UCHENA
JA: 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 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 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 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 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 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 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 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 firstly in respect of the additional
income tax assessments for the tax years ended 2019 and 2020 and
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 VAT Act both referred to section 41 of the 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) predated section
44C of the RBZ Act which made the RTGS$ the sole legal tender in
Zimbabwe.
It
also argued that when Statutory Instrument 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 VAT 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 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 VAT evaluation complied with section 31(5)
of the VAT 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 RBZ Act does not expressly stipulate
otherwise.
The
court further held that Statutory Instrument 142 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 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 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 VAT 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 VAT 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 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 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 VAT 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 VAT 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 VAT 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, Mr
Tshuma
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 SC 66/20,
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,
Mr Bhebhe
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
SC
96/23
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
VAT 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
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 not dealing with all the issues raised by the appellant
In
the case of Afaras
Mtausi Gwaradzimba v C. J. Petron & Company (Pty) Limited
2016 (1) ZLR 28 (S) at 31G to 32E this Court commenting on the need
to give reasons in respect of issues raised and argued before a court
said:
“[21] In
general, I agree with the respondent's
submission
that, in a case where a number of issues are raised, it is not always
incumbent upon the court to deal with each and every issue raised in
argument by the parties. It is also correct that a court may well
take the view that, in view of its finding on a particular issue, it
may not be necessary to deal with the remaining issues raised.
However this is subject to the rider that the issue that is
determined in these circumstances must be one capable of finally
disposing of the matter.
[22] In
the present case, the substantive issue that was determined by the
court a
quo
did
not dispose of the matter. The question still remained whether the
application was, in the first instance, properly before the court.
This was not an issue that the court a
quo
could
ignore or wish away. The court was obliged to consider it and decide
whether the matter was properly before it. It was, in short,
improper for the court to, proceed to determine the substantive
factual and legal issues without first determining the propriety or
otherwise of the application itself. If the court, as it appears to
have done, tacitly accepted that the matter was properly before it,
then reasons for such tacit acceptance should have been given.
[23] The
position is well settled that a court must not make a determination
on only one of the issues raised by the parties and say nothing about
other equally important issues raised 'unless the issue so
determined can put the whole matter to rest' – Longman
Zimbabwe (Pvt) Limited v Midzi & Others
2008 (1) ZLR 198, 203 (S).
[24] The
position is also settled that where there is a dispute on some
question of law or fact, there must be a judicial decision or
determination on the issue in dispute. Indeed the failure to resolve
the dispute or give reasons for a determination is a misdirection,
one that vitiates the order given at the end of the trial – Charles
Kazingizi v Revesai Dzinoruma
HH 106/2006; Muchapondwa
v Madake & Others
2006 (1) ZLR 196 D-G, 201 A (H); GMB
v Muchero
2008
(1) ZLR 216, 221 C-D (S).
[25] Although
it is apparent in this case that the judge in the court a
quo
may
have considered the question whether the matter was properly before
him when he considered the merits, a large portion of those
considerations remained stored in his mind instead of being committed
to paper. In the circumstances, this amounts to an omission to
consider and give reasons,
which is a gross irregularity – S
v Makawa & Another 1991
(1) ZLR 142.
[26] Consequently
the failure by the court a
quo
to
specifically determine the question whether or not the application
was properly before it, its tacit acceptance that this was the
position and the consequent failure on its part to give reasons why
it had proceeded to deal with the substantive issues in the light of
the preliminary point taken, vitiated the proceedings.” (Emphasis
added)
At
the hearing of this appeal, the appellant raised a preliminary point
to the effect that the court a
quo
erred by not determining the six issues stated in its first ground of
appeal. Mr
Tshuma
for the appellant submitted that these issues were dispositive of the
dispute between the parties.
A
reading of the court a
quo's
judgment establishes that although the appellant raised several
issues, the court severely summarized, truncated and distilled them
and made a determination on which of them were relevant and had to be
fully ventilated in its judgment.
