Pacific Cigarette Company placed under business rescue after receiving US$19m tax bill from ZIMRA

BUSINESS REPORTER

Pacific Cigarette Company (PCC) has been placed under receivership  after the High Court   approved the company’s  application  for a  voluntary business rescue placement.

The  action was taken in response  to a tax bill  from ZIMRA,  the country’s tax collector, totaling  more than US$19m and ZWL$79 845954.36.

 

As a result, Reuben Mukavhi of Rubaya-Chinuwo Law Chambers Legal Practitioners has been appointed by the Master of the High Court as the corporate business rescue practitioner as of October 4, 2023.

 

Adam Molai founded the company, formerly known as Savanna, which manufactures the Pacific, Pegasus, and Branson brands. The company has survived since 2005 thanks to a contract called toll manufacturing, in which it produces cigarettes for other companies.

 

PCC, however, said that ZIMRA changed how it handled taxation for toll manufacturers, leaving the business with tax liabilities totaling US$19 315 233.82 and ZWL$79 845 954.36.

 

ZIMRA also garnished PCC bank accounts.

 

“ZIMRA, also, without any notice, garnished all PCC’s bank accounts.

Next, ZIMRA took the unprecedented step of instructing our customers to pay ZIMRA any monies owed to PCC, effectively closing off all the company’s income streams,” PCC said.

PCC said it started toll manufacturing in 2005 in partnership with the Reserve Bank of Zimbabwe at the height of foreign currency challenges in Zimbabwe.

 

The initiative was meant to survive the introduction of the 50% foreign currency surrender requirements on exports.

PCC said the foreign currency surrender policy threatened the survival and viability of many businesses and livelihoods in Zimbabwe.

“Through toll manufacturing, PCC and other businesses were able to source raw materials from their customers, ensuring their sustainability, while complying with the RBZ’s 50% foreign currency surrender requirements.

“Since then, the toll manufacturing model has been our accepted raw material funding model, removing the need for PCC to finance the working capital for export raw material.

“(But) in June this year, without any notice, ZIMRA performed a spectacular u-turn that has undermined the stability of the business and deemed the raw materials funded by our customers as income, subject to VAT.

They also levied an arbitrary mark-up and interest and penalties on PCC for the tax assessment period 2018 to 2020, to which we have objected.

 

The issued tax assessments against the company impose tax liabilities amounting to US$19,315,233.82 and ZWL79,845,954.36.

“ZIMRA, also, without any notice, garnished all PCC’s bank accounts.

Next, ZIMRA took the unprecedented step of instructing our customers to pay ZIMRA any monies owed to PCC, effectively closing off all the company’s income streams,” PCC said.

 

PCC, in an effort to get the garnish lifted, submitted a payment plan proposal  to ZIMRA while awaiting the determination of the objection.

 

However, the payment plan was rejected by the tax authority.

 

“At law, the company has an obligation to pay the assessed taxes notwithstanding that it is challenging the tax assessments. ZIMRA’s unprecedented actions on false tax violations have regrettably placed PCC in an insolvent position, forcing the company’s directors to place the business under voluntary business rescue to safeguard the interests of all creditors and stakeholders, whilst the company continues to try and amicably resolve the matter with the tax authority,” PCC said.

 

PCC welcomed the appointment of (Reuben) Mukavhi as the corporate business rescue practitioner.

“We are confident that the business will be able to trade back to solvency while we work to resolve the tax dispute.

Through its world-class manufacturing capability and innovation, PCC, directly and indirectly, supports hundreds and thousands of livelihoods in Zimbabwe. It is a company founded on strong entrepreneurial principles and with an unambiguous commitment to the development of Zimbabwe and its people.

 

“As an ethical corporate citizen, we remain steadfast in our dedication to sustaining jobs, serving our customers, delivering to all our stakeholder needs and are committed to working with the tax authority to find an amicable solution to the impasse,” PCC said.

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