august mtu
TRANSCRIPT
August 2015 Edition
This Monthly Tax Update (MTU) summarises the
changes and announcements in the most recent months
in the following areas:
Legislation
Court Case decisions
Authority Announcements
1
Table of Contents
Introduction……………………………………………………………… 2
Disclaimer………………………………………………………………... 4
Legislation………………………………………………………………… 5
Finance Bill, 2015 …………………………………………………………………… 5
Amendment of definition of company or trust for purpose of corporate tax……………………………. 5
Tobacco levy extended to contract tobacco………………………………………………………………… 5
Taxation of ecclesiastical institutions, charitable and educational institutions of a public character…. 5
Amendment of the 24th
Schedule to the Income Tax Act………………………………………………….. 6
Clearing agent services to be deemed a supply……………………………………………………………. 6
Removal of export tax on unbeneficiated Chrome……………………………………………………….. 6
Amendment to export tax on unbeneficiated hides………………………………………………………... 7
Export tax on unbeneficiated diamond (rough diamonds)………………………………………………... 7
Changes to chrome and gold mining royalties…………………………………………………………….. 7
Extension of tax amnesty applications to 30 September 2015…………………………………………….. 7
VAT on short term insurance business ………………………………………………………………….. 7
Publication of Names of Taxpayers Convicted of Tax Offences ………………………………………… 8
Budget statement……………………………………………………………………. 9
Platform for receiving data from fiscalised devices………………………………………………………. 9
Fiscalisation of Categories A, B and D operators…………………………………………………………. 9
Upgrading fiscal devices…………………………………………………………………………………… 9
Customs Duty on Second Hand Motor Vehicles ………………………………………………………… 9
Duty on imported fertilizers ………………………………………………………………………………. 9
Duty on cooking oil ………………………………………………………………………………………… 9
Duty on beverages………………………………………………………………………………………….. 10
Duty on imported sugar ……………………………………………………………………………………. 10
Second Hand Clothing and Shoes …………………………………………………………………………. 10
Technical Analysis……………………………………………………….. 11
VAT on short term insurance business…………………………………………… 11
Registration for insurers and intermediaries………………………………………………………………… 11
2
Time of supply for insurance premiums ……………………………………………………………….. 11
VAT on premiums received through intermediaries…………………………………………………….. 11
The value of supply of insurance services…………………………………………………………………... 12
Cash backs or non-claim bonus……………………………………………………………………………. 12
Recoveries made under subrogation ……………………………………………………………………… 12
Self-insurance ………………………………………………………………………………………………. 12
Excess ……………………………………………………………………………………………………… 13
Zero rated insurance services……………………………………………………………………………. 13
Salvage recoveries…………………………………………………………………………………………. 13
Documentation in respect of commissions…………………………………………………………………. 13
Input tax apportionment …………………………………………………………………………………… 14
Churches, schools and trusts (public character institutions)…………………… 15
Income must be derived from non-trading or investing activities……………………………………… 15
The institution should be of a public character………………………………………………………….. 15
Trading activities of companies licenced in terms of s26 of the Companies Act………………………. 16
Court Cases……………………………………………………………... 17
G Bank Zimbabwe (Applicant) v Zimra (Respondent)………………………………………………….. 17
Delta Beverages (Pvt) Ltd v Zimbabwe Revenue Authority……………………………………………. 30
In the News……………………………………………………………… 33
Commissioner General- reaffirm deadline for application for tax amnesty (Zimra website)………… 33
Government modalities for export not in place yet (Fingaz 3rd
September 2015)…………………… 33
Zimra Turns Against Rebate Seekers (Fingaz 23 July 2015)…………………………………………… 33
3
Introduction
Tax Matrix (Pvt) Ltd has the honour to publish its August 2015 Monthly Tax Updates (MTU). The
monthly update compliments our tax training programmes and newsletters. They disseminate
information about tax developments happening locally and internationally. In the MTU, Tax Matrix (Pvt)
Ltd analyses the tax developments to ensure you, as our most valued client, is kept abreast of changes in
the tax world.
A new section “Technical Analysis” has been added to our MTU. We express our comments on the new
and existing legislation. In this issue we provide comment and analysis on the SHORT TERM
INSURANCE INDUSTRY in light of the proposal to introduce VAT on supply of short term insurance
services.
Just so you know what is happening in the courts, we have also analysed tax cases. The purpose of this is
to ensure you are made aware of the court outcomes which can have an impact on your business or
practice.
Tax Matrix (Pvt) Ltd also identifies and examines all relevant publications and ZIMRA interpretations of
these decisions as well as the institutional application of new legislation or rulings. The updates are
accompanied by an insightful commentary pointing out the key takeaway points from the material.
Aside to what our regular Newsletters provide, MTUs are meant to help you to:
Identify new tax planning opportunities.
Keep you updated with all changes in the tax world.
Keep you aware of current ZIMRA interpretations.
Recognise pitfalls many professionals miss.
Minimise compliance errors and offer practical and effective tax solutions.
It is our sincere hope that this MTU will bring value to the business community, Zimra and the academia
and should stand out as a useful tool in shaping the Zimbabwean tax system.
4
Disclaimer
The information contained in this MTU is for general guidance only and is not intended as a substitute
for specific advice in considering the tax effects of particular transactions. Whilst every care has been
taken in the compilation of the information and opinions contained in this publication, no liability is
accepted for the consequences of any inaccuracies contained in this guide. The information is not a legal
advice nor can it be relied on in any dispute with the tax authorities and shall not constitute any legal or
tax opinion in this or any jurisdiction.
The analysis contained in this MTU is based on current legal framework which is subject to change and
the company assumes no obligation to update or otherwise revise the materials contained in this or any of
its MTUs. In making their considerations, recipients or people with access to the MTU are advised to
make their own independent assessments, and, in this regard, to consult the company or their own
professional advisors before taking any action. The information and opinions contained in this MTU is
valid as at the date of uploading on the website, preparation or compilation, any of its contents may be
subject to change without notice.
The information contained and opinions contained in this MTU are for the purpose of general
information (“the purpose”) and for no other purpose. The company disclaims any responsibility for the
use of the information contained herein for a different purpose or context.
The information contained and opinions contained herein must not be copied, published, reproduced or
distributed in whole or in part to others at any time by the recipients. Tax Matrix (Pvt) Ltd retains all
intellectual copyright information contained and opinions contained in the MTU. Recipients should seek
the written permission of the company before distributing copies of information contained and opinions
contained in the MTU to third parties.
5
Legislation
Finance Bill, 2015
A revised Finance Bill was published in the government gazette of 28 August 2015. It contains some of
the measures contained in the Minister’s Mid Term Fiscal Policy budget statement.
Note that at the time of publication of this MTU, the Finance bill had not yet been enacted into law.
Readers are therefore required to exercise caution.
The proposed changes as per the 28th of August 2015 that are relevant to income tax, VAT, customs duty
and capital gains are as follows:
Amendment of definition of company or trust for purpose of corporate tax
It is proposed to amendment section 14 of the Finance Act (Chapter 23:04) to include in the definition of
“company” or “trust”, any ecclesiastical, charitable or educational institution to the extent that any part of
the income of such institution is derived from trade or investment, other than income which is exempt
from income tax in terms of paragraph 2(e) (iii) of the 3rd
Schedule of the Income Tax Act (Chapter 23;
06). The effect is to tax ecclesiastical, charitable or educational institution on income derived by it from
trading and investing activities at a corporate rate of 25.75%.
Tobacco levy extended to contract tobacco
The bill is proposing to amendment section 22A of the Finance Act (Chapter 23:04) by deleting the term
“auction tobacco” and replace it by “auction and contract tobacco”. The effect is to extend tobacco levy
(afforestation levy) to tobacco sold under contract farming i.e. under tobacco contract. The tobacco levy
is fixed at 1.5% of gross value of tobacco to be paid by the buyer and seller apiece.
Tobacco contract is a contractual arrangement between a contractor and a grower of tobacco, under
which the contractor provides or finances the purchase of inputs for the benefit of the grower in return
for the grower selling his or her tobacco to the contractor.
Taxation of ecclesiastical institutions, charitable and educational institutions of a public character
It is proposed to repeal paragraph 2 (e) of the 3rd
Schedule of the Income Tax Act (Chapter 23; 06) and to
replace it by a new paragraph 2 (e). The effect is to tax ecclesiastical institutions, charitable and
educational institutions of a public character on their trading and investing incomes. The new and current
laws are as follows:
6
New law Current law
To be exempted from income tax are receipts and accruals of
ecclesiastical institutions, charitable and educational institutions
of a public character consisting of:
Donations, tithes, offerings or other contributions by the
members or benefactors of the institutions concerned
Receipts or accruals from non-trading/investing activities
carried on by or on behalf of the institutions concerned
Receipts and accruals of income from the trade and
investment activities of such institutions registered as a non-
profit company licensed under section 26 of the Companies
Act strictly applied to the ecclesiastical, charitable and
educational institution’s objects.
To be exempted from income tax
are receipts and accruals of
ecclesiastical institutions, charitable
and educational institutions of a
public character.
Effective date 1 January 2016
Amendment of the 24th
Schedule to the Income Tax Act
To accommodate contract tobacco for the purposes of charging tobacco levy on contract tobacco, the
Finance Bill is proposing to substitute the 24th Schedule to the Income Tax Act (Chapter 23:06) with a
new 24th Schedule to the Income Tax Act (Chapter 23:06). The new Schedule allows the inclusion of
definitions of terms such as contract tobacco, contractor, and the buyer to allow the application of the law
to contract tobacco and regulation of tobacco levy on virtually all forms of tobacco sales. .
