11th May 2020
Issue No. 1, May 10, 2020.
From our Tax Desk
A Review of the Tax Administration (Remission of Interests and Penalties) Regulations, 2020: A Tax Practitioner’s Perspective
1. Introduction
This piece of work provides an analysis of evolution of the powers to grant remission of interest and penalty under the Tax Administration Act, 2015, Cap. 438 R.E. 2019 (the TAA 2015), and the Tax Administration (Remission of Interests and Penalties) Regulations, 2020, Government Notice No. 351 of 8th May 2020 (the Remission of Interests and Penalties Regulations). The analysis notes that the powers to grant remission of interests and penalties has been volatile and that even the published Remission of Interests and Penalties Regulations, do not provide a clear answer to woes surrounding this aspect. In fact the Remission of Interests and Penalties Regulations, seems to have added another layer of uncertainties due to their very restrictive nature. The analysis recommends a holistic review of the Remission of Interests and Penalties Regulations and attendant provisions regulating remission of interest and penalties in Tanzania.
2. A Brief History of the Powers to Grant Remission of Interests or Penalties from 2015
In 2015, the government passed the TAA 2015 as a unified piece of legislation providing for all matters relating to administration of tax laws in Tanzania. Prior to its enactment, tax administration provisions were scattered in various tax laws. Each tax law, had its own administrative provisions. For instance, administration provisions on income taxation were contained in the Income Tax Act, 2004, Cap. 332 R.E. 2019. This was the case with all other tax laws. One had to navigate through various pieces of tax legislations to ascertain the administrative powers which in some instances were irreconcilable. In this regard, the TAA 2015 sought to harmonize the tax administration powers provisions. The TAA 2015 however, failed short of its intended objectives as it ended up synthesizing the provisions on tax administration from various tax laws into a single piece of legislation without complying with the governing principles of tax administration. With regards to remission of interest and penalty, section 70 of the TAA 2015 when enacted provided as follows:
“Where the Commissioner General is satisfied that there is good cause to remit penalty or interest imposed under any tax law, he may remit the whole or part of the penalty or interest payable by that person.”
At the time of its enactment, section 70 of the TAA 2015 left it to the discretion of the Commissioner General to remit in whole or in part interests and penalties payable by a person. The powers to grant remission of interest and penalties was vested with the Commissioner General. These powers were absolute in two senses: first, the Commissioner General was empowered to remit up to a 100% of interest and penalty imposed under any tax law; and second, the powers were not limited in terms of requiring consultation with anyone else. The Minster had no role when it came to the question whether remission of interest or penalty should granted or otherwise.
Much as the powers to grant remission of interest and penalty had remained a controversial aspect as to who, between the Commissioner General and the Minister for Finance, should have the mandate to grant remission, Section 70 of the TAA 2015 was amended within a year. Section 57 of the Finance Act, 2016, Act No. 2 of 2016 (the FA 2016) repealed section 70 of the TAA 2015, and replaced it with the following provision:
“70 (1) Where the Minister in consultation with the Commissioner General is satisfied that there is good cause to remit interest imposed under any tax law, he may remit the interest up to an amount not exceeding 50 percent of the interest payable by that person.
(2) Where the Commissioner General is satisfied that there is good cause to remit penalty imposed under any tax law, he may remit the whole or part of the penalty payable by that person.”
From the above provision, one would observe that, powers of the Commissioner General to remit interest were curtailed. The Commissioner General had no powers to grant remission of interests. Such powers were now vested with the Minister who, in consultation with the Commissioner General was empowered to grant a remission of interest up to an amount not exceeding 50 percent of the interest payable. The FA 2016 however, did not remove the Commissioner General’s powers to grant remission of penalties in whole or in part. This means that as far as interest was concerned, the Commissioner General had no powers to grant remission of such interest. The Commissioner General’s power was only retained with regards to remission of penalties.
The volatility of the powers to remit interest and penalties was further evidenced by further amendment effected through the Finance Act, 2017, Act No. 4 of 2017 (the FA 2017). Section 54 of the FA 2017 repealed section 70 of the TAA 2015 and replaced the same with the following provision:
“70. Where the Commissioner General is satisfied that there is good cause to remit interest or penalty imposed under any tax law, he may remit the whole or part of the interest or penalty payable by that person, except that in the case of interest, the remission shall not exceed fifty percent of the total interest amount.”
The amendment effected by the FA 2017 restored the Commissioner General’s powers to remit interest up to 50% of the total interest amount, and for penalties, the Commissioner General had the power to grant up to 100% remission. Of interest with the 2017 amendment of section 70 of the TAA 2015, was the removal of the powers of the Minister in granting remission of interest. Notwithstanding the restoration of the Commissioner General’s powers to remit interest, such powers were limited to only up to 50% of the total interest amount. With regards to remission of penalties, the Commissioner General was still empowered to grant a remission in whole or in part.
