Local business in tax disputes
Zimbabwe’s tax environment is posing significant challenges for major companies, as disputes with the Zimbabwe Revenue Authority (ZIMRA) over tax payments escalate.
Innscor Africa Limited and National Foods Holdings are two of the latest firms to face substantial tax assessments for the period between 2019 and 2021, with both companies challenging ZIMRA’s rulings in court.
Innscor’s chairman, Addington Chinake, and National Foods’ chairman, Edwin Manikai, have both expressed concerns over the ambiguity in Zimbabwe’s tax legislation, which has created uncertainty for businesses.
This uncertainty stems from inconsistent interpretations by ZIMRA, particularly regarding taxes paid during Zimbabwe’s complex currency transition over the past five years.
Since 2018, Zimbabwe has experienced significant shifts in its currency and legislative environment. The reintroduction of the Zimbabwean dollar (ZWL) in 2019, after nearly a decade of using foreign currencies, has left businesses in a state of confusion over how certain taxes should be settled.
The absence of clear guidelines and transitional measures during this period has opened the door to multiple interpretations, leading to disputes between companies and ZIMRA.
“The local market has experienced significant currency and legislative changes since 2018, which have created numerous uncertainties in the tax treatment of transactions,” said Innscor chairman Chinake in the company’s 2024 financial report.
Chinake pointed to the lack of clear instructions from authorities as a key driver of the tax disputes facing Innscor and other businesses.
National Foods chairman, Manikai, echoed similar concerns.
“The absence of clear guidelines and transitional measures has created uncertainty in tax positions,” he said. Like Innscor, National Foods is contesting tax assessments from ZIMRA, which has demanded an additional US$4,49 million in taxes, penalties, and interest for the 2019-2021 period.
These assessments were levied on payments National Foods had already made in Zimbabwean dollars, with ZIMRA arguing that the payments should have been made in foreign currency.
Both companies have been forced to settle significant sums under Zimbabwe’s “pay now, argue later” policy, which requires businesses to pay disputed tax amounts upfront before appealing through the courts.
Innscor has already paid US$9,26 million, while National Foods has paid US$3,38 million under this principle.
Manikai has emphasised that ZIMRA’s approach not only contradicts National Foods’ understanding of the law but also fails to recognise the Zimbabwean dollars the company already paid.
“No credit has been given by ZIMRA to the equivalent amounts paid in the country’s legal tender,” he said.
Should National Foods’ and Innscor appeals fail, both companies could be refunded the ZWL amounts they originally paid. However, with Zimbabwe’s rampant inflation, these refunds would be worth significantly less in today’s terms.
The broader business environment in Zimbabwe is being negatively affected by these ongoing tax disputes. Analysts warn that inconsistent tax legislation and enforcement are a major deterrent to both domestic and foreign investment in the country.
“Tax uncertainty creates an unpredictable business environment. It complicates company planning, making it difficult for businesses to forecast expenses, allocate resources, or make long-term investment decisions,” said economist Tinevimbo Shava.
He noted that businesses need clarity and predictability to thrive, particularly in volatile economies like Zimbabwe’s.
“If companies cannot accurately anticipate their tax obligations or are forced to operate under inconsistent interpretations of the law, they are less likely to invest in expansion or new ventures.”
Analyst, Namatai Maeresera, also raised concerns about the chilling effect these tax uncertainties have on investment.
“Investors are already hesitant due to Zimbabwe’s broader economic instability, but tax issues like these are a direct hit to business confidence,” Maeresera said, adding that companies need a stable and transparent tax regime to justify capital expenditures and investments.
Maeresera further warned that disputes over tax payments, such as those faced by Innscor and National Foods, contribute to a negative perception of Zimbabwe’s ease of doing business.
“Without clear guidelines, companies are effectively operating blindfolded when it comes to financial planning,” she said.
The ongoing debate over Zimbabwe’s 2024 Finance Bill could further complicate matters for businesses, as it may introduce changes to the country’s tax regime.
Both Chinake and Manikai have stressed the need for legislative reform to address the gaps that have led to these disputes with ZIMRA.
“The legislative gaps giving rise to differences in interpretations remain,” Chinake said. He urged authorities to provide clarity to avoid further disputes that could harm businesses.
Manikai has similarly emphasised the need for reforms, stating that the inconsistencies in the current tax framework must be resolved to restore confidence in the system.
Until these legislative ambiguities are addressed, Zimbabwean businesses like Innscor and National Foods will continue to face uncertainty. Both Shava and Maeresera agree that this unpredictable tax environment forces companies to adopt a cautious approach to investing and expanding.
While Zimbabwe holds significant business potential, particularly in essential industries like food production, the unpredictability in its tax regime remains a substantial barrier to growth.
If these issues are not resolved, Zimbabwe risks stifling business confidence and further exacerbating its economic challenges.-ebsinessweekl