Effective date 1 February 2009
Clearing agent services to be deemed a supply
It is proposed to amend s 7 (“Certain supplies of goods or services deemed to be made or not made”) of
the Value Added Tax Act [Chapter 23:12] by in inserting s 7 (18) which read as follows:
“Every clearing agent shall be deemed to charge a clearance fee of at least fifty dollars United States
dollars (or other prescribed amount) on each bill of entry (in this subsection “clearing agent” has the
meaning given to that term in section 216A of the Customs and Excise Act (Chapter 23:02).”
The effect is to levy VAT on agent clearances fees of at least $50 on a bill of entry.
Effective date 1 January 2015
Removal of export tax on unbeneficiated Chrome
The bill is proposing to repeal section 12B of the VAT Act (Chapter 23:12) which provides for levying
of export tax on unbeneficiated chrome. The effect is to lift 20% export tax on chrome exported before
refined or beneficiated.
Effective date 1 January 2015
7
Amendment to export tax on unbeneficiated hides
The Finance Bill proposes to amend tax on exportation of unbeneficiated hides (raw hides) from
75cents per kilogram to the higher of 75 cents per kilogram and 15% of the export consignment of the
hides in question.
Effective date 1 October 2015
Export tax on unbeneficiated diamond (rough diamonds)
It is proposed to repeal section 12E of the Value Added Tax Act [Chapter 23:12]. The effect is to
scrap the export tax on unbeneficiated diamond.
Effective date 1 January 2015
Changes to chrome and gold mining royalties
It is proposed to amendment the Schedule to Chapter VII of the Finance Act (Chapter 23:04) by the
repealing of paragraph 1 (which fixes the rates of royalties for the purposes of section 245 of the
Mines and Minerals Act [Chapter 21:05]). The effect is to fix the royalty on Chrome at 5% from the
current 2%and reducing the royalty on gold produced by small-scale gold miners to 1%
Effective date 1 January 2014
Extension of tax amnesty applications to 30 September 2015
The Bill is proposing to amendment section 20 of Act No. 8 of 2014, the effect being to regularise the
extension of tax amnesty deadline from 31 March 2015 to 30 June 2015 which was not done through
an Act of Parliament and at the same extending the tax amnesty to 30 September 2015.
VAT on short term insurance business
It is proposed to levy VAT on short term insurance with effect from 1 September 2015. The supply of
short term insurance is currently exempt from VAT in terms of section 11(a) of the VAT Act on the
basis of its inclusion in the definition of financial services in s 2 (Interpretations) of the VAT Act
(Chapter 23:12). To ensure the levying of VAT on short term insurance, the bill is proposing to repeal
the current s 11 (a) and replace it with the new s 11(a). The new and current laws are as follows:
New law Current law
To be exempted from VAT is the supply of any financial
services, but excluding:
The supply of short term insurance and
Any financial services other than the supply of short term
insurance which, but for this paragraph, would be
charged with tax at the rate of zero% under section ten;
To be exempted from VAT is the supply of:
Any financial services, but
excluding the supply of financial
services which, but for this
paragraph, would be charged with
tax at the rate of zero% under
section ten;
A concurrent amendment is being proposed to section 2 (Interpretations) of the VAT Act (Chapter 23;
12) by inserting the definition of short –term insurance as follows:
8
“means any insurance other than life insurance, whether provided pursuant to any contract or law,
including and policy of insurance, an insurance cover, and a renewal of a contract of insurance, and
includes reinsurance”
Publication of Names of Taxpayers Convicted of Tax Offences
It is proposed to publish names of convicted tax offenders as a measure to enhance taxpayer
compliance. The implication is that the secrecy provision section 34A of the Revenue Authority Act
(Chapter 23:11) would not apply to cases of tax evasion. The amendment is effected by adding new
sections 34A (8) and (9) which provide as follows:
Section 34A (8):
“Despite anything in this section, the Commissioner General may, in relation to a taxpayer or other
person who is convicted of a tax offence (“the offender”) in respect of which all appeal or review
proceedings relating to the offence have, within the period allowed, been completed or not instituted
(or, having been instituted, have been abandoned), publish for general information the following
particulars:
(a) The name and area of residence of the offender; and
(b) Any particulars of the offence that the Commissioner General thinks fit; and
(c) The particulars of the fine or sentence imposed on the offender; and
(d) Any other particulars specified in subsection (2) in so far as they relate to a tax offence
committed by the offender”
Section 34A (9):
Tax offence means smuggling or any offence against any of the following Acts:
1. Betting and Totalizator Control Act [Chapter 10:02]
2. Capital Gains Tax Act [Chapter 23:01]
3. Customs and Excise Act [Chapter 23:02]
4. Income Tax Act [Chapter 23:06]
5. Income Tax (Transitional Period Provisions) Act [Chapter 23:07]
6. Stamp Duties Act [Chapter 23:09]
7 Tax Reserve Certificates Act [Chapter 23:10] 8 Value Added Tax Act [Chapter 23:12]
9
Budget statement
On 30 July 2015, the Minister of Finance and Economic Development presented his Mid-Term Fiscal
Policy to the House of Representatives and proposed the following revenue measures not captured in
the Finance Bill, 2015:
Platform for receiving data from fiscalised devices
The Minister proposed that Zimra will install a platform for receiving data from the already installed
fiscalised devices for Category C operators by 31 October 2015.
Fiscalisation of Categories A, B and D operators
The budget statement proposes that government will roll out the fiscalisation programme to cover
other Categories i.e. A, B and D operators.
Upgrading fiscal devices
It is proposed that the Technical Committee on fiscalisation will authorise approved suppliers to
supply upgraded devices in line with changes in technology for the Category C operators who
purchased outdated devices at inception 2011.
Customs Duty on Second Hand Motor Vehicles
The budget statement is proposing to increase surtax on passenger motor vehicles manufactured 5
years from the date of importation from the current 25% to 35%. The details of customs duty, surtax
and VAT on old passenger motor vehicles are as shown the following table:
Item New law Current
Customs duty 40% 40%
Surtax 35% 25%
VAT (on VDP + customs duty) 15% 15%
VDP means value for duty purposes this is comprised of cost, insurance and freight.
Effective date 1 September 2015
Duty on imported fertilizers
It proposed to levy custom duty of 25% on imported Compound and Blended fertilizer, provided there
shall be duty free importation whenever local production is insufficient to meet the demand.
Effective date 1 September 2015
Duty on cooking oil
It is proposed to amend duty on cooking oil Customs Duty of 40% plus 25% Surtax to the higher of
40% Customs Duty plus 25% Surtax and $0.50 per liter.
Effective date 1 September 2015
10
Duty on beverages
It is proposed to introduce a Specific Customs Duty of US$0.50 per litre of carbonated soft drinks.
Effective date 1 September 2015
Duty on imported sugar
Customs Duty on imported sugar increased from 0% to 10% plus US$100 per ton. To protect local
sugar industry, issuance of Import Licences will only be in consultation with industry representatives,
taking into account prevailing market conditions.
Effective date 1 September 2015
Second Hand Clothing and Shoes
It is proposed to remove second hand clothing and shoes from the Open General Import Licence. In
addition, importation of second hand clothing and shoes will be liable to forfeiture and destruction.
The effect is to ban importation of second hand clothing and shoes.
Effective date 1 September 2015
Full details on the budget highlight see our www.taxmatrix,co.zw
11
Technical Analysis
VAT on short term insurance business- preparing you for take off In reference to the proposed VAT on short term insurance, we discuss below some of the unique VAT
aspects of the short term industry. The list is by no means exhaustive. Please note that these are Tax
Matrix opinions and must not be construed to be the law.
Registration
Section 23 of the VAT requires every person whose sales value exceeds US$60,000 in any
consecutive period of 12 months to be registered as VAT operator. Registration is also required when
there are reasonable expectations that in the next 12 months a person will exceeds US$60,000. Thus,
all insurers and intermediaries (independent brokers or agents) with premiums or commission
exceeding or expected to exceed US$60, 000 in any period of 12 months must immediately apply for
registration with Zimra.
For insurers or intermediaries whose sales value exceeds US$240,000 p.a there is also a requirement
to install fiscalise register at each sales point. A US$25 civil penalty per day is charged for each sales
point which is not fiscalised.
Tax Matrix can assist with application for registration.
Agent and Principal
In terms of section 56 of the VAT any tax invoice, credit note or debit note relating to a supply by, or
to the agent, on the principal’s behalf should contain the principal’s particulars. However, the VAT
Act provides that if an agent who is a registered operator makes a supply on behalf of another register
operator (the principal), the agent may issue a tax invoice or a credit or debit note relating to that
supply as if the supply had been made by the agent. In such a case, the agent’s details may be
reflected on the tax invoice, credit note or debit note and the principal may not also issue a tax invoice
or credit or debit note in respect of that same supply. The VAT Act also makes provision for the agent
to be provided with a tax invoice, credit note or debit note as if the supply is made to the agent.
When a tax invoice, credit note or debit note has been issued by or to an agent in the circumstances
described above, the agent must maintain sufficient records so that the name, address and VAT
registration number of the principal can be ascertained. This is a key consideration because insurance
services involve the use of intermediary services i.e. brokers and agents.
Time of supply for insurance premiums
The time of the supply is the date that the supplier is required to declare the VAT charged on any
supply made and the date that the recipient is permitted to deduct input tax on goods or services
acquired. Section 8 (1) of the VAT Act (Chapter 23:12) deems a supply to take place at the time an
invoice is issued by the supplier or the recipient in respect of that supply or the time any payment of
consideration is received by the supplier in respect of that supply, whichever time is earlier.
In the insurance industry and related intermediary services, the policy document or renewal notice
may be considered to be the invoice. However, in practice these documents do not bind the insurer or
triggers a supply of insurance service. The cover only commences upon payment of premiums by the
insured. In this regard, the appropriate time of supply for insurance service should be the time the
premiums are paid.