One need not be a prophet of doom to realize that section 70 of the TAA 2015 would not escape the amendments in 2018. Actually, the Finance Act, 2018, Act No. 4 of 2018, through section 65 amended section 70 of the TAA 2015. The amendments included designating the contents of section 70 as section 70 (1); removing the 50% limit thereby granting the Commissioner General powers to grant remission of interest in whole or in part; and addition of section 70 (2) empowering the Minister to make regulations on eligibility, duration and procedure of accessing the remission. Section 70 of the TAA 2015 as amended in 2018 provides as follows:
“70 (1) Where the Commissioner General is satisfied that there is good cause to remit interest or penalty imposed under any tax law, he may remit the whole or part of the interest or penalty payable by that person.”
(2) The Minister may, by regulations or order published in the Gazette, prescribe eligibility, duration and procedure of accessing the remission provided for under this section.”
It is important to point out that the amendments introduced by the FA 2018 restored section 70 to the position as at the time of its enactment in 2015. In addition, it provided for the powers granted to the Minister to make regulations. While one would be tempted to argue that through the FA 2018, the Commissioner General was vested with full powers to remit both interest and penalty, it would be a great mistake to adopt such a view. To the contrary, the amendments introduced by the FA 2018, ripped off the Commissioner General’s powers by empowering the Minster to make the regulations prescribing eligibility, duration and procedure. In this regard, the question as to who is eligible for remission of both interest and penalty, is to be determined by the Minister and not the Commissioner General. It is our view therefore, that the Commissioner General does not have the absolute discretion with regards to remission of interest compared to the powers he had in 2015 when the TAA 2015 was enacted.
3. The Tax Administration (Remission of Interests and Penalties) Regulations, 2020 in a Nutshell
Over the past two years, that is since 1st July, 2018, taxpayers’ applications for remission of interests and penalties were greeted with a common response from the Tanzania Revenue Authority (TRA). The common response had always been that ‘the Commissioner General had no powers to grant the remission until the Minister publishes the regulations on eligibility, duration and procedure of accessing the remissions of interests and penalties’. It was the TRA’s position that, the Commissioner General would entertain applications for remission of interests and penalties once the regulations envisaged under section 70 (2) of the TAA 2015 were promulgated. Acting under section 70 (2) of the TAA 2015, on 8th May 2020, the Minister issued the long-waited regulations through the Government Notice Number 351 of 2018. The salient features of the regulations are briefly analyzed below.
- Application and Manner for Applying Remission of Interest or Penalty
In terms of regulation 2, the regulations apply to a person who has been assessed with interest or penalty under the TAA 2015 or any other tax law. The person who has been assessed with interest and penalty may apply to the Commissioner General by filing an application in the format which is prescribed in the schedule. The application must disclose the reasons for imposition of interest or penalty and justification for the remission. These requirements are provided in regulation 4.
- Eligibility for Remission and Exclusion of Certain Categories of Interest or Penalty
Under regulation 5, a person is eligible for remission under the regulations where such person; voluntarily discloses his tax liability; has no pending objections or appeals in relation to the tax debt whose interest or penalty is sought to be remitted; has taken initiatives to declare all of his previous outstanding tax liabilities, if any; has agreed to pay the whole of his principal tax liability on the due date to be prescribed by the Commissioner General in his decision granting the remission; and lodges an application to the Commissioner General in accordance with the regulations. A plain reading of regulation 5 means that, remission of interest or penalty is only available in situations where a taxpayer makes a voluntary disclosure of his tax liability. It does not apply in other instances where tax liabilities were not established as a result of voluntary disclosure by the taxpayer.
The eligibility requirement under regulation 5 is subject to the exclusions provided for in regulation 8. Regulation 8 excludes the powers of the Commissioner General from remitting certain categories of interest or penalty. These categories are: penalty or interest emanating from an order of compounding an offence under the Act or a tax law; interest or penalty arising out of breaches related to acquisition or use of electronic fiscal devices; penalty or interest arising from fraudulent evasion of tax; interest or penalty arising from tax liability established as a result of tax audit or investigation; interest or penalty arising from failure to pay income tax payable by way of withholding tax mechanism under the Income Tax Act, value added tax payable under the Value Added Tax Act, excise duty payable under the Excise Tariff Management Act, airport service charge payable under the Airport Service Charge Act, port service Charge payable under the Port Service Charge Act, or any other tax liability which the applicant has statutory obligation to pay, as an agent of the Authority to collect such tax from third parties and pay the same to the Commissioner; penalty for failure to file tax return imposed under section 78 of the Act; or penalty for failure to maintain documents imposed under section 77 of the Act.
- Determination, Criteria for Remission and Payment of Principal Tax
Regulation 6 empowers the Commissioner General to grant or reject the application where the Commissioner General rejects the application, he must give reasons for the rejection. The criteria for the remission in whole or in part of interest or penalty is the existence of good cause. Financial hardship does not constitute good cause unless the applicant has adduced satisfactory evidence that the financial hardship existed when the tax liability, subject of the application, was due and payable; that such financial hardship was the sole reason for the applicant’s failure to pay such tax on the due dates; such fact was communicated to the Commissioner General at the time when such relevant tax was due and payable; and such financial hardship will persist for a period of not less than one year from the date of the application. A person whose application for remission of interest or penalty has been granted under the regulations shall pay principal tax on the date as may be specified by the Commissioner General or such other dates as may be extended under the Act.
