This is an appeal against the whole judgment of the High Court (the court a quo) dated 25 October 2023 in which it dismissed the appellant's application for a declaratur.
BACKGROUND FACTS
The appellant is a beverage manufacturing company which manufactures, sells, and distributes alcoholic and non-alcoholic beverages of local and international brands. The appellant earns its income in both local and foreign currency and incurs expenses in both local and foreign currency.
The respondent is the collector of revenue on behalf of the Government.
The appellant submitted its value added tax (VAT) returns for the period March 2019 to October 2021 as well as Income Tax returns for the years ended 2019 and 2020 and paid all its taxes in full for these years in Zimbabwe dollars (ZWL).
On 17 November 2021, the respondent gave the appellant notice of its intention to carry out a tax review of its tax affairs covering the period 1 January 2019 to 31 October 2021. The respondent raised issues with the appellant on whether its value added tax (VAT) returns for 1 January 2019 to December 2020, and the income tax payments for the period January 2019 to 30 September 2021 were paid in the currency of trade.
In response, the appellant wrote a letter to the respondent, dated 24 November 2021, stating that section 4A of the Finance Act [Chapter 23:04] requiring the payment of taxes in foreign currency, followed the promulgation of section 23 of the Finance Act No.2 of 2019 which made local currency the sole legal tender.
On 11 June 2022, after a tax audit of the appellant's returns, the respondent informed the appellant about discrepancies which were found in its self-assessments.
The respondent found, that, the appellant failed or neglected to pay income tax and value added tax (VAT) in foreign currency from the income which it received or accrued to it in whole or in part in foreign currency.
The respondent further found, that, the appellant had received foreign currency in respect of local sales during the period between April 2019 and March 2021.
After the audits, the respondent issued additional assessments against the appellant.
The respondent re-computed the appellant's tax liability and issued it with amended tax returns which required it to pay its taxes in foreign currency, in accordance with the revenue it received in foreign currency, and to also pay its taxes in local currency proportionate to the revenue it received in local currency.
On 14 June 2022, the appellant responded arguing, that, the Finance Act No.2 of 2019 should prevail over section 4A of the Finance Act as it was enacted before it.
The appellant further contended, that, the turnover apportionment method was inapplicable in relation to value added tax (VAT), and, therefore, payment of taxes in ZWL was legally correct.
On 5 July 2022, the respondent wrote a letter to the appellant notifying it of the adjustments it made to the USD value added tax (VAT) assessments and tax computation schedules for October 2020 to October 2021. On the same day, the respondent served on the appellant an income tax notice of assessment for the tax period January 2021 to December 2021.
Later, on 3 August 2022, the respondent wrote another letter to the appellant addressing issues raised by the appellant on 14 June 2022.
The respondent explained that the law on value added tax (VAT) and Income Tax required that payment of taxes must be made in the currency of trade and that section 4A of the Finance Act was not amended nor repealed.
The respondent further observed, that, the appellant's value added tax (VAT) returns were incomplete for the reason that the section that separates foreign currency input and output tax from local currency input and output tax was not completed.
On the same day, the respondent issued an additional value added tax (VAT) notice of assessment for the tax period covering the period March 2019 to September 2020 requiring that local currency input and output tax be computed and paid separately from the foreign currency input and output tax.
Aggrieved by the respondent's re-assessments, the appellant applied to the court a quo for a declaration of invalidity;
(i) Firstly, in respect of the additional income tax assessments for the tax years ended 2019 and 2020; and
(ii) Secondly, the additional value added tax assessments issued against it by the respondent for the period March 2019 to October 2021.
It submitted, that, the re-assessment was invalid on account of the fact that it referred to the term 'gross tax' which is foreign to all tax statutes and that the amended tax returns did not compute the appellant's taxable income rendering the re-assessment invalid.
The appellant further submitted, that, it was unlawful for the respondent to reject payment in the form of local currency as it was declared the sole legal tender of Zimbabwe. It argued, that, the enactment of section 4A of the Finance Act, which stipulates that the Zimbabwean currency was to be the sole legal tender, must prevail over all older provisions.