12
VAT on premiums received through intermediaries
The insurance practice requires brokers and collection agents that act as independent intermediaries to
remit the premium to the insurer within 30 days of receiving premiums from the insured. In terms of
section 28 of the VAT Act, VAT must be accounted for and remitted to Zimra on or before the 25th of
the month that follows the end of tax period. In the event that an intermediary does not remit the
premiums to the insurer on time, the insurer will have to pay VAT due using own resources. This
requires the industry to review this standing credit period.
The value of supply of insurance services
According to section 9 of the VAT Act, VAT is charged on the value of supply. The value of supply
is equal to the consideration less tax element and postage stamp. It does not include also the stamp
duty. Stamp duty is neither value nor consideration because a stamp is neither a good or service.
Refer paragraph c) of the definition of goods which provides as follows:
Goods “means corporeal movable things, fixed property and any real right in any such thing or fixed property,
but excluding a)….
b)….. c) any stamp, form or card which has a money value and has been sold or issued by the State for the payment of
any tax or duty levied under any Act of Parliament, except when subsequent to its original sale or issue it is
disposed of or imported as a collector’s piece or investment article”
With regard to traffic levy which is also charged under the motor vehicle insurance, it can be argued
that it is not a supply by the insurer but by the State and no vAT must be collected from the levy from
the insurer.
Cash backs or non-claim bonus
A cash-back is a scheme where the insured is paid cash as a result of an insured not making any
claims on the policy over a specified period of time. This it is argued can be considered a supply of
money on which VAT is not chargeable by the insurer. The definition of “services” excludes money
(see definition of “Service” in section 2 of the VAT Act). But this depends on the wording of the
contract. For those contracts with a clause that make it clear that the premiums already paid are
recalculated and part thereof is paid back to the insured after a specified claim-free period as a
retrospective discount, a cash-back be considered to be an adjustment event and has a VAT
implication. A registered operator insured shall be required to account for output tax, whilst the
insurer will be entitled to claim input tax subject to having a valid tax invoice.
Recoveries made under subrogation
A subrogation is recovery by the insurer either from the third party or the third party’s insurer. The
amount constitutes recovery of damages as opposed to a supply of insurance services. The amount
constitutes a damage received and in our view it does not constitutes a consideration for the supply of
goods or service. Whereas indemnity is deemed a supply in terms of section 7(7) of the VAT Act,
damages are not. Therefore damages are not subject to VAT.
VAT on self-insurance and excess payments
A self-insurance does not involve a supply to any other person and does not constitute the carrying on
of trade for VAT purposes. An example of a self-insurance is where a company sets up its own
insurance company to handle losses of the company (a so-called “captive insurance company”). A
13
supply however arises when the head office or holding company of a group of companies could
assume the risk in return for the payment of a premium by the subsidiaries. VAT must therefore be
accounted for on the premiums received. Whether or not the fund is registered with IPEC (i.e.
operating illegally), VAT is charged on premiums, the VAT Act does not concern itself with the
legality of a supply.
Excess
An excess is the amount of the loss (claim) which the insured has to bear in the event of the insured
risk occurring. The VAT Act does not specifically deal with excess payments. In our view, since the
excess is paid by the insured to cover part of his/her loss, this it can be argued it is a form of self-
insurance. A self-insurance does not involve a supply to any other person and does not constitute the
carrying on of trade for VAT purposes. Therefore excess has no VAT implications.
Zero rated insurance services
Short term insurance services supplied directly in connection with exported goods is zero rated. Also
zero rated is insurance services supplied directly in connection with movable property situated in any
export country during the period of cover or goods temporarily admitted into Zimbabwe which are
exempt from tax on importation (section 10(2) (g) of the VAT Act).
Also zero rated are insurance services supplied directly in connection with land, or any improvement
thereto, situated in any export country (section10 (2) (f) of the VAT Act).
Further, insurance cover supplied to a non-resident of Zimbabwe who is physically outside Zimbabwe
during the time of the cover is zero rated. This does not include insurance cover in connection with
fixed property or movable goods situated within Zimbabwe. Note that supply of insurance cover to
movable that are subsequently exported to the non-resident is zero rated (section 10(2) (l) of the VAT
Act).
Salvage recoveries
Salvage constitutes a supply when it is sold. The insurer or an intermediary who sales salvage is
required to issue a tax invoice at the time of sale. The insurer must be a registered operator. Where
salvage recoveries comprise goods which are exported or salvage sold outside Zimbabwe such
supplies will be subject to VAT at the zero rate. Where the salvage is comprised of second hand motor
VAT is not charged, 5% excise duty rather is charged in terms of section 17B of the Customs and
Excise Act.
Documentation in respect of commissions etc
A registered intermediary must ensure documents, which comply with the requirements of the Act to
facilitate the claiming of an input tax in respect of commissions payable and claims paid. The
documentation must meet the requirements of section 20 of the VAT Act with regard to the features
of the invoice, credit and debts notes.
In the insurance industry a statement that reports the activities of the intermediary is known as
Bordereaux. The statement shows details premium payments, claims and commissions paid by
insurers etc. The document may take any format, but if it is to be accepted for purposes of claiming
input tax, it must meet the requirements of s 20 of the VAT Act (chapter 23:12) i.e. it must show all
the features of valid tax invoice e.g the name, address and VAT registration number of the insurer etc.
14
Also, an insured registered operator who pays a premium by debit order, must ensure he obtains
documentation has features of tax invoice (i.e. a policy agreement or renewal notice containing
features of tax invoice). It may be difficult seeking a refund based on the production of a bank
statement. Similar circumstances apply where a payment is made through a bond account.
Input tax apportionment challenge ahead
Section 16(1) of the VAT Act provides for the apportionment of input tax where goods/services are
acquired by an operator for use in making both taxable and non-taxable supplies. But apportionment is
not required where the goods or services so acquired are used at least 90% for the purposes of making
taxable supplies, full input tax credit may be granted (Diminimus Rule). Apportionment basis to be
applied is the turnover basis. Any other method has to be approved by the Commissioner. For insurers
receiving more than 10% in exempt income e.g investment income (interest, dividend income, income
from disposal of investment etc), input tax must be apportioned. To penalties insurer must review its
income streams to determine whether apportionment is required.
15
Churches, schools and trusts (public character institutions)
The new law is intended to bring within the fiscus trading activities of ecclesiastical, charitable or
education e.g income derived from selling hymn books, renting or hiring church halls, anointing oil,
and profits from church functions conducted as trade. The following are the key considerations to
qualify for exemption:
Income must be derived from non-trading or investing activities
A ‘Trade’ is defined in section 2 of the Income Tax Act (Chapter 23:06) as:
“as including any profession, trade, business, activity, calling, occupation or venture, including the
letting of any property, carried on, engaged in or followed for the purposes of producing income as
defined in subs of section 8 and anything done for the purpose of producing such income.”
A trade does not necessarily have to be carried on continuous basis. So a church fund raising activity
may be viewed as a trading activity. See IRC v Fraser 1942 24 TC 498, also Rutledge v IR Commrs 14
TC 490 where an isolated transaction of a business character undertaken by the institution was
considered a business activity. The term "trade" is of wide import and embrace every activity taken up with
a view to producing income. A trade is neither exhaustive nor restrictive (see Burgess v CIR 1993(4) SA
161). Any activity that is conducted with a pre-formulated policy, a carefully devised investment
strategy, characterised by systematic repetition and regularity is a trading activity (See Commissioner of
Taxes v Swansea Services Pty Ltd 72 ATR 120).
The implication in your business or practice is that as an institution of a public character if you engage in
an event which is business like then the institution must contribute to the fiscus.
The institution should be of a public character
The term “public character” is of general import and subject to legal debate. It does not necessarily mean
the general community. It includes sections of the public where the benefit to that section is universal
and not only accruing to selected individual/s or only certain members of that section (ITC 69 (1927) 2
SATC 264; also ITC 59 (1926) 2 SATC 186). In The Endeavour Foundation and UDC Ltd v COT (1995)
57 SATC 297 the court pointed out that where a fund benefit a selected members of the society i.e.
children of selected employees of various benefactor companies it is not a fund of public character. But it
suffices that an entity’s activities benefit a wide cross section of the public to qualify as one of a public
character. Generally, the courts are concerned with the actual activities of the taxpayer which in their
character should display a public character. .
The institution should benefit the community or an appreciably large number of the community, and not
merely for the benefit of private individuals. Its earnings should not be available for distribution to
shareholders or private individual, but applied primarily and solely for the benefit of the public.
The following are often used as guidelines:
a) The institution is founded or maintained by the community and managed by its representatives
b) The institution is not carried on by individuals for their personal profit
c) The institution is for the benefit of the public or a section of the public
16
d) The character of the institution, whether public or private, must depend, not upon the scholars to
whom education is given, but the terms on which and the circumstances in which the education is
given, and that
e) The trust is inalienable
The expression charitable institutions are applicable only to organisations which actually administer or
dispense the particular form of legal charity for which they were created. As regards what an institution
is, the Shorter Oxford Dictionary defines same as an establishment, organisation or association, institute
for the promotion of some object especially one of public utility, religious, charitable or educational etc.
On the other hand, the word ‘education’ was considered in the same context in ITC 1262 39 SATC 114as
consisting elements of systematic or formal instructions, schooling or training. It was held also that
activities of the company which were of cultural benefit were not education in the ordinary sense. Thus,
education is not an acquisition of knowledge, skill or competence by any means whatsoever.
Trading activities of companies licenced in terms of s26 of the Companies Act
The proposal is to exempt trading and investing income of companies of institutions as aforesaid as long
as the institution is the sole or principal member of that company. The company should be in possession
of a licence in terms of section 26 of the Companies Act (chapter 24:03). Its profits should be strictly
applied to the ecclesiastical, charitable and educational objects of the institutions concerned. Therefore,
profits of unlicensed companies of institution are subject to income tax, despite them being applied
towards the object of the institution. Also, if any of the company’s profits, whether licensed or not are
applied to the benefit of individuals or promoters then all the profits will be subject to income tax.
