AfricaPress-Tanzania: THE Court of Appeal has ordered the natural gas producer and supply company, Pan Africa Energy (Tanzania) Limited, to pay about 700m/- tax on Pay As You Earn (PAYE) for employees to Commissioner General of the Tanzania Revenue Authority (TRA).
Justices Stella Mugasha, Mary Levira and Ignas Kitusi ruled in favour of the TRA, the respondent, after dismissing with costs the appeal lodged by Pan African Company, the appellant, against the decision of the Tax Revenue Appeals Tribunal (Tribunal).
They were satisfied that the appellant contravened the provisions of sections 7 (l) (2) and 81 (1) and (2) of the Income Tax Act under which she was obliged to deduct and withhold PAYE and remit the same to the respondent.
As such, according to them, they could not find sound reasons to vary the decision of the Tribunal because it was justified to treat tax paid by the employer on behalf of the employees as benefit in kind in the hands of the employee and it was subject to tax.
“In view of what we have stated, the appeal is not merited. We uphold the decision of the (Tribunal) and order the appellant to pay the demanded tax and accordingly dismiss the appeal with costs,” the justices declared.
They stated in the judgment delivered recently that the appellant’s obligation to withhold the tax in question remained intact by virtue of section 84 (3) (4) (5) of the Income Tax Act and it was not at any time extinguished in terms of section 81 (2) of the Act.
“Thus, we are of settled mind that, in view of the clear language used in the provisions of sections 7, 81 and 84 of the Income Tax Act, the employer is mandatorily required to withhold the employees’ chargeable tax from the employment earnings and remit the same to the TRA,” they said.
During hearing the appeal, counsel for the appellant had contended that the Tribunal grossly erred in law by holding that the grossing up method used by the appellant for the purposes of computation of PAYE for its employees is not justifiable in law.
The lawyers lead by seasoned Advocate Fiyaz Bhojan had stated that the Tribunal grossly erred in law by holding that the grossing up method of PAYE applied by the appellant provided tax benefits to its employees which are not exempted under section 7 (3) (a) to (i) of the Income Tax Act, 2004.
In their judgment, however, the justices of the appeals court noted that it was not in dispute that, the appellant invoked the grossing up method and paid PAYE to the respondent on behalf of its employees for the purposes of honouring its obligation under the law.
“We found this argument wanting because in terms of section 81 of the Income Tax Act, the appellant was mandatorily obliged to withhold PAYE from the employees’ salary and other benefits and remit the same to the respondent,” the justices said.
Therefore, they held, apart from not honouring his statutory obligations, the appellant was not justified to invoke grossing up method on PAYE on basis of the employment contracts which cannot in any way supersede the law regulating chargeable tax from the individual’s gains and profit from employment.
The justices went on explaining further that the appellant’s suggestion on non-prohibition of the grossing up is interpolations of what is not stated in the law.
Besides, they stated, the appellant’s argument on there being no harm on the appellant using own sources to pay the PAYE on behalf of the employee in effect is reading what is not stated in the law and it negates the principle of giving full effect to the language used in the law.
The appellant is a company registered in Tanzania dealing in natural gas production and supply of gas for power generation at Ubungo Power Plant in Dar es Salaam; it supplies natural gas to both industrial and commercial customers in the city. Also, it supplies compressed natural gas for use in motor vehicles.
Before April 2013, the respondent conducted an audit on the appellant’s tax affairs including PAYE and gathered that the appellant used the grossing up method in PAYE and remitted to the respondent without withholding the same from the employees’ taxable income from the employment earnings.
On this account, the respondent issued to the appellant a notice to demand PAYE accruing from the salary and other benefits paid to employees. This prompted the appellant to lodge an objection which was dismissed by the respondent.
As such, on December 19, 2013, the respondent issued to the appellant certificates indicating a liability in respect of PAYE at a tune of I,166,197,808/- comprising the principal sum of 677,194,295/- and interest thereon 489,003 ,513/-.
Having being aggrieved by the decision, the appellant took the matter to the Tax Revenue Appeals Board, which partly disallowed the appeal having concluded that the appellant had applied gross up method to pay PAYE which is not recognized under the Tax laws of Tanzania.
As for the interest, the Board found no justification to have the appellant penalized because she had not willfully neglected or attempted to evade tax.
As such, the interest of 489,003,513/- was waived in favour of the appellant. The appellant preferred an appeal to the Tribunal, which was also dismissed.
