ZIMRA under Scrutiny | Business Times

CLOUDINE MATOLA

Zimbabwe’s corporate tax environment has become a contentious battleground, as a growing number of large corporations find themselves embroiled in legal disputes with the country’s tax collector, the Zimbabwe Revenue Authority (ZIMRA).

ZIMRA, critical to revenue generation, is under increasing scrutiny, with critics arguing that its aggressive enforcement tactics are placing undue strain on businesses.

The latest high-profile case involves Innscor Africa Limited, a diversified, publicly traded conglomerate. The company is in a heated legal confrontation with ZIMRA after the tax authority imposed a revised tax assessment of US$13.2 million across its divisions and affiliates. This has reignited debates about Zimbabwe’s complex and often unpredictable tax policies and their impact on business operations.

Business Times, a market leader in business, financial and economic reportage, can report that Innscor has taken the dispute to court, arguing that it has fully met its tax obligations according to the existing regulations. However, ZIMRA maintains that certain taxes should have been settled exclusively in foreign currency. While Innscor asserts it paid in Zimbabwean dollars, the tax authority refuses to recognize these payments, claiming they fall short of compliance.

“Innscor has fully settled its tax obligations in accordance with prevailing legal requirements,” stated Addington Chinake, the company’s Chairman.

“ZIMRA continues to reassess income taxes, VAT, penalties, and interest on amounts already settled, leading to a dispute now before the courts.”

This dispute is not an isolated case. Several other prominent companies in Zimbabwe have found themselves caught in similar challenges, as ZIMRA intensifies its efforts to enforce corporate tax compliance and bolster government revenue.

In accordance with Zimbabwe’s tax enforcement framework, Innscor has already paid US$11.346m towards the contested assessments. Its associate companies have settled an additional US$4.5m under the “pay now, argue later” principle. This policy requires companies to pay taxes upfront before challenging the assessments in court, ensuring that government revenues continue to flow but placing substantial financial pressure on businesses, especially when payments are made in a volatile local currency.

“While these assessments have been formally objected to and are at various stages of appeal, the group continues to engage with the relevant authorities while pursuing legal remedies,” Chinake added. Should the company lose the legal battle, it expects to receive a refund in Zimbabwean dollars, a currency that has lost significant value, exposing Innscor to exchange rate risks.

ZIMRA’s crackdown on corporate tax compliance is seen as part of the government’s broader strategy to raise fiscal revenues amid a struggling economy. The country has faced persistent challenges such as high inflation, exchange rate volatility, and a widening revenue collection deficit, prompting tax authorities to tighten enforcement.

However, the retrospective nature of certain tax assessments has created considerable uncertainty for businesses. Companies are being asked to pay taxes in foreign currency for periods when they had already settled in local currency, undermining the predictability of Zimbabwe’s tax regime. This unpredictability raises concerns about its impact on financial planning, investment decisions, and the broader economic environment.

For businesses, particularly large corporations, the financial burden of tax disputes is significant. Setting aside large sums of money for contested tax assessments severely impacts cash flow and hampers the ability to reinvest in areas such as expansion, innovation, and job creation.

Moreover, Zimbabwe’s tax policies play a pivotal role in shaping the nation’s attractiveness to foreign investors. A tax system perceived as unpredictable and overly punitive could discourage foreign direct investment (FDI), which is essential for the country’s economic growth.

Industry Insight

Maxwell Ngorima, a partner at BDO Chartered Accountants, attributes the surge in court cases to a combination of factors, including the growing influence of the informal sector on the tax base and ZIMRA’s focus on corporate giants to meet revenue targets.

He also highlights differences in the interpretation of tax laws and frequent policy changes as contributing factors to the rise in disputes.

“ZIMRA is on an aggressive drive to collect taxes, but these demands place significant pressure on corporates already facing liquidity challenges,” Ngorima noted.

“This environment has led many businesses to seek judicial intervention in tax disputes.”

Economic analyst Vincent Boroma emphasises that the tax burden has become increasingly punitive, particularly for compliant businesses that face stiff competition from informal market players.

He further criticises inconsistencies in Zimbabwe’s monetary policies, which add to the complexity of tax reporting and create additional financial risks due to exchange rate fluctuations.

Dr. Prosper Chitambara, an economist, calls for substantial reforms to simplify Zimbabwe’s tax regime, noting that a more streamlined and affordable tax system would ease the burden on businesses and encourage compliance.

“Simplification and cost-reduction measures are essential for addressing the challenges businesses face in dealing with the current tax system,” he said.

Enock Rukarwa, an investment analyst, told Business Times:“Aside from numerous litigations between ZIMRA and corporates, inconsistent tax policies often result in complicated, unclear regulations that increase compliance costs for businesses. Many companies, particularly those in the informal sector, may evade taxes or shift operations underground to avoid unpredictable tax burdens. This not only reduces overall government revenue but distorts the fairness and efficiency of the tax system.”

Evidence James, MD of Platinum Tax Consultancy and a Tax Law lecturer at the University of Zimbabwe, weighed in saying:“The increased litigation is quite evident with recent cases such as Delta, Nestle, and Afrochine, among others. The disputes arise from differing interpretations of tax legislation, vague or inconsistent tax policies, and unstable monetary policies.”

“Many of these challenges have been building over the past few years, marked by volatile monetary policies. This chaos left businesses unsure of how to comply and far behind in updating their systems to align with shifting policies. Some policies were impractical to implement due to a lack of commercial sense, leading to trends of non-compliance as a survival strategy.

“Furthermore, ZIMRA has utilised its staff more efficiently since the implementation of the TaRMS system, automating tax compliance and administration. This has freed up time for ZIMRA to target more cases, as we’ve seen in the past year.”

“These cases require careful handling from the tax authority. Overzealous enforcement could harm businesses and, in turn, negatively affect the economy by reducing fiscal contributions, costing jobs, and eroding investor confidence.”

“On the other hand, businesses, both large and small, must strive to remain compliant and consult experienced tax professionals to receive real-time advice on tax developments and system updates before ZIMRA comes knocking.”

The outcome of Innscor’s legal battle could set a significant precedent for other companies grappling with similar tax issues. A favorable ruling for Innscor may open the door for other corporations to challenge foreign currency-based tax assessments, while a loss could lead to additional financial strain and potentially embolden ZIMRA to pursue more aggressive tax enforcement actions.

As the legal battle continues, the broader business community remains on high alert, aware that the case could have far-reaching implications for future tax policies and corporate strategies. Zimbabwe’s policymakers must strike a delicate balance between increasing tax revenue and fostering a conducive environment for business growth. Overly aggressive tax enforcement could stifle corporate expansion, while a more predictable, transparent tax system could encourage both local and foreign investment.

The outcome of Innscor’s dispute with ZIMRA could be a turning point in shaping Zimbabwe’s future tax landscape. The case underscores the need for clearer tax guidelines, more consistent enforcement, and a tax system that supports sustainable economic growth without alienating the business community.

The question remains: Will the courts side with businesses, or will ZIMRA’s aggressive enforcement tactics prevail? The answer could have profound implications for Zimbabwe’s corporate sector and its broader economic trajectory.

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