Q&A – 29 November 2010

Warrant of arrest for tax matter

Over the past four years we have been at the Tax Revenue Appeals Board on an issue related to value added tax of a colossal amount. The case has been dragging on until few weeks ago when the Tax Revenue Appeals Board issued a warrant of arrest for myself as Chairman of the board of directors of the appellant company. This is not only shocking for me but also very damaging to my reputation. Can this Appeals board order for my arrest and if so, what can I do to avoid arrest? Just for your information I am an investor with investments in 20 African countries including Tanzania. Can there be no preferential treatment for such investors?
BB, Kenya

Being an investor in 20 African countries doesn’t absolve you of a tax liability. Even companies with a worldwide presence pay taxes in Tanzania. That is no ground to win an appeal and it is very unlikely that any preferential treatment can be given to you or your company.
We wish to point out that the case having run for four years is quite peculiar as the cases at the Tax Revenue Appeals Board are usually on fast track. We hope you are not confusing between the Tax Revenue Appeals Board and the Tax Revenue Appeals Tribunal, which is the appellate body.

From our reading of your question, this warrant of arrest has probably been issued because you have not appeared as a witness at the appeals board. Rule 13 of the Tax Revenue Appeals Boards Rules provides that a person who has been served with a summons to appear before the board and fails to comply with such summons without reasonable excuse commits an offence under the act. It further adds that where a person who has been served with a summons to appear before the board and fails to comply with such summons, the Board may issue a warrant of arrest as prescribed for procuring the attendance of that person before the board at a date, time and place specified in the warrant.

It is very likely that the warrant of arrest has been issued to compel you to appear as a witness. Your attorneys should address this issue immediately before an arrest is made- you may have to give reasons as to why you have failed to appear before the board. Please be informed that the Government, as any government would, takes the duties of this Appeals board very seriously as it is this very body that addresses the very critical aspect of government revenues through tax collection.

Variable interest rate applicability

I have borrowed Tsh 550M from a bank and am in dispute with it over the way they have charged me interest in my loan account. The bank has shockingly varied the interest according to the way the treasury bills have moved over the years. Can this be done? What remedy do I have?
MN, Dar

The law that applies here is the Mortgage Finance (Special Provisions) Act which is clear in s10 that an interest rate which by the terms of the mortgage agreement may be varied periodically in accordance with a formula set out therein, may be changed by a written notice from the lender to the borrower setting forth clearly and in a manner likely to be understood by the mortgagor the new interest rate, the date on, any change to the amount of the payment due under the secured debt, and the first date on which the new payment is due and the alternative, if provided in the mortgage agreement, to paying an increased interest rate, if that is the case.

The law does allow a change of interest rate if that is what has been agreed. However because you claim that you were shocked to see that the interest rate was changed, we assume that you were not put on notice about such a change. If that is the case, you have a good case of challenging this interest rate change.

One word of caution- over the last year, the interest rates on treasury bills has substantially dropped. Do check your statement as we believe that the interest rate differential might work in your favour. In that case the Bank may be able to challenge you on the reduction!

Demand notice from bank

I have borrowed money from a bank and pledged my property as security over which there is a registered mortgage. My business has not being doing very well and I am behind in remitting payments for only six months. The bank has sent me a strongly worded demand notice regarding this default and that they will take further action if I do not pay. What is the legal bearing of such a letter? Do I have recourse against the bank? What should I do?
CC, Dar

There are certain indisputable facts. You have borrowed money and haven’t paid. There is a mortgage and the bank has security against you in case you default. In the eyes of a banker it is not ‘only six months’. Six months in banking is a long period as the depositors of funds in banks don’t wait and accept such reasons.

The legal bearing of such a letter is that it may follow a statutory notice under s127 of the Land laws which will then give you 60 days to pay up the loan or face a sale of the mortgaged property. We are unsure what reasons you will give in Court to get an order restraining the bank from not selling since you have admitted that you have not paid. Timely payment is a key ingredient of a loan agreement and you are in default of this.

Our advice is for you to either pay the outstanding amount or try and reschedule the loan with a new business plan or look for another bank that is willing to take over this facility. Failure of all of the above may result in the mortgaged property being sold. Unfortunately there is no free money out there least of all from banks.