Penalty or fair play? Impact of Finance Act 2024 on tax goals

Imagine, if you will, a football match where the stakes couldn't be higher – a key decision awaits, and the Video Assistant Referee (VAR) is called into action. Picture your favourite player. He is deftly manoeuvring through defenders into the penalty box, only to be tugged back by a defender. As the referee approaches the pitchside screen, the crowd's anticipation builds to a fever pitch as they await the outcome. Few things frustrate football fans more than a VAR decision that leaves room for debate.

When VAR was first introduced – used officially for the first time in the Dutch Cup in 2016 – it revolutionised the game by increasing the accuracy of decisions and ensuring fairness. At least in theory. However, fans and teams were concerned that the process interrupted the flow of the game, often taking too long without a clear time limit for reviews. Since then fans and teams have pushed the idea of having a transparent process and a time limit for VAR checks.

Just as in football, where clear and timely decisions are crucial, taxpayers look for timely (and hopefully clear) tax decisions. In this context, a positive development three years ago was the Finance Act 2020 amendment to the Tax Administration Act 2015 (TAA 2015), the effect of which was to require the Tanzania Revenue Authority (TRA) to determine an objection to a tax decision or assessment within six months from the “date of admission” of the objection. Before this amendment, there was no time limit for the TRA to respond to objections, a cause for frustration to taxpayers concerned with an unnecessarily prolonged dispute resolution process.

The introduction of this six-month timeline, which like VAR has helped reduce some element of uncertainty, was a welcome change. However, just as with VAR, the implementation brought its own challenges. The term “date of admission” was not clearly defined, creating ambiguity. In many cases, the TRA does not issue an admission letter despite a taxpayer having filed a compliant objection, a situation which leaves taxpayers uncertain about when the six-month period would start.

The process for objecting to a tax decision is twofold. Firstly, it requires an objection to be filed within 30 days of receiving the tax decision from the Commissioner General (unless an extension is granted). Secondly, it requires the satisfaction within 30 days of the minimum tax payment requirement, which (in the absence of a waiver) is the higher of the tax not in dispute and one-third of the assessed tax.

Addressing these concerns, the Finance Act 2024 now introduces the concept of “deemed admission,” linked to the date when the above conditions are met. This means that once these conditions are satisfied, the objection is considered admitted without needing a formal admission letter from the TRA.

Where the TRA has not determined the objection in the six month time frame, rather than the taxpayer’s objection being deemed to be the confirmed position (which would be the expectation and is the normal practice in other jurisdictions as well as in Zanzibar), the original assessment is deemed to be confirmed. Therefore, after the lapse of the six-month period from the deemed admission date, a taxpayer will need to consider whether to proceed to file an appeal at the Tax Revenue Appeals Board (TRAB).

Despite the positive intentions of the recent change in relation to “deemed admission”, there are potential scenarios that cause uncertainty. Consider a case of an adjusted assessment that includes an additional tax liability triggering the need to make the minimum tax deposit prior to lodging the objection - when does the countdown start? If it is indeed at the point of payment, then this is before the objection is formally lodged - however, there is no objection until one is lodged, so ideally the countdown should only start from that point onward.

A further scenario with potential for confusion is where a taxpayer, despite being in a credit/loss position after a tax audit, wishes to dispute a tax decision. As the minimum tax deposit requirement is not applicable, the question arises as to when the countdown begins in this case. Ideally the deemed admission date should be the date the objection is submitted, but the point is not clear.

Additionally, even with the deemed admission date a further practical challenge may remain as to whether the TRAB will accept to hear such an appeal. Experience to date indicates that the TRAB might argue that an appeal related to the deemed six-month rule is premature until the TRA decides on the objection or proposes a settlement. Again, the sensible way forward to avoid this kind of scenario would be to amend the legislation to be consistent with the approach in Zanzibar, whereby the deemed determination is in line with the objection (instead of the original assessment). It would seem that any such change will have to await a later budget and so Mainland taxpayers will continue to be disadvantaged in this regard as compared to their Zanzibar counterparts.

Aside from this, a further suggestion so as to address uncertainties highlighted earlier and to better achieve the intended objectives of the legislation, would be to amend the six-month provision in the TAA 2015 so that the deemed admission date is the later of the date of the filing of the objection and the payment of the minimum tax deposit. This would ensure that the time limit can not start to run prior to the filing of the objection.

Overall, these proposed changes would facilitate a more timely and fair resolution of tax disputes, ensuring clarity and consistency in the objection process. It remains to be seen whether such changes will be made, and if so whether they might be made before the introduction of VAR to Simba na Yanga derbies here at home. What will come first—your bet?