PHILLIMON MHLANGA
The Zimbabwe R e v e n u e A u t h o r i t y (Zimra) has i n t e n s i f i e d crackdown on the country’s ailing companies suspected of tax evasion and aggressive tax avoidance as Treasury piles pressure on the country’s tax collector to boost revenue inflows.
Zimbabwe companies owe Zimra close to ZWL$5bn in taxes over the last few years. The government had long postulated that a crackdown could help alleviate Zimbabwe’s economic crisis.
They are also pursuing the super-rich and target their assets. Several business executives, who spoke at a tax meeting held in the capital last week, slated the latest rollout of the painful tax dragnet, describing the move as akin to “killing the goose that lays the golden eggs”.
The ramping up the number of investigations in recent months as part of efforts to nab tax dodgers comes amid growing fears the economy may soon hit the disastrous lows as the local currency continue to lose value against the United States dollar, with the coveted greenback now almost completely unavailable on the formal market.
This has put intense pressure on President Emmerson Mnangagwa’s administration which is facing growing dissent due to the underperforming economy. Some companies are accused of unethically abusing the tax provisions in place and manipulating their accounts to shift their profits to low tax jurisdictions.
They have also failed to file returns, ZIMRA said.
Companies are now under pressure to come clean as they feel the heat of the crackdown. Several company executives complained that they are almost becoming tax audit clients because of the repeated number of times they are subjected to audits by ZIMRA.
Penalties paid by companies after audits, companies said were larger than expected, meaning companies will fork out hefty amounts in tax. This will strain companies’ balance sheets.
They said companies were now suffering in parts from complications around Zimbabwe’s tax systems.
“It appears “ZIMRA lives here (at his company)”, one business executive, who declined to be named, said.
Several captains of industries suggested the cycle of audits should be more spaced not on continuous basis.
ZIMRA commissioner for domestic taxes, Rameck Masaire confirmed latest crackdown on tax dodgers saying the authority would slow down on the exercise by June.
“I confirm that the audits have been frequent, long and continuous,” Masaire said.
“But, we are working on reforms and we expect that you will see a slowdown of audits in the country in few months.
In fact, before half year you will see a difference in how we conduct our audits.”
Zimbabwe’s harsh economic environment has pushed several formal businesses into the informal sector, a situation which is giving government a severe headache.
The migration to the informal sector has resulted in many companies evading and aggressively avowing the payment of tax obligations.
While tax evasion is a criminal offence, tax avoidance is the legal usage of the tax regime to reduce the amount of tax payable by means that are within the law.
Finance and Economic Development deputy minister, Clemece Chiduwa said government was concerned by the high level of tax dodging.
“I know business have a lot of concerns. We are aware a lot of businesses are deliberately informalising from formal business.
They claim the amount of tax cost to business is high, so they say going informal would make them pay very minimum taxes, if any,” Chiduwa said.
“We are working on tax reforms. I have been discussing with the CG (commissioner general) that it’s going to have ramifications.
So, we are designing a compliance system that encourages tax payers to pay.
We are working hard to review our legislation and tax policies.”
ZIMRA commissioner general, Faith Mazani said the depreciation of the Zimbabwe dollar has made “business planning difficult and seen a number of exporting companies being taxed on exchange gains that makes it difficult to plan”.
“As the exchange rate fluctuates, tax allowances are eroded and this particularly affects capital allowances brought when the exchange rate was at 1:1,” Mazani said, adding a number of formal businesses have become informal.
“We know the volatile economic situation is making planning difficult for companies and they are being taxed on exchange gains, making it difficult to plan.”
She said it was difficult to tax the informal sector for it to also shoulder the tax burden in line with equity which is one of the tenets of a good tax system.
“If that burden is shared equitably in relative terms more resources are made available for economic development.
But, the main challenges are around income earned from business transactions in the informal sector,” Mazani said.
“With the complex tax system which requires the keeping of books and records, our informal sector don’t keep records and they have no sense of obligation and have a Quid pro quo stance (a Latin phrase meaning, is there any benefit I derive from paying tax).
“There is also negative perception of taxation by the informal sector players.
Unfortunately, this is not just in the informal sector as some big indigenous businesses also have the same characteristics. “Zimra is also building its capacity to take advantage of available data sources for its compliance management through the use of third party information for tax payer registration, verification and audit.”
While Zimra has intensified raids on companies, firms are saying Zimbabwe’s tax regime was complex, making it difficult for them to comply.
Institute of Chartered Accountants of Zimbabwe chief executive officer, Gloria Zvaravanhu said legislations such as Statutory Instruments (SI) 33 of 2019, SI 142 of 2019 and the Finance Act 1,2, and 3 of 2019, have a significant impact on reporting and taxation.
“In addition, income tax reporting and annual returns falling due monthly brings about distortions,” Zvaravanhu said.
‘With higher taxes, gains get superficial. They is also high likelihood of double taxation.
Interest rates on outstanding tax debts have been revised upwards from 10% to 25%. This is punitive. Perhaps it’s an area needed to be looked at.
We need transitional provisions because these are thorny issues in business.”
Companies said the burden of 2% intermediated money transfer tax, which is part of austerity measures implemented by Finance Minister Mthuli Ncube to generate more revenue for the State, was killing business.
They said this was a way of asking companies to close because government was taxing capital instead of revenue.
They also complained that Zimra officers have become more of prosecutors rather than liaison officer when dealing with business.
David Masaya, a Confederation of Zimbabwe Industries economics and banking committee member called for the reform of the tax laws to make them practical and speak to the reality of the day.
“The situation on the ground is that formal sector is bearing the brunt of tax in Zimbabwe while the informal sector which in most cases does not transact through the banking system are enjoying,” Masaya said.
“The other contentious issue is that of 2% tax and the withholding tax, which makes my heart ache. It hit has hard the formal sector. ”
Farai Mutambanengwe, the Small and Medium Enterprises Association of Zimbabwe chief executive officer also said Zimbabwe’s tax regime was complicated and punitive.
“If a chartered accountant is finding it difficult, what about SMEs? The truth is the tax regime is too complicated for the informal sector. It’s being made impossible for us to participate,” Mutambanengwe said.
“Tax in Zimbabwe is punitive. Tax evasion in Zimbabwe yes, we are not angels.
What we are saying is Zimra should simplify the tax regime and should regulate for growth and to regulate for revenue.
The reality is that when you institute bad laws, everyone becomes criminals.”