17
Court Cases
G Bank Zimbabwe (Applicant) v Zimra (Respondent)
Case Name G Bank (Applicant) v Zimra (Respondent)
Summary The bank wanted retrenchment costs deducted in 2009 the year in which the
board made resolution to retrench
Zimra wanted to deem income on unproductive money held in Nostro Accounts
and to treat this as gross income of the bank
The bank did not want Zimra deem interest on offshore loans
The bank did not want Zimra to levy non-resident tax on fees (NTF) on the bank
charges raised by offshore banks holding the bank’s Nostro accounts
Date 9 and 10 September 2014 and 27 February 2015
Jurisdiction Harare High Court
Decision 1. The bank did not properly bring to account the retrenchment costs in its tax return
for the year ending 31 December 2009 and Zimra was correct in disallowing it in
the 2009 tax year.
2. Zimra was not entitled to deem the bank’s offshore Nostro accounts as interest
bearing accounts and it erred in adding notional interest back to taxable income.
3. Zimra was entitled to attribute interest earned by non-resident related parties on
loans made to businesses in Zimbabwe to the bank and correctly added it back to
income in the respective tax years that it was earned.
4. Zimra properly raised withholding tax on the bank charges that were raised by
offshore banks holding the bank’s Nostro accounts as they constituted fees under
para 1 of the 17th Schedule of the Income Tax Act [Chapter 23:06].
What were the issues?
a) Whether the bank was correct in deducting retrenchment costs in its 2009 income tax return.
b) Whether Zimra was entitled to deem the bank’s offshore Nostro accounts as interest bearing
accounts and the appropriate rate of interest.
c) Whether Zimra was entitled to attribute interest earned by non-resident related parties on loans
made to businesses in Zimbabwe to the bank.
d) Whether bank charges raised by offshore banks holding the appellant’s Nostro accounts amounted
to fees under para 1 of the 17th Schedule of the Income Tax Act.
Staff retrenchment costs
What were the facts?
18
On 26 November 2009 the Bank’s board of directors resolved that:-“The Company undertakes a
voluntary retrenchment exercise to reduce its staff head count by up to two hundred and fifty-two
(252) staff members.”
The cost was to be funded by the foreign based parent company up to cap of US$7 million.
The exercise was headlined: Voluntary Separation Scheme in the minutes and all interested
employees were free to participate.
The rationale, process and package for the exercise were considered and approved by the board
before they were unveiled in country wide road shows to all members of staff.
The reason for retrenchment was the down turn in economic activity which resulted in drastic fall
in business volumes from average monthly transactions of US$1.9m in 2008 to US$380 000 in
2009 in the face of static staffing levels in excess to capacity.
All interested employees were required to submit formal applications by 31 December 2009, but
the bank reserved the right to approve or decline applications.
The documentation consisted of each employee’s application letter, the bank’s pro forma letter of
acceptance of the exercise and a pro forma confirmation signed by each employee and the
Zimbabwe Revenue Authority Employee’s Tax Deduction Directive.
By 31 December 2009 a total of 74 members of staff had submitted their applications and
accepted by the bank on 31 December 2009.
The confirmation certificates in which each staff member affirmed voluntarily and freely
terminating employment were signed by the 74 staff members between 7 and 14 January 2010.
A further 27 staff members submitted applications between 6 January and 2 February 2010 and
were accepted by the bank on the respective dates. The confirmation certificates were signed by
each applicant between 13 January and 4 February 2010.
Between 8 January and 4 February 2010 the bank submitted 6 batches of the 101 signed
applications of the exercise for approval to the Minister. The correspondence in question was
referenced Voluntary Separation Package for Staff.
The Minister approved the exercise in respect of 94 staff members in four letters dated between
12 January and 2 February 2010. In ink, the Minister referenced each approval thus:
Retrenchment of [the names of the staff members]. The Minister’s approval was typeset in these
words:-“The retrenchment Board acknowledges receipt of correspondence referring to the
Works/Employment Council Agreement in Form LRR2. Please proceed as per agreement.”
The bank applied for tax directives from Zimra which were issued for each employee for the tax
year ending 31 December 2010 between 28 January and 26 February 2010.
In its 31 December 2009 return, the bank claimed a deduction of US$2 693 500.00 for the staff
retrenchment costs in terms of 15 (2) (a) of the Income Tax Act, which Zimra disallowed and
instead included it in the amended assessment for the 2010 tax year.
What are the Competing Arguments?
The taxpayer
That the commitment to the retrenchment exercise as a whole should prevail and in the alternative
that the commitment for all the employees whose applications were made and accepted in 2010
should be disallowed as expenditure incurred in the tax year ending 31 December 2009.
That the exercise was in reality a voluntary retirement/resignation scheme, falling outside the
realm of the provisions of retrenchment scheme s 12 C and 12D of the Labour Act [Chapter
28:01].
The Commissioner General
That the cost of the exercise was properly disallowed since the commitment made by the board
was conditional upon approval of the exercise by the Minister of Labour and Social Services.
That the approval was only granted in January and February 2010 and thus expenditure should be
deducted in 2010 return not in the tax year ending 31 December 2009.
19
What was the legislation or the judicial precedents considered?
The case hinged on the definition of incurred a key component of section 15(2) (a) of the Income
Tax Act, which provides as follows: “The deductions allowed shall be—
(a) expenditure and losses to the extent to which they are incurred for the purposes of trade or in
the production of the income except to the extent to which they are expenditure or losses of a
capital nature; and that the deduction is allowable in the year the expenditure is incurred”.
In Edgar Stores Ltd v Commissioner for Inland Revenue 1988 (3) SA 876 (A) at 899A-C; 50
SATC 81 (A) at 90 Corbett CJ noted that deduction is allowed where the taxpayer has incurred an
unconditional legal obligation during the year of assessment; in that year and that for a
conditional obligation the deduction is allowable in the year in which the condition is fulfilled.
In undertaking the exercise the bank followed procedure laid out in section 12D of the Labour Act
despite arguing that it was not retrenchment scheme. Also, previewed was section 2 of the Labour
Act with regard to the definition of retrenchment and provides that “retrench”, in relation to an
employee, means terminate the employee’s employment for the purpose of reducing expenditure
or costs, adapting to technological change, reorganising the undertaking in which the employee is
employed, or for similar reasons, and includes the termination of employment on account of the
closure of the enterprise in which the employee is employed;”
Para 4(p) of the 3rd Schedule to the Income Tax Act regarding the exempting from income tax the
greater of US$5,000 and a third of the retrenchment package up to a third of US$45,000 (now
amended to the greater of US$10,000 and a third of the package up a third of US$60,000). One of
the reasons why the Minister of Labour and Public Service signature is required is for purposes of
getting the income tax exemption.
What is the Court’s reasoning and decision?
That the onus to show that the scheme was not a retrenchment exercise fell on the bank.
That the main submission by the bank runs contrary to the legal principles laid out in the Edgars
Stores Ltd case and ITC 158, in that condition precedent was only fulfilled when the Minister
approved the retrenchment scheme.
That the bank wrongly subsumes that it entered into an unconditional legal obligation to pay the
27 employees by 31 December 2009, when on that date they had not yet applied for voluntary
retirement.
That the correctness of the alternative submission on the 74 employees by the bank hinges on
whether the voluntary separation scheme was a retrenchment exercise or not and if it was the
voluntary separation, the acceptance of their on 31 December 2009would inevitably make the
expenditure deductible since the bank would have i1ncurred an unconditional legal obligation to
make payment to each of these employees.
That the bank termed the exercise a voluntary separation scheme in its minutes of 26 November
2009 and in correspondence to the Minister of Labour and Social Services and to Zimra, but as a
“voluntary retrenchment exercise in the resolution and in its letter of objection.
That several documentation emanating from the bank is replete with reference to retrenchment
exercise, retrenchment costs and retrenchment expenses.
That it cannot lie in the mouth of the bank to argue that the Minister, at its behest, approved a
retrenchment scheme that was in fact a voluntary resignation scheme and that principle of
substance over form shows that the purported voluntary separation scheme in form was in
substance and reality a retrenchment scheme.
That the commitment to pay the expenses of the “proposed retrenchment” scheme was conditional
upon approval by the Minister.
On the basis of the Labour Act provisions and the application of the retrenchment exemption
clause para 4(p) of the 3rd
Schedule Income Tax Act, the exercise was a retrenchment package.
The condition was fulfilled in January and February 2010 and thus the scheme became an
unconditional legal obligation for the parties at that point.
20
Zimra properly disallowed the retrenchment costs in the tax year ending 31 December 2009.
Nostro accounts
What were the facts?
Zimra assessed the bank for income tax in 2009, 2010 and 2011 tax years after observing “huge”
balances of non-interest bearing amounts in the Nostro accounts held by the bank with related
parties that were in its view in excess of the monthly transactional requirements of the bank.
Purportedly acting in terms of s 98 of the Income Tax Act, Zimra imputed notional interest
income to these accounts at the average local rates prevailing in Zimbabwe then, despite the rates
then, being much higher than those in the jurisdictions in which the Nostro accounts were held.
The bank did not actually earn such interest.
Zimra accepted that Nostro accounts did not create an entitlement to interest regardless of whether
they were held with related or unrelated parties, but yet it invoked s 98 on the basis that the
balances went beyond meeting liquidity and transaction purposes.
What are the Competing Arguments?
The taxpayer
That a Nostro account is a current account (i.e. a clearing account), which a bank in one
jurisdiction opens in another jurisdiction to facilitate customer transactions in the currency of that
jurisdiction and meant to facilitate trade and transactions between countries of varied currencies.
That the bank holds Nostro accounts with other banks of the same name worldwide (related
parties) and other banks not related to it (unrelated parties).
