Tax disputes: let’s resolve the deemed assessment conundrum!

By Jafari Mbaye

In this world nothing can be said to be certain, except death and taxes” is a well known quote from Benjamin Franklin; but as a tax practitioner I would probably expand this narrative on certainty to refer not just to taxes but also tax disputes, which are an ever present concern for businesses in all jurisdictions.

So in the context of Tanzania, how does a tax dispute arise and how is it resolved? Similar to the process in many other jurisdictions, the initial step is for the Revenue Authority (in this case the Tanzania Revenue Authority (TRA) to conduct an audit on the compliance status of the taxpayer. The aim of the audit is to verify the compliance with filing requirements, payment of taxes and even procedures relating to business transactions affecting the payment of taxes. From this audit, the TRA will come up with findings which need to be addressed by the taxpayer. At this stage, the taxpayer is given room to provide additional information as well as clarification on the matters raised.

Following these discussions the TRA may conclude that in their view there are some adjustments to make whether to the reported income or additional tax to assess, in which case they issue an assessment for which the taxpayer has 30 days to file a formal objection (if he is not satisfied with the basis of the assessment). At the objection stage, the taxpayer is required to pay a tax deposit equal to the higher of either one third of the assessed tax or tax not in dispute. In some instances, the taxpayer may request for waiver of the required tax deposit by providing reasons and evidence to support the grant of such a waiver. After fulfilling the conditions for lodging the objection, the TRA will then review the objection to the assessment and issue a proposal to settle the objection - again, the taxpayer has 30 days to respond to this proposal (to either accept or provide additional arguments to dispute the proposal).

The TRA will review the response and issue a determination letter to communicate their final decision on the matter(s) in dispute. Where the taxpayer is not happy with the final decision, there is a right to file an appeal to the Tax Revenue Appeals Board (TRAB).

Prior to July 2020, there was no time limit for TRA to respond to an objection. Effective from July 2020, the Finance Act 2020 amended the Tax Administration Act (“TAA”), 2015 to require the determination of an objection to a tax decision within six months from the date of admission of the notice of objection. This six month time limit and deemed determination mirrors the time limit previously applied in the years 2000 to 2004. However, in that case the deemed determination was in line with the taxpayer’s objection. By contrast, the 2020 amendment deems the matter to be determined in accordance with the initial underlying tax assessment or decision of the TRA.

The deemed assessment in line with the original TRA assessment does give rise to a number of concerns. Firstly, it appears to assume that it is more likely than not that proposed adjustments are justified (i.e. benefit of doubt to the TRA not the taxpayer), and also does not take account that there may be matters that TRA have already in principle conceded following receipt of the objection. It also will result in more work for the appellate bodies as following the deemed determination the only mechanism for a taxpayer to continue the dispute is to appeal to the Tax Revenue Appeals Board (“TRAB”). It also creates practical difficulties for taxpayers to monitor the deadline for filing an appeal as there is no formal notification mechanism from TRA as to the lapse of the pending deadline.

By contrast, Kenya’s tax dispute resolution process, which I became familiar with when working on secondment in PwC Kenya, requires the Kenya Revenue Authority (KRA) to issue an objection decision within 60 days of receipt of the taxpayers notice of objection or of receipt of any additional information requested; otherwise the objection is deemed to be determined in favor of the taxpayer. From my experience this incentivised the KRA to provide objection decisions and resolve disputes on a timely basis.

In the case of Tanzania, the 2020 amendment has also helped to ensure timely action by the TRA in resolving objections. However, the concern remains that in certain cases some assessments are not determined in time - and in such a case the consequence can be inequitable for the taxpayer. So as to resolve this my proposal is for an amendment to the TAA so that where there is a deemed determination (if no response is provided by TRA within a period of six months from the date of the objection) then the assessment is deemed to be amended in accordance with the notice of objection (in other words, similar to the position that applied from 2000 to 2004, and aligned with the process I experienced in Kenya). If it is felt that the six month period is not enough time for the TRA to make an objection decision then perhaps the time frame could be changed to 12 months. In addition, so as to remove any doubt as to when the six month (or 12 month) period commences, it would be helpful to require TRA to issue a letter to admit any objection (once the relevant conditions for admittance are met).

The proposed amendment to resolve the current conundrum on deemed determinations will help meet the objective as set out under the Finance Bill 2020 as it will incentivise TRA to determine an objection on a timely basis, and at the same time without prejudice to the taxpayer’s rights.

Jafari Mbaye is Manager, Tax Services with PwC Tanzania