Q&A – 23 February 2015
Air conditioners in jail
I have a friend who has been imprisoned for a certain offence. In prison he is unable to sleep because he is used to air conditioning. Is it not unfair to imprison persons without catering to their basic needs? Can he not fit air conditioning at his own expense?
WE, Dar
When you are sent to prison, you are deprived of certain non basic needs as a punishment for the offence you have done.
Furthermore, the imprisonment is a deterrent to others from committing an offence. If the state starts providing air conditioning and other demands that your friend has, then for some it would be more ideal to commit an offence and enjoy the pleasures of imprisonment, which is counterproductive.
Further, there is no discrimination in not being able to provide air conditioning. Air conditioning is expensive and not a basic need. Had you said that your friend is not being fed, or not being provided a place to sleep, then it would amount to not meeting the prisoner’s basic needs.
As for fitting an air conditioner at his own expense, this is disallowed by the law as it would be discriminatory. Buying an AC is much cheaper than the power it consumes over its lifetime, and the prisons department cannot afford such additional power consumption. Therefore buying an AC is not an option.
Advance pricing arrangement
To ensure profitability, we have an arrangement with our holding company to provide various services to us. Our tax consultant is unsure about the validity of certain expenditures that we incur in such transactions. Is there a way we can get more certainty on what TRA will allow and what it will not?
GT, Dar
This scenario falls under transfer pricing, whose regulations have been issued last year. The Transfer Pricing Regulations provides for an advance pricing arrangement. Regulation 12 states that a person may request the Commissioner to enter into advance pricing arrangement for establishing an appropriate set of criteria for determining whether the person has complied with the arm’s length principle for certain future controlled transactions undertaken by the person over a fixed period of time.
You can therefore provide TRA with all relevant documents pertaining to this arrangement as provided for under regulation 12(2). Thereafter TRA will either accept the transfer pricing proposal, reject it or modify it. This advance decision allows you more certainty.
Lastly we must mention that the Commissioner may cancel an advance pricing agreement with a person by notice in writing if (1) the person has failed to materially comply with a fundamental term of the agreement; (2) there has been a material breach of one or more of the critical assumptions underlying the agreement; (3) there is a change in the tax law that is materially relevant to the agreement; or (d) the agreement was entered into based on a misrepresentation, mistake, or omission by the parties.
TRA refuses to coordinate with other departments
We entered into an agreement with a ministry for us to be exempt from certain taxes. Unfortunately the TRA is not honouring this agreement and refusing to assist in liasing with the ministry directly. There is a disconnect between the ministry and TRA and neither is willing to speak to the other. This project depends on these exemptions and we are unsure how to progress the project. Kindly guide.
TU, Dar
This is not the first time we are hearing this. Infact TRA is asking investors to coordinate the exemptions themselves as they are not the granting authority but only the implementation authority in as far as revenue laws are concerned.
However section 5 of the Tanzania Revenue Authority Act gives a wider function to TRA then TRA’s narrow interpretation. Section 5 lists the function as (a) to administer and give effect to the laws or the specified provisions of the laws set out in the First Schedule to this Act, and for this purpose, to assess, collect and account for all revenue to which those laws apply; (b) to monitor, oversee, coordinate activities and ensure the fair, efficient and effective administration of revenue laws by revenue departments in the jurisdiction of the Union Government; (c) to monitor and ensure the collection of fees, levies, charges or any other tax collected by any Ministry, Department or Division of the Government as revenue for the Government; (d) to advise the Minister and other relevant organs on all matters pertaining to fiscal policy, the implementation of the policy and the constant improvement of policy regarding revenue laws and administration; (e) to promote voluntary tax compliance to the highest degree possible; (f) to take such measures as may be necessary to improve the standard of service given to taxpayers, with a view to improving the effectiveness of the revenue departments and maximizing revenue collection; (g) to determine the steps to be taken to counteract fraud and other forms of tax and other fiscal evasions; (h) to produce trade statistics and publications on a quarterly basis; and (i) subject to the laws specified under paragraph (a), to perform such other functions as the Minister may determine.
Therefore there is nothing stopping TRA from coordinating activities with the ministry as is provided for under (b) above. Whilst TRA is the executing “tax collecting” body, TRA should also be assisting businesses in functioning, whether they are granted exemptions or not. There is a general negative sentiment to incentives but these sentiments are due to misused and unmonitored exemptions that were granted before, which TRA and other agencies did not monitor properly. Currently we see a number of genuine businesses turning away from Tanzania because of the aggressive “don’t grant exemptions” drive which is, in our opinion, putting Tanzania at a disadvantage as genuine investors are shying away from Tanzania.
In the interest of time, we recommend that you get the ministry that signed the agreement to take the first step by approaching TRA. If the granting ministry is not the ministry of finance, which is usually the ministry authorized to grant exemptions, then you may also want to consult the ministry of finance. With all fairness to TRA, TRA is not allowed to grant any exemptions and is desperately trying to ensure it meets its collection target.