FINANCE Minister Mthuli Ncube has instructed the Zimbabwe Revenue Authority (ZIMRA) to clear outstanding tax refunds by the end of next month as he moves to remove the burden which has been weighing down companies, Business Times can report.
The delay by ZIMRA to process tax refunds, estimated to be close to ZWL$200m, has thrown several companies into financial turmoil. The companies say the backlog is killing their operations as it creates cashflow problems for them. Thus, the clearing of the backlog would be a huge relief to the companies.
“I acknowledge current delays being encountered by industrial players in claiming input VAT,” Ncube told parliamentarians at the pre-budget seminar held in the resort town of Victoria Falls last week. “Treasury has already directed ZIMRA to clear outstanding refunds before the end of the year.”
Although the normal process for tax refunds is that it should be paid within 60 days, ZIMRA has been ignoring the regulations even though failure exacts interest payment to the registered operator on the outstanding amount.
According to several company executives who spoke to Business Times, they were facing delays of between six months and 12 months before getting refunds that companies are fully entitled, a situation which has negatively impacted on cashflows. Some indicated that whenever they present refunds papers, ZIMRA subjects them to several audits from different ZIMRA departments, a situation which has delayed the refund process.
The executives indicated that even in instances where the taxpayers repeatedly supplied the documents requested by ZIMRA to complete the verification, the refunds still delayed. The worsening situation has caused enormous problems for businesses, especially in the current deteriorating economic environment, other tax experts told Business Times.
The major source of tax refunds is value added tax (VAT) under which registered operators can claim refunds from ZIMRA where input tax (the VAT that registered operators are charged on purchases) outweighs output tax (the VAT that the registered operator charges). ZIMRA has sought to manage the refund bill by ensuring that all claims are genuine and accurate.
Section 50A of the VAT Act (Chapter 23:12) also empowers the ZIMRA commissioner general to appoint any registered operator who purchases goods from other registered operators to be a value added withholding tax agent, which ZIMRA did in April 2017.
Faith Mazani, the ZIMRA commissioner general, recently told Business Times that the tax collector was also working on a tax reform agenda, which would see the tax system simplified to avoid multiple audits, among others.
“The authority has embarked on a reform agenda, which should address our strategy and structure,” Mazani said. “We identified detailed business gaps and we are now working to close that gap. We are working closely with the Ministry of Finance and Economic Development to simplify our tax system. We are also working on coordinated tax and customs audits to avoid multiple audits by various ZIMRA officers or teams. We want to do away with repeat audits.”
She said ZIMRA was also working on adopting the International Public Sector Accounting Standard (IPSAS) to deal with the problem. Zimbabwe has adopted the IPSAS implementation plan which is to be fully implemented in 2025 to enhance financial accountability in central government, urban and rural authorities.
The government has been using a cash accounting system, a method of recording accounting transactions for revenue and expenses only when the corresponding cash is received or payments are made.
The new accounting system is expected to contribute to better use of public funds. For tax purposes, Mazani said IPSAS was going to be a game changer.
“We know it’s going to be a challenge but we are adopting accruals accounting, that is the IPSAS for tax purposes,” she said, adding that ZIMRA was working on easing the burden of doing business, which is part of a programme under the Office of the President and Cabinet. “We need to simply tax in Zimbabwe. So, we have embarked on client segmentation and we are in the process of dividing clients,” the ZIMRA commissioner general disclosed.
According to Mazani, a significant number of people were not paying tax. In fact, more than 70% of registered taxpayers are finding it difficult to meet their tax obligations. But ZIMRA is under pressure to collect revenue to fund government operations.
However, many companies are either on the verge of collapse or have closed completely, rendering thousands of workers jobless and adversely affecting revenue collection.
Furthermore, it is difficult for the remaining few companies still in business to comply with tax demands, resulting in the accumulation of huge interests and penalties.
As companies are facing difficulties in meeting their obligations, Vinay Ramabhai, a partner at KPMG, says there is likely to be a significant increase in deferred tax liabilities. “Zimbabwe’s tax laws continue to be based on tax legislation and not accounting framework,” says Ramabhai.
“Deferred tax balances need to be recalculated after indexing the respective assets and liabilities under the International Accounting Standard 29. Unless significant changes are made in the 2020 national budget, it is likely to result in significant increase in deferred tax liabilities and in the effective tax.”