ASSESSMENT OF PRINCIPLES OF NATURAL JUSTICE IN TAX OBJECTION DECISION

 

CHAPTER ONE

GENERAL INTRODUCTION

1.1   Introduction.

Tax paying is a compulsory obligation in Tanzania whereby all businesses and monetary transactions are liable to pay tax to the taxing authority. Collection of tax is governed by several legislations such as Tax Administration Act[1] and Income Tax Act[2] which provides for how and when tax to be collected by an authority or to be paid by taxpayers together with various dealings between tax payers and collecting authority. The collecting authority is Tanzania Revenue Authority under control of commissioner general. Unfortunately, there has been several tax complaints by tax payers against taxing authority on modes of tax collection and tax disputes settlement. Tax payers believes that, tax dispute settlement mechanism is improper and goes against principles of natural justice. This study is going to conduct assessment of principles of natural justice in tax objection decisions in Tanzania. This chapter presents the Background to the Study, Statement of the Problem, Objectives, Research Questions, Significance of the Study, Scope of the Study, and Limitations.[3]

1.2   Background of the problem.

Since independence, the tax disputes settlement mechanism was very weak and ineffective which hardened tax administration and led to loss of revenue by government and loss of income by tax payers. During 1961 until 1966, Tanzania was handling tax disputes through boards and informal tribunals under tax systems as there was no organized revenue collection authority because it was a time of independence and the country was new and unorganized. The East African Community which was formed in 1967 came with a unified structure to jointly administer matters related to income tax from member states (Tanzania, Kenya and Uganda). This means all tax disputes arose in Tanzania were directed to East African Community for hearing and determination. Following the collapse of old EAC in 1977, member states established their domestic instruments for settling tax disputes. Tanzania established a fragmented system of settling tax disputes whereby each taxing law provided for separate procedures and organs. The established instruments were National Tax Appeals Board and National Tax Appeals Tribunal where the income tax disputes supposed to be lodged before National Tax Appeals Board and thereafter National Tax Appeals Tribunal.

Under Value Added Tax Act[4] which was in force at that time, it was established Tax Appeals Tribunal which was responsible for handling value added tax related disputes. These different mechanisms became unfriendly, inconvenience to the taxpayers and lacked uniformity which was a serious harm to tax disputes. These tax boards and tribunals operated for several years until the establishment of TRA by Tanzania Revenue Authority Act[5] which started its operation on July 1, 1996. Even after establishment of TRA, the former disputes mechanism remained the same. The office of commissioner general was established under the same statute given authority to administer all tax laws within the country. The coming of Tax Revenue Appeals Act[6] in 2002 introduced new unified tax appeals machinery which replaced the former fragmented tax system. The main reason for enactment of Tax Revenue Appeals Act was to establish unified tax disputes settlement mechanism to overcome the pile up of tax cases which was pending before ordinary courts.

The serious pileup of cases was even stated in the case of Commissioner General (TRA) v. JK Atomredsmetzoloto (ARMZ)[7] that, it was desired to ensure tax cases are concluded quickly to remove pressure from ordinary courts which were seriously overwhelmed with tax cases, a separate instrument to determine tax matters was desired for that purpose. The enactment of Tax Revenue Appeals Act[8] introduced three tax disputes appealing avenue namely; the Tax Revenue Appeals Board, the Tax Revenue Appeals Tribunal and the Court of Appeal of Tanzania as a last resort. TRAB and TRAB are quasi-judicial bodies given jurisdiction over tax matters of civil nature and not otherwise.