The appellant argued, that, section 4A(1)(c) of the Finance Act and section 38(4) of the Value Added Tax Act both referred to section 41 of the Reserve Bank of Zimbabwe (RBZ) Act, and, therefore, the non-obstante provisions ought to be restricted to the old bond notes and should not be extended to the Real Time Gross Settlement dollar (RTGS) currency.
The appellant further submitted, that, section 4A(1)(C) of the Finance Act predated section 44C of the Reserve Bank of Zimbabwe (RBZ) Act which made the RTGS$ the sole legal tender in Zimbabwe.
It also argued, that, when Statutory Instrument 212 of 2019, SI 212 of 2019 was promulgated, it excluded the payment of taxes in foreign currency as an exception to the use of sole legal tender.
The appellant submitted, that, there were no jurisdictional facts present for the respondent to have issued it with the additional notices of assessment.
The appellant further submitted, that, the respondent violated its rights enshrined in section 15(3) of the Value Added Tax Act, by denying the deduction of the input tax paid by it in local currency from the output tax received by it in foreign currency.
On that note, the appellant submitted that the respondent's Public Notice No.26 of 2019, which set out the manner of computation, was unlawful and an attempt to legislate.
The appellant argued, that, the penalty on its foreign currency tax was not recoverable in foreign currency as there was no legal provision to that effect.
Per contra, the respondent opposed the application on the premise that 'gross tax' is an administrative term applied to denote an amount of the taxable income that will still be subject to further deductions before arriving at the net tax amount due to be paid to the respondent.
The respondent further argued, that, the assessment complied with all the requirements prescribed by law.
It further submitted, that, payment of taxes in foreign currency on income received in foreign currency is exempted from being paid using the nation's sole legal tender as provided by section 23 of the Finance Act.
The respondent contended, that, the legal requirements that warranted the re-assessment were that it found taxable income which was not subjected to tax; in determining an alleged loss, there was some income which ought to have been taken into consideration but was not; and, there was credit which was granted that should not have been granted.
The respondent submitted, that, deductions of input taxes from output taxes should be separated according to currencies and that the law prohibits deductions of input taxes from output taxes across currencies.
The respondent further submitted, that, Public Notice No.26 of 2019 was issued for the purpose of administering advice and information to assist taxpayers whose receipts from trade were specifically in both local and foreign currency.
The respondent argued, that, a penalty was a tax, and, as such, any outstanding foreign currency tax is payable in foreign currency and a penalty on any outstanding local currency tax is payable in local currency.
The court a quo determined, that, if the notices of assessment conformed with section 2 as read with section 51(2) of the Income Tax Act [Chapter 23:06] (ITA), and, as long as the value added tax (VAT) evaluation complied with section 31(5) of the Value Added Tax Act, then, the assessments cannot be rendered invalid on the basis of an alien term.
The court a quo held, that, the respondent's argument that the term 'gross tax' was an administrative reference to a provisional figure obtained during the computation process, which would still be subject to further consideration, is acceptable.
The court a quo held, that, the RTGS currency and bond notes and coins are all legal tender for the reason that the Reserve Bank of Zimbabwe (RBZ) Act does not expressly stipulate otherwise.
The court further held, that, Statutory Instrument 142 of 2019, SI142 of 2019, which introduced the sole legal tender concept did not single out the electronic currency.
The court a quo determined, that, there were exemptions to the introduction and use of the sole legal tender, such as the payment of customs duty and the payment of value added tax (VAT) on imports.
The court a quo further held, that, all relevant legislation should be taken into consideration in determining in which currency tax assessment forms should be submitted, and tax be paid.
Therefore, the court a quo determined that the reference to 'any other law' was with respect to section 4A of the Finance Act and section 38(4) and (9) of the Value Added Tax Act.
The court a quo held, that, the jurisdictional facts which triggered the additional assessments were the appellant's computation of all taxes in the local currency when part of its income had been received in foreign currency, and, there were improper deductions to the taxable income.
Regarding value added tax (VAT), the court a quo determined that the respondent had found that the appellant had not submitted the VAT returns in the prescribed form and had completely avoided completing the section dealing with the calculation of VAT in foreign currency.
The court a quo held, that, section 38(9) of the Value Added Tax Act declares that all provisions of the Act shall apply with such changes as may be necessary to the payment of tax in foreign currency in the same way as they apply to the payment of tax in local currency.
