Zesa subsidiary in tax storm

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TINASHE MAKICHI 

The Zimbabwe Electricity Transmission and Distribution Company (ZETDC) is in the centre of a tax scandal following revelations that the company has been paying some of its suppliers who did not have valid tax clearance certificates without deducting withholding tax in violation of the Income Tax Act.

The practice by ZETDC is said to have deprived the fiscus of potential revenue as suppliers were paid but never remitted taxes to fiscal authorities.

Section 80(2) of the Income Tax Act states that “unless a payee furnishes the paying officer with a tax clearance certificate, the paying officer shall withhold ten per centum of each amount payable to the payee under the contract concerned, and shall remit each amount so withheld to the Commissioner on or before the tenth day of the month following that in which the payment was made”.

According to information obtained by Business Times, the estimated tax liability, penalty and interest arising from failure to withhold 10 percent from suppliers who had no valid tax clearance certificates amounted to about US$775 302.

A report gleaned by Business Times showed that ZETDC has been guilty of paying suppliers with no proper tax remittance history.

ZETDC former managing director Julian Chinembiri told this publication that he was not aware of how payments were done as it was the prerogative of the finance department. This was despite him being the accounting officer for the organisation.

“All the payments were done by the finance department and I wouldn’t know how they were making their payments. I have been away for close to a year now,” Chinembiri said.

ZETDC acting managing director Ralph Katsande did not respond to questions sent by Business Times.

In addition, ZETDC has also gone further to make payments to a local supplier alleged to be Pito Investments. Business Times is informed that ZETDC paid for the supply of transformers amounting to around US$1 million which were never supplied.

The company paid one supplier a total of US$350 000 in 2012 and 2014 for transformers and other goods. The supplier failed to deliver the goods.

ZETDC then engaged another supplier and made a payment of US$1 million in September 2015. This supplier also did not deliver.

It was therefore noted that the two suppliers were related companies as they were run by one managing director. It was not clear why the company continued to give orders to these two companies despite their failure to perform in the previous contracts. “Pito just won a tender and no money was paid to that effect,” Chinembiri said.

Last year, ZESA Holdings sent 15 senior managers across its subsidiaries on mandatory leave to pave way for a forensic audit into the affairs of the parastatal.

Former Zesa chief executive Joshua Chifamba, Chinembiri and ZETDC finance director Thokozani Dhliwayo have since appeared in court charged with criminal abuse of office after allegedly engaging in corrupt deals with an Indian Company, PME, for the supply of
transformers. The deals are reportedly worth US$35 million.

Allegations are that sometime in March 2012, ZETDC and Zesa Enterprises entered into a two-year business transaction with PME Power Solutions, an Indian-based company for design, equipment supply, engineering and supervision for the commissioning of substations at Chiwaridzo in Bindura, Senga in Gweru, Aerodrome and Cowdray Park in
Bulawayo, without going to tender.

The agreement specified the value of the projects as $35 million, but there was no provision for dates of delivery of the equipment. The court heard that article 12 of the agreement defined duration of the contract as two years.

Zesa Holdings made an advance payment of US$35 million from Afreximbank into PME China Trust Commercial Bank, in New Delhi, for the project.

It is understood that a payment was made without a performance guarantee and exposed the State to a loss of US$35 million.

After the payment was made, Chinembiri allegedly barred the engineering department from proceeding to PME to conduct a factory assessment test before delivery of the consignment as per procedure to ascertain the quality of equipment before its dispatch from India.

It is alleged PME supplied material worth US$16 341 428 as of February 25, 2016, with ZETDC losing US$11 836 146.