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Badilisha Lugha KISWAHILI

`Tanzania deserves a better tax dispute resolution mechanism`

28th January 2011

An effective tax disputes resolutions system is the only alternative for a country like Tanzania. The country requires a tax disputes resolutions system that will make taxpayers have faith and confidence in it. There is therefore a need to review tax disputes resolutions systems in Tanzania with the objective of cultivating confidence by the taxpayers, according to a Special Correspondent. Read on…

It would have been good for the government to come up with kind of ad-volorem taxation system only. In such a system there would be no need for tax officials to make assessments.

Again, it would have been better if taxpayers could know their tax payable without being assessed. There could have been nobody to complain to, apart from the government itself. The nature of some taxes requires some ascertainment by the tax officials, who are ordinary human beings and who can equally make mistakes. There are therefore difficulties encountered on the course of being assessed, which may lead to disputes. However, taxation is said to be the price of civilization, and the requirement of being assessed ones taxes is certain.

Taxation is the main source of government revenue in Tanzania. The main players in taxation are the taxpayers (paying the taxes) and tax administrators or the Commissioner assessing the taxes payable by taxpayers. The relationship between the two main players may sometimes turn sour, especially when the two are in disagreement relating to the assessments. Such disagreements are known as tax disputes in tax administration.

There is therefore an obvious need for a regulator to resolve tax disputes in any tax regime. The regulatory system is built in what is known as tax disputes resolutions system. Tax disputes resolutions system provides for the way forward to resolve to tax disputes.

There are several factors for multiplicity of tax disputes in developing countries, like Tanzania. One is the complications of the tax laws which make it very difficult for an ordinary citizen to construe. The other factor that is equally contributing to multiplicity of tax disputes is the need for tax officials to ensure their tax revenue targets are met, an exercise that sends some of the tax administrators in panic and by so doing raising arbitrary assessments.

The Tanzania government has been taking various measures (tax reforms) in efforts to simplify the country’s tax regime with an objective to lessen the taxpayers’ burden. It is unfortunate however that tax administrators are under pressure to bring in more money in line with specific internal targets.

With the current complicated tax regime, together with the tax revenue targets pressure, tax disputes are likely to pile up. Tax administrators and taxpayers are likely to continue locking horns to defend what they believe is correct.

An effective tax disputes resolutions system is therefore the only alternative for a country like Tanzania. Tanzania requires a tax disputes resolutions system that will make taxpayers have faith and confidence in it. There is therefore a need to review tax disputes resolutions systems in Tanzania with the objective of cultivating confidence by the taxpayers.

An effective tax disputes solutions regime is the one that works purely on the grounds of tax justice in terms of its decisions. Tax justice through a competent tax disputes resolutions system is the only balancing charge and balancing deduction between the tax administrators and the taxpayers.

Most of the tax regimes in developing countries will have departments responsible for making decisions concerning the application of tax law to various taxpayer issues. There are Technical units in Tanzania for both in Tanzania Revenue Authority (TRA) and Zanzibar Revenue Board (ZRB). In some cases, agreement on these decisions or determinations cannot be reached. In other words the taxpayer does not agree with the decisions/determinations.

This is where Appeals in other countries (like UK) come in. Ideally Appeals is independent of any tax regime office and serves as an informal administrative forum for any taxpayer who disagrees with the revenue authority’s decisions or determinations.

Appeals should not be a formal court. It is a stage just before one climbs to the next step, which is to resort to courts. Appeals mission is to resolve tax controversies, without litigation, on a basis which is fair and impartial to both the government and the taxpayer in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the services.

There is the Tax Revenue Appeals Act, 2000 in Tanzania which is basically the overall guidance for tax disputes resolutions. The Act established the Tax Revenue Appeals Board (TRAB) and the Tax Tribunal to deal with tax disputes in the country. The tax Revenue Appeals Board endeavours to take the form of general appeals.

However, the board appears more or less the same as a formal court. Appeals provide a venue where disagreement concerning the application of tax law can be resolved on a fair and impartial basis for both the taxpayer and the tax authority without much costs.

The next step in the chain for search of taxpayers’ rights in Tanzania is to move to the Tribunal. Some tax dispute cases have gone up to the Court of Appeals. In other countries the case can also go as far as the supreme courts. Proceeding to courts is an important recourse in the taxpayers’ rights. However, one opts for a court in which he/she has confidence in.

Having faith in the country’s tax dispute resolutions regime is extremely important for taxpayers. The set up and the mind-set of the people involved in the system is one of the factors of confidence in the dispute resolution system.

The appeals and courts set-up, together with the mind-set of the people involved in the resolution is also an important factor in the whole course of fair conclusion of issues. The only way to cultivate faith for the system is to have a tax judiciary system which is neutral, independent and which is not biased or affiliated to one of the arguing/conflicting parties.

When I try to review the tax disputes resolution regime in Tanzania, I find myself unable to overlook some of the issues (discussed below) which sends doubts to the competence of the tax disputes resolutions system in the country. Such issues as presented below have lead to my concluding remarks that further reforms in tax disputes resolutions regime in Tanzania is a must in order for taxpayers to have confidence in the system.

The following two aspects have serious and negative implications in the competence of the tax disputes resolutions system in Tanzania. One is the set-up of the system and its identification, and second, some of the provisions in the Tax Revenue Appeals Act, 2000 which are outstanding and inclined to favour the Commissioner than the taxpayer. Well, it is about justice for both the Commissioner and the taxpayers, bearing in mind that, taxpayers’ rights are the most likely to be compromised in favour of the Commissioner. It is only through having started on equal footing that we can have a competent tax disputes resolutions system in place.

