The Sunday Mail
STATISTICS from the taxman for 2015 clearly show that companies continue to be burdened by a challenging economy that has seriously affected cashflows.
Revenue collections have suffered accordingly, which is bad for the economy as it means the local purse will continue shrinking.
When cash flows are tight, companies react differently. While some prefer to rationalise staff and costs, others consider it prudent to cut back some of their obligations such as taxes.
This is suicidal.
Failure to pay one’s obligations to Zimra almost always attracts severe sanctions.
Usually, late submissions and late payment of taxes naturally result in heavy penalties that can negatively weigh on the business in the long run.
In some economies, especially developed countries, tax evasion is typically “treasonous” as it is considered to be a very serious crime. This does not necessarily mean that there is something wrong with the local tax legislation.
The obvious need to be circumspect in an environment where the operating environment is considered to be extremely difficult often means that Zimra uses it discretionary powers sometimes. But there seem to be cases where many companies squander such good will from the authority.
In Zimbabwe, most entrepreneurs are of the opinion that the tax rates in Zimbabwe are too high for them to operate viably. This is even made more difficult in an environment that is illiquid.
For example, a company can realise a sale of US$100 000 at 15 percent VAT. As soon as the tax invoice is raised, US$15 000 VAT is already an obligation to Zimra regardless of the fact that the client has paid or not.
If the client fails to pay the US$100 000, US$15 000 still remains due to Zimra and it must be paid. Likewise, even if a company sales goods worth US$100 000 sale, 25,75 percent of the profit has to be paid to Zimra.
According to accounting standards, a sale is recognised when risks and rewards are transferred to the customer and not when actual cash is realised.
Bad debts are creating problems for companies and Zimra.
Even though companies might be able to prove to the taxman that their clients are finding it difficult to settle their debts, recovering that amount by any means – which might include taking the defaulting client to court – might not be ideal as there is always need to maintain a good working relationship with the market.
Unwisely, some companies find it proper to wriggle out of this situation by choosing to be dishonest with Zimra in order to avoid paying tax.
It is not surprising that most companies are now choosing to trade in cash rather than transact through the bank so as to avoid a tax audit trail.
The onerous is really on Zimra to encourage companies to comply.
Some tax experts believe that revising some of the tax rates might be helpful as it will provide a carrot for firms to comply.
There is however need to be wary of the misconception that high rates are the major reasons for evading tax.
Zimra also need to be lenient when a client raises a pro forma invoice and only raise a tax invoice when cash is realised.
A pro forma invoice is defined as an abridged or estimated invoice sent by a seller to a buyer in advance of a shipment or delivery of goods.
It notes the kind and quantity of goods, their value and other important information.
Pro forma invoices are commonly used as preliminary invoices with a quotation. Usually a pro forma invoice can be raised but not declared on the VAT 7 form until a tax invoice is raised on payment. Indeed, tax collectors must collect as much cash as they can, but the concerns of industry and commerce must also be considered.
A win-win situation should exist between Zimra and its clients.
Being too hard and too tough on companies can drive the companies to always look for ways to evade taxes or minimise what they pay.
Taxes are burdensome but they should be paid in order to finance our economy.
These are some of the statements you may find on ZIMRA returns,”There are severe penalties for false declaration, failure to pay tax when due, or submitting the return late” and “You may be prosecuted for false statements”.
The Business Dictionary describes tax evasion as an unlawful attempt to minimise tax liability through fraudulent techniques, to circumvent or frustrate tax laws such as deliberate under-statement of taxable income or wilful non-payment of due taxes.
Whereas tax evasion is an offence (punishable by both civil and criminal penalties, tax avoidance is not.
This year saw the introduction of a system generated tax clearance and 2016 is even going to be better as the new tax clearance will have an authentication code.
This is a welcome development as companies will have to comply in order to get their tax clearance certificates or they will suffer 10 percent deductions from their payments.
According to China briefing, most companies were evading tax mainly because of cash transacting.
In response to this, over the last two decades China has spread the use of “receipt lottos,” in which receipts for everyday transactions double as lottery tickets, such that today the system is active nationwide.
Using the prospect of prize money to motivate customers to request receipts from their local businesses, the lottery system recovers enough tax revenue to remain profitable, despite the added cost of lottery payouts.
It was adopted after an earlier campaign to distribute standardised receipt printers to businesses failed, with business owners simply refusing to use them.
Tax evasion is an international problem. In 2016, apart from improving collection systems at Zimra, incentives will also need to be in place in order to encourage companies to pay taxes.
It is not always about being too hard on clients, but if an environment is friendly for all then tax evasion will be minimised. 2016 should be certainly better than 2015.
Taurai Changwa is an articled accountant, ACCA finalist, and MD of SAFIC Consultancy. He writes in his personal capacity and can be contacted at [email protected], Facebook page SAFIC Consultancy, and Whatsapp number 0772374784.
