DELTA Beverages Pvt Ltd is up in arms with the Zimbabwe Revenue Authority (Zimra) after the tax collector concluded that the company had improperly computed its income tax, resulting in the matter spilling into court.
Zimra cornered Delta, arguing that despite having received foreign currency for some of its sales during the years ending 2019 and 2020, the company “had neglected or omitted to remit its income tax in respect thereon in foreign currency, but had purported to pay it all off in the local currency.”
Taking this into consideration, Zimra then imposed a penalty on some expenses in the belief that Delta had violated the law.
The fight has since spilled into the courts, with Delta seeking a declaration of invalidity in respect of additional income tax assessments for the tax years ended 2019 and 2020.
DeIta is also seeking another declaration of invalidity of the additional value-added tax (VAT) assessments issued against it by the Zimra for the period March 2019 to October 2021.
The beverage company said local currency was the sole legal tender in Zimbabwe.
Delta is an integrated manufacturer, seller and distributor of a wide range of products, including alcoholic and non-alcoholic beverages.
Facts are that the company is a registered taxpayer.
It earns revenue in both local and foreign currency, principally United States dollars.
Likewise, its expenditure is incurred in both local and foreign currency.
Zimra is a central collector of revenue for the government through the various pieces of tax legislation, principally the Income Tax Act [Chapter 23:06] and the Value-Added Tax Act [Chapter 23:12].
The system of taxation involves the compilation by the taxpayers of self-assessments of their tax liabilities and the submission of tax returns to the respondent in respect of any year of assessment.
Zimra can adjust these assessments for any anomalies it may pick during its own audit processes.
The matter brought to court by Delta is largely one of law, more precisely, the interpretation of the relevant provisions of the tax statutes.
According to court papers, following a tax audit on Delta’s tax affairs for the period 1 January 2019 to 31 October 2021, Zimra concluded that the company had improperly computed its income tax in the sense that despite having received foreign currency for some of its sales in the relevant period, it had neglected or omitted to remit its income tax in respect thereon in foreign currency, but had purported to pay it all off in the local currency.
Zimra further concluded that Delta had improperly deducted certain expenses from its taxable income.
Perceiving the applicant’s conduct to be a violation of the tax statutes, the respondent disallowed the expenses which it considered to have been improperly deducted.
“Further, it proceeded to re-compute the applicant’s tax liability and issued it with amended tax returns, apportioning the tax payable by the applicant in the proportion of the ratio of its turnover in foreign currency to local currency,” reads court papers.
In effect, Zimra required Delta to pay its taxes in foreign currency in respect of its revenue received in foreign currency, and in local currency in respect of the revenue received in local currency.
The court heard that Zimra conducted a similar audit and a re-assessment of Delta’s VAT obligation.
It concluded that Delta had paid its foreign currency component of VAT all in local currency, contrary to law.
Furthermore, Zimra considered that the applicant had not properly completed the VAT returns in that it had left out a whole section altogether.
This is the section that separates the foreign currency input and output taxes from the local currency input and output taxes.
Generally, output tax is the tax charged and received by a registered operator for subsequent transmission to Zimra.
In its amended notices of assessment, the court heard Zimra required that the foreign currency input and output taxes be separated from the local currency input and output taxes so that there would be no cross-currency deductions.
In other words, Zimra required that only foreign currency input tax be deductible from the foreign currency output tax and, similarly, that only local currency input tax be deductible from the local currency output tax.
According to the tax collector, that is the correct interpretation of the relevant tax provisions.
Zimra objected to the respondent’s re-assessments on multiple grounds.
The case was argued on several fronts and crystallised into five areas.
Firstly, Delta argued that the amended assessments by Zimra are invalid in that they refer to “gross tax” yet such a term or concept is alien to the tax statutes.
It further argued that the amended assessments by the respondent did not compute its taxable income and that, as such, they are invalid for want of compliance with the requirements of a valid tax assessment as previously pronounced upon by the courts.
Zimra, in response, argued that the use of this term is harmless and that the amended tax returns computed by it had all the requirements of an assessment as prescribed by law.
On this, High Court Justice Jacob Mafusire ruled that as long as those assessments contained the minimum requirements of the Acts, they cannot be held invalid merely because of the use of the term “gross tax”.
“The applicant has shown no prejudice as might have been suffered by it, or any violation of its rights as might have been occasioned by the respondent’s use of the term ‘gross tax’. This objection is fanciful. It is hereby dismissed,” ruled the judge.
Delta’s ground of objection, severely truncated, was that Zimra’s refusal to accept the payment of all ts taxes in local currency is unlawful because the new Zimbabwe currency has, by statute, been made the sole legal tender.
“As such, the discharge of tax obligations using the medium of exchange which is the sole legal tender should be regarded as good payment. The respondent is obliged to accept,” Delta argued.
Delta submitted that should it be found that there exists a conflict between section 4A of the Finance Act, as read with section 38(4) of the Income Tax Act and the subsequent Finance [No 2] Act of 2019 which introduced the new Zimbabwean currency and made it the sole legal tender, then the latter legislation must take precedence and prevail over the older provisions, an approach allegedly in line with the rules of statutory interpretation.
As a matter of historical fact, the minister of Finance, via Statutory Instrument 33 of 2019, gave the electronic currency a name, Real Time Gross Settlement dollar, or RTGS.
It would be legal tender in Zimbabwe at par with the US dollar at a rate of one-to-one.
Its effective date was 22 February 2019.
From 24 June 2019 that new currency was made the sole legal tender in Zimbabwe.
By section 23(1) of the Finance (No. 2) Act, No. 7 of 2019, itself an amendment introduced via Statutory Instrument 142 of 2009 [ Reserve Bank of Zimbabwe ( Legal Tender) Regulations, 2019], the use of foreign currencies, including the US dollar was outlawed as legal tender in Zimbabwe.
The RTGS was made the sole legal tender.
The judge said Zimra’s approach was rather flawed.
“Its argument is fragmented and selective.
“I find the distinction the applicant seeks to draw rather artificial in suggesting that the sole legal tender concept applies only in relation to the old bond notes and coins issued by RBZ, but not to the electronic currency introduced by the RBZ following the insertion of section 44C into the RBZ Act.
“The RBZ Act makes no such distinction as the applicant seeks to make between the raft of what constitutes the local currency of Zimbabwe comprising the banknotes, the bond notes and coins, on the one hand, and the electronic RTGS currency, on the other. They are all legal tender,” he ruled.
The judge also said despite making the Zimbabwe dollar the sole legal tender, the instrument made exceptions in certain regards.
He said examples of those exceptions were the operation of nostro accounts, the payment of customs duty and the payment of VAT on imports. Delta had raised several objections against Zimra, but they were all turned down before its application was trashed.
“All the objections by the applicant to the additional assessments by the respondent in respect of the tax years in question lack merit. The application is hereby dismissed with costs.”-STAFF WRITER