The enactment of Tax Administration Act[9] of 2015 came to consolidate all provisions relating to tax administration and enforcement of taxation laws so as to ease the administration of tax in Tanzania. Section 51(1) and (5) of the Tax Administration Act clearly arranged the procedures to object tax assessment by commissioner general and further avenues for appeal if the commissioner general upholds his tax assessments even after objection has been filed by a tax payer. During all this time, ADR were not part and parcel of tax disputes settlement mechanism which is against provisions of Civil Procedure Code[10], a major procedural law in civil proceedings which requires civil matters to be taken for mediation or arbitration before being reinstated to full court trial after failure of mediation and arbitration. In 2019, the Tax Administration Act was amended to establish the office of tax ombudsman in Tanzania to accommodate alternative disputes resolution techniques. All these changes targets to increase tax collection speed and to simplify and improve tax administration in the country.

Despite all amendments of tax legislations and rules concerning tax disputes settlement mechanism, there are still legal problems which needs to be attended to avoid breach of principles of natural justice during adjudication of tax disputes. Our current taxation legal regime has legal weaknesses which interferes principles of natural justice to say,” right to be heard” and “not being a judge of your own course” which are the key elements which will be discussed in this entire study together with tax objection decisions.

1.3   Statement of the Problem.

Section 50(3)(a) of Tax Administration Act[11] allows self-assessment by tax payers and filing of annual return which indicates tax figures to be paid by that particular self-assessed taxpayer. Likewise, subsection 3(b) of section 50 gives powers to commissioner general to conduct assessment and to serve assessment note to a tax payer requiring him to pay assessed taxes. In some circumstances, a commissioner general may reject an amount indicated in self-assessment by taxpayer due to any reason he thinks fit or he may issue an assessment note indicating tax amount to be paid by a taxpayer, which a taxpayer does not agree. Section 51(1) of the Tax Administration Act provides an avenue to a person aggrieved by a tax decision made by a commissioner general to object the said decision by filing objection to commissioner general within thirty days from the date of service of the tax decision. Unfortunately, there is a worse illegal requirement stated under subsection 5 of section 51 that, an objection to any tax decision will not be admitted unless the taxpayer has, within a period of thirty days from a date of service of tax decision, paid the amount of tax not in dispute or 1/3 of the assessed tax whichever amount is greater.

This study is going to conduct an assessment on whether section 51(5) of Tax Administration Act affords right to be heard to taxpayers in tax objection decision and if the principles of natural justice are adhered in handling tax objections.

1.4   Objectives of the Study.

The objectives of the study are divided into two; general objective and specific objectives.

1.4.1   Main Objective

The main objective of this study is to assess adherence to principles of natural justice in tax objection decision.

1.4.2   Specific Objectives

                 i.          To examine conformity of section 51(5) of Tax Administration Act to principles of natural justice.

               ii.          To examine constitutionality of section 51(5) of Tax Administration Act.

             iii.          To assess general challenges facing tax dispute resolution mechanism in Tanzania.

              iv.          To determine principles of natural justice.

               v.          To determine tax objections and appeals procedures.

1.5    Research Questions

The study is guided by the following research questions:

i.                 What are the legislations governing tax objections and tax disputes settlement in Tanzania?

ii.               Is section 51(5) of Tax Administration Act constitutional?

iii.             What are general challenges facing tax dispute resolution mechanism in Tanzania?

iv.              What are the principles of natural justice?

v.               What are procedures for tax objections and appeals?

1.6   Literature Review.

Jackson[12] examined inefficiency of tax dispute resolution mechanism and the applicability of the ADR processes in tax disputes in Tanzania. The study stated that there are two modes of tax disputes resolution mechanisms in Tanzania which are litigation before established tax boards and through ADR. A study focusses more on ADR and informs that, until now there are no rules and regulations governing ADR in tax disputes resolution hence there are no clear established procedures governing ADR which lead to inefficient utilization of ADR to tax disputes. As per this study, the use of ADR in tax disputes is likely to reduce pileup of tax cases before tax disputes resolution boards and tribunals. This study is useful because it goes to the same direction as our study on hand but a study discussed in general on the tax dispute resolution mechanism and the need to enact ADR rules of procedures so as to enable tax disputes resolution through mediation, conciliation and arbitration. This study on hand is going to discuss a specific area concerning tax objections decisions by commissioner general and its conformity to principles of natural justice.

