The law does allow taxpayers with overpaid taxes to request a refund. The legislation guiding the tax refund applications gives the Commissioner General Ninety (90) days to make a decision. This is as provided under Section 72(1) of the Tax Administration Act which reads as follows: “The Commissioner General shall consider and make a refund decision on an application made under Section 71 within ninety days from the date of the receipt of the application”.
It is worth noting that the law is worded in such a way that there are serious interest and penalty consequences when taxpayers underpay taxes, but it provides no negative consequences for the Revenue Authority when tax refunds due to taxpayers remain unpaid or delayed. There is therefore very little incentive for the Tanzania Revenue Authority (TRA) to act urgently, which may mean that billions of taxpayer funds remain stuck with the TRA as unpaid tax refunds.
Recently, the Government of the United Republic of Tanzania has embarked on the implementation of the Blueprint for Regulatory Reforms to improve the Business Environment in Tanzania. The aim is to attract foreign investments from various corners of the world and to promote local investments in Tanzania. In my view, regulatory reforms should include radical reforms to the TRA tax refund system. The tax refund system is slow, bureaucratic and exceeds the timeline stipulated by the law for the refunds.
The ineffectiveness of the tax refund system derails the goal of implementing the blueprint which aims at making Tanzania an attractive investment destination in Africa. Tax policies and effective implementation of tax policies play a critical role in creating an attractive business environment for investors.
Under normal circumstances, it may be impossible for the investors whose significant tax refunds are yet to be attended by the TRA to have a positive opinion on the business environment of Tanzania. Ineffective tax refund systems may also have consequential cashflow impact to the taxpayers’ businesses affecting other planned investments or initiatives.
In summary, the protracted delays in tax refunds may affect taxpayers’ businesses as follows:
What should be done to improve the situation
In my view, the best way to improve the situation should be done by amending the existing tax laws on tax refunds. Amending the existing tax laws from the TRA side may help to turn the tide and make the TRA to be more responsive.
The amendment may include amending the Tax Administration Act in such a way that it provides the statutory limits of processing the tax refund application from the TRA side. For example, the law may state clearly that if the Revenue Authority does not process the application within one year, the taxpayers should be allowed for automatic refund utilization against future tax liabilities, or the Tax Administration Act may be amended to impose reasonable interest on late payment of tax refunds to taxpayers. This may compel the TRA to be more responsive.
In conclusion, the law is very clear about tax refunds that if excess tax is paid by the taxpayer, cash refunds should be done, or the taxpayer may apply to offset the excess tax paid against the future tax liabilities; and the TRA should implement the law as it is.
The idiom says, “Action speaks louder than words”. It is the time for the TRA to start acting on tax refunds application as required by the law and not being unresponsive when applications are submitted at their offices.
Christopher Mwanilwa is a Senior Tax Consultant with Deloitte Consulting. He can be reached at email@example.com.
The views explained herein are those of the author and do not necessarily represent the views of Deloitte.