* Leadership and learning are indispensable to each other; He has been in that position for too long Sunday, 15 May 2011 22:38 Mr Harry Kitilya By Bernard James The Citizen Reporter Dar es Salaam. The Tanzania Revenue Authority (TRA) has lost a bid to have Barclays and CRDB Bank remit Sh15 billion in income tax.The two banks won appeals against the income tax assessments.Last year, the banks separately filed appeals at the Tax Revenue Appeals Board (Trab) to challenge the TRA refusal to allow them to deduct bad and doubtful debts of Sh12 billion and Sh3 billion respectively from their annual accounts. TRA refused to allow them to include in their final accounts a provision for impairment losses on loans and advances for 2005 and 2006 which they had charged to the profit and loss account as a deductible expenses under Section 25 (5) (a) of the Income Tax Act, 2004. The provisions include unrecovered loans and loan advances which were classified as loss loans in terms of Regulation 15 (4) (a) of the BoT regulations, 2001.The banks felt that the prohibition, after the Bank of Tanzania (BoT) approved their accounts, was subjected them to an unlawful assessment of tax and asked Trab to uphold their appeals.They argued that they complied with the Income Tax Act in relation to deductions of losses and the required accounting treatment. They also maintained that they had complied with BoT guidelines in relation to accounting standards.Trab had to decide whether or not financial institutions could deduct doubtful debts for the income tax. Since BoT supervises financial institutions in Tanzania, their financial statements and the manner of preparing their accounts must comply with central bank guidelines. Barclays adopted International Financial Reporting Standards in preparing 2005 and 2006 annual accounts and deducting bad debts. BoT approved the procedure.Trab sided with Barclays that the provision for bad and doubtful debts in financial institution was allowable under Income Tax Act, 2004 so long they are treated in accordance with BoT regulations. The board ordered that the assessment be made afresh.Barclays successfully sought a BoT approval to include in its financial accounts a provision of Sh12 billion which comprised both corporate and retail impairment.According to BoT regulations of 2001 4(3), the bank has to seek the central bank approval to proceed with preparations of its accounts. BoT only approves the provisions when it is satisfied that they are realistic. TRA maintained that provisions for bad debts were not covered by the Income Tax Act, arguing further citing section 11 (2) of the Income Tax Act, 2004 which states, among other things that only expenditure incurred wholly and exclusively in the production of a taxable income shall be allowed. But Trab observed that the refusal by TRA to allow the deduction of the legally approved provisions for bad debts was contrary to Section 25 (4) and (5) (a) of the Income Tax Act, 2004.Barclays contended that it followed all the requirements provided by the law and regulations governing financial institutions in the treatment of bad and doubtful debts.According to Trab, TRA erred in ignoring BoTs Management of Risk Assets Regulations 2001 in computations of tax assessment for the bank. It must be noted that once a debt claim of a financial institution has been determined in accordance with the relevant standards established by the BoT, there is no legal requirement for the said approval to be further subjected to the scrutiny by TRAs office, observed Trab. Trab advanced a similar reason in the case in favour of CRDB. The bank challenged TRAs refusal to allow the deduction on the bad debts incurred by the bank in course of its business for 2005.The bank had asked Trab to reach a similar decision as that of Barclays since the facts of the two cases were similar and it was only logical for same decision to be reached. While CRDB considered itself to have fulfilled all requirements necessary for income tax deduction, TRA felt that the appellant had one further step to fulfill by writing off the debts as bad before qualifying for deduction.Trab said there was no specific provision requiring financial institutions including CRDB to write off a debt as bad debt after it had became recognised as bad as per BoT standards. Rejecting to grant the appellant an income tax deduction after fulfilling all the requirements is not correct, said Trab.It said since CRDB fulfilled all the requirements including securing BoT approval which classified its debt as bad and doubtful, the band did not therefore any further procedure to be fulfilled before qualifying for deduction. TRA asked the board to dismiss the appeal on grounds that CRDB did not meet criteria for deduction consideration. TRA said the bank had only secured approval for the deduction of bad and doubtful debts from BoT but could not be granted the deduction since the debts had not been written off.