Piason[13] discussed weaknesses of tax disputes resolution mechanism in Tanzania and what to be done to cure the situation. A researcher described tax disputes mechanism as a weak and likely to be disliked by taxpayers because it partially denies right to access to justice especially to taxpayers who live out of Dar-es-salaam. The Tax Revenue Appeals Board (TRAB) and Tax Revenue Appeals Tribunal (TRAT) offices are located in Dar-es-salaam at samora avenue hence parties aggrieved by decision of commissioner general, regardless their location, they must file their appeals here in Dar-es-salaam. TRAB and TRAT have no regional office premises hence all appeals are conducted in Dar-es-salaam. A researcher believes that, tax disputes mechanism is somehow goes against Article 13(3) of the Constitution of United Republic of Tanzania[14] because it impedes access to justice on a reason that, some citizens are geographical limited to access tax boards or tribunals because they have to travel all long to Dar-es-salaam which is expensive and time consuming.

Piason’s work is useful because it shows the need of having TRAB and TRAT countrywide offices so as to guarantee a constitutional right to access to justice by bringing tax dispute resolution boards near taxpayers. Unfortunately, a researcher focusses more on geographical location of TRAB and TRAT as a main reason which hinder easy access to justice by taxpayers who reside away from these offices and he said nothing about adherence to principles of natural justice in tax objections which this study is going to cover.

Kibuta et al[15] in their journal discussed the entire tax disputes settlement mechanism. As per their perspective, the tax disputes arise when a taxpayer rejects tax assessment by commissioner general. They discussed an entire procedure of objecting commissioner’s decisions, requirements of objecting such as payment of all amount of tax not in dispute or payment of 1/3 of the tax assessed whichever amount greater. Authors discussed in deep, the appealing procedures to the Tax Revenue Appeals Board (TRAB), the Tax Revenue Appeals Tribunal (TRAT) and to the Court of Appeal (CA). Simply, kibuta and others intended to discuss on the processes and procedures of handling tax disputes or complaints before commissioner general, Trab, Trat and Court of appeal of Tanzania, unfortunately they failed to indicate any weaknesses of the tax disputes settlement mechanism which brings negative impacts to tax administration in Tanzania. This study on hand is going to discuss the weaknesses of the tax disputes settlement mechanism and illegality which happens in some of its procedures and processes.

Kitime & Mwamlangala[16] believes that, tax disputes are inevitable, not only in Tanzania but worldwide. Writers made an opinion that, pressure from government to TRA to reach particular target of tax collection, aggressive assessments by commissioner general and complex tax laws are among key causes to tax disputes. The writers believes that there must be fair tax disputes resolution mechanism to ensure timely and fair determination of the tax disputes. However, authors have not examined efficiency or weaknesses of tax disputes resolution mechanism and adherence to principles of natural justice in tax disputes proceedings.

Msuya[17] in his work, he was challenging payment of all tax not in dispute or 1/3 of the assessed tax whichever amount greater as a requirement for lodging objection before commissioner general. Msuya had an opinion that, a requirement of paying tax before lodging objection is unfair and brings complexity in accessing justice. The author believes that, commissioner general is impartial in handling tax disputes and have conflict of interest in some circumstance especially when he is pressed by government to meet a particular tax collection target. Msuya suggests establishment of a new fair and just tax disputes settlement mechanism to guarantee rights of taxpayers and to improve administration of tax. His study is useful because it suggests areas which need to be improved to establish fair mechanism for tax disputes resolution. Unfortunately, the author failed to discuss adherence of principles of natural justice in tax disputes settlement procedures and processes which this study on hand is going to cover.

1.7   Research methodology.

This study intends to utilize survey, interviews, questionnaires and library research to collect data. A researcher decided to use multiple ways of data collection because this study consulted several people of different social statuses and calibers hence different methods of data collection were desirable to enable smooth participation of all respondents of this research.

