Innscor battles ZIMRA’s tax dragnet

CLOUDINE MATOLA

Innscor Africa Limited, a cash-rich publicly traded diversified conglomerate, is battling an aggressive tax enforcement dragnet waged by the country’s tax collector, the Zimbabwe Revenue Authority (ZIMRA), which slapped the corporation’s divisions and subsidiaries with US$11.749m in additional income taxes, penalties and interest, Business Times can report.

Apparently, Innscor, said the disputed amount was settled in Zimbabwe dollars. However, ZIMRA wants the amount to be  paid in United States dollars.

The development comes after another blue-chip company, Delta Corporation, the country’s largest brewer, lost an appeal to pay about US$55m of taxes in local currency, the Zimbabwe Gold. Delta appealed to the Supreme Court.

However, the Supreme Court rejected Delta’s argument that ZIMRA had incorrectly calculated the company’s tax liability and instead upheld a ruling from the High Court.The court decided that Delta must pay the taxes for sales made in greenbacks.

It also comes at a time when the ZIMRA appeals tribunal, the Special Fiscal Court at the High Court, is weighed down with plentiful cases challenging the validity of  taxations.

However, ZIMRA, which is under immense pressure to raise funds for government, which is  largely dependent on tax revenue to fund its operations due to lack of budgetary support from the donor community, resulting in the administration struggling to control recurrent expenditure, has suffered a major blow after the High Court recently ruled that ZIMASCO, the country’s largest producer of ferrochrome, should not pay more than US$10m in taxes, after reviewing  the miner’s tax affairs.

ZIMASCO was accused by ZIMRA of using inaccurate tax calculation methods from 2019 to 2022.

Now that the economic crisis has worsened, ZIMRA, which is battling a shrinking tax base largely due to company closures, an increase in job losses, tax evasion, and the untaxed informal sector, which is now larger than the formal sector, has extended its tax dragnet to include the cash-rich  Innscor Africa Holdings.

ZIMRA, now enforces its tax regulations to the fullest extent possible in a desperate bid to rake in more revenue to fund the government’s operations.

“In the last few years, the Zimbabwe Revenue Authority (“ZIMRA”) assessed additional Income Taxes, penalties and interest amounting to US$11.749m for the periods 2019 to 2021 against the group’s divisions and subsidiaries for amounts that had already been settled in Zimbabwe dollars, but which ZIMRA deemed should have been paid exclusively in foreign currency, or for matters on which the group believes it has no tax liability. No credit has been given by ZIMRA to the equivalent amounts already paid in the Country’s legal tender,” Innscor board chairman Addington Chinake said.

He said Innscor was contesting ZIMRA’s assessment, and the issue is currently at various stages of appeal at the courts.

“These assessments have been objected to and challenged at the courts and are at various stages of appeal. Should the group’s divisions’ and subsidiaries’ various appeals not be successful, the historical Zimbabwe dollars paid towards the settlement of these taxes could be refunded.

“ Due to the effect of inflation, these amounts would likely be paid at extremely low values in today’s terms.

“The group continues to engage the relevant authorities while these assessments are being objected to and challenged through the courts. Tax payments that have been made with respect to the revised assessments have been accounted for as taxation prepayments on the group’s statement of financial position, in anticipation of a successful appeal process, as the group believes that the settlements it previously made to fully expunge its tax liabilities for these historical periods were in line with the legal

requirements prevailing at the time of settlement,” he said.

Chinake said out of the total amount assessed, the company already paid US$9.262m under the pay now argue later principle.

In its financial results for the six months to June 30, 2024, Innscor reported a 27% profit growth to US$48m, up from US$37.8m achieved in the prior comparative period.

Revenue for the group increased by 13% to US$910.065m in the period  under review from US$804.039 reported in the same period last year.

Operating profit, before depreciation, amortisation, and fair value adjustments, net of financial gains or losses (“EBITDA”) for the current financial year under review rose by 13.7% to US$86.048m in the period under review from US$75.656m recorded in the comparative financial year.

Total assets stood at US$728.60m in the period under review compared to US$653.84m reported in 2023.