Let the case decide: A new approach to tax dispute deposits

“Usijifungie tu: see what others are doing!”

During a recent pan-African training, it came to my attention that in Uganda, the tax deposit is paid at appeal stage, not at objection stage. That simple shift got me thinking. You see, from the very start of the tax dispute process the odds are stacked against the taxpayer. If TRA assesses an additional tax that you do not agree with, you need to lodge an objection. To lodge an objection in Tanzania, you must first pay a tax deposit. And who receives that deposit? The very authority you are challenging.

Worse still, it is the same TRA that holds the discretion to waive or reduce the deposit.

This dual role, being both the assessor and the gatekeeper to the objection process, tilts the balance of procedural fairness. The taxpayer is forced to finance the institution they believe has made a mistake and then rely on that institution’s goodwill to even be heard on the waiver decision.  

Additionally, even when the taxpayer wins the case at the appellate bodies, there is no prescribed timeline for tax deposit repayments. The request goes under the general tax refund process – which by the current writing of the law gives the TRA 90 days to respond with reasons whether or not they are accepting the refund request. Again, back to the discretion of the TRA to return the tax deposit that the taxpayer has rightfully won.

Now this is not to say that the idea of tax deposit is baseless, the concept of a tax deposit has some merits: stopping people from raising baseless objections just to delay payment or protecting public revenue from erosion during lengthy litigation. These are valid concerns, especially in systems where appeals can drag on for years.

However, the injustice lies not just in the payment itself but in its structure. The same authority that issued the assessment now demands payment before allowing a challenge. It is akin to being sued and told to pay the plaintiff before you can defend yourself. In any fair legal system, the right to dispute should not depend on the ability to pay.

There is a better way. Tanzania could adopt a more balanced model, one that protects revenue without punishing taxpayers. Require a tax deposit, however not at objection stage (as the TRA is the other party in dispute) rather at the appellate stage when a third party is involved. Additionally, the deposit should be held in escrow with the funds being released within a legally prescribed time to the winning party once the case is resolved.

This approach preserves the deterrent effect while restoring fairness - where funds are held neutrally and not preemptively awarded.

Tax compliance should never come at the cost of justice. Deposit before appeal rules may have served a purpose in the past, but today they function more as gatekeepers and meeting collection targets than safeguards. By reforming these provisions, Tanzania can ensure that taxpayers are not punished for seeking clarity and that the right to dispute is not held hostage.