Is it the right time to mediate?
In order to gain something, you have to lose something” is a popular saying, and a real life example of this “give and take” is the process of mediation whereby one normally needs to concede on some matters to be able to achieve an overall outcome. Mediation is a well known legal procedure whereby two parties discuss their disputes with the assistance of a trained impartial third person(s) with a view to assist them reach an out of court settlement so as to reduce the time and resources that would be spent in continuing with a case.
However so far as tax disputes are concerned, until recently there was no mechanism for mediation formally provided for in the law. As such, the sole avenue for tax dispute resolution in Tanzania has been to begin with the Tanzania Revenue Authority (TRA) and then, where necessary the relevant appellate bodies (including (in ascending order) Tax Revenue Appeals Board (TRAB), Tax Revenue Appeals Tribunal (TRAT) and the Court of Appeal (CoA)). Challenges with this process have included the time taken and related costs of tax dispute resolution, especially given the uncertainty of outcome.
One initiative taken to reduce the time period to resolve tax disputes was the introduction of a six month period for the TRA to determine an objection (which became effective from July 1, 2020). This means that any dispute will not stay for longer than six months at the TRA level (while in the past it could take between one and two years before the TRA would issue the final determination). At the appellate bodies, it is difficult to predict with certainty the amount of time that could be taken to resolve a dispute as there have been instances where the backlog of pending cases was above a reasonable level however the situation has improved in recent times. In addition, a tax dispute at the appellate level does normally involve a very significant time commitment on the part of those involved with the appeal, and consequent significant costs.
However, with effect from July 1, 2021 there is now an avenue for mediation for tax disputes (similar to an out of court settlement) as a consequence of changes introduced by the Finance Act 2021 to provide a route of mediation for unresolved tax disputes. This implies that both parties (taxpayer and the TRA) can opt to discuss a matter out of court through a mediator and reach an amicable solution.
To take advantage of mediation, taxpayers should review the outstanding tax disputes that are currently pending decisions at the level of Appellate bodies. Depending on the facts and circumstances of the case, taxpayers may choose to adopt the process of mediation with the aim of closing the matter earlier and by doing so significantly reduce the resources that would have otherwise been allocated to the long standing disputes. Experience next door in Kenya, which has a similar arrangement in place called the Alternative Dispute Resolution (ADR), has been that ADR has proved to be a successful mechanism for timely resolution of tax disputes. Apart from Kenya, various ADR methods are being employed across the globe with the prime drivers being the reasonable cost and speed of execution allied to confidence in the impartiality of the relevant mediator mechanism in arriving at a mutually agreed solution.
One important aspect to bear in mind is that interest continues to accumulate until a dispute is resolved - something else that motivates timely resolution of a tax dispute through mediation. In addition, to the extent that interest is potentially applicable, changes introduced in the Finance Act 2021 have also increased the possibility of requesting for a waiver of interest and penalties. As they say “time is money” and prompt resolution of tax disputes through mediation can therefore be attractive - not least in also reducing uncertainty - so, why not consider mediation? After all, in order to gain something, you have to lose something!
By Kunj Sinai
