Civil Reference No. 7 of 2004
The appellant, Mufindi Tea Company Limited, held a Certificate of Approval issued under the repealed National Investment (Promotion and Protection) Act No. 10 of 1990 (NIPPA), granting it Investment Incentives under Part IV of NIPPA, including a tax holiday from October 1994 to September 1999 (item 13 of the Certificate). The respondent, Tanzania Revenue Authority (TRA), established under the Tanzania Revenue Authority Act No. 11 of 1995, administers revenue laws including the Income Tax Act 1973 as amended. TRA demanded Shs. 236,055,625/= as withholding tax on management fees under section 34(1) of the Income Tax Act. Instead of paying, the appellant sought a declaratory order in the High Court that, under NIPPA, it was not obligated to pay withholding tax on management fees. The High Court (Katiti, J.) held that withholding tax on management fees was not an Investment Incentive under NIPPA and that the appellant was mandatorily required to withhold the tax. The appellant appealed to the Court of Appeal.
(1) Whether, under sections 20(2) and 22 of NIPPA, the appellant as a holder of a Certificate of Approval was exempted from deducting withholding tax on management fees paid to a non-resident person during the initial five-year period of its investment incentives. (2) Whether the trial judge erred in relying on the marginal note to section 22 of NIPPA to conclude that the withholding tax remission during the initial five years applied only to dividends (and other listed categories), rather than to all forms of withholding tax including management fees.
For the appellant, Mr. Mwandambo argued that as a holder of a Certificate of Approval, the appellant was entitled to tax incentives including exemption from withholding tax on management fees; that although section 34(1) of the Income Tax Act obliged deduction of withholding tax, this was subject to sections 20(2) and 22 of NIPPA which, read together, exempted the appellant from such deduction; and that the phrase 'the whole of the withholding tax' in section 22 covered all categories of withholding tax, not just those specifically listed. He further contended that the trial judge improperly relied on the marginal note to section 22 in construing the provision, which is impermissible as a matter of statutory interpretation. For the respondent, Mr. Songoro submitted that NIPPA granted tax incentives only to approved enterprises and only as expressly defined in Part IV; that the appellant, though a Certificate holder entitled to a tax holiday, was legally obligated under the Income Tax Act to withhold tax on management fees as an agent of the TRA; that the recipient of the management fees was not itself a Certificate of Approval holder; and that there was no exemption in force covering management fees, since section 22's remission was confined to the specific categories listed therein (dividends, royalties on imported technology, and interest on foreign loans).
The Court of Appeal dismissed the appeal with costs. It held that the phrase 'the whole of the withholding tax in respect of any approved enterprise' in section 22 of NIPPA referred to the quantum or amount of withholding tax remitted for the specific categories enumerated in section 22(a)-(c) (dividends, royalties on imported technology, and interest on foreign loans), not to all forms of withholding tax generally. For the first five years, a Certificate of Approval holder was not obligated to withhold tax only in respect of these three specified categories; thereafter the stated rates applied. Withholding tax on management fees was not among the Investment Incentives granted under Part IV of NIPPA or under item 13 of the appellant's Certificate of Approval, and it was therefore not permissible to search for incentives beyond those specified in Part IV. Consequently, the appellant remained obligated under section 34(1) of the Income Tax Act to deduct withholding tax on management fees paid to the non-resident recipient at the time of payment. On the second ground, the Court agreed with the appellant's advocate that marginal notes are generally not to be relied upon in construing statutory provisions, citing Director of Public Prosecutions v. Schildkamp. However, it found, contrary to the appellant's submission, that the trial judge had not 'heavily' relied on the marginal note to section 22 in reaching his conclusion; the discussion of the marginal note was merely unnecessary and uncalled for, but did not form the basis of the decision. Accordingly, this ground of appeal also failed.
The judgment clarifies the scope of tax remission incentives under section 22 of the repealed National Investment (Promotion and Protection) Act, 1990, establishing that such remission is confined to the specific categories of withholding tax expressly enumerated in the statute (dividends, royalties on imported technology, and interest on foreign loans), and cannot be extended by implication to other categories such as management fees. It reaffirms the principle that investment tax incentives, being exceptions to the sovereign taxing power, must be strictly construed according to the express terms of the enabling statute and the Certificate of Approval. The case also reaffirms the established common law principle, drawing on English authority (DPP v. Schildkamp), that marginal notes to statutory sections are of limited interpretive value and should not control or override the plain language of the enactment.'
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