The Zimbabwe Revenue Authority (Zimra) has missed Finance Minister Mthuli Ncube’s directive to refund taxpayers outstanding reimbursements by the end of December last year throwing several local companies into financial turmoil, Business Times can report.
The major source of tax refunds is value added tax (VAT) under which registered operators can claim refunds from Zimra where input tax (VAT that registered operators are charged on purchases) outweighs output tax (VAT that the registered operator charges).
In October, Ncube directed Zimra to clear the tax refund backlog, estimated to be more than ZWL$150m, by December 2019 as this was critical for the revenue collector to regain the trust of the country’s taxpayers.
But, Zimra commissioner general, Faith Mazani, this week told Business Times the revenue collector had failed to clear the back log.
“…..They [VAT refunds] are not finished,” Mazani told Business Times on the sidelines of the International Customs Day celebrations held this week in the capital.
“But, what we are finding is some of the companies as we pay the refunds, they bring in (new) returns and as a result some of them add up. However, we have reduced.” Mazani, however, could not reveal how much was paid.
The dire consequence is that this has now weighed down on companies. Several captains of industry who spoke to this newspaper said this was ‘killing’ their businesses as this creates cashflow problems for them.
Contacted to comment on the failure by Zimra to comply with his directive on the sidelines of the International Customs Day celebrations this week, Ncube told Business Times: “I need to check. But, we have a directive that we have issued that they should clear the refund back log to clients. That will show efficiency and that would also bring back the trust and help in compliance.”
Although the normal process for tax refunds is that it should be paid within 60 days, Zimra has been ignoring the regulations even though the failure attracts interest payment to the registered operator on the outstanding amount.
According to several company executives, they had been facing delays of between six months and 12 months before getting refunds that companies are fully entitled, a situation which has negatively impacted on cash flows.
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, tax experts told Business Times.
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.
Mazani 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.”
Zimra is 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. Mazani said IPSAS was going to be a game changer for tax purposes. “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 said.
Meanwhile, Zimra surpassed the revenue collection target by about 25% to ZWL$23.19bn in 2019 after it intensified tax audits going as far back as six years and issued garnishee orders.
The target for 2019 was ZWL$18.6bn.
But, in real terms, this is a serious erosion and inconsequential because in US dollar terms revenue from tax collections have gone down to US$1.4bn using the interbank foreign exchange rate, from US$18.6bn recorded in prior year.
Government is heavily reliant on tax collections due to the lack of budgetary support from the donor community, but growth in the informal sector has resulted in many businesses operating outside the tax collectors’ radar.