A fortnight ago (8th May 2020), the Minister of Finance and Planning issued new tax regulations to govern remission of tax-related interest and penalties in Tanzania. The regulations have been issued to operationalize section 70 of the Tax Administration Act, Cap 438. The regulations may partly clear the lacuna tax existed in this area for some time now. The tax administration law (the Tax Administration Act, Cap 438) gives powers to the Commissioner-General of TRA to waive interest and penalties subject to the regulations made by the Minister. And the relevant regulations were lacking since 1st December 2018.
Remission of interest and penalties is one of the useful tax administration tools. This is especially so for a self-assessment tax administration system where taxpayers are expected to self-assess their tax liabilities and pay their tax dues to the tax authority. The self-assessment system implies that taxpayers can make mistakes in determining their tax liabilities. After all, tax laws have never been a cup of tea to everybody! Also, the self-assessment tax administration system is premised on the expectation that most taxpayers are likely to be faithfully most of the time. But there are unfaithful taxpayers or the would-be taxpayers.
Remission interest and penalties give honest taxpayers relief when they, for example, inadvertently have failed to abide by some provisions of the tax laws. Non-compliance with tax laws could be due to financial hardship, either temporary or long term. Non-compliance could also be due for reasons beyond the taxpayer's control. Take for example the social and economic impacts of the current pandemic facing Tanzania and the world, the COVID-19. Under the current environment, it may not surprise me if some taxpayers fail to fulfil some of their tax compliance obligations.
Remission of interest and penalties can cautiously be used to appeal to the noncompliant taxpayers. Think of the tax amnesty tax was offered back in the year 2018. It helped collect taxes. Taxes that, I think, could not have been collected in the absence of the firm assurance that voluntary disclosure of tax liabilities is something that is welcomed by the tax authority. The amnesty assured taxpayers that no interest or penalties would be charged if they voluntarily disclosure their “hidden” tax liabilities. With the prevalence of the informal sector in Tanzania, the remission can be a good bargaining tool for the tax administration.
The new regulations (the Tax Administration (Remission of Interests and Penalties) Regulations, 2020) now provides some guidelines on how remission interests and penalties should work. The regulations set out the manner for applying for the remission. A specific (prescribed) form must be used and a taxpayer shall disclose the reasons for the imposition of interest or penalty and justification for the remission. There are five eligibility criteria that all must be met by the taxpayers seeking remission. The Commissioner-General (“CG”) can accept or reject an application for remission. But the regulations require the CG to adduce reasons for rejection. Unlike in the tax amnesty where remission was 100 per cent, the regulations gives the CG discretion on the amount of remission. The regulations put very stringent criteria to prove financial hardship. This is essentially akin to excluding prove financial hardship as one of the reasons for the CG to grant remission. The CG can remit the whole or only part of the interest and/or penalty. Also, the regulations disqualify several categories of interest or penalty. No remission if non-compliance is deliberate (fraudulent evasion of tax) or is in respect of VAT, withholding taxes, EFDs or failure to keep documents. Also, no remission if the interest or penalty arises from tax liability established as a result of tax audit or investigation. I will discuss these regulations in detail in my next articles.
By Shabu Maurus, Tax Partner, Auditax International.