Zimbabwe Sugar Sales (ZSS) Ltd, a company that sells and distributes sugar on behalf of Hippo Valley Estates and Triangle Limited, has been caught up in a $45 million tax evasion storm.
The Zimbabwe Revenue Authority (Zimra) claims the tax misdemeanours by the sugar distributing company span from February 1, 2009 to March 2015. However, the sugar distributing firm is contesting Zimra's charge, claiming the tax collector erred in concluding that its activities generate income that should be subject to income tax. But Zimra insists the firm is taxable and its failure to remit income tax has prejudiced Government.
The national tax collector maintains this stance in its correspondence to ZSS, copies which have been seen by The Herald Business.
"Section 8 (1) of the Income Tax Act (Chapter 23:06) clearly defines gross income and ZSS offers a service to the two millers (Hippo Valley Estates and Triangle Ltd) which should be subjected to Income Tax," reads the correspondence in part.
"ZSS issues invoices to customers and various suppliers also issued some invoices to them, but reference is only being made to marketing expenses without making reference to marketing income. You alluded to the fact that ZSS only breaks-even which means income is earned in some way. Section 98 of the Income Tax Act which deals with tax avoidance gives the Commissioner power to determine a tax liability when an arrangement is deemed to have been entered for the sole purpose or one of the main purposes is of avoiding or postponing a liability was evoked."
Zimra said such an arrangement would not normally exist among unrelated parties.
"In other words, the arrangement is not at arm's length hence a tax avoidance opinion was arrived at on this basis," said Zimra.
In a letter dated April 5, 2018 which was also seen by The Herald Business, Zimra quantifies its demand to $45,3 million. The figure could rise even higher if ZSS's activities from April 2015 to date are factored in.
Zimra claims it observed that ZSS, as a standalone company, did not account for its own income since it is acting as an agent for Hippo Valley Estates and Triangle Limited. Therefore, the taxman demands that ZSS must declare its own income. Zimra argues the income tax was estimated in terms of Section 45 (1) of the Income Tax Act Chapter 23:06, based on the commission as stated in the Memorandum of Decisions of 1963.
"It was estimated at 5 percent of the sales by ZSS on behalf of the mills. Please find attached the discrepancy schedules for ease of reference and the requisite assessments. Kindly settle forthwith, the outstanding amount of $45, 316,077.33 as presented to you," reads part of the letter.
The new dispensation under the leadership of President Mnangagwa has insisted on curbing tax evasion. On its part, Zimra has moved in to weed out corrupt elements within its ranks who have been impeding the authority's work.