The Sunday Mail
Zimbabwe Revenue Authority auditors are the worst nightmare for most companies.
Whenever they conduct their audits, regardless of how much one might think they are compliant, there are always surprises.
Huge penalties are often the result.
It is almost as if one is perennially liable to the tax authorities.
Some companies have literally closed after the Zimra audits due to the huge amounts that they were owing.
But even in situations where a company’s accountants are well aware of the internal systems, they might not be well versed with all the tax laws.
This often results in the companies accruing huge liabilities.
It is important for accountants to be well aware of the Income Tax Act, Value Added Tax Act and other such pieces of legislation.
Tax information is accessible to everyone who needs it. The Zimra website is reasonably informative on such issues.
It is folly for companies to rely solely on consultants because some of them are actually not aware of the nitty-gritties of the Acts.
It is very important to double check when not sure.
l have observed that most companies have been grappling with VAT.
What is fundamentally important is to have an appreciation of what qualifies as zero-rated goods and what qualifies as exempt supplies.
Different items might be considered exempt in different jurisdictions.
A common mistake that is often made is to assume that South African tax laws are similar to Zimbabwean tax laws.
This can be ruinous to companies as they stand to accrue huge principles and penalties by miscalculating their obligations to Zimra.
The obvious temptation for most businesses, especially in this difficult economic environment, is trying to understate sales in order to cheat the tax man.
This is very dangerous.
The system has inherent checks and balances that can flag anomalies in remitting tax.
For example, companies that are charged VAT also claim input tax and by doing so, the system can flag where discrepancies exist.
Honesty pays.
The 15 percent that is charged as VAT belongs to Zimra, it is as simple as that.
At the end of every year, businesses are expected to submit the ITF12C, which is the final assessment.
If one is submitting false information during the year, they will be caught.
It is therefore important to be very honest with the tax man.
It is understandable that at times companies might charge VAT on their clients and then fail to receive payments to that effect.
In such cases, as long as the information is adequate, Zimra is quite considerate.
Mistakes can happen due to lack of knowledge, but deliberate understating is a serious crime.
VAT records must always be on point every time.
But payment of income taxes also has challenges of its own.
lt is very important to know which expenses are allowable and which expenses can be rejected as non-business related.
Companies, for instance, might buy toiletries and groceries for the office and get a receipt from the supermarket.
As long as this receipt is above five dollars, Zimra auditors can record it as an expense.
It is therefore important that for such purchases, one is invoiced and receipted in the name of the company.
Maintaining records is also very important.
If the records are not in order, this will surely affect the company in the long run.
Most SMEs do not keep invoices and receipts.
Whenever they make payments, they must get invoices and receipts for filing.
Fuel receipts are usually ignored.
Get a fuel receipt all the time and maintain a company fuel log book in order to distinguish company errands and personal errands.
Bad debts also create problems between Zimra and companies.
Having an updated database of bad debtors is always the best.
Some companies may overstate bad debts in order to lower their income tax liability.
The information on bad debts must be very convincing.
Sometimes Zimra auditors will audit a company after a long time, say three years. These “small” issues will become big issues.
This might negatively impact on the business.
The penalty could be as high as 100 percent. Quite similarly, withholding tax also presents the same challenges.
Payments can be made to companies or individuals without tax clearing certificates and deducting the required 10 percent.
Quoting the Zimra’s website directly: “Any person who enters into a contract (whether for goods or services) of an aggregate amount of US$1 000 or more over a year of assessment involving a single transaction or multiple transactions should comply with Section 80 of the Income Tax Act (Chapter: 23:06).
“The legal requirement is that a 10 percent Withholding Tax is deductible from all amounts payable to all persons who enter into contracts with the State or a statutory body, a quasi-government institution and taxpayers who are registered with the Zimbabwe Revenue Authority (Zimra) unless the payee furnishes the paying officer with a tax clearance certificate.”
It is important to ask for tax clearance certificates from suppliers before making a payment. Even after deducting the 10 percent, the money must be dutifully remitted to Zimra.
It is always advisable to engage reputable tax experts on all these issues if one is not sure.
Taurai Changwa is an Articled Accountant and has vast experience on tax, accounting, audit and corporate governance issues. He is the managing director of SAFIC Consultancy. He writes in his personal capacity and can be contacted at [email protected] or whatsapp on 0772374784.