On
p 2, para 3 of its judgment the court a
quo
clearly stated as follows:
“The
matter before the court is largely one of the law, more precisely,
the interpretation of the relevant provisions of tax statutes the
facts being largely common cause and
useful only as background material.” (Emphasis added)
On
p 3 of the same judgment the court went on to state thus:
“…the
case before the court crystallized into five areas as laid out below.
I
proceed to deal with each one of them in turn summarizing the
arguments for and against and immediately afterwards pronouncing my
decision on each.” (Emphasis added)
On
p 3 para [7] the court
a
quo
said:
“The
applicant objected to the respondent's re-assessments on multiple
grounds. The case was argued on several fronts. Severely truncated,
the case before the court crystalised into five areas as laid out
below.
I proceed to deal with each of them in turn, summarising the
arguments for and against and immediately afterwards pronouncing my
decision on each.” (Emphasis added)
On
p 5 para [15] the court a
quo
said:
“In
the main the applicant's grounds of objection, severely
truncated,
was that the respondent's refusal to accept the payment of all the
applicant's taxes in the local currency is unlawful because the new
Zimbabwe currency has by statute been made the sole legal tender.”
(Emphasis added)
At
para [36] the court a
quo
said:
“The
next objection by the applicant, again
much distilled, was
that the respondent's insistence that the applicant could not
deduct the input tax paid by it in local currency from the output tax
received by it in foreign currency in effect violated the applicant's
right to deduct input tax from output tax as enshrined in section
15(3) of the VAT Act.”--- (emphasis added)
The
court a
quo's
findings
as quoted above indicate that it considered all of the appellant's
issues and summarised, crystalised, truncated and distilled them into
what was relevant and irrelevant after which it zeroed in on 5 issues
which it decided to fully ventilate.
These
issues were in its view capable of determining the appellant's
rights as regards the payment of taxes in Zimbabwean dollars for
taxable income and VAT returns which had been paid to it in foreign
currency. It was satisfied that the interpretation of the tax
statutes was dispositive of the case before it.
The
appellant had approached the court a
quo
for a declaratory order that it was entitled to pay income tax and
VAT in local currency despite it having received the same in foreign
currency. Therefore, the court made a determination which was
dispositive of the real issues between the parties.
It
cannot be said that the court did not make a determination on the six
issues when it clearly considered them and reasoned that they were
not relevant in the determination of the real issue before it.
In
coming up with the five issues on which it determined the case the
court a
quo
was
aware that the applicant had objected to the respondent's
re-assessments on multiple grounds and that the case had been argued
on many fronts. It then through severe summarization, truncating,
crystallisation and distillation decided on what was relevant and
irrelevant.
That
in our view is a consideration and determination of the issues the
appellant alleges were not considered and given reasons on.
The
adverse determination on the relevancy of those issues is a
determination.
The
explanation that it severely summarised the appellant's grounds of
objection and truncated and distilled the submissions made before it
on many fronts is a giving of reasons why it settled for the five
issues after discarding what it considered were irrelevant issues.
In other words, the court found that some of the issues raised by the
appellant which it left out were irrelevant.
A
brief and concise explanation of why a court arrives at a decision is
proof of it having considered and determined the issues. There is
therefore, no merit in the preliminary issue raised by the appellant.
Whether
or not the use of the phrase “gross tax” in the notice of
assessment renders it invalid
In
respect of ground of appeal number 2, the appellant submitted that
the assessment issued by the respondent was invalid for the reason
that it referred to an amount in the notice as “gross tax” which
term is alien to tax legislation.
In
response,
the
respondent averred that the assessment is valid since the assessments
complied with the provisions of section 2 of the Income Tax Act as
read with section 31(5) of the VAT Act.
The
court a
quo
held that, if the assessment complied with the requirements of
section 2 as read with section 51(2) of the ITA as well as section
31(5) of the VAT Act, then it cannot be set aside merely because it
contained some term of description which may not have been provided
for in those Acts.