The court a quo further held, that, a reading of section 38(4) and (9) of the Value Added Tax Act makes it apparent that the legislature has not sanctioned a cross-currency deduction of input tax from output tax.
The court a quo held, that, a penalty is a tax in accordance with tax legislation, and, therefore, section 4A(7) of the Finance Act applies given that it states, that, all provisions of the Value Added Tax Act shall apply with such changes as may be necessary to the payment of tax in foreign currency in the same way as they apply to the payment of tax in local currency.
In the result, the court a quo held that the submissions made by the appellant lacked merit and proceeded to dismiss the application.
Dissatisfied with the determination of the court a quo, the appellant noted an appeal to this Court on the following grounds of appeal:
“GROUNDS OF APPEAL
1. The court a quo erred at law and misdirected itself by failing to consider and determine material issues raised by the appellant, thus rendering the proceedings grossly irregular. In particular, the court a quo failed to consider and determine the following issues raised by the appellant:
(a) Whether there is a penalty for payment of taxes purportedly due in foreign currency in the local legal tender, and what that penalty is?
(b) Whether the apportionment formulae used by the respondent exists in the taxing Act, and, if so, in which provisions of the taxing Acts?
(c) Whether the formulae used by the respondent, in computing both income tax and value added tax (VAT), was rational and possible to comply with?
(d) Whether there is a constitutional bar to the respondent utilizing section 4(A)(7) of the Finance Act and section 38(9) of the Value Added Tax Act to amend primary legislation?
(e) The implication of the contra-fiscum rule to uncertain tax legislation.
2. The court a quo erred at law and misdirected itself in finding, that, the assessments issued were valid at law when such assessments referred to a line item described as “gross tax” which 'gross tax' is not included in any taxing statute and is not a necessary component in the computation of taxable income.
3. The court a quo erred at law and misdirected itself in finding, that, the jurisdictional facts to issue additional assessments were present permitting the respondent to issue additional assessments on the appellant.
4. The court a quo erred at law and misdirected itself in finding, that, the appellant was not entitled to deduct its input tax on purchases made in foreign currency and in ZWL from its output in foreign currency.
5. The court a quo erred at law in finding that penalties were chargeable in foreign currency; this, despite neither section 4(A) of the Finance Act nor section 38 of the Value Added Tax Act providing for the charging of penalties in foreign currency.
6. The court a quo erred at law and misdirected itself in applying section 4(A)(7) of the Finance Act and section 38(9) of the Value Added Tax Act through the instrument of public notices in such a manner that they permit the amendment of primary legislation by institutions other than Parliament, which is unconstitutional and therefore unlawful.
RELIEF SOUGHT
1. That, the instant appeal succeeds with costs.
2. That, the order of the court a quo, in case number HC5952/22, be and is hereby set aside and substituted with the following:
“It is hereby ordered that:
1. The application be and hereby (sic) succeeds with costs.
2. The additional VAT assessments issued on the applicant for the tax period March 2019 to October 2021 be and are hereby declared invalid.
3. The additional income tax assessment issued on the applicant for the tax year ended 2020 be and is hereby declared invalid.”
SUBMISSIONS BEFORE THIS COURT
At the hearing of the appeal, counsel for the appellant submitted, that, the six issues mentioned in ground of appeal number one were raised by the appellant and addressed by the respondent before the court a quo; yet, the judgment a quo was silent on the issues listed in the appellant's first ground of appeal.
He further submitted, that, the issues were dispositive of the disputes between the parties.
In that regard, counsel submitted that the decision of the court a quo ought to be set aside on account of the fact that a party is entitled to reasons for a court's decision on all issues raised and argued before it.
Counsel further argued, that, the assessment was invalid as it, in its notice of assessment, referred to an amount it referred to as 'gross tax' which term is foreign to tax legislation.
Counsel relied on the case of Nestle v Zimbabwe Revenue Authority SC148-21 to argue, that, an assessment must only contain information provided for in the Income Tax Act for the reason that an assessment is a statutory document.
He further submitted, that, the court a quo disposed of the matter on the premise that the term did not prejudice the appellant, yet, it did, considering that the appellant was unfamiliar with the term.
Counsel also submitted, that, the assessment by the respondent was intended to be an amendment of its self-assessment, therefore, using an alien term baffles the appellant on what exactly was amended.
