The waiver gamble: Navigating uncertainty in tax administration
What you need to know:
- Taxpayers are often left with no solid recourse after a waiver rejection, other than attempting to negotiate with the same officers who determined that no good reason existed, even if the taxpayer believes otherwise.
Life is like a game of dice; you never know what you are going to roll.” This analogy, while often applicable to various aspects of life, should not extend to tax administration, where certainty and predictability are crucial. A well-functioning tax system relies on clear and consistent rules to ensure fairness and stability for both businesses and individuals. When businesses and individuals are left guessing about how their tax obligations will be interpreted or enforced, the consequences can be severe.
Unpredictability in tax administration introduces unnecessary complexity and instability. Recent experience, particularly with waiver applications and their rejections, have highlighted the extent of this uncertainty.
To elaborate, the Tanzanian tax dispute resolution process works on a “Pay now, argue later” principle where a taxpayer who wishes to dispute a tax decision lodges a notice of objection to the revenue authority. For the taxpayer’s objection to be admitted for consideration, there is a requirement to pay a deposit equal to one-third of the assessed tax or the amount not in dispute, whichever is greater. However, the law permits taxpayers to request a waiver of the full or part of this deposit. For the waiver request to be entertained, the applicant / taxpayer should provide the revenue authority with “good reasons”.
This introduces uncertainty in the pursuit of waivers, as the term “good reason” is not defined in law nor any guidance has been provided by the revenue authority. As a result, the basis for accepting or rejecting a waiver application is unclear and left to the discretion of the revenue authority. In practice, most waiver requests are rejected as they are considered to lack a good reason by the authority.
While this power has always been discretionary, it has not always been so broadly discretionary. Historically, the Tax Revenue Appeals Act provided specific criteria for waiver decisions, such as legal or factual uncertainty, hardship or equity. However, the 2004 Finance Act replaced this detailed guidance with the broader term “good reasons”, granting the revenue authority the discretionary power which has resulted in increased uncertainty for taxpayers.
This uncertainty is further compounded by the fact that the results of a waiver application are final and conclusive for the taxpayer. Prior to 2019, taxpayers could challenge waiver rejections by appealing to the Tax Revenue Appeals Board, giving them a chance to seek an unbiased review of whether a good reason existed for the waiver. However, since 2019, two landmark Court of Appeal decisions have interpreted the law to mean that waiver rejections cannot be challenged by appeal or objection.
As a result, taxpayers are often left with no solid recourse after a waiver rejection, other than attempting to negotiate with the same officers who determined that no good reason existed, even if the taxpayer believes otherwise.
The absence of clear criteria for what qualifies as a good reason means that taxpayers face considerable unpredictability when seeking waivers, effectively gambling with their resources. This uncertainty underscores a significant flaw in the tax administration system, where the process of seeking a waiver becomes an uncertain gamble rather than a process governed by clear, defined rules.
To address this issue, Tanzania could benefit from revisiting its past practices or using best practices from other jurisdictions. For instance, the South African Tax Administration Act provides specific factors for tax officials to consider when deciding on suspension of tax payments. This includes factors such as the risk of flight, risk of asset dissipation, the taxpayer’s compliance history, the likelihood of irreparable hardship to the taxpayer, and the adequacy of security provided to the revenue authority.
Implementing similar clear guidelines could help reduce uncertainty and improve the fairness and predictability of the tax system. Ultimately, providing clearer guidance on what constitutes a good reason for waiving deposits would enhance the stability and fairness of Tanzania’s tax administration, reducing the degree of uncertainty and making the process less of a gamble for taxpayers.
Fredrickson Maboko is a Senior Associate, Tax Services at PwC Tanzania.
