14 February 2014

Zimbabwe: Kereke in U.S.$4 Million Tax Storm

The Zimbabwe Revenue Authority says a firm owned by Bikita West legislator Dr Munyaradzi Kereke owes US$4 million in unpaid taxes over the last three years. Zimra has since started serving garnishee orders on RMC Hospital's debtors to recover the money. Taxes allegedly owed are around US$3,2 million, and the rest is made up of penalties for non-payment of taxes.

The garnishee orders prompted Dr Kereke to approach the High Court yesterday seeking his own order to stop the process until a separate appeal against the tax assessment is finalised.

Zimra has since November last year blocked cash-flows due to RMC Hospital by issuing garnishee orders to the hospital's major trade debtors, such as Cimas, Premier Service Medical Aid Society and Stanbic Bank, to collect tax liability to the tune of US$3 297 103, 62.

The taxes include Pay As You Earn, and income and withholding taxes.

The dispute was brought for hearing before Justice Martin Mafusire and was deferred to a later date because RMC lawyer Advocate Lewis Uriri was not available to argue the matter.

Zimra lawyer Advocate Thembinkosi Magwaliba said he needed more time to peruse the answering affidavit filed by RMC's legal team.

Dr Kereke lodged an appeal with Zimra against the tax assessment on the same day the garnishee orders were issued. The appeal is still pending.

According to the law, the appeal must be decided within three months and the prescribed period has not yet elapsed.

In his interdict application, Dr Kereke wants the court to protect his medical institution from what he termed "illegal act of victimisation, vindictive abuse of office and breach of constitutional rights".

He said he has facts proving that Zimra's actions were a hatchet job meant to cripple and destroy his personal and business interests.

"The effect of the garnishees has been to completely paralyse the hospital's operations," said Dr Kereke.

"This has seen the hospital failing to procure medical drugs and food for patients currently admitted in its wards, exposing the lives of those patients to grave fatal danger.

"The pharmacy has had to close. The oncology unit will have to close to the prejudice of cancer patients."

Dr Kereke argued that given Zimbabwe's corporate income tax rate at 25 percent, the calculation by Zimra that tax payable is US$3 297 103, 62 translates to an alleged implied gross profit position of US$13 188 414. 48.

This, he said, was impossible given the infancy of the hospital which started operating in 2010.

Dr Kereke further argued that like any other business operating in the country where the financial system was characterised by a crippling liquidity crunch, RMC Hospital had arrears to Zimra amounting to US$246 234,15; PAYE tax of US$139 591,48; and value added tax of US$106 642,67.

Zimra, he argued, had already collected over US$300 000 through the garnishees.

"As a new hospital in the country, which my family established as a response to Government's noble call for the private sector to complement Government efforts in building infrastructure systems for social services, RMC Hospital is still making losses and formal books of accounts proving this position were submitted to respondent in normal course of the statutory returns for tax accounting," he said.

But Zimra argued that it acted in terms of the law in effecting the garnishees. The tax collector says it invoked Section 69 of the Income Tax Act, which allows the revenue authority to directly recover payment from a taxpayer's debtors.

RMC consists of a hospital and a 24-hour emergency unit which employ about 220 workers.

The hospital recently set up an oncology centre for cancer patients.

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