Worldwide, a tax clearance certificate (TCC) is a document which confirms that, a taxpayer has paid all tax dues. It is issued by a revenue authority upon submission of an application. Prior to issuance of TCC the authority checks if the taxpayer has met the conditions or requirements of having paid all taxes due.
In Tanzania, apart from reasons such as renewal of business licence; tender applications; transfer of shares; exporting goods; transfer of ownership, a tax clearance certificate is also required when a company is looking to formally cease its operations. Tanzania entities are required to renew their business licences yearly.TCC is one of the documents required to support an application for renewal of the business licence.
Based on experience, it does not require a lot of effort to obtain a TCC for the purpose of renewing a business licence. I imagine this is the case because Tanzania Revenue Authority would not like the business to come to a standstill while waiting for the TCC. If a business keeps its doors open, chances are it generates more taxable income.
A concern is when the entity wishes to close down its operations in Tanzania and applies for the TCC from TRA. It has been the practice that, when an application is made for the purposes of closure, then a tax audit is triggered. Hence it is seemingly difficult for entities to estimate the time involved to obtain the TCC.
Moreover, the tax audit may result in tax liabilities from previous years. If the entity is unable to settle such tax backlogs or objects to the liability assessed, the TCC is not issued. While all these tax disputes are progressing, the entity is expected to continue to be compliant by filing tax returns.
As the title ‘Tax clearance’ suggests, one would expect that whenever this is issued to an entity, all the entity’s tax dues are fully settled.
The questions at this stage are “Who is to blame for the significant liabilities and delays in issuing TCC required to close an entity?”Is it TRA’s fault for issuing TCCs annually (for business licence or other purpose) without conducting requisite tax audits? Or is it the taxpayer’s fault for not being compliant? Is it the fault of the revenue authority for not doing tax audits timely and leaving a number of years open which accumulates interest liability for taxpayers in case of non-compliance?
What is the essence of issuing a TCC if it does not confirm that a taxpayer’s tax affairs are up-to-date? Probably having the TCC as a requirement for renewal of business licence and tendering is not beneficial to the revenue authority or the taxpayer? Do these TCCs serve a purpose really or should they be categorised differently with different requirements needed upon application?
Probably the TCC should be removed as a requirement for business licence renewal as it was in the past (prior to August 2015), considering it may not be beneficial to TRA or the taxpayer.
The revenue authority and the taxpayers should work hand in hand to ensure that whenever the TCC is issued it has a meaning for both of them. All stakeholders should therefore be responsible enough in order for the TCC to serve its purpose.
Prisca Mitanda is a tax advisor at KPMG in Tanzania and can be reached through: [email protected]. The views expressed here are the author’s and do not necessarily represent the views and opinions of KPMG.