eBusiness Weekly
Martin Kadzere
With high indications that the economy is now heading toward full dollarisation, the Zimbabwe Revenue Authority (ZIMRA), has put in place tight measures to close tax loopholes resulting from underhand US dollar transactions, the country’s tax collector has revealed.
According to official statistics, close to 80 percent of local transactions are now in foreign currency and economic analysts and authorities have already warned of the growing risk of potential tax loss coming along with the growing use of the US dollars.
With most of the transactions being in cash, they are seen as favouring tax evasion.
In instances where businesses are using fiscalised devices that record sales and tax information by businesses on the read-only fiscal server directly linked to the tax regulator, some of the machines are not configured to record the US dollar transactions.
It also emerged there are also cases of businesses that allow mixing of currencies when transacting while others insist on strict separation of the two for easier accountability. Last year, the Government enacted legislation to entrench the multi-currency system, which makes both the United States and Zimbabwe dollars legal tender for all local transactions for the duration of the National Development Strategy 1 (NDS1), the country’s medium-term economic blueprint, which runs until 2025.
Before the enactment of the law, the Government had already legalised the use of foreign currency for local transactions in March 2020 at the height of Covid-19.
There was phenomenal growth in the use of US dollars including loans to corporates and individuals, payments of utility bills and local authorities and salary payments.
The US dollar-based retail transactions also increased after the narrowing of the gap between black and official exchange rates since August last year when the Government put in place several measures to stabilise the local currency and tame inflation.
ZIMRA spokesperson, Gladmore Njanji, told Business Weekly in an interview that while the level of compliance was generally satisfactory, they have noted several instances where some taxpayers were engaging in underhand transactions to avoid paying tax.
“When taxpayers were permitted to trade in foreign currency, we have seen a growth in revenue collections and improved transparency in accounting for the tax,” said Njanji.
“Due to other factors, some taxpayers are still reluctant to maintain proper systems for accounting tax in foreign currency. For this category, we (conducting) audits and prosecute to enhance compliance. Our audits have been very successful showing there is some revenue being lost through underhand transactions.”
In the 2023 Budget Strategy Paper, Finance and Economic Development Prof Mthuli Ncube, warned re-dollarisation, coupled with high informality would shrink the taxable base, as most transactions were “going underground where most activities are cash-based.”
He said Government would consolidate the stabilisation measures and strengthen tax collection efficiency through audits and other administrative measures.
Corporate lawyer and tax expert, Godknows Hofisi, said there was a huge risk of cash-based transactions being conducted outside official business channels. And if that happens “it will be difficult to collect taxes on otherwise taxable transactions.”
Economics professor, Gift Mugano, said in an interview there was a need to promote formalisation of the US transactions to enhance tax compliance in a dollarised environment. Mugano also said the 15 percent domestic export retention was discouraging the banking public to deposit their money in banks.
“The thorn issue at the moment, which is pushing economic agents to put the US dollars under the mattresses is the so-called domestic export retention of 15 percent. The current legislative framework, which compels RBZ to liquidate 15 percent of foreign currency deposits and credit the account of the depositor with Zimbabwe dollars is discouraging businesses from depositing their US dollars as it results in significant exchange rate losses due to existing exchange rate disparities.
“Inevitably, this will give way for tax evasion as this leads to increased circulation of foreign currency in the informal sector. Let us be honest; when economic agents get hold of the US dollar and take it to the bank they don’t expect to lose the very same US dollar on the back of compliance requirements if they can avoid such costs.
“This is particularly important in our circumstance where we face a drought of confidence. My advice to the RBZ is simple-scrap the 15 percent domestic export retention.”
Njanji said ZIMRA was countering the underhand dealings by ensuring all Value Added Tax operators were fiscalised while their devices record the local currency and foreign transactions, records are maintained for all transactions and separate returns for forex and local currency are submitted.
Njanji added the recent implementation of the Block Management System (BMS) that classifies all taxpayers into specific geographical locations or zones to improve tax collections from the informal sector will also go a long way in identifying where transactions are in forex and ensuring they are accounted for in
full.
“These measures therefore ensure that the tax base remains sustainable locally now and in the future.”
