- A general overview of the amendment.
- What to expect after the introduction of mediation.
- General concerns on the amendment and its applicability.
- A call to taxpayers and the Tanzania Revenue Authority
- Should we consider other ADR methods?
- Should we consider mediation at stages before appeals?
Settlement of tax disputes in Tanzania has for years been handled in an adversarial manner. The procedure did not give the parties a right to settle their disputes amicably. The system only gave the Appellant chance to Appeal to the higher Court in the hierarchy, that is from the Tax Revenue Appeals Board (TRAB) to the Tax Revenue Appeals Tribunal (TRAT), and thereafter to the Court of Appeal (CAT). While the Appellant takes the dispute up the hierarchy, the dispute remains unsolved for years, and in turn, the interest keeps accumulating at the peril of the taxpayer. On the other side, the process created an increase of the backlog of tax disputes at various levels of the tax appeal machinery which verily overwhelmed the TRAB, TRAT, or CAT.
Now, owing to the Finance Act, 2021 which among other things introduces amicable settlement of tax disputes through mediation at the Tax Revenue Appeals Board and the Tax Revenue Appeals Tribunal. Under the Finance Act 2021, parties will now have the right to apply for their dispute to be settled through mediation.
Our Corporate Commercial Department at Breakthrough Attorneys has prepared this Article discussing the introduction of amicable settlement of tax disputes. This article is a continuation of our series of Articles following the Government’s Revenue and Expenditure Estimates for the financial year 2021/2022 and enactment of the Finance, Act, 2021. Read our analysis of the budget .
2.0 Overview of the amendment.
It should be noted that mediation is not a foreign concept in the law, Section 17(1) of the Tax Revenue Appeals Act [CAP 408 R.E 2019] (“the Tax Revenue Appeals Act”) gave power to the Board and the Tribunal to resolve any complaint or appeal by mediation, conciliation, or arbitration. However, this has never been a common practice mainly because it has been solely upon the discretion of the Board or the Tribunal to do so. What the amendment introduces is the right of the parties to request for their matter to be handled through mediation.
Hence, the Finance Act, 2021 under Section 71 amends the Tax Revenue Appeals Act by adding subsections (7) and (8) to section 22 which allows a party to the proceedings at either the Board or the Tribunal to apply for the case to be settled through mediation. Provided that such an application shall be made before the judgment. Section 22(7) of the Tax Revenue Appeals Act as amended by the Finance Act, 2021states as follows;
“A party to an appeal may, at any stage of the proceedings before the judgement is delivered by the Board or Tribunal as the case may be, apply for the appeal to be settled amicably through mediation.”
Upon application, the Board or the Tribunal shall require the parties to report the outcome of mediation within a specific time as specified by the Board or the Tribunal. After the parties have submitted their written settlement, the Board or the Tribunal shall thereafter issue the final order with respect to such mediation. According to Section 22(8) (c) of the Tax Revenue Appeals Act as amended by Section 71 of the Finance Act, 2021, the Board and the Tribunal shall not entertain an issue that has been settled amicably by the parties.
3.0 What should be expected following the introduction of mediation?
The common sense behind mediation is to invite a mediator, who is an experienced, independent, and reliable third party to help the parties reach an agreement to settle their disputes. In this process, the mediator does not determine the dispute but facilitates the parties towards the settlement of the dispute while the authority to make the final decision rests with the parties. In that manner the following advantages are expected in the tax appeals machinery following the introduction of mediation Tanzania;
- Reduction of the backlog of cases at the Tribunal and the Board.
Currently, all cases being handled through the ordinary appeal process it is normal for cases to take more than six years until the case is finally determined especially if the same goes to the level of the Court of Appeal. It should be noted that even though the Board and the Tribunal are not bound by strict rules of procedures as the ordinary civil Courts, still in many cases time is eroded on technical points. Therefore, through mediation in which the parties get to control the process and the outcome of their dispute, we expect that the backlog of tax disputes currently pending at the Board and Tribunal will decrease.
- Creation of a more speedy and cost-effective approach to tax disputes resolution.
Despite the law designating the Board and the Tribunal with the task of handling tax disputes out of the ordinary court system with powers to handle disputes through alternative dispute resolution, still, the system has not achieved a simple, speedy, and cost-effective dispute system. The imbedment of mediation into our tax dispute settlement will, if the taxpayers the TRA are ready, ensure speedily and cost-effective determination of tax disputes in the country.
Kenya and South Africa have successfully created substantially friendly tax dispute resolution systems after the introduction of ADR. Taxpayers have preferred ADR and there is an increasing willingness on part of their Revenue Authorities to amicably settle disputes. For example in Kenya, it is reported that between 2018 and 2019 there a total of 502 disputes were referred to Alternative Disputes Resolved whereby 237 were resolved. Perhaps through the introduction of mediation in Tanzania, the same results can be achieved.
- Reduction of the backlog of cases at the Tribunal and the Board.
4.0 General concerns on the amendment and its applicability.
The added Section 22(7) of the Tax Revenue Appeals Act is too general as it does not specify how the mediation process will be. This raises questions such as; Should the parties choose a mediator for themselves? Will the Board or the Tribunal appoint the Mediators? Can anyone mediate a tax dispute or it will be for only accredited mediators?. In simple words, the law does not specify whether or not the Board and the Tribunal will have any role in the process of mediation, and it doesn’t answer a question of what will happen if the parties do not settle within a specified time set by the Board or the Tribunal.
On the same footing, the procedure and right of parties to extend or seek for extension of time for mediation are not stipulated. Thus, Breakthrough Attorneys calls for consequential amendment of the Tax Revenue Appeals Board Rules of 2018 and the Tax Revenue Appeals Tribunal Rules of 2018 clarifying such issues.
Breakthrough Attorneys generally commend the amendments, It is expected that mediation will offer a more efficient, less expensive, and faster way to prevent or solve tax appeals. To implement mediation is to address an excessive and increasing volume of tax appeals, which jeopardize the legal protection of taxpayers. Thus, the following are our general views concerning the amendment;
- We call upon all taxpayers with pending cases at the Board and Tribunal to use this opportunity as the fastest way to finalize their respective tax appeals. The effectiveness of tax mediation depends on the willingness and good faith of the parties to negotiate. We understand that that the taxman (TRA) is the disputant in the mediation and the person that has the decision-making power (regarding the tax dispute). Thus for this law to be effective, the TRA must be willing and committed. On the same note, the Government should consider allocating the budget for the TRA for purposes of paying for mediation as may be agreed with taxpayers.
- Besides, the Government should consider to incorporate other Alternative dispute resolution methods such as arbitration in our Tax disputes settlement machinery. This will also serve the same purpose of amicable settlement of tax disputes especially now that the Arbitration Act Cap. 15 (Act No. 2 of 2020) establishes the Tanzania Arbitration Centre.
- It is our proposition that mediation should not only be applied at appeal levels, but should also be used at the early stages during tax objections. To create trust between the taxpayers and the TRA the Government should also consider removing the requirement to pay one-third of the tax in dispute for objections to be admitted under Section 51(5) of the Tax Administration Act. This is so because many tax disputes arise from this requirement, a fact that makes the disputes endless.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.