Q&A – 14 May 2012

Too many tax problems

I seem to be having multiple tax problems. First I invested hundreds of millions of shillings to protect the environment in my factory but TRA has disallowed the entire expenditure saying it was not necessary. Secondly there was a delay in paying taxes. TRA did not even know about it and I voluntarily went to the TRA to pay only to find myself being charged interest and all sorts of penalties. Lastly my auditor who had adjusted my accounts for me tells me that TRA is after me for the adjustments he did and that he required more fees to sort things out for me. I am confused. What should I do?
TL, Dar

We are sorry to hear about your tax issues- they are however not as complicated as you think. We begin by the expenditure you claim has been disallowed by TRA on sums paid on protection of the environment. You have not stated what exactly you were protecting. The income tax act very clearly states that for the purposes of calculating a person’s income for a year of income from any business, there shall be deducted agricultural improvement, research and development and environmental expenditure to the extent incurred by the person during the year of income in conducting the business.

The Income Tax Act also defines environmental expenditure which is incurred by the owner or occupier of farm land for the prevention of soil erosion; or in connection with remedying any damage caused by natural resource extraction operations to the surface of or environment on land.

The TRA in arriving at its decision will need to know if this expense was necessary and whether it was in the operation of the business. You have the right to inquire why the expense has been disallowed and in case are not satisfied can appeal to the Commissioner General. whether you went to TRA voluntarily or not, all legal persons are presumed to know the law. You cannot blame TRA for fining you or charging you interest as the law provides for this. TRA cannot monitor everyone, and compliance, whilst left to the individual, is mandatory and an offence if not adhered to. Your argument that TRA would have never know is also not valid as TRA do conduct random audits of various companies. The law is clear in that any person who fails to pay tax on or before the date on which the tax is payable shall be liable for interest for each month or part of a month (the “period”) for which any of the tax is outstanding calculated as the statutory rate, compounded monthly, applied to the amount outstanding at the start of the period.

We come to the last part of your question where it seems like your auditor has illegally either prepared your statement of accounts or has concealed some material facts to reduce your liability. You now seem to be blackmailed by your auditor that you need to pay ‘extra fees’ to ‘sort’ the matter. We wish to answer your question in two parts. To begin with, if you have also participated in this fraud or concealment, you will have also committed an offence which may result you being fined and/or imprisoned. The story however does not end there.
It might be worth for you to inform your accountant of the provisions of the Income Tax Act which clearly states that any person who knowingly or recklessly aids, abets, conceals or induces another person to commit an offence under this Act (the “original offence”) commits an offence and shall be liable on conviction-
(a) where the original offence involves a statement that, if the inaccuracy of the statement were undetected, may have resulted in an underpayment of tax in an amount exceeding shillings 500,000, to a fine of not less than shillings 500,000 and not more than shillings 2,000,000, imprisonment for a term of not less than one year and not more than two years or both; and
(b) in any other case, to a fine of not less than shillings 100,000 and not more than shillings 500,000,
Your second question is on the delay in paying taxes. It doesn’t matter
imprisonment for a term of not less than six months and not more than one year or both.

From the above you can see that your auditor can also go to jail. You might want to remind him of his duties to act honestly and professionally and that he can also be held liable. Many auditors have forgotten this provision of the Income Tax Act but TRA is now coming down hard on auditors and accountants in the performance of their duties.

Sentenced for arson

My brother has been sentenced to serve a jail term of 7 years for burning down someone’s property ie charged with arson. In sentencing him it was brought to the attention of the trial magistrate that the accused was suffering from depression and hallucinations and was not a normal person, and that he needed a prolonged psychiatric treatment. Our advocate asked for an adjournment until the views of the doctor were known but the trial magistrate declined to grant the prayer and continued to pass the sentence. Was the trial magistrate fair?
TI, Tabora

Without a copy of the judgment it is hard for us to ascertain the reasons given by the trial magistrate in declining the prayer, and hence quite difficult respond whether the trial magistrate was fair or not. Moreover we do not have a full picture pertaining to the material facts of the case as to whether the house in question was unoccupied or not or whether there was anyone hurt and the extent of damages caused to the property as a result of the act of the convict.

What we can tell you is that arson is a grave and very serious offence as it endangers lives and property. These might be the facts considered by the trial magistrate in passing the sentence.

As to the fate of the accused’s health condition, he is entitled to get treatment whilst in prison. There is also a parole system under which a prisoner may be released if it is considered safe. Your attorneys can guide you further.