The appellant, Tata Africa Holdings Tanzania Limited, was subjected to a tax audit by the Tanzania Revenue Authority (TRA) for the 2019/2020 year of income. During the audit, TRA identified discrepancies between the company's financial statements and payroll records.
In particular, the company had recorded mobile telephone charges amounting to TZS 116,553,532.80 as part of employee emoluments in its financial statements but had excluded the same amounts from its PAYE and Skills Development Levy (SDL) computations.
TRA consequently assessed the company for PAYE and SDL on the disputed amount.
The company objected to the assessment, arguing that the telephone expenses were incurred for business purposes and paid directly to telephone service providers rather than being paid to employees as personal benefits. It relied on section 7(3)(d) of the Income Tax Act, Cap. 332 (now section 17(3)(d) of the revised edition), which excludes qualifying reimbursements from employment income.
However, the company failed to produce supporting telephone service invoices during the objection proceedings.
When the matter proceeded to the Tax Revenue Appeals Board, the appellant sought to introduce the invoices, explaining that they had been misplaced and only retrieved after filing the appeal. The Board refused to admit them because the company had not provided sufficient justification for their late production.
The Tax Revenue Appeals Tribunal upheld the Board's decision, prompting the company to appeal to the Court of Appeal on three grounds, principally challenging the refusal to admit additional evidence and the taxation of the mobile telephone charges.
The Court considered three principal issues:
1. Whether mobile telephone charges paid by an employer directly to telephone service providers on behalf of employees qualify for exclusion from employment income under section 7(3)(d) of the Income Tax Act.
2. Whether the Tax Revenue Appeals Board was justified in refusing to admit additional documentary evidence (telephone invoices) that had not been submitted during the audit and objection proceedings.
3. Whether the Tax Revenue Appeals Tribunal failed to exercise its statutory powers under section 23(1) of the Tax Revenue Appeals Act (now section 24(1), Cap. 408, R.E. 2023) to receive additional evidence necessary for determining the appeal.
The Court held that the Board was justified in refusing to admit the telephone invoices because the appellant had failed to provide compelling and evidence-based reasons for their late production.
In interpreting rule 16(5) of the Tax Revenue Appeals Board Rules, 2018, the Court emphasised that the admission of new evidence is not automatic. An appellant seeking to introduce evidence that was not previously made available to the Commissioner General must obtain the Board's consent and demonstrate justifiable reasons for the omission.
The explanation that the invoices had been misplaced and subsequently retrieved was insufficient because the appellant did not explain how they were misplaced, where they were found, or provide independent evidence supporting that explanation.
The Court reiterated the established principle that submissions by advocates are not evidence, relying on Joao Oliveira and Another v IT Started in Africa Limited and Another, Civil Appeal No. 186 of 2020 (unreported).
The Court rejected the argument that the Tribunal had failed to exercise its statutory powers under section 23(1) of the Tax Revenue Appeals Act.
It clarified that although the Tribunal has discretion to receive additional evidence under that provision, the power does not impose an obligation to admit every document presented at the appellate stage.
The Tribunal was entitled to refuse the invoices because the appellant had failed to establish a credible justification for not producing them earlier.
The Court further observed that procedural flexibility under rule 17 of the Tax Revenue Appeals Board Rules does not authorise parties to disregard statutory requirements.
In particular, sections 62(5) and (6) of the Tax Administration Act require taxpayers to accompany their objections with relevant supporting documents. The appellant had also failed to submit a counter-proposal as required under section 63(4) of the Act.
Key substantive holding
The Court held that the mobile telephone charges constituted taxable employment benefits and were therefore properly included in the PAYE and SDL computations.
In interpreting section 7(3)(d) of the Income Tax Act, the Court explained that the statutory exclusion applies to reimbursements made to employees who have first incurred expenses from their own funds wholly and exclusively in producing their employment income.
The Court identified two essential elements of reimbursement:
The employee must first incur the expenditure personally.
The employer must subsequently reimburse the employee for that expenditure.
In the present case, the employer paid the telephone service providers directly on behalf of its employees. The employees had not first incurred the expenses from their own funds.
Consequently, the payments did not qualify as reimbursements under section 7(3)(d). Instead, they constituted benefits conferred by reason of employment and fell within the definition of gains or profits from employment under section 7(1) and (2)(a) of the Income Tax Act.
The Court also emphasised that the appellant had failed to produce invoices establishing the actual nature of the expenditure, the service providers involved and the employees who benefited from the services.
The Court reaffirmed that the burden of proof in tax appeals initially rests on the taxpayer to demonstrate that an assessment is excessive or erroneous.
Relying on Insignia Limited v Commissioner General, Tanzania Revenue Authority, Civil Appeal No. 14 of 2007, [2011] TZCA 246, and Sapna Electronics Limited v Commissioner General, Tanzania Revenue Authority, Civil Appeal No. 120 of 2022, [2025] TZCA 108, the Court explained that the taxpayer must first produce credible documentary evidence challenging the assessment.
Once the taxpayer provides a reasonable explanation supported by evidence, the burden may shift to the Revenue Authority to justify maintaining the assessment.
In this case, the appellant failed to discharge its initial evidential burden.
The Court therefore dismissed the appeal with costs.
The decision provides an important interpretation of the concept of reimbursement under section 7(3)(d) of the Income Tax Act.
It establishes a distinction between genuine employee reimbursements and direct payments by employers to third-party service providers for employees' benefit.
The decision confirms that the mere fact that an expense serves a business-related purpose does not automatically qualify it for exclusion from employment income. The statutory conditions for reimbursement must first be satisfied.
This is particularly relevant to employers providing telephone allowances, communication facilities and other employee-related benefits.
The decision reinforces the importance of maintaining and producing documentary evidence throughout the tax assessment and objection process.
It demonstrates that taxpayers cannot ordinarily withhold relevant documents during the audit and objection stages and subsequently introduce them at the appellate stage without providing credible justification.
The decision therefore encourages proper tax record management, particularly for companies with substantial employee-related expenditures.
The Court clarified the relationship between rule 16(5) of the Tax Revenue Appeals Board Rules, 2018, and section 23(1) of the Tax Revenue Appeals Act.
Although the Board and Tribunal possess discretionary powers to receive additional evidence, those powers must be exercised judicially and are not intended to rescue parties from unexplained failures to comply with procedural and evidential requirements.
Importantly, the decision distinguishes between the existence of statutory discretion and an automatic entitlement to benefit from that discretion.
By reaffirming the principle in Joao Oliveira and Another v IT Started in Africa Limited and Another, the Court emphasised that factual assertions made by counsel in written or oral submissions cannot substitute for admissible evidence.
This is an important procedural reminder in tax litigation, where factual explanations concerning missing documents, business expenditure and accounting treatment must be supported by evidence.
The decision provides useful guidance on the operation of the taxpayer's evidential burden.
Although the taxpayer initially bears the responsibility of demonstrating that an assessment is excessive or erroneous, that burden is not necessarily static. It may shift to TRA once the taxpayer produces credible evidence sufficient to challenge the assessment.
The decision therefore reinforces the importance of the evidential threshold that must be crossed before TRA is called upon to justify its assessment.
]An additional important implication is that recording an expenditure in a company's financial statements does not conclusively determine its tax treatment.
The Court recognised that TRA is entitled to investigate discrepancies between financial statements and payroll records. Accounting classification alone cannot establish entitlement to a statutory tax exemption.
This reinforces the distinction between financial reporting obligations and the substantive requirements of tax legislation.
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