Returns, notices and assessments form one of major functions of income tax departments worldwide.
The amount of income tax collected depends on the quality of the tax returns furnished by taxpayers as well as assessments made, based on such returns
Unfortunately, many taxpayers are not aware about their obligation of submitting tax returns to tax authority on due dates
Early this month, my new client, Mafichoni Investments received a letter from the Tanzania Revenue Authority that shocked the entire management of the firm.
The management was informed that the firm had accumulated tax liabilities of Tshs 1.6 billion. The liabilities included the actual tax, penalties and interest charges that occurred from July 2013-January 2017
The main taxes that attracted penalties and interest charges were the Income Tax and the Value Added Tax (VAT) as summarized below:
- OUTSTANDING VAT AMOUNT - TSHS 143.26 MILLION
This amount includes VAT that was not paid within due dates, penalties and interest charges
- UNDER DECLARED VAT AMOUNT - TSHS 1.01 BILLION
It was alleged that the client had made total sales of Tshs 10.15 billion but declared only Tshs 5.8 billion making an under declared amount of Tshs 4.3 billion
- NON LODGMENT OF VAT RETURNS - TSHS 38.77 MILLION
This amount was due from the fact that the client had not submitted VAT returns for the months of March 2015-February 2016. Failure to submit the returns was an offence under Section 78 of the Tax administration Act, 2015 and hence the client was liable to pay a penalty of Tshs 38.77 million
- DISQUALIFICATION OF VAT INPUT TAX TSHS 128.16 MILLION
It was alleged that the TRA records revealed that there were unsupported purchases of Tshs 121.40 million for the month of August 2014, September 2014 and October 2014. The unsupported records had led the TRA to disqualify the input VAT of Tshs 32.99 million
- PARTNERS TAX COMPUTATION TSHS 321.37 MILLION
The tax liabilities for the partners of the firm during the period under review amounted to Tshs 321.37 million. The amount comprises tax amount-Tshs 264.94 million, Interest –Tshs 48.41 million and penalties- Tshs 8.0 million
My client was given seven days to respond to the letter, otherwise, the tax authority would issue a tax assessment based on the findings mentioned in the letter
IMPORTANCE OF TAX CONSULTANTS
Had Mafichoni used the services of a Tax Consultants in the past, the firm would have probably escaped the tax liability by observing two important facts on Tax return and assessment as stipulated in the Income Tax Act 2004.
FACTS ON TAX RETURNS AND ASSESSMENT
Given below are some important facts regarding tax returns and assessments:
RETURN OF INCOME
It is important to know that under Section 91(1) of the Income Tax Act 2004, every taxpayer is obliged to file return of income with the Tanzania Revenue Authority (TRA) not later than three months after the end of each year
WHAT A RETURN OF INCOME SHOULD CONTAIN
According to Section 91(2) of the Income Tax Act 2004, a return of income of the taxpayer should specify:
- the taxpayer’s chargeable income for the year of income
- the taxpayer’s total income for the year of income
- any income tax paid by the taxpayer for the year of income by withholding, installment, or assessment for which a tax credit is available
- the amount of income tax still to be paid for the year of income
- any other information that the Commissioner may prescribe;
EXTENSION OF TIME TO FILE A RETURN OF INCOME
According to Section 93 (1) of the Income Tax Act 2004, the Commissioner of Income Tax may extend the date by which the tax return is to be filled, provided the taxpayer makes a written application to the Commissioner by the due date
The Commissioner may also grant multiple extensions but the extensions shall not in total exceed 60 days from the date the estimate or return was originally to be filed.
ASSESSMENTS
Section 94(1) of the Income Tax Act stipulates that; where an entity files a return of income for a year of income, an assessment shall be treated as made on the due date for filing the return of the income tax payable by the person for the year of income
Under Section 94(2) the Acts states that; where an entity fails or is not required to file a return of income for a year of income then, until such time as a return shall be filed, an assessment shall be treated as made on the due date for filing the return
Under Section 94(3) the Acts states that; where an individual files a return of income, the Commissioner shall assess the tax as expeditiously as possible after the expiry of the time allowed for the filing of a return of income.
Under Section 94(4) the Acts states that; where an individual has filed a return of income, the Commissioner may -
(a) Accept such return and make assessment on the basis of the return; or
(b) If the Commissioner has reasonable cause to believe that such return is not true and correct, determine, according to the best of his judgment, the amount of the income of that individual and assess the tax accordingly.
Under Section 94(5) the Acts states that; where an individual has not filed a return for any year of income, whether or not he has been required by the Commissioner so to do, and the Commissioner considers that, that individual has income chargeable tax for such year, the Commissioner may determine, according to the best of his judgment, the amount of the income of that individual and assess the tax accordingly.
Under Section 94(6) the Acts states that; subject to the provisions of subsections (1) and (2), the Commissioner may make an assessment under this Act, at any time prior to the expiry of three years following the year of income to which the assessment relates:
Provided that -
(a) Where any fraud or willful neglect has been committed by or on behalf of any person in connection with or in relation to any tax for any year of income, an assessment in relation to such year of income may be made at any time;
(b) in the case of payment referred to in subsections (4) and (5) of section 7 an assessment in relation thereto may be made at any time prior to the expiry of three years following the year of income in which the payment is received.
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