Under Tanzanian tax law, a taxpayer who objects to an assessment must file the objection within 30 days and pay a tax deposit equal to the greater of one third of the assessed tax or the undisputed amount.
By Junior Yusuf
You may have asked a friend or relative for financial assistance, only to hear, “I don’t have money right now.” Often, this does not mean they lack funds, but that existing commitments limit unplanned spending.
The same applies to businesses; a company may have healthy bank balances yet still be constrained when unexpected cash demands arise.
This reality should be acknowledged by the Tanzania Revenue Authority (TRA) when considering tax deposit waivers for tax objection rather than relying solely on what appears on bank statements.
Under Tanzanian tax law, a taxpayer who objects to an assessment must file the objection within 30 days and pay a tax deposit equal to the greater of one third of the assessed tax or the undisputed amount.
The law also allows the taxpayer to request a waiver of the tax deposit, which TRA may grant at its discretion if satisfied that there are “good reasons.” This provision is meant to enable taxpayers to remain compliant while balancing liquidity pressures arising from unexpected tax demands.
The challenge is that there is no guidance on what constitutes “good reasons,” leaving wide room for discretion to the TRA. Compounding to this, the Court of Appeal held that rejections of tax deposit waivers cannot be challenged.
In practice, many waiver requests are rejected simply because bank statements show an availability of funds leading to conclusion that the company can pay.
This TRA’s reliance on the bank balances overlooks financial management complexities and can misrepresent a company’s real ability to meet unplanned obligations.
A company’s financial health rests on effective working capital management which balances liquidity and profitability by maintaining an optimal mix of current assets and liabilities.
Liquidity depends on the cash conversion cycle which spans from inventory, to receivables, to cash — and a high bank balance is no guarantee of liquidity if the cycle is long.
Given the nature of most businesses, maintaining baseline working capital and holding additional reserves for seasonal fluctuations and market dynamics is crucial.
From a financial analysis perspective, liquidity is assessed through ratios and cash flow dynamics that consider both current assets and current liabilities – not cash alone. As such, TRA’s reliance on bank balances overlooks the key fundamentals of financial analysis.
Sound cash management requires businesses to hold optimal cash for transactional, precautionary and speculative purposes. This ensures that obligations such as payroll, supplier payments, inventory restocking, loan servicing, “normal tax payments”, business contingencies and investments are met on time.
Put differently, the bank balances are usually not idle cash but part of an optimal cash management strategy essential to operational continuity.
Equally important are financial planning and cash budgeting, through which businesses forecast cash flows to anticipate deficits and surpluses.
Since tax assessments are often unpredictable — and in few cases based on positions that may lack merit — the requirement to pay a tax deposit can disrupt cash budgets.
This forces diversion of funds from essential operations, straining supplier relationships, delaying salaries or forcing cancellation of planned investments.
Worse still, taxpayers can only challenge such assessments after paying the deposit of which its waiver relies on the bank balances. This undermines the very activities that generate tax revenue and sustain economic growth.
I recognise that the tax deposit requirement serves as a safeguard for government revenue, helping to ensure that tax collections are not delayed by pending disputes or objection tactics. However, the “good reasons” remains highly subjective, and if waiver requests are routinely rejected, the provision value is undermined.
To address this, Tanzania could draw on best practices from countries in the region. In South Africa, the suspension of payment considers factors such as the risk of flight, recovery, asset dissipation and irreparable harm, compliance history, fraud involvement and the adequacy of security provided by the taxpayer.
From a policy perspective, reforms could include shifting the deposit requirement to the appeal stage (as in Uganda) or holding tax deposits in escrow until disputes are resolved, for a more objective decision making.
Notably, Kenya does not impose a tax deposit requirement for objections.
In the meantime, how the discretion is exercised remains critical. TRA should weigh multiple factors before deciding on waiver requests. A “business first, collection second” approach would better support long-term economic stability and business continuity rather than prioritising short-term revenue collection targets.
Ultimately, a fair and well-reasoned tax administration benefits all stakeholders—the government, businesses and society at large.
Junior Yusuf is an Associate in Tax Services with PwC Tanzania based in Arusha office. The views expressed do not necessarily represent those of PwC
