Genesis and Background of the Case

This case involved an appeal by the Commissioner General of the Tanzania Revenue Authority (TRA) against a decision of the Tax Revenue Appeals Tribunal, which had upheld an earlier decision of the Tax Revenue Appeals Board in favor of Vodacom Tanzania PLC. The dispute concerned the timing of withholding tax payment obligations under Section 82(1) of the Income Tax Act (ITA), Cap. 332, specifically relating to interest payments on loans received from Vodacom’s sister companies—Vodacom Group and Mirambo.

Vodacom received loans from Vodacom Group (2004, 2007, 2009) and Mirambo (2009), but delayed the actual payment of interest. While payments to Vodacom Group commenced in 2015 and to Mirambo in 2009, the withholding tax was only paid in 2015 and 2017, respectively. TRA conducted an audit covering 2011–2012, resulting in a tax assessment of TZS 7,779,581,441—comprising TZS 6.29 billion in principal and TZS 1.49 billion in interest for late payment.

Background of the Case – Key Points

1. Loan Structure: Vodacom borrowed from its affiliates, incurring interest obligations annually but delaying actual payments.
2. Withholding Tax Paid Late: While interest was paid to creditors from 2015 onwards, TRA argued that the corresponding withholding tax should have been paid when the interest accrued.
3. Tax Assessment: TRA issued Certificate No. WHT/BI/01/10/2014, demanding TZS 7.78B for late withholding tax on accrued interest.
4. Tribunal Decision: Both the Tax Board and Tribunal held that withholding tax arises upon payment, not accrual, and thus no late interest was due.

Appellant’s Submissions (TRA)

1. Withholding Tax Due on Accrual: Argued that under Sections 21(3), 23(1)(a), and 82(1) of the ITA, withholding tax is triggered on an accrual basis.
2. Technical Meaning of “Payment”: Cited the definition in Section 3 of ITA, which includes asset creation and entitlement, not just cash transfer.
3. Harmonious Interpretation: Urged the Court to reconcile Section 82(1) with general provisions (Sections 3, 21, and 23) rather than treat it as an exception.
4. Literal Interpretation Leads to Absurdity: Claimed that interpreting “pays” narrowly would defeat the broader statutory intent and facilitate tax avoidance.
5. Interest Justified: Asserted that since the withholding tax was due on accrual, the delayed payment rightly attracted interest under Section 76(1) of the Tax Administration Act.

Respondent’s Submissions (Vodacom Tanzania PLC)

1. Withholding Tax Due on Payment: Maintained that Section 82(1) clearly states withholding tax arises “when a resident pays interest”, implying actual disbursement.
2. Specific Provision Prevails: Argued that Section 82(1), being specific, overrides the general accounting provisions in Sections 21 and 23.
3. Literal Interpretation Is Appropriate: Relied on ordinary dictionary meaning of “pays” as discharge of debt, citing Black’s Law Dictionary.
4. No Late Payment Arises: Since tax was withheld and remitted in the year interest was paid, no delay existed within the meaning of law.
5. Precedents Cited: Relied on National Bank of Commerce v Commissioner General (TRA) to support literal reading.

Court of Appeal Decision – Key Points

1. “Pays” Interpreted Technically: Held that the term includes more than cash transfer—it encompasses creation of a liability or asset under Section 3 of ITA.
2. Accrual Basis Mandated for Corporations: Reaffirmed that Section 21(3) requires companies to account for tax on an accrual basis, thus aligning with Sections 23(1)–(3).
3. No Conflict Between Provisions: Found that Section 82(1) does not override, but rather complements, Sections 21 and 23.
4. Tax Due When Entitlement Arises: Determined that withholding tax becomes due when the recipient becomes entitled to the interest, not when it is actually paid.
5. Interest on Delayed Tax Justified: Upheld TRA’s right to impose interest on delayed withholding tax payment under Section 76(1) of the Tax Administration Act.
6. Appeal Allowed: Set aside the Tribunal and Board decisions; reinstated TRA’s assessment.
7. Costs Awarded: Vodacom to bear costs of appeal.

Judgement Date: 8 April 2025, delivered by Justices Korosso, Rumanyika, and Issa at Dodoma.