A few years ago, many of us growing up in African households had a special way of saving money. We’d stash away coins and notes in wooden boxes, little treasure chests with no way of access except to break them open. The day of “breaking the box” was an event, a celebration we affectionately called “sherehe”. With pride and anticipation, we’d spend our savings on things that captured our young imaginations perhaps a flashy chronograph watch, a torch, or a toy car.
But imagine, for a moment, if our parents in the 1980s had been saving money (say TZS 5,000) in those same boxes not for childhood indulgences but to provide for our future. What would that money be worth today?
This brings us to the concept of the time value of money. The amount could potentially have secured a low-density residential plot in Dar es Salaam. Fast-forward to today, that same amount wouldn’t buy more than a plate of “chipsi-mayai”. The purchasing power has evaporated. Had the money been invested in appreciating assets like land or gold, it would have preserved its value. And herein lies the rationale behind interest: compensation for the eroding value of money over time.
Just like the money in those wooden boxes lost its worth when left idle, the same happens to funds tied up in prolonged unpaid obligations. It is common for businesses to delay payments to suppliers, leaving payables outstanding for a long time. Such delays often arise in startups, companies in the extractive sector still at the exploration or appraisal stage, or during periods of business disruption, a vivid example being the Covid-19 pandemic, which severely affected firms in the tourism industry.
Over time, the unpaid amounts silently accumulate value for one party at the expense of the other. But when the supplier is a related party, does such a delay amount to the provision of financial support? The Tanzania Revenue Authority (TRA) has, in several instances, taken the position that it does and has gone further to impute interest on such delayed payables citing the time value of money.
But is this interpretation legally sound? Should it be treated as a default position? Is there a clear statutory foundation for such treatment? Let’s unpack this.
In the case Commissioner of Income Tax vs Kusum Health Care Pvt Ltd [2017], the High Court of Delhi held that delays in payment for supplies even beyond agreed terms are routine in business. Such delays often stem from operational or commercial challenges and should be examined case by case, rather than being blanketly characterised as financial assistance. The key question is whether a pattern exists and whether the delays confer a benefit on the payer, particularly when the parties are related.
Where a case is made that an outstanding payable or receivable constitutes financial support, Paragraph 13.4 of Tanzania’s Transfer Pricing Guidelines (2020) provides that the first step is to determine whether the arrangement qualifies as a loan for tax purposes or another form of payment, such as an equity contribution. This mirrors guidance under Chapter X of the OECD Transfer Pricing Guidelines, which also sets out several factors to consider in such analysis, including the lender-borrower relationship, the source of funds, the presence (or absence) of a fixed repayment date, and whether interest obligations exist.
If such an analysis suggests that the transaction is more akin to equity than a loan, then deeming interest may not be appropriate.
There is no explicit statutory provision supporting the routine imposition of deemed interest on payables or receivable balances that have been outstanding for some time. Could one argue, then, that this practice may border on being ultra vires, or even unconstitutional?
The Tax Revenue Appeals Board (“TRAB”) and the Tax Revenue Appeals Tribunal (“TRAT”) in various appeals including in the appeal of Commissioner General, TRA vs Crown Paints Tanzania Limited, TRAT Appeal 100 of 2021 have ruled that trade receivables/payables do not constitute loan. The above position was also confirmed by TRAB in the case of Hughes Agricultural Tanzania Limited vs Commissioner General, TRA in Consolidated Appeals no. 26 & 27 of 2022.
The TRA’s approach to imputing interest in Tanzania can trigger substantial tax consequences. Interest deemed on outstanding receivables is treated as income and taxed at the corporate rate of 30%. On the other side, deemed interest on outstanding payables could trigger withholding tax liabilities. This was reinforced in the recently decided case Commissioner General (TRA) vs Vodacom Tanzania PLC [2025], where the Court of Appeal held that withholding tax applies on an accrual basis thus capturing even deemed interest within its scope.
The idea that time has no cost is an illusion whether in life or in tax. Simply, the longer a payable remains unpaid, the more it begins to take shape as something more: a silent loan that carries hidden economic consequences. From the TRA perspective, that silence speaks volumes.
What may appear on the surface as a mere operational delay could be re-characterised as a commercial loan, with significant tax implications. This means treating time-bound obligations not merely as administrative details, but as potential tax exposures. Multinational enterprises operating in Tanzania, should therefore revisit their internal controls and policies to ensure that payment delays are well-documented and commercially justified, as these will be key to defending against adjustments made during audits.
As Adam Smith rightly noted in The Wealth of Nations, “The tax which each individual is bound to pay ought to be certain, and not arbitrary.” Uncertainty in tax obligations undermines transparency, erodes taxpayer confidence, and opens the door to inconsistent enforcement. We have witnessed these inconsistencies in the application of the delineation analysis, not to mention the imposition of interest on outstanding payables and receivables. It is therefore apparent that TRA practice notes on the matter are required now more than ever, and it is also essential for the TRA (and the Government more broadly) to strike a careful balance between robust tax enforcement and commercial reality when doing so.
After all, in taxation as in life, what isn’t settled on time may end up costing far more in the end.
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