Marvelous Tapera 
THE minister of Finance and Economic Development, Mthuli Ncube, through the circulated Finance (No 2) Bill, 2022 is proposing that all ZWL$ outstanding tax debts be converted to the foreign currency equivalent at the time the debt is incurred, and payment will be made in ZWL$ using the prevailing inter-bank exchange rate at the time of remittance of the tax to the Zimbabwe Revenue Authority (Zimra).
In the event that the original nominal ZWL$ tax debt turns out to be greater than the rebased amount, the fiscus will seek to be paid the original nominal tax debt.
The Bill further states that the rebasing is to apply as well to all tax debts outstanding on December 31, 2022. In essence the rebasing is meant to restore or maintain value of tax debts to the fiscus.
Meanwhile, the minister in his 2023 National Budget statement, indicated the intention to raise the interest rate on late paid Zimbabwe dollar taxes to the bank rate policy (currently at 200 percent p.a.).
He indicated in paragraphs 603 to 605 that the policy is meant to curb speculative borrowing, thereby stabilising the exchange rate, because tax revenue had become a cheaper source of working capital, resulting in some companies no longer prioritising tax remittances to the fiscus. The interest rate on tax arrears and refunds in foreign currency, the minister highlighted will not be up for review and will therefore remain fixed at 10 percent per annum.
We fully consider the implication of these policies on business, Zimra and the government as follows: Before turning to the implications of these two policies to the stakeholders as aforesaid, first, it is important to mention that the fixing of interest rate on tax arrears and refunds is within the powers of the minister through a Statutory Instrument and hence the reason there is no mention of this in the circulated Finance (no 2) Bill, 2022.
Therefore, there is an expectation that the minister will publish the new interest rates for ZWL$ tax arrears and refunds soon. Now turning to the rebasing of ZWL$ tax debts, the process ensures there is the retention of value to the fiscus.
Whilst non-compliance with tax laws is condemned, the rebasing of tax debts and levying interest rate as high as 200 percent per annum on the same amount appears a huge punishment for taxpayers. Hence, if the minister successfully fixes the contemplated policy on interest rate, it will be a double tragedy for the business community.
These policies will result in a taxpayer paying times three for every dollar owed to the fiscus. This is because the process of rebasing is to equate the ZWL$ liability to the US$ equivalent. If we are to also take into consideration the penalty regime, which is generally fixed at 100 percent of the principal tax, it then will be four times of the principal tax debt.
Meanwhile, the Finance Bill is silent about preservation of value of tax refunds. Some businesses are owed a lot of monies in refunds by Zimra because of the onerous administration requirements imposed on taxpayers to successfully get a refund from the tax authority.
There is no doubt this is crippling the operations of the affected businesses and their ability to produce goods and services, and in turn affecting future tax remittances to the fiscus. It may also be appropriate and onerous for the minister to rebase tax refunds to taxpayers so as compel Zimra to expedite the refund process.
As stated above, the new policies, if enacted into law, spell doom for taxpayers. Therefore, taxpayers are urged to give tax compliance the highest priority to avoid the huge costs of non-compliance and hope to remain in business.
For the government, the unintended effect of the stiff penalty regime is to scare away investment and promote tax evasion, among other adverse consequences for the economy. All these may stifle economic growth.
An appropriate balance is, thus, required if the government is to continue to receive sustainable tax revenues from the same taxpayers and from new investments. In conclusion, we recommend that the minister reconsiders his intended policy on interest rate especially on tax debts that are the subject of rebasing.
The rebasing as aforesaid implies the tax debt is being equated to the foreign currency equivalent. For this reason, the disparity between the intended bank rate policy and the 10 percent interest on foreign currency debts needs to be looked into.
Our recommendation is that the rebased tax debt be levied the same interest of 10 percent per annum, just like the foreign currency tax arrears. Last but not least, the minister should also consider rebasing tax refunds to facilitate efficiencies in tax administration of the tax refunds, as well as store value for the business community. Meanwhile, Matrix Tax School will be hosting a oneday tax seminar on “Tax Developments 2023” on January 18, 2023 where speakers are expected to unpack the new intriguing laws of all times.
Tapera is the founder of Tax Matrix (Pvt) Ltd and the chief executive of Matrix Tax School. He writes in his personal capacity
