Business trapped in tax nightmare

LIVINGSTONE MARUFU

Zimbabwe’s business community is grappling with a crippling tax nightmare as billions in unpaid Zimbabwe Gold (ZWG) input VAT refunds remain unresolved, triggering severe cash-flow shortages and threatening industrial survival.

Executives warn that delays in refunds dating back to March 2025 have pushed companies to the brink, strangling operations in one of Africa’s most challenging business environments. Industrialists describe the situation as a “tax nightmare” and a flashpoint between government and private enterprise.

Business leaders accuse the Zimbabwe Revenue Authority (ZIMRA) of hoarding refunds while aggressively enforcing tax collections, a contradiction they say is crushing compliant firms, worsening liquidity shortages, and driving more companies into informality.

The Zimbabwe National Chamber of Commerce (ZNCC) warns that the backlog in VAT refunds poses an “existential threat” to many formal businesses. In its latest submission to Treasury, seen by Business Times, a market leader in business, financial and economic reportage, the chamber accused ZIMRA of employing “bad tactics” that suffocate industry, discourage compliance, and erode confidence in tax administration.

“Refunds of ZWG input VAT require audits and are significantly delayed [with cases pending since March 2025]. Therefore, ZIMRA should expedite VAT refund processing by introducing risk-based audits and publishing timelines. The tax collector should also allow refunds to be applied towards customs duties and other ZIMRA-administered taxes,” ZNCC said.

The chamber further advised companies to file separate VAT returns for United States dollar and Zimbabwe Gold (ZiG) transactions under the Tax and Revenue Management System (TaRMS).

Despite repeated appeals from business leaders to offset taxes owed to government with refunds due from ZIMRA, the tax authority has resisted, intensifying corporate frustration.

“ZIMRA does not permit offsetting of input VAT in one currency against output VAT in another. This narrows the tax base amidst high tax heads, thereby incentivising informality, reducing compliance, and fairness. ZIMRA’s move resulted in severe liquidity strain on businesses, erosion of VAT neutrality, and loss of confidence in tax administration. This creates unnecessary cash-flow mismatches where the government owes companies more than companies owe government. We recommend that the tax collector should allow offsetting of input and output VAT across currencies using the prevailing exchange rate,” the chamber added.

The Confederation of Zimbabwe Industries (CZI) echoed these concerns, warning that the government’s rigid tax regime is exacerbating liquidity pressures and stifling industrial recovery.

“To ease the pressure on businesses, ZIMRA should adopt flexible tax accommodation measures, especially for companies with strong compliance records. The authorities should provide leeway to compliant firms to help preserve industrial activity while securing long-term fiscal revenues. In addition, the government should allow companies to offset outstanding debts owed to them by the State against their tax liabilities,” CZI said.

The pressure comes as ZIMRA maintains a hardline enforcement stance against major corporates including Delta Corporation, Innscor Africa, and National Foods, accusing them of settling obligations in local currency rather than US dollars. Payments made in local currency were reportedly treated as unpaid US$ tax, with penalties imposed to “instil discipline.”

ZNCC and CZI argue that this approach ignores refund arrears and legitimate claims owed to businesses.

“ZIMRA aggressively enforces US$ liabilities, including interest and garnish orders, without factoring in VAT refunds owed. We call upon the suspension of penalties, interest, and garnish orders where taxpayers are owed refunds and reverse system-generated interest on disputed balances,” ZNCC said.

The chamber also criticised ZIMRA’s interpretation of Section 16(1)(o) of the Income Tax Act, used to disallow interest expenses incurred by banks as deductible costs since 2019.

“The interpretation and application of Section 16(1)(o) of the Income Tax Act by ZIMRA contradicts the fundamental principle that interest expenses constitute a legitimate and significant component of the cost of sales for financial institutions,” ZNCC said.

“These expenses are genuine business costs incurred in the ordinary course of operations, particularly when raising offshore funds or accepting deposits. Disallowing these deductions will escalate the tax burden on financial institutions, leading to higher operational costs. This measure will discourage banks from raising offshore funds, limiting their ability to support economic growth and development.”

Analysts warn that such policy inconsistencies and mounting arrears risk eroding investor confidence, suppressing competitiveness, and weakening Zimbabwe’s regional trade performance. With tax obligations now approaching 20% of total overheads, delayed refunds are intensifying liquidity pressures and undermining industrial recovery.

In response, ZIMRA said it will soon settle all outstanding refunds.

“The payment of refunds is a process which involves assessment of risk and verification of refunds. Such process may delay payment of refunds because of ZIMRA or taxpayer,” the authority said.

ZIMRA added: “We wish to assure all our valued clients that the disbursement of verified and payable VAT refunds remain a top priority. To this end, ZIMRA has dedicated significant effort and allocated specific resources to ensure that eligible refunds are processed within our stipulated statutory timelines. We are continuously working to enhance our systems and processes to expedite this critical function that supports business liquidity.”