The saying that no likes paying taxes is closer to the truth than not. For companies, corporate tax is considered as a material cost which should be minimized or avoided at all. To achieve that end, tax planning comes into play. But the bad thing is, there is no clear boundary between bona fide tax planning and aggressive tax planning.
An aggressive tax planning gives rise to what is called “aggressive tax avoidance”. Aggressive tax avoidance involves the aggressive exploitation of loopholes in the tax legislation, as well as aggressive interpretation of the tax legislation in order to take advantage of the provisions of the law. The ultimate objective of tax avoidance is to avoid or minimize the tax burden.
Although tax avoidance is not illegal in itself but it is considered as immoral. This is why most Governments including ours (Tanzania) are taking progressive measures to eliminate loopholes in the legislation in a bid to curb aggressive tax avoidance. These measures include but not limited to adoption of the General Anti-Avoidance Rule (GAAR) and other administrative measures such as investigations, inquiries etc. In Tanzania, this is evident from the recent past incidents.
Tax avoidance may have repercussions not only to the society but to the company as well. When aggressive tax avoidance schemes are unveiled, the company usually lands into trouble. It may land into trouble with the taxing authorities and court of public opinion. In order to avoid trouble with the taxing authorities and maintain a good corporate image, there is a need to strike a balance between the legitimate right to adopt tax reduction measures and ethics. The result of such balance would require adoption of tax mitigation measures instead of aggressive tax avoidance schemes. Tax mitigation is encouraged while tax avoidance is not. It goes without saying that a company needs good and effective tax planning to steer it in the right course of business.
If you feel tax planning is an issue for you and you would like to discuss this further, please call us or send an email. Our Tax Department at Victory Attorneys & Consultants in collaboration with our accounting partners would be glad to assist you