1.7.1    Survey.

A survey method is a tool or technique that is used to collect information in research by asking questions to the respondents. Survey is simply an exchange of information between research participants and a researcher or an organization conducting research. In collecting statistical data, a researcher may decide to create and administer online survey where data will be collected through electronic means. A survey method in this particular research includes physical or digital questionnaires that shall help gather both qualitative and quantitative data from subjects. This method will be applied to collect data from question number three.

1.7.2    Interviews.

Interviews are face to face or telephone conversations between two or more people where questions are asked by the interviewer to elicit facts or statements from the interviewee. This involves presentation of oral, verbal stimuli and reply in terms of oral or verbal responses. In this particular research, a researcher will employ interview in data collection so as to gather first hand data from legal practitioners, likewise to collect relevant data from chosen participants. This method used to collect data from question number one and two, interview is expensive and time consuming hence is not desirable when a researcher intends to collect information from huge sample size. Observation is the best method of collecting research data from a huge group.

1.7.3       Questionnaires.

Questionnaire is a research tool or technique which consisting of a series of questions and other prompts for the purpose of gathering information from respondents. A researcher or an organization which conducts research prepares a number of written questions which are to be submitted to and being answered by respondents. The questions in questionnaires must be those which intend to answer research questions, the questionnaires for the purpose of this research were to answer both questions particularly question number four and five which were intentional designated for TRA officers. For the proper usage of questionnaire in data collection, a researcher must make sure that all participants are of sound mind and most important they can read and write. In this research, a researcher conducted interviews when participants failed to understand the questions clearly and when some participants were not capable of reading and writing.

1.7.4    Library research.

A researcher employed library research to collect information concerning question one, two and five of this research paper. A researcher intends to collect secondary data from written books, pamphlets, journals, articles, magazines, newspaper, research papers, dissertations, legislations, rules, regulations and all other written materials relevant to research topic, it is necessary to utilize library resources to acquire all such reading materials, there is a need to visit main library like Library of the Tumaini University Dar-es-salaam College and other academic libraries so as to collect written materials relevant to this research topic. Library research is more accurate, time and cost effective because a researcher consults already written materials rather than conducting interviews which is expensive and time consuming. This method used to collect data on technical questions so as to save time of conducting interviews with respondents who may take longtime to understand and answer the technical asked questions.

1.8   Significance of the Study.

Findings of this research will bring awareness to the readers on tax complaints procedures and appeal procedures to TRAB, TRAT and Court of Appeal of Tanzania. Furthermore, the readers of this research will be informed about the legal framework governing taxation in Tanzania and challenges in tax administration. Through the findings and recommendations of this research, the Commissioner General and Tanzania Revenue Authority are well advised on how to reform the tax disputes settlement mechanism so as to guarantee smooth access by taxpayers to tax boards when they have complaints. This study will be used as reference by future researchers who will conduct research on the subject relevant to this study. The findings will contribute knowledge to policy makers so as they can make policies which improve tax collection systems and disputes settlement mechanism.

1.8   Scope of the Study.

This study conducts assessment on adherence to the principles of natural justice on tax objections decision in Tanzania. The study discloses weaknesses of taxation legal regime and violation of constitutional principles concerning natural justice during determination of tax disputes by commissioner general and subsequent appeal board and tribunal. The study focusses more on the tax disputes resolution mechanism by checking procedures which are used in lodging complaints before commissioner general and subsequent appeals if they conform to principles of natural justice. The study is not limited to tax disputes resolution mechanism in Tanzania only but other jurisdictions like Kenya and South Africa.

1.9   Area of the study.

In research from Orodho and Kombo (2002), authors commented that, selecting a research site is critical and important because it has an impact on the usefulness of the data generated. This research was conducted in Dar-es-salaam Tanzania because a researcher targeted most of his respondents from TRA, TRAB and TRAT whose offices are located in Dar-es-salaam. Also, this study needed comments and opinions from legal practitioners who are well acquainted with policies, legislations, rules and regulations governing taxation and tax disputes settlement whom most of them have offices in Dar es salaam.