The set-up of the tax disputes resolutions systems in Tanzania are having obvious colours of the Commissioner, and it feels like the system is indirectly accountable to the Commissioner.

The identification of the employees TRAB for instance has the phrase Tanzania Revenue Authority (TRA) on it. You can hardly do without shivering when you apply for tax dispute resolution just to find the one who is attending you has the Commissioner’s identification with him/her and sometimes wearing the TRA jackets. The confidence in the complainant (taxpayer) immediately vanishes.

It leads to doubting the independence and therefore the competence of the system. It is also not clear to me why is the system not under the Ministry of Justice and Legal Affairs, instead it is under the Ministry of Finance. That means both the Commissioner and the system are affiliates of the Minister for Finance. In tax language they are in fact associates, who at some point will have common interest.

The employees may also be working in good faith to carry out their duties. However, the obvious relationship between the two organs is enough to confuse any ordinary human being. It is also logical for one to believe that the judges are answerable to the Minister for Finance and therefore indirectly answerable to the Commissioner General.

It is confidence in the system that makes me propose for a quick set-up reform in the administration of tax justice. The heart may find it very difficult to believe that employees bearing TRA tags are not working for the Commissioner.

Imagine when a complainant (taxpayer) finds the defendant’s (TRA) representative is also putting on the same badge/logo with the judge. One may choose to surrender the case to avoid humiliation of a free fall.

My serious proposal as far as the set-up is concerned is to work out the structure such that, such important system fits within the judiciary system of the country, and be answerable to the Minister responsible for Justice and Legal Affairs. This will cultivate confidence on the part of the taxpayers as they will be meeting the Commissioner in no man’s land (neutral ground).

There are provisions in the Tax Revenue Appeals Act, 2000 which renders the tax justice system in Tanzania doubtful. Those are basically biased towards safe guarding the interest of the Commissioner. Sections 12 and 13 of the Tax Revenue Appeals Act, 2000 are definitely not relevant to that Act.

The sections provide for procedures to be followed when in tax dispute and the Commissioner’s powers upon receiving an objection. It actually means that the Act is partly administered by the Commissioner and partly by the appeals and judges. We have seen several occasions when the Commissioner quotes the sections for the day to day administration of objections, especially on the requirement to pay one third of the tax in dispute for an objection to be admitted. So it is one of the working tools of the Commissioner.

Why then keep such provisions in the tax appeals act? This is obviously wrong and it sounds like the Act is administered by both the Commissioner and the judges, with just a matter of time. There is no reason whatsoever to have those sections in the appeals act. I feel it necessary to emphasize that the sections are actually being administered by the Commissioner and should be part of the income Tax Act 2004.

The other implication that is also important to consider is the possible fear that the Commissioner is actually working together with the appeals and the judges especially because they are using the same act at different point. We need also to view it such that objections are not appeals and the disputes war has not yet started.

Objections are still in the powers of the Commissioner, and therefore should not be reviewed as disputes already. Those sections could only be mentioned somewhere in the Tax revenue appeals Act, 2000.

It is a pity also that Section 3 (interpretation) has provided for a special recognition of the Commissioner General but does not define who is a taxpayer in order to give them equal weight for the two, especially when it comes to justice. That provision has given the Commissioner special recognition in front of the taxpayers.

There was no need to have the definition of the word ‘minister”. If necessary, the word “minister” could only mean the minister for Justice and Legal Affairs. If left the way it is, the document directly belong to the Minister for Finance and therefore indirectly belonging to Commissioner. The Commissioner also should not own a special position in the definition of the word “party”.

Why for justice sake should the Commissioner be mentioned in the definition of the word party! The definition should end at the word “Tribunal”, full stop. In that specific room, the commissioner and the taxpayer should be considered as equals.

There are several sections in the Act that gives strict timelines for taxpayers to observe, while leaving the Commissioner without any time restrictions. The Commissioner acts at his convenience in many instances, while taxpayers have timeline restrictions in almost every requirement. One should be able to appreciate the importance of time lines upon which to act for the Commissioner as well.

Providing for open periods upon which the Commissioner to act on some matters relating to taxpayers amounts to risking a lot of the government’s revenue. There is for instance no time limit for the Commissioner to respond to objections, no time limit for the Commissioner to issue assessments etc. Such endless time denies the Government its revenue at the right time and at the same time frustrating the taxpayers. Taxpayers are definitely not being treated fairly in this regard.

The cost of waiting unnecessarily long is actually of double edge for both the government and the taxpayers, at the advantage and laxity of the Commissioner. The point is that such freedom to the Commissioner is not in the interest of neither the government nor the taxpayers.

There is also the requirement of payment of one third of the tax in dispute for the Commissioner to entertain taxpayers’ objection. The provision provides for a taxpayer who is disputing any tax assessment and wants to object to the Commissioner to first pay one third of the tax not in dispute.

Short of which the objection may not be entertained. Taxpayers have been all along proposing to the government to repeal that requirement, but in vain. That provision can easily be abused by the Commissioner who can purposefully issue unnecessary massive or huge assessments just to scare or fix the taxpayer. The assessment may be so huge that the assessed taxpayer may not be able to raise the one third.

However, the provision provides for the Commissioner to accept a lesser amount, less than the one third if he is convinced that there is a genuine reason. Again if he is not convinced the one third payment requirement is final and conclusive. There is no clear provision in the Act that allows the taxpayers to appeal to a higher authority where the Commissioner denies payment of a lesser amount. That area requires serious attention of the legislators.

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