THE business community in Zimbabwe has been blaming the Zimbabwe Revenue Authority (Zimra) for the closure of several companies by imposing stiff penalties and garnishing their accounts forcing them to shut down.
Recently, Zimra board chairperson Willia Bonyongwe told delegates at the EY tax seminar that there were efforts to increase tax penalties for tax evasion as a result of failure by businesses to pay tax.
In this question and answer interview with NewsDay’s (ND) Mthandazo Nyoni, principal tax consultant with Bulawayo Tax Advisory Services Peter Mgodi (PM) said Zimra’s penalties were high. Below are the excerpts:
ND: What is your take on Zimbabwe’s tax regime, compared to other countries in the region?
PM: Our laws are standard with other former Commonwealth nations. Our penalties are too high. They were influenced by the runaway inflation period and are not sustainable in the current United Stated dollar environment. The administration is robotic and insensitive to individual circumstances and the current state of the economy.
ND: Do you feel companies, including, ordinary citizens are overtaxed?
PM: Our tax rates are in line with other countries. Our tax heads are continuously increasing unnecessarily. Our penalties are excessive and also applied for no slimmest reason at all to impose them.
ND: It takes companies an average of 120 days to receive payment from their customers, but Zimra demands payment within 30 days after which companies are subjected to penalties and interests. Is this fair, taking into consideration the prevailing economic situation?
PM: The law provides for payment of tax on receipt of sales proceeds. Zimra is unwilling to implement this option and prefers penalising because it gives them revenue in the form of penalties. Further than the law, management is put in to deal with issues that are unique and make decisions to facilitate trade, seeing that revenue will still come anyway.
ND: Do you think this also contributes to company closures in the country?
PM: Indeed, the actions of the current tax administration significantly contribute to company closures. As a consultant, when all attempts have failed to yield a reasonable position, clients tell us they have no option other than to close shop, or alternatively we give it as the only option for client, to follow. Normally those that suffer most are the employees and the fiscus itself.
ND: What implications does withholding tax on value added tax (VAT) have on businesses?
PM: It affects cash flows. Theoretically it should not. But the 2/3 ratio is excessive and in the face of delayed and no refunds stance, taxpayers are eventually going to be owed large sums by the tax administration. It’s disaster in waiting like the forex accounts that were never refunded, or were they? With a government with no money, refunds are an obvious impossibility.
ND: Do you think it’s wise for government to continue overburdening businesses and citizens with tax?
PM: We have no need for new tax heads/new tax laws. What we need is efficient, human and trade facilitating tax administration of the existing laws. We also need efficient use of the collected revenues.
ND: What implication will this have in the long run?
PM: Not in the long, but soon and very soon all businesses will be 100% informal and even more difficult to administer tax wise. As you can see you can now buy groceries off the street. Of course, VAT is a little bit resilient as it can still be collected from the manufacturers.
ND: Zimra board chairperson Willia Bonyongwe recently told delegates at the EY tax seminar that there were efforts to increase tax penalties for tax evasion due to failure by businesses to pay tax. Do you think this was a good initiative?
PM: I do not agree with the board chairperson. I have been following her and admired that she has her finger on the pulse of Zimra to a certain extent, but on this one I strongly disagree. The generality of penalties need to go down and only a selected transaction like the smuggling of petrol and fraudulent refund claims.
Some so-called tax crimes are as a result of what I call hide and seek or touch-is-a-move administration where the tax authority uses microscopes to seek penalisable areas and at the same time not willing to give practices and procedure to the public to guide compliance.
They are happy to watch you make mistakes and or deny you information and only come in when your guess is not according to their interpretation. These interpretations are always
revenue-biased and lack the trade facilitation element.
ND: Government recently introduced taxes for most informal businesses such as taxi and commuter omnibus operators, hairdressers and cross-border traders. What implications does this have on the economy at large and the lives of ordinary people?
PM: Most of these have always been there, but are poorly managed and excessive. Currently, they have been reduced but extended to other informal businesses, and made payable frequently. It is an attempt to harness the informal sector, which so far has not been effective.
It has no effect on ordinary people. It will increase State coffers. These are businesses and they need to take on their tax burden. The current tax administration has no capacity to harness the small and informal businesses.
It is attempting to do so by using other arms of government to enforce by denying trading licences and certificates to those who have not paid these taxes. It is a stance that was taken way back but implementation capacity was lacking over the years.
ND: Besides taxation, what else should government do to improve its revenue?
PM: It comes back to efficient administration: in this case administration of parastatals to make them profitable and to stop them from chewing up the fiscus revenues and of course, efficient administration of the existing revenues. It may not be a matter of more revenue, but what we are doing with the little we have.
ND: Lastly, what is tax evasion and tax avoidance and should companies practice it?
PM: Evasion is deliberately breaking tax laws to gain an unfair advantage. Avoidance is meticulously planning one’s tax affairs to ensure you pay minimum tax within the law.
Companies should practice avoidance to be tax efficient in their operations. That is where we come in. But most companies come to us too late for avoidance to be effective, and the same time they would have broken the law in ignorance, and with such an administration, they would have sunk from penalty burdens.