An associate of mine , John (not his real name), received a letter from the Zimbabwe Revenue Authority (Zimra) a few months ago advising him that he owed several thousands of dollars in tax penalties and he should pay up as soon as possible.
I advised John to visit the Zimra offices to get more details and work out some arrangement for settling this debt.
At the end, a payment plan was agreed. John was set back by the large settlement and his business is still struggling to recover from the cash flow crunch that occurred as a result.
With the economy in desperate need of liquidity, you can be assured that the tax authorities will be intensifying revenue collection in order to fund state expenditures. As some companies close and thus stop contributing to taxes, the authorities will have no choice but to collect more revenues from the remaining firms while roping in those that were not paying or underpaying taxes before.
As a business owner, you need to be aware of possible landmines that could get the tax authorities billing you large amount in penalties.
Late submission of tax returns
A law was passed last year penalising late submission of tax returns. Statutory Instrument 97 of 2013, which came into effect on June 28, sets out a penalty of up to US$30 per each day that you delay in submitting your returns. That is a lot of money. For firms that have not been submitting returns for long periods, the penalty really adds up the longer you delay. For example, late submissions of between 11 to 20 days attract a fine of US$150, while a delay of 21 to 30 days will result in US$450 in penalty. A delay of 61 to 81 days will attract a hefty US$5 340.
Now you don't want to be hit by this landmine and lose precious cash that can be used more productively in your business. To avoid such a risk, have a system in place for submitting your tax returns. Set up a calendar that you or your accountant can follow with the dates for submitting the various tax returns.
Late payment attracts a penalty
Late payment of taxes
Apart from the relatively recent regulation mentioned earlier, there has always been a penalty for late payment of taxes. The Tax Act sets out a penalty of 100% of the actual tax amount as the penalty for late payment and an additional amount in interest. The interest is set at 10% per annum. Once again, you do not want to be paying unnecessary penalties that can be avoided by following a tax calendar and using the money more productively in growing your business.
Section 81 of the Income Tax Act describes other tax offences that some business owners may not be aware of. A common offence is understating your income. This includes understating your own salary and those of your staff in order to pay less income tax (Paye).
It also includes understating the firm's revenues and overstating deductible expenses for the purpose of reducing taxable income. Apart from penalties and fines, such offences can result in jail sentences.
Plan your finances and your taxes
Prudent business management entails careful financial planning. Tax planning should be part of your overall financial planning and it should be driven by your overall financial goals. By developing and implementing appropriate strategies, you can shift or lessen your tax liabilities to meet your long and short-term goals.
For example, if you can accurately project your income for the year, you will know how much you will have to pay in taxes and when the amounts are payable. (Dates for payments of QPDs, Paye, VAT and other taxes are available at the Zimra website www.zimra.co.zw.
When you know your tax liabilities and your cash flows, you can anticipate any likely challenges and prepare for remedial action in advance. For instance, if your forecast shows a large payment due for corporate tax for the first QPD, you could take advantage of capital allowances deduction by purchasing a capital asset. This means you plan your capital and cash flow budget for the whole year so you can be able to see any shortfalls or surpluses and take appropriate action.
Planning, including financial planning, is an important exercise that all businesses need to carry out at least annually. Always follow the plan to ensure you stay on the critical path to your goal. Watch out for tax landmines. You can download free financial planning resources on the Finance page of my website http://smebusinesslink.com.
Note: Since tax laws are complicated and being continuously reviewed, please consult a professional tax consultant or accountant before taking any decisions that could affect your tax liability.
Please feel free to send me your feedback. Send me an email at my address shown below. Until next week, best wishes in accelerating your growth.
The author is a business development consultant who works with SMEs and entrepreneurs.