Opposed
Application
MAFUSIRE
J:
[1] The
applicant seeks a declaration of invalidity in respect of additional
income tax assessments for the tax years ended 2019 and 2020. It also
seeks another declaration of invalidity of the additional value added
tax [VAT] assessments issued against it by the respondent for the
period March 2019 to October 2021. It claims costs of suit on an
attorney and client scale against the respondent.
[2] The
applicant is an integrated manufacturer, seller and distributor of a
wide range of products, including alcoholic and non-alcoholic
beverages. It is a registered taxpayer. It earns revenue in both
local and foreign currency, principally United States dollars [USD].
Likewise, its expenditure is incurred in both local and foreign
currency. The respondent is a central collector of revenue for
Government through the various pieces of the tax legislation,
principally the Income Tax Act [Chapter
23:06]
and the Value Added Tax Act [Chapter
23:12]
(”the VAT Act”). The system of taxation involves the compilation
by the taxpayers of self-assessments of their tax liabilities and the
submission of tax returns to the respondent in respect of any year of
assessment. The respondent can adjust these assessments for any
anomalies it may pick during its own audit processes.
[3] The
matter before the court is largely one of law, more precisely, the
interpretation of the relevant provisions of the tax statutes, the
facts being largely common cause and useful only as background
material. These facts are as follows. Following a tax audit on the
applicant's tax affairs for the period 1 January 2019 to 31 October
2021, the respondent concluded that the applicant had improperly
computed its income tax in the sense that despite having received
foreign currency for some of its sales in the relevant period, it had
neglected or omitted to remit its income tax in respect thereon in
foreign currency, but had purported to pay it all off in the local
currency. The respondent further concluded that the applicant had
improperly deducted certain expenses from its taxable income.
[4] Perceiving
the applicant's conduct to be a violation of the tax statutes, the
respondent disallowed the expenses which it considered to have been
improperly deducted. Further, it proceeded to re-compute the
applicant's tax liability and issued it with amended tax returns,
apportioning the tax payable by the applicant in the proportion of
the ratio of its turnover in foreign currency to local currency. In
effect, it required the applicant to pay its taxes in foreign
currency in respect of the applicant's revenue received in foreign
currency, and in local currency in respect of the revenue received in
local currency.
[5] The
respondent conducted a similar audit and a re-assessment of the
applicant's VAT obligation. It concluded that the applicant had
paid its foreign currency component of the VAT all in the local
currency, contrary to law. Furthermore, the respondent considered
that the applicant had not properly completed the VAT returns in that
it had left out a whole section altogether. This is the section that
separates the foreign currency input and output taxes from the local
currency input and output taxes. Generally, and in very simple terms,
output tax is the tax charged and received by a registered operator
for subsequent transmission to the respondent. Input tax is the tax
that the operator pays on imports. Input tax is deducted from the
output tax and the balance is what is remitted to the respondent.
[6] In
its amended notices of assessment, the respondent required that the
foreign currency input and output taxes be separated from the local
currency input and output taxes so that there would be no
cross-currency deductions. In other words, the respondent required
that only foreign currency input tax be deductible from the foreign
currency output tax and similarly, that only local currency input tax
be deductible from the local currency output tax. According to it,
that is the correct interpretation of the relevant tax provisions.
[7] 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 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.
(i) Assessments
invalid
[8] As
a preliminary point, the applicant argues that the amended
assessments by the respondent are invalid in that they refer to
'gross tax' when such term or concept is alien to the tax
statutes. It further argues that the amended assessments by the
respondent did not compute the applicant's taxable income and that
as such, they are invalid for want of compliance with the
requirements of a valid tax assessment as previously pronounced upon
by the courts.
[9] The
respondent's counter argument is that 'gross tax' is an
administrative term used by it in the computation of the tax payable
to denote an amount of the taxable income that will still be subject
to some further consideration before finally arriving at the net tax
amount due by a taxpayer. The respondent argues further that the use
of this term is harmless and that the amended tax returns computed by
it had all the requirements of an assessment as prescribed by law. It
maintains that it did properly compute the applicant's correct
taxable income for the years in question and that nothing done by it
violated the law.
[10] My
judgment is this. The term 'assessment' in section 2 of the
Income Tax Act at the relevant time before the amendment in 2022
was defined to mean the determination of taxable income and of the
credits to which a person is entitled, or the determination of an
assessed loss ranking for deduction. A self-assessment was included
in the definition.
[11] Section
51(2) of the Income Tax Act provides that a notice of assessment and
of the amount of tax payable, where it is payable, shall be given to
the taxpayer. Part of the ratio
decidendi
of cases such as Barclays
Bank of Zimbabwe Ltd v ZRA
2004 (2) ZLR 151 (H) and Nestle
Zimbabwe (Pvt) Ltd v ZRA
SC148-21 which the applicant strongly relies on, was that an
assessment issued to a taxpayer must comply with the requirements of
section 2 and section 51(2) of the Act. Such an assessment must
always show the taxable income or credits to which the taxpayer is
entitled. It must show any assessed loss ranking for deductions. It
must give the taxpayer a notice that any objection to the assessment
shall be lodged with the Commissioner of the respondent within the
prescribed 30-day time frame. A document which does not comply with
these requirements is not an assessment.