- Cancelation of Granted Remission and Finality of Remission Determinatio
Remission may be cancelled under regulation 9 where the remission was acquired fraudulently or through misrepresentation. Where remission is rescinded, the Commissioner General is empowered to recover the principal tax and interest or penalty in full as if no remission was granted. The remission may also be rescinded if the principal tax is not paid on the due date specified by the Commissioner General or extension thereof. The Commissioner General shall, by notice in writing immediately demand the principal tax together with remitted interest or penalty specifying the due date for payment of the same once the remission is rescinded.
It is important to note that, under regulation 10, the decision by the Commissioner General on an application for remission of interest or penalty shall not be subject to administrative review or appeal. The regulations also makes it an offence under regulation 11 for any person who fraudulently or through misrepresentation acquires remission under the Regulations, and upon conviction shall be liable to a penalty or fine prescribed under the Act.
4. A Tax Practitioner’s Perspective of Tax Administration (Remission of Interests and Penalties) Regulations, 2020
While the promulgation of the regulations is commended, the promulgation however, has come along with shortcomings that have limited the relevancy of section 70 of the TAA 2015. The regulations have imposed a very restrictive application of section 70 of the TAA 2015. From a practitioner’s perspective, the regulations suffer from the following shortcomings:
First, the regulations substantially depart from the common practice to which taxpayers were used to. The common practice had always been that a taxpayer could apply for remission of interest or penalty even on tax liabilities established as a result of tax audit or investigation provided that a good cause existed. The new regulations however, restricts remission of interest or penalty only on voluntary disclosure.
Second, application for remission of interest or penalty applied to all taxes with no restrictions. A taxpayer could apply for remission of interest or penalty on any tax such as value added tax; PAYE; SDL; and excise duty. Regulation 8 of the regulation however, excludes a horde of tax liability from being eligible for the application of remission of interest or penalty.
Third, the regulations do not take into account some factors that ought to be considered in determining whether remission be granted or not. Remission should basically occur where the circumstances justify the TRA bearing part of the cost of delayed receipt of taxes. Such cases would usually entail delay, contributory cause or fault on the part of TRA or others. The following examples illustrate where remission should be considered, having regard to the extent to which factors beyond the taxpayer’s control were responsible for the size and duration of the shortfall:
- TRA took longer to complete an audit than could reasonably have been expected, having regard to all the facts and circumstances of the case.
- Even though there was no delay by TRA, the complexity of issues involved resulted in an abnormal time between the commencement of the audit and the amendment of the assessment.
- TRA has, by advice or action, contributed to the taxpayer’s error giving rise to the shortfall.
- The taxpayer relied on judicial interpretation that was later overturned.
- Where TRA takes a different position on the same issues contrary to the position taken on previous audits. A good example is where you have TRA treating certain items in a particular manner for sometimes and changes the position subsequently, and because of the changes, a tax liability is established and interest or penalty is imposed thereon.
- The taxpayer is affected by a retrospective change in legislation.
Fourth, remission may also be considered to encourage taxpayers to voluntarily self-amend when they become aware that they have a shortfall. This would not generally include cases where a taxpayer is merely responding to TRA announcement that certain arrangements were ineffective — although the TRA may offer interest incentives to settle in such cases.
Fifth, the criteria and considerations for remission should be left with Commissioner General who should be given a broad discretion to remit where the circumstances make it fair and reasonable to do so.
Based on some shortcomings noted above, it is recommended that the regulations are drafted in such a way that they are not too restrictive in their application. It is important to ensure that eligibility and determination criteria are broadened to cater for even in situations where interests or penalties are assessed as a result of tax audit or investigation. In addition, the regulations should not be restrictive with regards to the types of taxes.
5. Conclusion
This legal insight sought to provide a general overview of the Tax Administration (Remission of Interests and Penalties) Regulations, 2020. It reviews briefly the volatility surrounding the powers of remission of interest or penalty. The review notes generally that the Tax Administration (Remission of Interests and Penalties) Regulations, 2020 are very restrictive in their applications. Their restrictive application calls in question the relevancy of section 70 of the TAA 2015 and policy objectives behind the introduction of the provisions dealing with remission of interests or penalties. It is recommended that, a couple of considerations be taken into account in the determination of good causes and eligibility criteria. The eligibility criteria under regulation 5 and exclusions provided in regulation 8 could be meaningfully reviewed.
Disclaimer! This insight is issued for general information purposes and does not in any way constitute a legal opinion by Lawhill & Co. Advocates. Lawhill & Co. Advocates shall not be liable for any injury and/or loss arising from relying on this brief. Should you have issue relating to the brief or any other issue, kindly contact our office for an opinion that suits your particular needs.
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