That the Nostro accounts, whether with related or unrelated parties, are all held at arm’s length.
That the deposits into the Nostro accounts are made by customers and not by the bank.
That the money is deposited directly into the customer’s account and reflected in the Nostro
account simply because the bank is the banker to the customer.
That Nostro accounts do not earn interest and the bank did not earn any interest on the deposits in
the Nostro accounts.
That the bank could only earn interest on transfer of the deposits from the Nostro account to an
investment account i.e. a call account or when it buys Treasury Bills or other interest bearing
instruments.
That in 2012 a directive from Reserve Bank of Zimbabwe stopped the offshore investment of
funds from Nostro accounts. It was common cause that interest rates offered internationally on
placement funds were low as exemplified by the declared income earned on those accounts.
That in 2009 and 2010 before RTGS was introduced; the only option for local banks was to hold
foreign balances either as cash or Nostro balances and all banks including the central bank opened
correspondent bank relationships and used Nostro accounts to hold such funds in foreign banks.
The entire Zimbabwe National Payment System in this period was conducted through Nostro
accounts and the level of balances was high for all banks reflecting the size of clients for each
bank.
That the reasons for Nostro accounts were as follows:
- To ensure bank liquidity to curtail a run on the bank,
- To maintain minimum liquidity levels set at the time by the RBZ at 25% of customer’s
deposits,
- To safeguard depositor funds by diligent prudential lending and thorough risk assessments of
prospective clients
- To support prompt settlement of customers’ transactions.
That the bank was not obliged to lend money to earn income and that the decision to move money
from Nostro to RTGS to cash depended on the risk appetite and assessed needs of the bank.
21
That at the commencement of the multicurrency regime the bank adopted a low asset to deposit
ratio as it needed to fully understand the risk factors bedevilling the local economy.
That there was no legal obligation for the bank to have brought those funds onshore, earn interest
and avoid the 2009 loss.
That the bank did not enter into transactional operation schemes with Nostro banks to deliberately
forego interest in order to postpone and avoid paying interest or as a vehicle to avoid, postpone or
reduce its tax obligations but as an objective banking necessity; like any other bank worldwide.
That Zimra had no legal right to intrude into its operational space in the absence of a local law
requiring it to move funds from the Nostro accounts into Zimbabwe to lend at the prevailing local
interest rates.
That the Zimra had no legal duty to direct the bank on how it should run its business affairs. It
relied on the sentiments of Watermeyer CJ in dealing with a provision in the South African tax
legislation equivalent to our s 98 in Commissioner for Inland Revenue v I H B and AH King 1947
(2) SA 196 (A) at 207-208; (1947) 14 SATC 184 (A) at 190-191. The essence of the sentiments
being that s 98 cannot be invoked against a taxpayer who abstains from earning income by closing
his business or resigning from employment or taking a lower paying job.
The Commissioner General
That the average monthly transactions were in the sum of US$2 million and US$16 million
remained idle in the Nostro accounts and that this pattern characterised the period from 2009 to
April 2012.
That the justifications for the balances of liquidity risk management, safeguarding customer’s
deposits and prompt customer transaction settlement as supporting the high balances held in the
Nostro accounts was incorrect
That the bank did not earn interest on Nostro accounts in order to avoid paying tax and averred
that the bank was in the business to earn income.
What was the legislation or the judicial precedents considered?
The case tested the application of s98 of the Income Tax Act (Chapter 23:06), which read as follows:
“98 Tax avoidance generally
Where any transaction, operation or scheme (including a transaction, operation or scheme involving
the alienation of property) has been entered into or carried out, which has the effect of avoiding or
postponing liability for any tax or of reducing the amount of such liability, and which in the opinion of
the Commissioner, having regard to the circumstances under which the transaction, operation or
scheme was entered into or carried out:—
(a) was entered into or carried out by means or in a manner which would not normally be
employed in the entering into or carrying out of a transaction, operation or scheme of the nature of
the transaction, operation or scheme in question; or
(b) has created rights or obligations which would not normally be created between persons
dealing at arm’s length under a transaction, operation or scheme of the nature of the transaction,
operation or scheme in question;
and the Commissioner is of the opinion that the avoidance or postponement of such liability or the
reduction of the amount of such liability was the sole purpose or one of the main purposes of the
transaction, operation or scheme, the Commissioner shall determine the liability for any tax and the
amount thereof as if the transaction, operation or scheme had not been entered into or carried out, or
in such manner as in the circumstances of the case he considers appropriate for the prevention or
diminution of such avoidance, postponement or reduction.”
22
What is the Court’s reasoning and decision?
That section 98 does not apply to the facts of this matter.
That in Zimbabwe, Smith J set out the four requirements that must co-exist in order to entitle the
Commissioner to invoke s 98 in A v Commissioner of Taxes 1985 (2) ZLR 223 (HC) at 232F-
233B, which are as follows:
a. The presence of a transaction, operation or scheme
b. Intended to avoid or postpone or reduce liability for any tax
c. Through means or ways not normally employed or which create rights or obligations which
would not be ordinarily be created by parties dealing at arm’s length
d. The commissioner forms the opinion that the avoidance or postponement or reduction of such
liability was the sole or one of the main purposes of the transaction, operation or scheme
a. Whether there was a scheme?
That the words transaction, operation or scheme are all embracing and would apply to any activity
carried out by a taxpayer and in the circumstances the holding of excess idle funds in the Nostro
accounts for three consecutive tax years constituted a scheme.
b. Whether it was intended to avoid or postpone or reduce liability for any tax?
That the bank did not move the funds from the Nostro accounts onshore for two reasons
- Firstly in 2009 and 2010, before the introduction of the RTGS platform in Zimbabwe, all funds
were transacted through Nostro accounts and this constituted the normal and usual method of
operation for local banks including the central bank.
- Secondly, it was that the prudential risk management policies of the bank that the money be
kept in the Nostro accounts rather than be invested onshore. The bank had a low risk appetite
and preferred to safeguard depositors’ funds rather than invest the funds in a fragile and
uncertain market.
That the above reasons have nothing to do with avoiding earning income or avoiding tax liability,
but carried out to preserve the funds.
c. Whether through means or ways not normally employed or which create rights or obligations
which would not be ordinarily be created by parties dealing at arm’s length
That it was the normal method of operation for any bank with a Nostro account and that the
Nostro accounts with unrelated parties were not operated differently from the ones in issue.
That no rights or obligations not normally associated with this type of account were created for
the related parties.
That the Commissioner’s opinion that the scheme was designed solely or mainly to avoid tax
liability was incorrect and it was common causes that the deposit of the funds in the Nostro
accounts did not create a tax liability for the bank.
That in the absence of such liability, the Commissioner could not properly come to the opinion
that holding the funds in the Nostro accounts was designed either solely or mainly to avoid,
postpone or reduce a tax liability that did not exist.
That in deeming notional interest on the basis that the holding of huge amounts of idle funds in
Nostro accounts did not make commercial sense for a bank that derived most of its income from
interest earnings and that Zimra lost sight of the fundamental principle behind our income tax
legislation which is designed to tax income that has been created.
23
That the income must have accrued to or been received by the taxpayer and the law is not
designed to tax income which is not in and has not come into existence.
That, for example, a registered legal practitioner in private practice who chooses to do pro bono
work cannot be taxed on the notional income he could have earned etc.
That it is beyond the remit of the Commissioner to wear the mantle of an investment adviser to
the taxpayer and suggest to the taxpayer avenues for more income creation and that in the words
the words of Beadle CJ in Commissioner of Taxes v Rendle 1965 (1) SA 59 (RAD) at 61B that:
“It is not for the Commissioner to direct how a taxpayer should run its business.”
That the Commissioner has no mandate to usurp the role of the onshore regulatory authority in
respect of Nostro accounts and that it was up to the bank to deal with the deposits as it pleased
subject of course to the requirements of both onshore and offshore regulatory authorities.
Silke in Income Tax in South Africa at para 19:14 is to the same effect. The learned authors
suggest that:-“If by this interpretation Internal Revenue considers that it is entitled to impute
rights or obligations to a transaction that do not exist in the actual bargain between the parties, for
example, to assume a reasonable rate of interest when none was actually stipulated, it is
considered that it misinterprets s 103 (1). On the basis of this principle, it is considered that the
Commissioner is not entitled to apply s 103 (1) in order to subject to tax a lender of an interest-
free loan on an amount that he could have earned by way of interest had he charged it, a
professional man who renders services to another person free of charge or a trader who sells
trading stock at a price below its current market price. In all these circumstances there is no
amount ‘received or accrued’ on which an assessment may be framed. The existence of such an
amount, it is submitted is an essential requisite for the application of s 103 (1).”
That Zimra wrongly invoked s 98 to the Income Tax Act to bring to account notional interest to
the gross income of the bank in the three tax years in issue.
Offshore loans
What were the facts?
Zimra wrote back into the bank’s taxable income for the tax years 2009, 2010 and 2011 interest
paid by six onshore borrowers on the basis that it was purportedly earned by the bank.
The bank made an objection, which Zimra disallowed based on the nature and scope of the loan
agreement and the original approvals from the External Loans Coordinating Committee (ELCC)
of the Reserve Bank of Zimbabwe.
The bank had 4 witnesses to testify on the case i.e. the head of corporate banking, the managing
director of a local tobacco company, an executive director of another local tobacco company and
the company secretary of a large local manufacturing and distribution conglomerate.
The head of corporate banking’s evidence cut across all the six local companies that purportedly
executed loan agreements with the bank.
The head of corporate banking stated that loans were concluded through the Master Risk
Participation Agreement (MRPA) concluded on 12 June 2002 between the bank and the offshore
related party. The MRPA was conceived as a vehicle to provide suitable local borrowers with
offshore funding at a time Zimbabwe was experiencing endemic foreign currency challenges.
