The buzzing news in June 2024 within the taxation fraternity included, among other things, an official letter signed by High Commissioners and Ambassadors from the United States of America (USA), United Kingdom (UK), Netherlands, Ireland, France, Belgium, Canada, Republic of Korea, Sweden, and Germany titled ‘Addressing Urgent Challenges Faced by Foreign Investors in Tanzania’ directed to the Minister of Foreign Affairs and East African Cooperation.
In the letter, the diplomats decried several challenges marring the country’s business and investment progress, with particular emphasis on matters relating to tax administration. The highlighted challenges included:
Period covered by payment and account reconciliations demands i.e., particularly reconciliations involving tax liabilities dating back more than fifteen (15) years.
The issuance of bank agency notices that freeze taxpayers’ bank accounts and consequently disrupt their operations.
The signed tax concessions with line ministries and Tanzania Investment Centre (TIC) that are not automatically recognized by the taxing authority i.e., procedural requirements for ratifying such concessions; and
The time accorded to taxpayers to respond to the payment and account reconciliation demands i.e., instances where taxpayers were accorded only three (3) days to reconcile the alleged outstanding tax liabilities dating back almost fifteen (15) years.
A critical review of the highlighted challenges by the diplomats suggests that tax recovery measures, particularly the issuance of bank agency notices, constituted a major pain point for the business and investment fraternity at that time.
Practically, tax recovery measures normally commence with an official letter from the taxing authority requiring the taxpayer to reconcile the alleged outstanding tax liabilities dating back to any period, usually within three (3) to five (5) days.
Thereafter, the taxing authority would revert with the final tax position and institute tax recovery measures, including but not limited to the issuance of an agency notice to the third-party debtor.
In efforts to address the highlighted challenges by the diplomats, a series of meetings involving the relevant ministries, the Commissioner General (CG) of the Tanzania Revenue Authority (TRA) and representatives of foreign investors took place, resulting in the continued adoption of a more prudent approach to tax administration practices. To date, it is reasonable to argue that a substantial proportion of the challenges highlighted by the diplomats have been addressed. Nevertheless, the pertinent question remains: what should be done to avoid the recurrence of similar circumstances?
It might be the right time to promulgate procedural provisions to regulate the issuance of agency notices in the country by addressing the prevailing pain points of the business and investment fraternity. As taxation is governed by legal frameworks, establishing explicit procedures for tax recovery, such as issuing agency notices, can serve as an effective measure to prevent similar situations from arising again.
Such provisions should clearly state the initial time accorded to taxpayers to respond to payment and account reconciliation demands and the extension of time that a taxpayer may request for that purpose. For example, a period of fourteen (14) days may be accorded to the taxpayers to address the payment and account reconciliation demands from the taxing authority, with a possibility of an additional fourteen (14) days upon request.
Furthermore, the provisions should clearly impose time restrictions in the context of tax recovery measures. For example, the law could clearly state that the taxing authority should only institute tax recovery measures for outstanding tax liabilities dating back to ten (10) years. The time restrictions would incentivize the taxing authority to be accountable and ensure that tax recovery measures on eligible outstanding tax liabilities are instituted timely.
Upon the issuance of the agency notice to the third-party debtor by the taxing authority, the provisions should clearly impose a time requirement for the CG to serve a copy of such notice to the taxpayer. The current provisions only stipulate that the CG shall serve the taxpayer with a copy of the notice without imposing a time requirement i.e., say the CG should serve a copy of the notice to the taxpayer within twenty-four (24) hours after such notice is served to the third-party debtor.
For other tax recovery measures stipulated in the tax administration law, including but not limited to the institution of legal proceedings for recovery of tax-related debts, creation of charge over assets by the CG, sale of charged assets, restraint of assets and recovery of liability from managers of entities, a strong dialogue involving the relevant stakeholders should be held, major pain points on such measures identified and pertinent provisions addressing such pain points promulgated.