ZIMRA has published a notice directing businesses which receive payments in USD to pay taxes in USD. Below is part of the announcement:
“Zimbabwe Revenue Authority (ZIMRA) has noticed that there are businesses that are trading, withholding and collecting VAT, PAYE, Capital Gains Tax and other taxes in multi-currencies. Following this observation, ZIMRA has found it necessary to clarify that these businesses should remit taxes in the specific currencies in which they collect them without any conversion to RTGS, Bond notes, Local point-of-sale and Mobile money. Clients can remit their multi-currency taxes to ZIMRA through the following FCA Nostro (USD) accounts.”
Acceptance from the Government that the USD is not equal to Bond
If bond notes are equal to USD, then what difference does it make if I receive payments in USD and pay my taxes in Bond Notes? This seems to be an admission by the government that the two currencies are not equal. We look forward to the 2019 Budget which will be presented by Finance Minister on Thursday 22 November, we hope this issue will be addressed.
Allowance to sell in USD?
Is this permission from the government for businesses to sell in USD? Government has been speaking against businesses who are only accepting USD payment eg some pharmacies. The argument from the businesses has always been that they buy the goods using foreign currency, therefore it does not make business sense for them to sell in bond notes and RTGS. The government position has been that USD and RTGS are equal, therefore no one should reject payment in RTGS. However the facts on the ground indicate that these two currencies are not equal, as currently the 1USD = $3.3 RTGS on the parallel market. If ZIMRA is now insisting on USD payments, does that mean the Government is about to allow businesses to sell strictly in USD terms? This will be the right thing to do, as the 1:1 fallacy is causing a lot of economic problems.
Fair & Reasonable
The government insists that the two currencies are equal, but it knows that’s not the case. Zimbabwe needs foreign currency for a lot of important commodities eg Fuel, Electricity and Wheat. The government can only get this money from its citizens and businesses. It seems fair and reasonable for companies which are charging USD to pay their taxes in USD, for the benefit of the whole nation. If this isn’t the case then businesses can utilize the arbitrage opportunity to pay less tax. Let’s say I only trade in USD, and at the end of year my business reports a profit of USD$10 000. This means I should pay USD$2500 income tax (25%). At today’s rate, I will just “burn”/change USD$833 to RTGS and get $2500, which I then pay to ZIMRA. So in actual fact I have paid 8.3% income tax instead of 25%.
Is It Legal?
Is it Legal for ZIMRA to demand USD Taxes? There is an interesting case of a a messenger from Safeguard Security who was given US$4000 to deliver to a client. The messenger then replaced the USD with Bond Notes, and was then taken to court for the crime. The messenger was acquitted after the prosecutor argued that there was no prejudice suffered by either parties since USD = Bond Note.
Posting on Twitter, Zimbabwean Lawyer Fadzayi Mahere posted “There’s no legal basis for ZIMRA to refuse to collect tax in RTGS. It’s the national currency. Mangudya introduced the irrational bond against our advice. The Reserve Bank Act says the rate is 1:1 between bond and US. A tender in RTGS is therefore legally competent.”
The 1:1 mantra from the government is causing a lot of economic problems. We hope Professor Mthuli will address this issue once and for all in the coming budget.
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