The MRPA laid the general framework for the execution of acceptance agreements between the
two banks. In the event of inconsistency between the Acceptance Agreement and the Master
Agreement, the provisions of the Acceptance Agreement prevailed.
The Acceptance agreements were of two forms i.e. Funded Risk Participation agreement and an
Unfunded Risk Participation agreement.
The parties to the MRPA where the Grantor, Participant and Obligor. A grantor could be any one
of the two banks who offered the other, the participant, and participation in the funding or in the
risk associated with the non-payment of the whole or any part of the amounts loaned out. A
participant could be any one of the two banks that accepted a participation in the risk that would
be assumed or the amount advanced. The obligor was the borrower of the funds.
24
In a funded participation, the bank providing the funds was the participant. The participant was
obliged to deposit the funds representing the extent of the exposure it was willing to assume with
the grantor before it was disbursed to the borrower. It was required to indemnify the grantor to the
extent of the risk percentage on any default by the borrower. The grantor was required to
promptly allocate to the participant its share of the payments made by the borrower inclusive of
interest, commission and fees accruing or expenses incurred.
In an unfunded risk participation, the participant would pay its pro rata share of the risk
percentage of the principal, interest, fees, costs and expenses to the grantor in case of default by
the borrower. The participant would pay the participation percentage from any recoveries made
from the borrower.
A funded risk participation was invariably fully funded by the offshore related party while an
unfunded risk participation was fully funded by the bank with the offshore related party sharing in
the risk of default to an agreed percentage. In both instances the bank was the grantor while the
offshore related party was the participant.
The MRPA or any acceptance agreement etc did not constitute the grantor an agent, fiduciary or
trustee of the participant. The grantor’s rights could not be transferred or assigned except for the
right to sue the borrower for the whole amount owing. The participant had no rights to deal with,
make payments to or receive payments from the borrower in the loaned amount.
According to the MRPA, the parties were not in partnership, joint venture or association, yet the 4
witnesses stated that the bank considered itself an agent of the participant (offshore related party).
The grantor was not required to indemnify the participant on its participation share.
In the event of default by the borrower, the grantor was obliged to notify the participant.
English Law and Courts were conferred jurisdiction over both the MRPA and any Acceptance
Agreement derived from it.
The corporate head banking identified 2 facility letters for one of the 3 tobacco merchants. The
facilities were mainly for the purchase and processing of tobacco for export and financing inputs
and equipment. The statements showed that the borrower received proceeds of tobacco sales from
tobacco buyers and capital and interest payments by the borrower into the evidence account of the
foreign lender. The grantor was the bank while the participant was the offshore related party. The
participant funded party of the loan and assumed risk at a margin and interest of Libor plus 4%.
The facility letters of the second tobacco company made no reference to the opening of an
evidence account and no acceptance agreements.
The facility letters of the third tobacco company had no documents filed. The acceptance
agreements in respect of the two facility letters were not produced in evidence. Its accounts
director stated that his company accessed the offshore component of the loans and that his
company would instruct the bank to pay off the loan on maturity through the evidence account
and that his company did not access local funds as that would have been contrary to law.
The facility letters for the seed cotton company had conditions which were markedly different to
those of the tobacco companies but the framework of the facility letters was similar to the tobacco
ones especially the appendices. There were no other documents filed of record or produced in
evidence in respect of the seed cotton company. The booking location stated in the facility letters
was the bank.
The facility letters in respect of the second and third tobacco companies and the seed cotton
company made no reference to an evidence account. They were formatted much like the three
onshore funded facility letters for the manufacturing and distribution conglomerate.
The facility letters in respect of onshore funds availed to the manufacturing and distribution
conglomerate had total commitments in the sum of US$60 million, was a revolving facility and
conferred jurisdiction on the English Courts and the guarantor provided security in favour of the
bank.
The facility letter for the cement manufacturer had a booking location as the offshore related
party. There was a sole discretion to roll over the loan to the bank. The choice of law clause
imbues the bank with the choice of recovering any outstanding amounts in the Magistrates’ Court
in Zimbabwe. The acceptance agreement in respect of this facility letter was not produced.
The facility letters were generally worded thus:-
25
“BANKING FACILITIES
The appellant (the Bank) is pleased to confirm (subject to the conditions precedent and upon
representations and any warranties as set out herein) its willingness to make available to
your company (the Borrower) the uncommitted banking facilities (the facilities) outlined
below on the terms and conditions set out in this letter, as modified by the Bank from time to
time and (where applicable) terms and conditions set out in the appendix.”
The facilities became available on receipt of originals security documents, a certified copy of
board resolution, the RBZ approval for the facilities, requisite insurance policy and opening of an
evidence account at the Bank (the Evidence Account). Other conditions specific to each onshore
borrower were stipulated e.g submissions of monthly schedules, management accounts, audited
financials, proof of seasonality, and submission of quarterly crop records to the bank on set
timelines. In addition, Customs Declaration Forms (CD1) of the projected export revenue to be
routed and processed through the bank and insurance cover with reputable offshore insurer
reflecting the bank as the loss payee was also stipulated. The borrower undertook to the bank to
take comprehensive insurance.
All sales proceeds from the tobacco sold were to be remitted to the bank for the credit of the
Evidence Account. The balance of the Evidence Account would be applied towards the reduction
of any outstanding loans due to bank and the residue paid to the Borrower. The Bank would only
act on instructions received from or verified by the Local Agent for the operations of the Evidence
Account. The Borrower was required to issue instructions to its overseas buyers to remit funds to
the Bank for credit to the Evidence Account. The choice of law clause conferred jurisdiction on
the local courts. The bank was permitted to cede its rights in the facility to third parties. The
confidentiality clause regarded the contents as the property of the bank.
The bank sought authority from the ELCC to borrow offshore funds on behalf of non-tobacco
clients. On 6 October 2009 the ELCC approved an ordinary non-tobacco pre and post shipment
finance facility in the sum of US$50million. The lender was indicated as the offshore related party
and the borrower was the bank. The approval also covered a further US$50 million for tobacco
financing and the borrower being the bank and the lender as the offshore related party.
The borrower/beneficiary was the bank while the lender was the offshore related party. The
witness characterised the non-tobacco facility as a global arrangement rather than a specific one.
He stated that the Reserve Bank of Zimbabwe required approval by the ELCC even for non-
tobacco loans from offshore to obviate the need to seek exchange control authority to repay as this
would be embedded in the approval before loans were disbursed to clients.
He stated that the ELCC was aware of the legal requirement for tobacco merchants to access
funds offshore but approved the bank as borrower well knowing that the money was for clients
rather than for the bank’s own use.
The facility letters were all in the name of the bank. The bank set the terms and conditions for
accessing the loan amounts. The parties were required to provide board of directors’ resolutions,
various security documents and in some instances proof of an offshore evidence account. The
bank link between the borrowers and the External Loan Coordinating Committee of the RBZ. It
applied for approval of both tobacco and non-tobacco pre and post shipment offshore loans. The
approvals identified the bank as the borrower and the offshore related party as the lender.
The evidence of the head of corporate banking in respect of the manufacturing conglomerate was
confirmed by the company secretary of the conglomerate who took part in the discussions that
gave rise to the loan facility. It was clear to him that the bank fronted the offshore related party.
Representatives of the lender sat in the discussions to acquaint themselves with the borrower. He
stated that the money came directly from the foreign bank through the bank. He stated that the
bank had no capacity to raise such a sum of money. He, however, acknowledged that his company
did not execute any agreement with the foreigner lender. The movement of the US$60 million
shows that it was deposited into the bank’s Nostro account in NY on 17 November 2011 and
credited to the local bank account of the borrower on the following day. He confirmed that
payment of interest instructions by his company to the bank were triggered by the interest rate fix.
The bank would debit the company’s bank account and credit the offshore related party’s
nominated account.
26
That no money was paid to the bank by the offshore lender contrary to the stipulation in the
MRPA. He disputed that the bank borrowed funds from the onshore lender, again contrary to all
the approvals he produced that emanated from the central bank.
That the lender was clearly indicated as the offshore related party and the borrower and in later
approvals the beneficiary as the bank.
What are the Competing Arguments?
The taxpayer
That the bank acted as the agent of the offshore related party and that it did not receive any
interest from any of the four clients. The interest was paid to the evidence account of the offshore
related party on the instruction of the appellant.
That notwithstanding the contents of the facility letters, the corporates sourced offshore loans
from the offshore related party.
That the loans were disbursed to the onshore companies from offshore and that the borrowers also
made direct interest payments offshore. The bank was merely a conduit pipe which facilitated
easy access of the funds and sought approval from the RBZ on behalf of both the borrowers and
the offshore lender.
That the bank also relied on the MRPA and acceptance agreements it executed with the offshore
lender.
The Commissioner General
That on the basis of the contents of the facility letters and the ELCC approvals the interest
purportedly paid by the borrowers to the related offshore party accrued to the bank.
That the facility document created legal rights and obligations between the bank and the specified
onshore clients.
That it created the cause for payment of interest to the bank and did not establish a similar cause
for payment to the offshore related party.
That based on Commissioner of Inland Revenue v Lever Brothers and Unilever Ltd 14 SATC 1 at
p 10 where Watermeyer CJ observed that:-“The provision of credit is the originating cause or
source of the interest received by the lender.”
That the nominated account number for payment happens to be the Nostro account of the bank.
What was the legislation or the judicial precedents considered?
The Exchange Control (Tobacco Finance) Order 2004 SI 161/2004 and the Exchange Control
(Cotton) Order 2008 required that offshore funds be utilised for the growth and purchase of
auction and contract tobacco and seed cotton. The loans were approved by the ELCC. Tobacco
buyers were precluded by s 4 (3) and contract growers by 4A (3) from either drawing on
corporate foreign currency account or purchasing, borrowing or raising foreign currency onshore
from the interbank market or authorised dealers or any domestic source whatsoever to purchase
contract or auction tobacco. A similar bar was placed against seed cotton merchants by the
relevant statutory instrument. In both instruments onshore funds were defined as:-
“any funds, moneys, deposit, loan, line of credit advance from customer or parent company
or other funds or facility whatsoever(in the tobacco order)/wheresoever (in the seed cotton
order) located or obtainable within Zimbabwe”.
