- Taxpayer’s eligibility to refund of tax paid in excess.
- The mode of making the application for a refund.
- Limitation period within which to make an application.
- Timelines for the Commissioner General to make his final decisions.
- The procedure for payment of the refund to the taxpayer.
- VAT refund.
- Power of the Commissioner General to offset any taxes due from a proven excess amount paid.
- What happens when the refund is erroneous or induced by fraud on part of the taxpayer?
Tax refund is a legal entitlement to tax payers. It is a sum of money paid back by the taxing authority, Tanzania Revenue Authority (TRA) to the entitled taxpayer. Tax refund can be either, a refund of tax paid in excess or the refund of tax to specified persons upon fulfillment of specified conditions. The latter involves refund of specific taxes such as Value Added Tax and customs taxes. Tanzanian tax laws provide for prerequisites and procedures for both types of refunds.
From the outset, it is important to differentiate between tax refund, tax rebate and tax remission. These three concepts are completely different. Tax refund refers to the amount of money paid by the taxing authority to the taxpayer when such entitled taxpayer has paid excess tax to the Government. Tax rebate refers to the relief that one can claim to reduce the income tax burden. On the other hand, Tax remission is defined under Section 70(1) of the Tax Administration Act [CAP. 438 R.E 2019] to mean remission of the whole or part of interest or penalty imposed under any tax law by the Commissioner General after being satisfied that, there is a good cause to do such remission.
In this article, we focus on the procedure for refund of tax paid in excess. In most cases, excess payment of taxes happens as a result of erroneous calculation/assessment leading to the taxpayer has paying excess tax as against the tax required to be paid by him. In such cases, taxpayers are afforded a refund of the excess tax paid by the taxpayer.
Our Corporate and Commercial Law Department has prepared this article to highlight the law and governing procedures relating to taxpayer’s entitlement of refund of tax paid in excess.
Where does a right to refund emerge?
The right to a refund is afforded to the taxpayer pursuant to section 71 of the Tax Administration Act [CAP. 438 R.E 2019] (“the Tax Administration Act”) which gives a taxpayer right to apply to the Commissioner General of the Tanzania Revenue Authority (TRA) for a refund of tax paid in excess. It must be noted that the time limitation for this right is limited to only three years from the date on which the excess tax was paid.
Procedure for applying for a refund of taxes paid in excess?
A taxpayer is entitled under Section 71(1) of the Tax Administration Act to apply for refund of tax paid in excess. The application for tax refund has to be made to the Commissioner General of TRA within a period of three (3) years from the date of payment of tax in excess. This is provided under Section 71 of the Tax Administration Act as amended by Section 55 of the Finance Act No. 4 2017. The application has to indicate the correct amount of tax that was to be paid and supported by documentary evidence, which supports the claim. The documentary evidence, which will strongly support the application, must include all documents that were to be factored in upon making the assessment.
Value Added Tax (VAT) Refund;
A taxpayer id entitled to a refund of VAT when in a particular accounting period the input taxes (VAT paid on purchase to his/her suppliers and imports) exceed the output taxes (VAT collected from his/her customers) for six consecutive accounting period.
The application for refund should be made to the Commissioner General through VAT form accompanied with the following documents/information: –
- Certificate of genuineness
- The certificate of genuineness shall be issued by an auditor who has been registered by National Board of Accountants and Auditors and who is registered as a tax consultant with TRA;
- Computation of the refund amount;
- Checklist for the applicant’s value added tax repayment;
- Airway bill/Bill of Lading;
- Road consignment note;
- Landing certificate;
- EFDs receipts/invoices; and
- Any other information as Commissioner General may require.
Decision making after a Tax Refund application is made:
Upon receiving the application, the Commissioner General is required to consider the application and give his decision within ninety (90) days from the day of receiving the application. The Commissioner General must be satisfied with the application for him to grant the application. The law gives the Commissioner General the mandate to either grant, or where he is satisfied that the applicant did not pay any excess tax, to reject the application.
If the Commissioner General is not satisfied with the evidence supporting that the taxpayer paid tax in excess, he may request the taxpayer to provide him further proof or information that will assist him in making the final order. If the Commissioner General is satisfied that the taxpayer paid tax in excess, he may decide to refund the taxpayer to the extent of the excess that was paid by the taxpayer. (Section 72(2) (b) of the Tax Administration Act).
The Commissioner General shall communicate his decision by serving the taxpayer with a written notice informing him of the decision.
Payment of the refund:
The law under section 73(6) of the Tax Administration Act requires the Commissioner General to maintain a bank account for the purpose of refunds and to ensure that the account has sufficient funds at all times for such purpose. Thus, all refunds are to be made from this account.
Upon making the decision to refund the tax paid in excess the Commissioner General is required to apply the excess amount to offset any tax due from the taxpayer under any tax law. The balance thereof shall be refunded to the taxpayer. If there is no tax due payable by the taxpayer, then the amount shall be refunded to him in full plus any interest thereof. Section 73(1)(b) of the Tax Administration Act requires for a refund to be made within fourteen (14) days of making the decision.
The Commissioner General is liable to pay interest for the relevant refund in accordance with the specific tax law in which the excess was paid. The interest is calculated at rates announced by the Bank of Tanzania (BOT) at the beginning of the year for the period commencing from the date the decision to refund is issued to the date in which the refund is made.
Although Section 73 of the Tax Administration Act provides for the procedure of payment of tax refund, there is complexity in its practicability. In practical experience, tax refund process takes very long time and in some cases an applicant may be requested to offset it in a forth-coming year of business. This is undesirable because it upsets the entity’s balance sheet and liquidity in the current financial year of an entity.
Post refund provisions:
Where the Commissioner General discovers that the refund was made erroneously, he may demand payment of the refund from the taxpayer, which shall be recoverable from the taxpayer as if it was a tax in relation to which the amount was erroneously refunded. However, the Commissioner General is restricted from making such a demand after five (5) years from the payment except when the refund was made as a result of fraud on part of the taxpayer. This is provided under Section 74 of the Tax Administration Act.
Offences related to tax refund:
Where a person obtains refund of tax, which he/she is not entitled to or makes a false statement in order to obtain refund of tax, commits an offence and upon conviction he/she is liable to payment of twice the amount refunded. This is provided for under Section 84 of the Tax Administration Act.
As a taxpayer, one should know that they have a right, a statutory right that is, to claim for a refund. In essence, an erroneous tax assessment is curable under the law.
Although provisions of the Tax Administration Act give taxpayers a legal right to claim refund for taxes paid in excess, it is undeniable that there is no proper administration of tax refund, which lead to delays, and sometimes no refund at all. Both, the taxing authority and taxpayers should play a role in enhancing administration of tax refund. The taxing authority can create a special reserve account for tax refunds to ring-fence funds projected for tax refunds. On the same note, taxpayers should be keen on direct taxes paid to the taxing authority to allow immediate offsetting of taxes when required. This would reduce destruction in the business balance sheet.
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.