Remission of interests and penalties Regulations

An indirect support to sectors affected by Covid-19?

“Has the door been effectively closed on the remission of interest and penalties?” is the question being asked following the issue on 8 May of the Tax Administration (Remission of interests and penalties) Regulations, 2020 (the Regulations), which significantly limit the opportunity for remission of interest or penalties arising from errors/non-compliance by existing taxpayers.

The reason for this assessment is that the Regulations contain a number of significant exclusions which would capture the majority of existing taxpayers. For instance, a taxpayer is not eligible for the remission of interest and penalties which arise from a tax liability established following an audit by the Tanzania Revenue Authority (“TRA”) and the failure to remit tax collected by a taxpayer when acting as an agent of TRA (for example VAT and withholding tax).

Once the exclusions are analysed, the only persons really eligible to benefit from any potential remission are the ones who make a voluntary declaration of unpaid tax.  As such it would appear that the main intention of the Regulations is to broaden the tax net. Another way to see this would be as a potential “amnesty” with a very restricted scope and with no guarantee that the interest and penalties would be waived (in contrast to the previous amnesty in 2018). 

For existing taxpayers the remission of interest and penalty could only apply in a scenario where prior to an audit by the TRA, the taxpayer realises that there is an underpayment of tax and makes an application (but the remission is still subject to the discretion of the Commissioner). The Regulations contain an application form which requires taxpayers to explain the reasons that resulted in the underpayment of tax and also the measures that the taxpayer has/is implementing to prevent recurrence of the issue. This underlies the importance of conducting tax health checks/self reviews by taxpayers. It should be noted that non-submission of a tax return is one of the exclusion criteria in the Regulations.

One question that has arisen is whether the Regulations potentially offer an avenue to explore for companies which have been adversely impacted by the Covid-19 pandemic.  For example, could the hard hit tourism and hospitality sector benefit from the Regulations? 

According to the Regulations financial hardship can be an acceptable reason for remission of interest where the hardship existed when the tax liability was due, is communicated to the Commissioner before the due date of the payment of the tax liability, is the sole reason for the taxpayer failure to pay the tax and the financial hardship will persist for the unforeseeable future (i.e. at least one year).  Assuming that these conditions are met, it might be worthwhile for the companies adversely affected by the Covid-19 pandemic to engage with the Commissioner to discuss remission of interest on late payment of tax and perhaps also a potential “deferment” of payment as seems implied by the Regulations (albeit for corporate income tax purposes submitting a revised statement of estimated tax payable might be a quicker option).

Ali Dawoodbhai is an Associate Director, Tax Services at PwC Tanzania. The views expressed do not necessarily represent those of PwC.