Counsel submitted, that, since there was no original foreign currency assessment, the respondent lacked the basis on which to issue an additional assessment.
He further submitted, that, the apportionment formula was irrational and inconsistent with the provisions of the Income Tax Act and Value Added Tax Act.
Counsel further stated, that, in accordance with the case of Breastplate Service (Pvt) Ltd v Cambria Africa PLC SC66-20, once a currency is recognized as the sole legal tender, one cannot refuse it.
He argued that the Zimbabwean dollar is the only currency acknowledged in Zimbabwe.
Per contra, counsel for the respondent submitted, that, the actual material issues dispositive of the matter were all addressed in the judgment a quo and that the issues mentioned in the appellants ground of appeal number one are not dispositive of the issues between the parties.
He further argued, that, the case of Inamo Investments (Pvt) Ltd v Zimbabwe Revenue Authority SC96-23 established that even when the local currency is legal tender, revenue earned in foreign currency shall be remitted in foreign currency.
He submitted, that, section 47 of the Income Tax Act and section 31 of the Value Added Tax Act permit the Commissioner of the respondent to make additional assessments.
Counsel submitted, that, the rationale of the court a quo was not on the notion of prejudice but it found, that, in spite of the term 'gross tax' the assessment met all the obligatory requirements to render it valid.
Counsel submitted, that, the term was explained in its heads of argument and before the court a quo.
He further submitted, that, an assessment should consist of the taxable income to which a tax rate is applied, before arriving at a taxable figure.
Counsel submitted that the appellant cannot seek a relief different from that prayed for in its relief sought.
THE ISSUES
The appeal raises the following issues for determination by this Court:
1. Whether or not the court a quo erred in not determining all issues raised by the appellant.
2. Whether or not the use of the phrase “gross tax” in the notice of assessment renders it invalid.
3. Whether or not the court a quo erred at law and misdirected itself in finding that the jurisdictional facts entitling the respondent to issue additional assessments were present.
4. Whether or not the court a quo erred in holding that tax for revenue earned in foreign currency and value added tax (VAT) paid in foreign currency, and additional tax incurred for not paying tax in foreign currency should be paid in foreign currency.
APPLICATION OF THE LAW TO THE FACTS
Whether or not the court a quo erred in holding that revenue earned in foreign currency and additional tax incurred for not paying tax in foreign currency is supposed to be remitted in foreign currency
The appellant's application a quo was for a declaratur in which the appellant sought an order allowing it to pay taxes due in the local currency, yet, it received income in both local currency and foreign currency.
The court a quo found, that, income earned in foreign currency is supposed to be taxed in foreign currency.
An analysis of the court a quo's judgment establishes, that, it applied its mind to the provisions of tax statutes governing the payment of taxes; the provisions of section 4 of the 2019 Exchange Regulations; section 41 of the Reserve Bank of Zimbabwe Act [Chapter 22:15] (hereinafter referred to as the RBZ Act); and section 38(4) and (9) of the Value Added Tax Act.
Section 4 of SI212 of 2019 (Exchange Regulations) provides as follows:
“4(e) The following transactions are not within the scope of the definition of domestic transactions in subs (1) for the purposes of these regulations; transactions in respect of which any other law expressly mandates or allow for payment to be made in any or a specified foreign currency.”
Section 41 of the Reserve Bank of Zimbabwe Act provides as follows:
“41. Legal tender of banknotes
(1) A tender of a banknote which has been issued by the Bank and which has not been demonetized in terms of subs (2) shall be legal tender in payment, within Zimbabwe, of the amount expressed in the note.
(2) The President may, by statutory instrument, call in and demonetise any banknotes issued by the Bank, and shall likewise determine the manner in which and the period within which payment for such banknotes shall be made to the holders thereof.”
Section 38 of the Value Added Tax Act states as follows:
“38. Manner in which tax shall be paid
(1)…,.
(2)…,.
(3)…,.
(4) Notwithstanding section 41 of the Reserve Bank of Zimbabwe Act [Chapter 22:15] and the Exchange Control Act [Chapter 22:05], where a registered operator —
(a) Receives payment of any amount of tax in foreign currency in respect of the supply of goods or services, that operator shall pay that amount to the Commissioner in foreign currency;
(b) Imports, or is deemed, in terms of s12(1), to have imported goods into Zimbabwe, that operator shall pay any tax thereon to the Commissioner in foreign currency.
