FX tax evasion worries Zimra

THE Zimbabwe Revenue Authority (Zimra) says it is concerned about the growing number of taxpayers who are failing to declare sales in the currency of trade as domestic US dollar revenues soar across the economy.
It comes as a number of companies have also reported growing foreign currency sales.
Misheck Govha, commissioner of domestic taxes at Zimra, told the Matrix Tax School’s seventh annual tax conference in Victoria Falls recently that reconciliations of transactions will be done through audits.
“We have gathered information from companies that are supplying tuckshops, and we have a list of about 38 of those companies, but it is not a crime to sell to tuckshops; what is a crime is to sell to tuckshops and not declare the foreign currency,” he said.
“So, what we are now doing is reconciling the sales from the tuckshops and the manufacturers, and I think some manufacturers have already received letters on the verification process. If you are declaring and sending forex per transaction to Zimra, you should not be found wanting.”
He said taxation remains a critical source of government revenue.
“That is an exercise that is already on the way and on the side of those tuckshops, we have noted that even big supermarkets or entrepreneurs are also demarcating their premises into tuckshops. We are now registering them as value added tax operators because they qualify.
“The fact that they are getting huge stock from manufacturers also makes them qualify for the US$40 000 threshold. So, we are also registering them so that at least we don’t lose any revenue in that area,” Govha said.
Effective September 1, 2022, a trader is liable to register for VAT if the value of taxable supplies exceeds or is expected to exceed US$40 000 or ZWL equivalent within a period of 12 months.
The tax man has set up block management teams which are on the ground in those areas.
“I think some of you have interacted with them downtown; for example, in Harare, we have about five teams that are permanently there and are roaming those areas almost every day,” he added.
Lack of tax compliance by the country’s growing informal sector has hampered domestic revenue collection.
The southern African nation eased foreign exchange regulations following the outbreak of Covid-19, allowing locals to use free funds to purchase goods and services.
This resulted in most businesses demanding payment in the greenback, although most companies continued to meet their tax obligations using the domestic currency.
The government has since introduced a law that requires companies to remit their taxes in the medium of exchange.
While the economy is shifting to a fully dollarised state, there are still a few sectors, such as formal supermarkets, that are heavily dependent on the local currency, which puts pressure on their profits.
“There remains a niche of businesses such as formal supermarkets that are highly exposed to the local currency, thereby putting pressure on their earnings,” IH Securities said in a recent note.

The southern African country reintroduced its currency in 2019 after a decade of dollarisation, but the local unit has depreciated sharply against the US dollar due to low confidence.
“Foreign currency receipts from tobacco exports and increased US dollar salaries for civil servants are also going to increase the pace of transactional dollarisation. In addition, remittances are also expected to continue to cushion a constrained consumer base in Zimbabwe,” Akribos, another research firm, said in a recent note.
It said the local currency would continue to depreciate against the US dollar.
“Looking ahead, we expect the local currency to further weaken as a result of the election and public infrastructure spending,” Akribos said.
“In addition, as we head towards the 2023 harmonised elections and even after, any protests, violence or serious inquiries into government conduct have the potential of further destabilising the economy and the ZWL.”
This comes as economics professor and Africa Economic Development Strategies executive director Gift Mugano recently said Zimbabwe’s ongoing oscillations between the US$ and ZWL were normal for a country that was in a de-dollarisation process.
Zimbabwe first adopted the greenback as an official transacting currency in 2009 and has since faced difficulties going back to the under-pressure Zimbabwean dollar.
Mugano told a business indaba that Zimbabwe’s de-dollarisation experience was not unique, but common to many countries that once used the US dollar.
“Evidence shows that it is very difficult to come out of dollarisation. In a number of cases, as in ours, you go through what we call currency cycles. Today, you are in US$, tomorrow you are back to Zimbabwe dollars and you can take 10 to 20 years doing that,” Mugano said.
“Right now, we are talking about close to 70 percent of loans being given in US$. We are already creating new Zimbabwe dollars through fictitious US$ because some of the people who are getting foreign currency are not generating foreign currency. They are not exporting. So, we are back in 2017, 2018, and before the end of the year, you will see that the problem will become bigger and bigger.
“I have said this over and over again, the government does not have a decision over the currency. They have a policy role, but the currency issue is determined by the market.
“So how do we get out of dollarisation? We need to be productive. We need to build confidence. We need policy consistency,” Mugano added.
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