In
its determination of this issue the court
a
quo
said:
“[14]
The respondent explains that 'gross
tax'
was
an administrative reference to a provisional amount arrived at in the
computation process from which statutory deductions would eventually
be made. This makes sense. The term
'gross
tax'
as
used by the respondent
in its assessments was simply a reference to some provisional figure
obtained during the computation process, which would still be
subjected to further consideration. The applicant has shown no
prejudice as might have been suffered by it, or any violation of its
rights as might have been occasioned by the respondent's use of the
term 'gross tax'. This objection is
fanciful.
It is hereby dismissed.”
A
valid assessment must comply with the provisions of section 2 of the
ITA. Section 2 of the ITA reads as follows:
“'Assessment'
means -
(a)
The determination of taxable income and of the credits to which a
person is entitled in terms of the charging Act; or
(b)
The determination of an assessed loss ranking for deduction; and
includes a self-assessment in terms of section thirty-seven…”
The
primary issue is on the interpretation of the above provisions in
relation to what a valid assessment is.
In
my view, the interpretation of the above provision entails that an
assessment is a process of determining the amount of tax which is
chargeable including taxable income and the credits to which the
taxpayer is entitled to.
In
the case of Barclays
Bank of Zimbabwe Limited v ZIMRA 2004
(2) ZLR 151 (H) at 151C-E, the court stated as follows:
“It
is clear from the definition section that an assessment should
determine and contain -
(i)
income; and
(ii)
credits to which a person is entitled.
This
is not disputed by the respondent. In para 6 of its Heads of Argument
the respondent clearly laid out the requirements of an assessment. In
addition, in terms of section 51 of the Act, a notice of assessment
should be issued whenever an assessment is carried out. Among other
things section 51 of the Act stipulates the following:
(i)
Section 51(2) – a notice of assessment and of the amount of tax
payable shall be given to the tax payer.
(ii)
Section 51(3) – the commissioner shall give the taxpayer notice
that any objection to the assessment shall be sent to the
commissioner within 30 days after the date of such notice.
On
close scrutiny of annexure A, it is apparent that it states the
taxable income and credits to which the applicant is entitled.
Annexure A contains the sums due to the respondent in the form of
taxes, penalties and interest.”
And
concluded at 152D that:
“In
view of the foregoing I find that Annexure A falls within the ambit
of being an assessment or notice of assessment as envisaged by the
Act.”
The
aforementioned authority explains what a valid assessment contains.
If
a notice of assessment complies with the requirements set out above,
it is valid.
In
the present case, the Notices of Assessment contained the following:
(i)
The appellant's taxable income;
(ii)
The credits to which the appellant is entitled to;
(iii)
Tax payable by the appellant;
(iv)
A notice that any objection to the assessment must be lodged within
30 days.
It
is therefore apparent that the validity of a notice of assessment
does not depend on the minute details of the internal wording of the
notice.
A
correct description of a notice and the inclusion in the notice of
the key requirements of a notice specified in sections 2 and 51(2) of
the ITA validates the notice.
Sections
2, 51(2) of ITA and section 31(5) of VAT Act do not concern
themselves with the details which can be found in a notice other than
the specified aspects.
It
is therefore, my considered view that the inclusion of the words
“gross tax” inside the notices does not invalidate the notices of
assessment since all the requirements of a valid assessment have been
met.
As
a result, the appellant's argument that the notices of assessment
are invalid because the respondent used the term “gross tax” in
computing details in the notices is not correct.
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
In
determining this issue the court a
quo
held as follows:
“[32]
Plainly, and as per the applicant's own explanation, the
'jurisdictional facts' existed before the respondent issued the
amended assessments. With regards to income tax, and in terms of
section 47 of the Income Tax Act, what triggers the additional
assessments, is the consideration by the respondent's Commissioner
that an amount of taxable income which should have been charged to
tax was not charged to tax, or that an amount which should have been
taken into account in the determination of an assessed loss was not,
or that an amount was incorrectly allowed as a deduction. If the
Commissioner comes to such conclusion, the respondent is obliged to
adjust the assessment.