What is the Court’s reasoning and decision?
That the bank was deliberately hiding information in corporate underbrush.
27
That the similarities of all the letters save for the first two for the first tobacco company with the
ones the bank admitted were provided with local funds undermined the bank’s case. There was no
reference to any evidence account in these facility letters.
That the choice of law clause i.e. the local courts implies that these were local loans.
That the manner of the computation of the interest rate in respect of the cement manufacturer
demonstrated that it was receiving onshore finance from the bank.
That it was simply incredible that the bank did not have the capacity to fund the requirements of
the conglomerate, yet it held approvals from the ELCC to onlend funds borrowed offshore to both
tobacco and seed cotton merchants and other non-tobacco customers.
That the bank was borrowing offshore funds for onshore lending as confirmed by the letter from
the central bank. The central bank advised that current exchange control regulations allowed
authorised dealers to access offshore lines of credit for on lending and own use while local
companies were permitted to directly access offshore loans from offshore lenders including their
holding and sister companies.
That the onus to show that the interest in issue accrued to the offshore related party, in terms of s
63 of the Income tax as interpreted in such cases as Commissioner of Taxes v A Company 1979
(2) SA 409 (RA) at 416 lies on the bank.
That the unexplained discrepancy between the first facility letter and the acceptance agreement in
respect of the first tobacco company did not engender confidence in the head of corporate
banking’s testimony.
That the failure to produce the acceptance agreements of all the other facility letters save for the
one in respect of the conglomerate, and rate fix documents in respect of all the facility letters
undermined the head of corporate banking’s credibility.
That the thrust of the bank’s case and evidence from the four witnesses appeared to suggest that
the interest was in reality received by the offshore related party, yet the facility documents seem
to appropriate interest to the bank and point to the bank as the provider of the credit to whom
interest payments were due.
That as stated by Watermeyer CJ in the Lever Brothers’ case supra the provision of the credit was
the originating cause or source of the interest.
That not availing any acceptance agreements in respect of the cotton company, two of the tobacco
companies and the cement company undermined the bank’s case.
That, the bank therefore, failed to establish the basis for the remittal of interest to the offshore
related party.
That the bank has failed to demonstrate that it did not earn the interest deposited into the offshore
evidence account held with the offshore related party.
Withholding tax
What were the facts?
The foreign banks in which the bank held its Nostro accounts raised transaction related charges in
respect of cash repatriation, cash ordering or Visa card costs.
The bank paid those charges directly to the banks concerned without deducting therefrom any
amount in respect of withholding tax.
The transactions were conducted in the Nostro accounts. A customer/client would instruct the
bank to make payment to a third party. The bank generated a telegraphic transfer through SWIFT,
a safe international payment processing platform used by all banks to transfer money from one
bank to another, to transfer the funds from its relevant Nostro account to the third party’s
designated bank account.
Swift automatically charged a fixed rate against the Nostro account based on the number of
clearing transactions that operated through the system. SWIFT charged the related account
directly from that transaction by debiting the account without raising an invoice.
The Nostro bank charged normal bank charges in line with the requirements of the regulatory
authorities in which they reside.
28
The Nostro bank charges with fees paid by customers of local banks for services rendered and
charges levied for maintaining an account with the local bank. The bank was charged fees for
particular transactions that went through the Nostro accounts and that the bank maintained a
mirror account for each Nostro account to track transactions in each account.
What are the Competing Arguments?
The Taxpayer
That the payments made were in respect of bank charges and not in respect of fees, whether of a
technical, managerial or consultative nature and are not subject to the withholding tax.
That the bank was not liable for withholding tax on two grounds.
- Firstly the payment was not made from a source within Zimbabwe, basing the argument on the
case of Sunfresh Enterprises (Pvt) Ltd t/a as Bulembi Safaris v Zimra 2004 (1) ZLR 506 (H) were
it held that payment of a commission by a foreign client to a foreign marketing agent of a local
Safari operator outside the country was not a payment of fees from within Zimbabwe even though
the originating cause was in Zimbabwe
- Secondly the services for which the charges were levied were not of a technical, managerial,
administrative or consultative nature.
The Commissioner General
That the charges raised by the banks holding the Nostro accounts, which were paid by the bank
constitutes fees paid from a source within Zimbabwe.
What was the legislation or the judicial precedents considered?
The case was based on Para 2(1) of the 17th schedule of the Income Tax Act. The para reads:-
“2. (1) Every payer of fees to a non-resident person shall withhold non-residents’ tax on fees
from those fees and shall pay the amount withheld to the Commissioner within ten days of the
date of payment or within such further time as the Commissioner may for good cause allow.”
Fees are defined in para 1(1) of the 17th schedule in the following terms:-
“1. (1) In this Schedule, subject to subparagraph (2)—
“fees” means any amount from a source within Zimbabwe payable in respect of any
services of a technical, managerial, administrative or consultative nature, but does
not include any such amount payable in respect of:—
(2) For the purposes of this Schedule—
(a) fees shall be deemed to be from a source within Zimbabwe if the payer is a
person who or partnership which is ordinarily resident in Zimbabwe;
(b) in determining whether or not non-residents’ tax on fees should be withheld,
the question as to whether or not:—
(i) the payer is a person or partnership ordinarily resident in Zimbabwe
or
(ii) the payee is a non-resident person;
shall be decided by reference to the date on which the fees are paid by the
payer;
(c) fees shall be deemed to be paid to the payee if they are credited to his
account or so dealt with in that the conditions under which he is entitled to
them are fulfilled, whichever occurs first;
(d) not relevant”
What is the Court’s reasoning and decision?
29
That the facts in Sunfresh are distinguishable from the present facts and in this case the bank
conceded in its pleadings that it paid the charges debited by the Nostro banks.
That para 1 (2) of the 17th Schedule deems the source to be from within Zimbabwe if the payer is
ordinarily resident in Zimbabwe. The bank is ordinarily resident in Zimbabwe.
That in reference to Sunfresh case if the commission was deducted from the overall hunting fee
remitted to the safari operator then the outcome in that case would have been different. Thus, the
payment by the foreign client to the foreign based agent would simply constitute a prepayment on
behalf of the safari operator and would have been subject to withholding tax.
That charges were interchangeably referred to as fees by the head of corporate banking.
That the four categories in question are merely adjectives which describe a particular activity.
According to the Shorter Oxford English Dictionary administer means inter alia “to manage;” “to
handle” while administrative is defined as “pertaining to management.” One of the many
permutations of “to manage” is “to deal with carefully”. Like McDonald JP in Commissioner of
Taxes v F, supra, at 115F where he was off course referring to “transaction, operation or scheme”,
That each of the words “technical, managerial, administrative and consultative” is of wide and
general import and there are a few activities of a taxpayer which will not be appropriately
described by one or other of them.”
That the activities were carried out by the Nostro banks on the various Nostro accounts and by
SWIFT clearances were administrative and technical in nature (i.e. the involve use of software).
That the charges raised by offshore banks holding appellant’s Nostro accounts amounted to fees
under para 1 of the 17th schedule of the Income Tax Act.
30
Delta Beverages (Pvt) Ltd v Zimbabwe Revenue Authority
Case Name Delta Beverages (Pvt) Ltd v Zimbabwe Revenue Authority
Summary The Delta Beverages (Pvt) Ltd) wanted Zimra waive the interest arising as a result of
underestimating its provisional taxes for the years 2009 and 2010 by more than 10%
margin of error in accordance with s72(7) of the Income Tax Act (Chapter 23;06)
before it was repealed.
Date 25 July 2013 and 29 January 2015
Jurisdiction Harare High Court
Decision The Income Tax Act [Chapter 23:06] on a literal interpretation of the proviso to s 72
(7) must be given its ordinary meaning. That the underestimation of profits is more
than 10 percent of the final figure, the Commissioner is obliged to waive interest.
What were the issues?
Whether interest should be paid on a provisional where the taxpayer has failed to estimate by
more than 10%
Whether the ordinary meaning of words must be given effect – contra fiscum rule of
interpretation of tax statutes
What were the facts?
For the years 2009 and 2010, Delta underestimated its provisional tax by more than 10% margin
of error as a result of failing to forecast its profits.
Zimra charged Delta interest in respect of the underpayment of amounts due as provisional tax in
terms of s 72 (7) of the Act in the amount of US$698 864-48.
Delta disputes liability to pay the interest as claimed and it filed the present proceedings.
What are the Competing Arguments?
The taxpayer (represented by Mr de Bourbon)
That the clear meaning of the proviso requires Zimra to waive interest in the circumstances of this
matter on the underpayment of provisional tax for 2009 and 2010.
That the position adopted by Zimra, in effect, asked the court to re-write the legislation,
something the court is not mandated to do.
That interest cannot be regarded as a punishment as contended by Zimra, but a payment made for
use of money whereas a punishment by its very nature imputes improper or unlawful conduct.
That court should look at the context in which the proviso was enacted and that it should look at
the provisions of s 72 (9), s 72(11) as read with s 71(2). The construction of subs 11 of s 72 must
therefore be such as to be in harmony with the provision in s 72.
That the wording of the proviso is such that, adopting the plain meaning of the words, leads to the
understanding that the Commissioner must waive interest where a taxpayer has failed to estimates
its provisional tax by more than 10 percent margin of error.
That the interpretation by Zimra creates the doubt that the legislature intended to avoid.
That in the interpretation of tax legislation which is uncertain the contrafiscum maxim applies.