1.10   Conclusion

Basing on the above details concerning tax disputes settlement mechanism, one can easily determine that, there is a problem to taxation legal regime which need to be settled so as to provide smooth ground for taxpayers to lodge complaints before commissioner general without unnecessary requirements which increase complexity of reaching justice tools. Also, taxations legislations governing disputes settlement need to conform to the principles of natural justice which are constitutional principles in Tanzania.

 

 

REFERENCES

JOURNAL

O. Kibuta et al, Tax Dispute Resolution: A Manual for the Tax Practitioner, Mkuki na Nyota Publishers Ltd, Dar es Salaam, Tanzania, 2015.

E. Kitime & D. Mwamlangala, Laws of Taxation in Tanzania, 2017.

RESEARCH / DISSERTATIONS

Jackson, O. H, “efficacy of tax disputes resolution mechanism in Tanzania: assessment of the law and practice”, A Research Report, Mzumbe University – Mbeya Campus College 2020.

Piason. M, “efficiency of tax disputes resolution mechanism in tax administration in Tanzania”, A Research Report, University of Dodoma 2020.

CASE LAWS

Commissioner General (TRA) v. JK Atomredsmetzoloto (Income tax Appeal case No. 26 of 2011) the Tax Revenue Appeals Tribunal at Dar es Salaam Tax Appeal No. 7 of 2012, 57.

STATUTES

Tax Administration Act [Cap 438 R.E 2019]

Income Tax Act [Cap 332 R.E 2019]

Value Added Tax Act [Cap 148 R.E 2019]

Tanzania Revenue Authority Act No 11 of 1995

Tax Revenue Appeals Act [Cap 408 R.E 2019]

The Civil Procedure Code [Cap 33 R;E 2022]

Constitution of United Republic of Tanzania, Cap 2 of 1977 as amended. Article 13(3).

ARTICLES

F. Msuya, An Urge to cast a Glance at our Tax Dispute Resolution Mechanism, Wakili Bulletin, Tanganyika Law Society, 2014, 13.

 

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[1] [Cap 438 R.E 2019]

[2] [Cap 332 R.E 2019]

[3] F. Msuya, An Urge to cast a Glance at our Tax Dispute Resolution Mechanism, Wakili Bulletin, Tanganyika Law Society, 2014, 13.

[4] [Cap 148 R.E 2019]

[5] No 11 of 1995

[6] [Cap 408 R.E 2019]

[7] Commissioner General (TRA) v. JK Atomredsmetzoloto (Income tax Appeal case No. 26 of 2011) the Tax Revenue Appeals Tribunal at Dar es Salaam Tax Appeal No. 7 of 2012, 57.

[8] ibid

[9] ibid

[10] Cap 33 R;E 2022

[11] Ibid

[12] Jackson, O. H, “efficacy of tax disputes resolution mechanism in Tanzania: assessment of the law and practice”, A Research Report, Mzumbe University – Mbeya Campus College 2020.

[13] Piason. M, “efficiency of tax disputes resolution mechanism in tax administration in Tanzania”, A Research Report, University of Dodoma 2020.

[14] Constitution of United Republic of Tanzania, Cap 2 of 1977 as amended. Article 13(3).

[15] O. Kibuta et al, Tax Dispute Resolution: A Manual for the Tax Practitioner, Mkuki na Nyota Publishers Ltd, Dar es Salaam, Tanzania, 2015.

[16] E. Kitime & D. Mwamlangala, Laws of Taxation in Tanzania, 2017.

[17] F. Msuya, An Urge to cast a Glance at our Tax Dispute Resolution Mechanism, Wakili Bulletin, Tanganyika Law Society, 2014.