PACIFIC Cigarette Company (PCC) – run by local business mogul Adam Molai – has been forced into voluntary corporate rescue under the weight of a US$19 million tax bill as the government weaponises taxation to deal with real or perceived political opponents.
Official sources say the Zimbabwe Revenue Authority (Zimra) was pressured from the highest political levels to slap PCC with a US$19 million tax bill after speculation that Molai was funding former Zanu PF political commissar and minister Saviour Kasukuwere to challenge President Emmerson Mnangagwa in the recent presidential election.
Kasukuwere was controversially disqualified from the disputed poll by the High Court. Mnangagwa claimed a victory in the election, hotly disputed by his bitter rival, the main opposition CCC leader Nelson Chamisa.
In the run-up to the elections, which included parliamentary and municipal polls, it emerged within intelligence circles that a report had been written accusing Molai of supporting Kasukuwere.
Molai and Kasukuwere are personal friends, although the business tycoon says he never gave his buddy a cent for the election. Mnangagwa’s government clearly does not believe him, judging by the weaponisation of tax to shut down his business.
The Johannesburg-based Molai is married to the late former president Robert Mugabe’s niece. When Mugabe was ousted in the November 2017 coup, Molai felt unsafe and left the country for South Africa.
During the 2018 elections, Molai was accused within government of funding the National Patriotic Front (NPF), a political party founded on 19 November 2017 by leaders of the expelled Zanu PF G40 faction which supported Mugabe and his wife Grace.
It was led by retired Brigadier-General Ambrose Mutinhiri and was associated with key G40 figures. It won one seat, Kwekwe Central, in 2018.
An intelligence source told The NewsHawks: “Molai was suspected of funding the NPF in 2018 and now in 2023 Kasukuwere. As we told you before the elections, Mnangagwa’s government is taking punitive action against him. They are weaponising taxation, using Zimra, to close down his business for political reasons. He has been hit with a US$19 million tax bill and his company will go into business rescue next week. He can’t survive the tax issue as if it’s business as usual.”
In 2018 the National Social Security Authority was unleashed on Molai.
The Insolvency Act in Zimbabwe permits shareholders or directors, to voluntarily place the company under corporate rescue when it is in financial distress.
This provides the company facing closure, prospects of restoration, without claims from creditors derailing the process.
Sources said Molai has decided to do this after his company was instantly brought down to its knees through Zimra.
Efforts to get comment from him were unsuccessful as he did not answer or return The NewsHawks’ calls and messages.
Prior to the current Insolvency Act [Chapter 6:03], which came into effect in 2018, local jurisdiction conducted judicial management proceedings prescribed under the old Companies Act.
The change from judicial management to business rescue was influenced by a number of issues, including the stigma attached to entities under judicial management as hopeless insolvents and the contention that such proceedings would be initiated to wind up such entity and liquidate.
Analysts say up to 90% of Zimbabwean companies under judicial management either failed to survive or were in that position for extended periods.
Corporate rescue is focused on bringing relief to financially distressed entities.
The intelligence source added that Molai was being punished for real or perceived political activities. Molai previously said he does not dabble and will not be involved in politics.
“Taxes are an incredibly powerful tool which can be used for political ends. The most dramatic example in recent years is that of Mikhail Khodorkovsky, an oligarch who was Russia’s richest man at one time. He is now exiled in London after serving jail time under President Vladimir Putin. Taxation can be a deadly political weapon,” the source said.
Khodorkovsky was convicted of tax evasion, fraud, embezzlement, and more in 2005. Judges in this Moscow courthouse spent 12 days reading the voluminous guilty verdict out loud, amidst demonstrations outside from both sides.
Khodorkovsky was one of the oligarchs, a buccaneer who picked up newly privatised state assets at bargain prices after the 1991 break-up of the Soviet Union. He spent US$300 million to buy hundreds of oil wells.
Within a few years, his major company, Yukos Oil, was pumping one-fifth of Russia’s crude, and carried a market value of US$40 billion. Khodorkovsky amassed a personal fortune of some US$15 billion.
With money and influence, Khodorkovsky began to dabble in politics too. In the process, he financed opposition candidates, and began criticising Putin’s government. There was speculation that he might even run for office someday.
In October 2003, Russian Special Forces launched a raid on the tarmac of a Siberian Airport, and seized the oil tycoon at gunpoint.
After raiding the Yukos offices, Russian authorities levelled seven charges against him and business partner Platon Lebedev, including illegally acquiring state assets through rigged auctions, and using tax shelters to hide company profits and evade billions in taxes.
From behind bars, Khodorkovsky denied it all.
But in December 2004, with the billionaire still in jail, the Russian government sold off Yukos’s prime asset to a state-controlled entity to pay back taxes. The trial drew international attention.
On a visit to Moscow at the time, United States secretary of State Condoleezza Rice said at the time the trial’s outcome would affect how the world viewed Russia’s political and investment future.
However, Putin consistently maintained that it was a simple tax evasion case against a corrupt business and its owner, and nothing else. In an interview, Putin said: “It is wrong to cast the criminal side of this case as political.”
Khodorkovsky’s attorneys charged the prosecution was political, a vendetta orchestrated by the Kremlin against a man who was becoming too powerful for its liking.
Neutrals said it was both politically and economically motivated.
PCC, formerly Savanna Tobacco, has some of the finest offerings in the market such as Pacific, Branson and Pegasus brands.
Specifically the brands include Pacific Storm, Pacific Breeze, Pacific Blue, Pacific Gold, Pacific Mist, Pegasus Hong Ma, Pegasus Spring, Pegasus Sky, Pegasus Toasted, Branson Flame, Branson Mint and Branson Royal.
The company, based on No. 424 Gleneagles Road in Harare, is currently run by Itai Gift Watinaye and chaired by Molai.
Previously, Yves Le Boulengé was the chief executive. The birth of Savanna Tobacco, as PCC was previously known, in 2002 came from an idea by Molai and Nick Havercroft to use the tobacco grown by Nick, who was a big tobacco farmer in Marondera, to produce cigarettes.
However, following the chaotic land reform programme and careful consideration, a decision was taken to abandon the idea of converting their own tobacco to cigarettes and get a licence to do contract production of tobacco.
When they got the licence, they managed to get various partners on board, including British American Tobacco.
In 2004, cigarette manufacturing then commenced and the Pacific brand was launched. Now PCC was producing international-quality cigarettes with the finest Virginia tobacco in the world.
That was before Zimra arrived with a US$19 million tax, forcing the company into busines rescue. Corporate rescue can either be voluntary or involuntary.
In the absence of any liquidation proceedings by or against a company, a board of directors may voluntarily initiate corporate rescue through a resolution (section 122(1)(2) of the Act), which is what PCC has done.