The Commissioner General (Represented Mr T Magwaliba)
31
That the words "fails to" in s 72(7) be rejected and be disregarded by the court as surplusage.
That the "literal interpretation of the word "shall" in the proviso must be modified to mean "may"
to ensure that the proviso read together with the rest of the section and in particular subs 11 will
mean the Commissioner General may upon consideration of the circumstances set out in subs 11,
waive interest that was otherwise due in terms of subs 9."
That the interpretation of the proviso to s 72 (7) given to it by Delta is too literal as to lead to an
absurdity and unconscionable results as would never have been contemplated by the legislature.
That the interpretation was due to poor draftmanship which the legislature subsequently corrected.
That by interpreting the law in its context results in failing to punish tax payers such as Delta who
underestimated their taxable income in advance and therefore underpays provisional tax.
That the proviso must be looked at as though two critical words "fails to" were not there and be
substituted by “may’.
That the contrafiscum rule does not apply in this matter as to do so would be to use it as a tool to
escape clear liability.
That to clarify the proviso, parliament in the Finance Act (No 4) 2012 repealed the proviso to subs
72 and makes it clear that interest is payable on provisional tax unless a waiver has been granted
special circumstances.
What was the legislation or the judicial precedents considered?
Legislation considered
Income Tax Act [Chapter 23:06] section 71(2), 72(7) and (11)
Finance Act 2012 s 3(a)
Finance (No 2) Act 2006
Cases Considered
Badenhorst v CIR 1955 (2) SA 207
Bellairs v Hodnet & Anor 1978 (1) SA 1109 (A)
Car Rental Services (Pvt) Ltd v Director of Customs & Exercise (1) ZLR 402 (SC)
Endeavour Foundation & Anor v Commissioner of Taxes 1995 (1) ZLR 339 (SC)
Est Reynolds & Ors v CIR 1937 AD 57
Ex parte Minister of Justice: In re; R v Jacobson Rhevy 1931 AD 466
Ex parte Lynn and Others 1987 (1) SA 797 (N)
Israelsohn v CIR 1952 (3) SA 529 (A)
Meman & Anor v Controller of Customs and Excise (1) ZLR 170 (SC)
Mxumalo & Ors v Guni 1987 (2) ZLR (1) (SC)
Pretorius v Minister of Defence 1980 ZLR 395 A
Principal Immigration Officer v Hawabu and Another 1936 AD 26
R v Patel and Another 1944 AD 379
R v Jaspan and Another 1940 AD 9
Scoin Trading (Pty) Ltd v Bernstein NO 2011 (2) SA 118 SCA
Sekretaris van Binnelandse Inkomste v Raubenheimer 1969 (4) SA 314 (A)
Storm & Co v Durban Municipality 1925 AD 49
Venter v R 1907 TS 910
What is the Court’s reasoning and decision?
That Delta’s submissions are correct regarding the fact that interest is not a penalty but a
compensation for opportunity cost of money.
That the golden rule of interpretation of statutes is that where the language used in a statute is
plain and unambiguous it should be given its ordinary meaning unless that would lead to some
absurdity or inconsistency with the intention of the legislature.
That the proviso to s 72(7) is capable of two constructions i.e. the one contended by the Delta and
the other suggested by ZIMRA to ignore certain words in reading the proviso.
That the role of the court of law is to construe the language of the legislature and arrive at its
intention in that way and it has no power to re-draft or alter the language. But intention is not to
32
be ascertained by surmise however probable such surmise may be (Ex parte Minister of Justice: In
re; R v Jacobson Rhevy 1931 AD 466).
That when to give the plain words of the statue their ordinary meaning would lead to absurdity so
glaring that it could never have been contemplated by the Legislature, or where it would lead to a
result contrary to the intention of the Legislature, as shown by the context or by such other
considerations as the Court is justified in taking into account, the Court may depart from the
ordinary effect of the words to the extent necessary to remove the absurdity and give effect to the
true intention of the Legislature(Shearer J in Ex parte Lynn and Others 1987 (1) SA 797 (N) at
802-803)
That the court is not authority for adding to the language used by the legislature despite being the
authority for cutting down or restricting the language used by the Legislature when that course is
justified by a consideration of the intention and object of the Legislature(R v Patel and Another
1944 AD 379 at 388)
That in the case of ambiguity arising during the interpretation of fiscal legislation, the contra
fiscum rule will be applicable.
That the contra fiscum rule is a common law principle stipulating that should a taxing provision
reveal ambiguity, it must be interpreted in a manner that favours a taxpayer.
That in simple term, where a tax provision is capable of two constructions, the court will adopt
the construction that imposes the smaller burden on the taxpayer.
That the court agrees with Delta’s interpretation which imposes a smaller burden on it.
That it is within the Commissioners powers to approach parliament to have taxing legislation
amended to avoid an ambiguity such as happened in casu and parliament has the power to make
any such amendment retrospective.
That the Parliament repealed the proviso to s 72(2) and the issue be dealt with in substituted subs
(11) to s 72 and did not choose to make those changes retrospective.
That it is a recognised principle of law that statutes will not be held to take away existing rights
retrospectively unless they so provide expressly or by necessary intendment
That the amendments made to s72 by s 3 of the Finance Act 2012 are simply to clarify the
existing law as proposed by Zimra is not correct, if this was the case the Parliament should have
simply deleted the proviso as suggested by Zimra.
That what ZIMRA has asked this court to do was what the court is not permitted do.
That as stated by GUBBAY JA in Car Rental Services (Pvt) Ltd v Director of Customs &
Exercise (1) ZLR 402 (SC) it is not for the Courts to legislate or to attempt to improve on the
situation achieved by Parliament through the language it has chosen in its enactment.
That the role of the court is to give to what the Act says or permits and not to what it may be
thought it ought to have said or prohibited and there is error in the Act, and if it could lead to
undesirable consequences, the Court has no power to fill it. It is a matter for the Legislature.
That the position advanced by Delta that the proviso to s 72 (7) must be given it ordinary meaning
namely that where the underestimation of profits is more than 10 percent of the final figure, the
Commissioner is obligated to waive interest.
That the provisions of the proviso to section 72 (7) of the Income Tax Act [Chapter 23:06] prior it
was repealed by section 3(a) of the Finance Act 2012 obligated the Zimra to waive any interest
due by Delta in respect of any underestimation of its profits for the years 2009 and 2010, and in
respect of any underpayment of provisional tax in respect of those two years.
Delta has no liability to pay the sum of $698,864.48 demanded by Zimra in respect of interest on
the underpayment of provisional tax for the period years in question.
Zimra to pay the costs of this application.
What is the impact of the decision on your business or practice? It is clear that the legislation when is poorly drafted as it contained ambiguity, the court may help
interpret it but however its interpretation this cannot create a tax burden on a taxpayer. The case also
teaches us to look for loopholes in the legislation even if it is clear that a tax offence has been
committed. This provision was one of many the provisions which are poorly drafted so keep your
eyes open.
33
In The News
Commissioner General- reaffirm deadline for application for tax amnesty (Zimra website).
The Commissioner General re-affirm extension of applications for tax amnesty as stated in the
Finance Bill, 2015 through a supplement to the Public Notices No. 16 of 2015, No.1 of 2015 and No.
10 of 2015. Other terms and conditions remain the same i.e. settlement deadline remains 31
December 2015 and 5% discount for early settlement is still in place. In view of the current financial
distress being faced by a majority of Zimbabwean companies, the deadline of 31 December 2015 for
settlement of amnestied obligations may prove to be unrealistic. The government will need to show
leniency to struggling companies upon production of cash flow projections/forecast and give them
more time to settle their liabilities.
Government modalities for export not in place yet (Fingaz 3rd
September 2015)
The lifting of ban on export of ferrochrome is stalled by legal formalities. The country sits on
chrome worth US$500 million which needs to be exported, but lack of a Statutory Instrument
(SI) make this impossible. An SI is required in terms of the law to formalize the lifting of the
ban and this SI has the effect of repealing the one which in the first place banned export of
unprocessed chrome. The debacle is that the SI which banning exports of ferrochrome was never
issued, making it impossible to repeal the ban. Section 17 of the Interpretation Act (chapter 1.01)
provides as follows:
“17 Effect of repeal of enactment
(1) Where an enactment repeals another enactment, the repeal shall not—
(a) revive anything not in force or existing at the time at which the repeal takes effect; or………..)
The implication is that it is unlawful to issue an SI repealing an SI which never existed in the first place.
Thus, the Minister of Mines is suggesting the way forward is to issue the export permits through a
Special Purpose Vehicle (SPV). The Chamber of Mines President said the producers and government
were still trying to agree on a number of issues, including the establishment of the SPV that would
handle chrome ore exports
Export permits will ensure local quota is met before export. The Minister of Finance and Economic
Development scrapped a 20 percent levy on raw chrome exports in the Fin
Zimra Turns Against Rebate Seekers (Fingaz 23 July 2015)
In a seminar organised by Institute of Certified Tax Accountants (ICTA) in the capital, the business
community accused ZIMRA of play old antics in order to delay or avoid paying legitimate VAT
refunds to taxpayers. A claim for refund is countered by an audit and companies avoiding lodging
their claims fearing a backlash. Tax Matrix can neither deny nor confirm such acts by Zimra.
The Commissioners General and Zimra officers are empowered in terms of section 34F of the
Revenue Authority Act to request information ( e.g account, records, deeds) for purposes of carrying
out an examination, as long as the request is lawful, reasonable and a fair (section 34F (a) of the
Administrative Justice Act (Chapter 10:28).
34
Prompt refunds are a possibility. You are advised to register for E-services. The platform allows you
to reconcile your account and even pre-engage Zimra on real-time basis. By the time you submit your
returns you already know what to expect from Zimra. Secondly, ensure the input tax schedule and the
relevant tax invoices are timely submitted to Zimra minimise delays.