018, most of us have a multitude of resolutions or objectives. It is normal. Some would write them down and some may not. Some of the resolutions are financial or financial related.

Setting resolutions may be easy but accomplishing them may be quite a chore. There are a number of challenges that can come on your way. And tax is likely to one of them. This is especially true if you are in business and you are not actively managing your tax affairs. Handling of your tax affairs can no longer be a business as usual.

The tax landscape in Tanzania has significantly changed recently. The tax laws are changing. In 2017 alone, there were at least four legislative instruments that amended some tax laws. The tax authority is also becoming very aggressive in their interpretation of tax laws as well the actual tax collection.

Tax compliance and risks

Tax compliance broadly may involve registration, de-registration, the filing of tax returns, making tax payments, or giving the tax authority business information. Is your organization aware of these various obligations as they relate to its business? Not doing any of those actions within the prescribed timelines may attract unexpected penalties. And if the inaction amounts to an offense, a fine or jail term or both may apply.

There are various reasons non-compliance may happen. Sometimes non-compliance can happen due to organization’s failure to apply tax laws, regulations and decisions to routine business operations. For example, selling a product to a sister company may have different tax implications from selling the same product to the un-related company. So similar sale transactions, but different tax implications. The question is whether the organisation is able to identify and manage that risk.

Non-compliance can also come from a failure to correctly apply the relevant tax laws to specific transactions. This is especially likely for the unusual or non-routine transactions. It can be a sale of fixed or capital assets, sale of business or part of the business or a restructuring project. For example, the sale of building, land or share is subject to a specific tax treatment. Is your organisation aware of these specifics?

Tax management

Tax management is a systematic process. A process to identify tax risks; to assess, rank and prioritise the various tax risks facing the business. It is also a process to respond to the tax risks and continuously evaluate the responses for improvement.

How does the board of directors of the organisation ensure that tax affairs of their organisations are managed properly? Does the board know all taxes that their organisation is obliged to comply? Ultimately, it’s the board that is responsible for actions or inactions of their organisation. It is not uncommon to find out that some organisations do not even know all the taxes that they are required to comply.

Unfulfilled resolutions

The consequences for not managing your tax affairs are numerous. And most of these are likely to come as a surprise.

TRA can demand tax from you based on their best judgment if you have not supplied them with sufficient business information. Some of the demands can be very frightening to your business.

Penalty and interest can also be demanded. Your business premises can be closed leading to losses as business operations stop.

The tax authority can also recover tax directly from your bank accounts. TRA can also recover the tax from some or all your customers who buy from you on credit.

Any of these can be enough to paralyze your well-crafted resolutions!

Mr Maurus is a partner with Auditax International