FAULTY provisions in the Income Tax Act denied the government revenue to the tune of 3.6bn/- payable by Pan Africa Energy (Tanzania) Limited, for analyzing natural gas samples in the United Kingdom obtained from drilled wells at Songosongo gas fields in Lindi Region, Southern Tanzania.
The Court of Appeal had initially recommend to the Attorney General (AG) as the advisor of the government, to amend the law to remove leeway for loss of income to the government, as the loophole could be used for tax evasion by unfaithful businessmen or through unlawful transactions.
In its advice, the court noted from other jurisdictions, like the one applicable in India, which changed the laws swiftly and was now in a position to charge income even for services rendered outside the country, but payment made in India.
The same applied in Tanzania, in relation to gas fields. However, instead of buying the court’s advice, the AG and the Commissioner General of the Tanzania Revenue Authority (AG) chose to file another application for the appellate court, the highest temple of justice in the country, to review its own decision.
Regrettably, this application has crumbled. Last week, Justices Bernard Luanda, Augustine Mwarija and Jacobs Mwambegele, “stroke out with costs” the application for review of the court’s decision lodged by TRA after granting a ground of objection advanced by Pan Africa Energy (Tanzania) Limited, through its advocate, Fayaz Bhojan.
In the ground of objection, the counsel for the company had forcefully submitted that the application in question was incompetent because TRA had failed to cite the provision of section 4 (4) of the Appellate Jurisdiction Act, to empower the court to adjudicate the matter.
The justices pointed out that to legally move the court, an application for review must cite Section 4 (4) of the Act, failure of which makes it incompetent and deserves to be struck out.
They declined the invitation by Principal State Attorney Gabriel Malata, for the AG, to ignore the omission. “We decline the invitation extended to us by the learned Principal State Attorney to overlook the five days between the date of publication of Act No. 3 of 2016 and July 12, 2016, the date of lodging the notice of motion in respect of the application.
“The present application for review is therefore incompetent for non-citation of section 4 (4) of the Act as an enabling provision. We find merit on the preliminary objection raised by the respondent and consequently strike out the application with costs,” they declared.
In the previous decision sought to be challenged by way of review, Justices Nathalia Kimaro, Katherine Oriyo and Augustine Mwarija, had pointed out that Section 69(i)(i) of the Income Tax Act is clear that income tax is chargeable for service fee received for services rendered in Tanzania.
“This could be a leeway for tax evasion for unfaithful businessmen or unlawful trans actions. All the same the Court is bound to interpret the law in its true perspective. We cannot create a situation in the statute that was not intended by the legislature,” they said.
The Court added: “Section 69(i) (i) makes a distinction between payments made by an individual person and that made by the government under Section 69(i) (ii).
Where the Government is the payer, income tax is chargeable regardless of the place where the service is rendered. It is chargeable even when it is rendered outside the United Republic.
This is not the case with Section 69(i) (i). A private Company like (Pan Africa Energy) has no obligation to withhold tax where the services paid were for services rendered outside the country,” the justices said.
Section 69(i)(i), the justices said, does not impose a liability on an individual company to withhold tax where service fee is paid in relation to services rendered out of the United Republic regardless of the fact that payment is made by a company registered in and is doing business in Tanzania.
According to them, the situation would have been different if the respondent was the government. They said that such a position also answers issues that were raised by the parties, that the payments that were made by the Respondent to nonresident consultants were not liable for withholding tax.
As part of its business, Pan Africa Energy (Tanzania) Limited conducts seismic work aimed at finding more gas and to better understanding, the gas reservoir. It drills wells, manages other wells owned by Songas, performs reservoir performance studies, well performance studies and marketing researches.
Such services are performed in the United Republic of Tanzania. It is stated further that much of the gas is supplied by the Songas Ubungo Plant and used to produce electricity, which is sold to Tanzania Electric Supply Company Limited (Tanesco).
In undertaking its operations, Pan Africa Energy (Tanzania) Limited, contracts various technical service providers, both resident and no-resident. Such services falls into three categories, including services performed in Tanzania.
Other categories are services performed abroad by technical service providers who do not come to Tanzania and tech nical services performed partly in Tanzania and partly outside Tanzania.
There was no dispute in respect of payment of tax on the first two categories. The subject of the dispute was a dispute relating to the third category, which included geological survey and exploratory drilling done in Tanzania and an analysis of the drilling samples collected and the preparation and issuance of the report, which is done in the United Kingdom.
Because such activities were performed in the UK by non-resident persons, Pan Africa Energy (Tanzania) Limited did not withhold any tax or payments made to its consultants. Such fact was discovered during the audit by TRA, which issued withholding tax certificate, demanding the 3,640,903,416/- payments.