[33]
The respondent has explained that what prompted scrutiny of the
applicant's self-assessments, for 2019 and 2020 was the computation
of all taxes in the local currency when, as a matter of fact, part of
its income for the tax years in question had been received in foreign
currency. Furthermore,
for the year 2020, the applicant had improperly made some deductions
to the taxable income. The respondent pointed them out to the
applicant. The applicant reacted by correcting its assessments. But
these are enough 'jurisdictional facts.'
[34]
Regarding VAT, section 31(3) of the VAT Act, in paraphrase,
provides in part that where the Commissioner is not satisfied with
any return or declaration furnished by a taxpayer, or where he [or
she] has reason to believe that any person has become liable for the
payment of any amount of tax but has not paid it, the Commissioner
may make an assessment of the amount of tax payable by that person
who shall have to pay it. Furthermore,
in terms of section 28(1) of the Act, every registered operator is
required to submit returns in the prescribed form, reflecting such
information as may be required for the purpose of the calculation of
tax
[35]
The respondent has explained that the applicant did not submit the
VAT returns in the prescribed form. The prescribed form has Part I to
IV for the calculation of VAT in the local currency, and Part V for
the calculation of VAT in foreign currency. The applicant did not
complete Part V. Thus the necessary information required for the
calculation of VAT in foreign currency was missing. None of all this
has been refuted by the applicant. Yet these are the relevant
'jurisdictional facts' necessary to trigger the amended
assessments by the respondent. The applicant's objection under this
head equally has no merit.”
We
agree with the court a
quo
that jurisdictional facts were present which justified the
respondent's issuance of notices of assessments. As correctly
pointed out by the court a
quo
the
appellant admitted the following jurisdictional facts:
1.
That it received payments in foreign currency hence it is seeking a
declaratur
that it was in spite of having been paid in foreign currency entitled
by law to pay income tax and VAT for such payments in local currency.
2.
That it was paid value added taxes by its customers in foreign
currency which the law requires it to collect and pay it to the
respondent but it with held the foreign currency taxes and sought to
substitute them with local currency payments to the respondent.
3.
That it had not completed part (V) of the VAT tax return which it was
legally required to complete.
4.
That it had by resubmitting corrected self- assessment returns
admitted that it had not correctly completed its self-assessment
forms.
The
court
a
quo's
findings are correct. The appellant's appeal under this ground has
no merit.
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 SI 212 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 RBZ 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 VAT 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 RBZ Act should not be read in isolation.
Thus,
a reading of section 4 of the Exchange Control Regulations 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) refers to section 4A of the Finance Act and section
38(4) and (9) of the VAT Act.
Thus
a reading of the above mentioned statutes proves that if a tax payer
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
at paras 46 to 48 this Court in determining a similar taxation issue
under section 38(4) and (9) of
the VAT 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 s15(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.”
The
appellant further contended that the respondent was not obliged to
levy penalties in foreign currency. It is the court's considered
view that in the ordinary sense, a penalty is not income earned,
received or accrued.
In
R
v Barger
[1908] HCA 43, a penalty was defined as follows:
“a
penalty is… an unlawful act or omission from a contribution to
revenue irrespective of any legality or illegality in the
circumstances upon which the liability depends.”
On
the issue of paying penalties in foreign currency the court a
quo
held as follows:
“[44]
In my judgment, the answer lies in s4A of the Finance Act aforesaid.
It provides for the payment of certain taxes in foreign currency. In
a nutshell, a company, trust or other juristic person is obliged to
pay tax in the currency in which the income is earned, received or
accrued. Of course, a penalty levied by the respondent on a taxpayer
on failure to pay a tax is not, in ordinary parlance, an income
'earned, received or accrued'. But in terms of the tax
legislation, a penalty is a tax. Section 46 of the Income Tax Act
provides for additional tax in the event of a default or omission by
a taxpayer in an amount equal to the tax chargeable. In terms of ss
(1)(a)(i) additional tax is payable if the taxpayer makes default in
rendering a return. In terms of ss (1)(b) it is payable in the event
of an omission from a return of any amount which ought to have been
included. In respect paras (c), (d), (e) and (f) it is payable in
respect of any incorrect statement on a return, any failure to
disclose required information on a return, the making of a statement
resulting in the granting of greater credit than would be warranted
and the failure to disclose prescribed particulars, respectively.