In this subsection 'foreign currency' means the Euro, British pound, United States dollar, South African rand, Botswana pula or any other currency denominated under the Exchange Control (General) Order 1996, published in Statutory Instrument 110 of 1996, or any other enactment that may be substituted for the same.
(5)…,.
(6)…,.
(7)…,.
(8)…,.
(9) For the avoidance of doubt, it is declared that all the provisions of this Act shall apply, with such changes as may be necessary, to the payment in foreign currency of tax in terms of subs (4) in the same way as they apply to the payment of tax in Zimbabwean currency.”
Section 41 of the Reserve Bank of Zimbabwe Act should not be read in isolation.
Thus, a reading of section 4 of the Exchange Control Regulations, S.I.212 of 2019 expressly provides for a list of transactions which are exempted from the meaning of domestic transactions.
Although the appellant is involved in domestic transactions, it receives income in both foreign currency and local currency. As a result, it is supposed to pay tax in both currencies since a foreign currency amount cannot be taxed in local currency.
Therefore, the court a quo correctly held that “any other law” which expressly mandates or allows “for payment to be made in any or a specified foreign currency” (as provided under section 4 of the Exchange Control Regulations, SI212 of 2019) refers to section 4A of the Finance Act and section 38(4) and (9) of the Value Added Tax Act.
Thus, a reading of the above mentioned statutes proves, that, if a taxpayer earns income in foreign currency, he or she is supposed to pay tax in foreign currency; and, if he or she earns income in local currency it follows that tax is paid in local currency; and, if he or she earns income in both local and foreign currency then he/she or it has an obligation to pay tax in both currencies.
It is absurd to hold that the legislature intended that income earned in foreign currency should be taxed in local currency contrary to the provisions of the statutes referred to above.
Clearly, if that was the intention of the legislature, the whole purpose of raising revenue would be defeated as tax-payers would have the liberty to convert the foreign currency earned into domestic or local currency for purposes of paying tax in local currency.
In the case of Prosperous Days Investment v ZIMRA HH24-21, it was held that where any output value added tax is received in foreign currency, it should be paid in foreign currency.
The court is satisfied that this is the correct position of the law.
In the case of Inamo Investments (Private) Limited v Zimbabwe Revenue Authority SC96-23..., this Court, in determining a similar taxation issue under section 38(4) and (9) of the Value Added Tax Act said:
“[46] The law does not allow for any conversion of tax from a local-denominated currency to a foreign-denominated currency and neither does it allow input tax denominated in local currency to set-off output tax denominated in foreign currency. Tax in local currency cannot be converted to become tax in foreign currency.
This is why the respondent has a separate system under which goods and services offered under local currency and foreign currency are charged.
That this is the position is reinforced by the provisions of section 15(2) of the Act which require a registered operator, in submitting a Value Added Tax Return, to attach a tax invoice or debit note or credit note relating to the particular supply. In this regard, where the registered operator has been invoiced in local currency, how then does the amount in the invoice mutate to a foreign currency one.
It is apparent that this interpretation would defeat the whole purpose of the strict requirement of this subsection. There being no legal basis upon which the appellant could claim such a right to convert local currency to foreign currency, it had no legal right to protect.
[47] The appellant takes the view, that, the respondent's interpretation of the law, through the Public Notice Number 4 of 2020, is harsh and unfair.
However, with taxation matters, where the law is clear, as in this case, the ordinary meaning of the language of the statute must be given effect. The provisions of the Act are clear.
The sentiments by GUBBAY CJ in Commissioner of Taxes v CW (Pvt) Ltd 1989 (3) ZLR 361 (S) at 372D-E apply with great force to the present matter. In that matter, the CJ held as follows:
'Generally speaking, where taxation is concerned, it has to be acknowledged that justice and equity have little significance. If the language of the statute is plain, the court must give effect to it, even if the result to the taxpayer is harsh and unfair.'
[48] In this regard, the appellant cannot claim a right that has not been accorded to it by law. The court a quo thus correctly found that the appellant had no cause of action before it.”