[45]
Significantly, the Income Tax Act uses the term 'additional tax'
and not 'penalty'. Section 2 defines 'tax' as any tax or levy
leviable under the Act. Admittedly, s39 of the VAT Act provides that
a person who is liable for the payment of tax but fails to do so as
prescribed, he (or she or it) shall be liable, in addition to such
amount of tax, to pay a penalty of an amount equal to the said amount
of tax. Furthermore, counsel for the applicant has drawn attention to
the dicta
in
Commissioner
for Inland Revenue v McNeil
1959
(1) SA 481 (A), in relation to the word 'penalty' in a tax
legislation. The dicta
was
this:
'But
when its true nature is examined it becomes difficult to regard it as
a form of tax on income. It is not a part of the taxpayer's 'receipts
or accruals' taken by the State in order to meet the expenses of
government. It is 'in essence a penalty' … …; it is there to
ensure, if possible, that returns shall be honest and accurate.'
[46]
However, none of what the applicant says changes the character of the
levy or penalty from being anything but a tax. It is manifestly the
intention of the legislature that penalties or additional taxes
levied on tax payable in foreign currency are also payable in foreign
currency. Section 4A(7) of the Finance Act, in paraphrase, declares
that for the avoidance of doubt the provisions of the Taxes Act shall
apply, with such necessary changes as may be necessary, to the
payment in foreign currency of the taxes in the same way as they
apply to the payment of such taxes in Zimbabwean currency.
[47]
The South African case of McNeil
above
is not relevant because, firstly, the language of the tax legislation
that the court was considering in that case was subtly different from
the language of the tax legislation presently under consideration. In
regards to the additional tax payable for a default, the legislation
in that case simply referred to '… an amount equal to…,'
whereas our legislation specifically refers to '… an amount of
tax
equal
to …'
Undoubtedly,
this is to stress the fact that the additional tax is a tax.
Secondly,
counsel is guilty of selective quoting. The court in that judgment
started from the premise of accepting that additional tax is a tax,
albeit of an unusual kind.
Thirdly,
the focus of the court in that case was completely different from the
focus in the present case. The focus in the present case is whether
penalties on default of a tax chargeable in foreign currency are also
chargeable in foreign currency or local currency. In that case the
focus was the examination of whether or not a penalty is a tax.
Our
legislature deems a penalty on an outstanding tax as a tax,
admittedly, of an unusual kind.[48] All the objections by the
applicant to the additional assessments by the respondent in respect
of the tax years in question lack merit. The application is hereby
dismissed with costs.”
We
agree with the court a
quo's
observations.
In
terms of section 46(1)(a)(i) of the ITA a penalty is referred to as
“an amount of tax”. In terms of section 46(1a) of the ITA a
penalty is referred to as “additional tax”.
Our
law therefore differs from South African law whose legislation is
different from ours. Therefore, the case of
DFC
of T v Fontana
88 ATC 4751 is not relevant in the determination of this case.
From
the definitions of a penalty in terms of section 46, it cannot be
denied that a penalty is a tax.
In
this case, the respondent imposed additional tax (a penalty) on the
appellant after it had breached the duty to pay tax payable in
foreign currency.
The
court is satisfied that a penalty for any outstanding foreign
currency tax is payable in foreign currency and it also follows that
a penalty on any outstanding local currency tax is payable in local
currency.
Therefore,
the court a
quo's
decision
is correct. There is no irregularity or irrationality in the court a
quo's
determination of the application placed before it by the appellant.
DISPOSITION
The
appellant's grounds of appeal have no merit. Costs shall as is the
norm follow the result. It be and is hereby ordered that:
“The
appeal be and is hereby dismissed with costs.”
GWAUNZA
DCJ:
I agree
KUDYA
JA:
I agree
Gill,
Godlonton & Gerrans,
appellant's
legal practitioners
Zimbabwe
Revenue Authority, respondent's legal practitioners