[12] In
regards to VAT in terms of the VAT Act, where it makes an assessment
in terms of section 31, the respondent is obliged to give the person
liable for the tax a written notice of such assessment stating the
amount upon which tax is payable, the amount of tax payable, the
amount of any additional tax payable, if any, and the tax period.
These are the specific requirements of section 31(5) of that Act. The
wording is plain.
[13] The
applicant's challenge that the respondent's amended assessments
are invalid hinges on the allegation that by making reference to an
alien concept called 'gross tax' the respondent computed an
amount of tax alien to law and thereby lost sight of the fact that
what it was obliged by statute to compute was the taxable income of
the applicant. The argument is that those assessments do not show the
applicant's taxable income. However, this argument cannot succeed.
If an assessment for income tax contains the requirements of section
2 as it was then worded, as read with section 51(2) of the Income Tax
Act, and for VAT the requirement of section 31(5) of the VAT Act,
then they cannot be set aside merely because they contained some term
of description which may not be provided for in those Acts. As long
as those assessments contained the minimum requirements of the Acts,
they cannot be held invalid merely because of the use of the term
'gross tax'.
[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.
(ii) Respondent
obliged to accept all taxes in RTGS as the sole legal tender
[15] In
the main, the applicant's ground 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.
As such, the discharge of tax obligations using the medium of
exchange which is the sole legal tender should be regarded as good
payment. The respondent is obliged to accept. The respondent has
completely misconstrued the non-obstante
clauses of section 4A of the Finance Act [Chapter
23:04]
and section 38(4) of the Income Tax Act to improperly require that
tax on foreign currency receipts be paid in foreign currency. Should
it be found that there exists a conflict between section 4A of the
Finance Act, as read with section 38(4) of the Income Tax Act and the
subsequent Finance [No.2] Act of 2019 which introduced the new
Zimbabwean currency and made it the sole legal tender, then the
latter legislation must take precedence and prevail over the older
provisions, an approach allegedly in line with the rules of statutory
interpretation.
[16] The
respondent's counter argument is that the applicant has manifestly
misunderstood and misconceived the relevant provisions of the law
because the payment of taxes in foreign currency on income received
in foreign currency is one of the exceptions to the concept of sole
legal tender introduced by section 23 of the Finance [No.2] Act of
2019. It argues that the legislation, properly construed, requires
that tax on receipts in foreign currency be paid in foreign currency.
[17] For
this particular point, the relevant provisions of the legislation and
the parties intrinsic arguments are these. By section 44C of the
Reserve Bank of Zimbabwe Act [Chapter
22:15],
an amendment introduced in 2019,
the Reserve Bank of Zimbabwe (“the RBZ”) was empowered to issue
an electronic currency in Zimbabwe, but only after the Minister [of
Finance] had, through a statutory instrument, given such electronic
currency a name. As a matter of historical fact, the Minister, by SI
33 of 2019,
gave the electronic currency a name. He called it the Real Time Gross
Settlement dollar, or RTGS. It would be legal tender in Zimbabwe at
par with the USD at a rate of one-to-one. Its effective date was 22
February 2019. From 24 June 2019 that new currency was made the sole
legal tender in Zimbabwe. By section 23(1) of the Finance (No.2) Act,
No.7 of 2019, itself an amendment introduced via SI 142 of 2009
the use of foreign currencies, including the USD, was outlawed as
legal tender in Zimbabwe. The RTGS was made the sole legal tender.
[18] By
section 41 of the RBZ Act, the old banknotes and coins which have not
been demonetized are legal tender in Zimbabwe. Historically, these
banknotes and coins had been introduced by the RBZ in 2016, through
SI 133 of 2016,
signalling the return of the local currency after it had been
demonetized in 2015, through SI 70 of 2015,
to usher in a multi-currency dispensation. The applicant says it is
aware of the provisions of section 4A(1)(c) of the Finance Act,
particularly the non-obstante
provision in relation to section 41 of the RBZ Act. This provision
reads:
“Notwithstanding
section 41 of the Reserve Bank of Zimbabwe Act [Chapter
22:15]
and the Exchange Control Act [Chapter
22:05]
—
(a)……
(b)……
(c)
a company, trust, pension fund or other juristic person whose taxable
income is earned, received or accrued in whole or in part in a
foreign currency shall pay tax in the same or another specified
foreign currency on so much of that income as is earned, received or
accrued in that currency;”
[19] The
applicant further says that it is also aware of the provisions of
section 38(4) of the VAT Act which also have a non-obstante
clause, also in relation to section 41 of the RBZ Act before an
amendment in 2022
to extend that non-obstante
clause to include section 44C of the RBZ Act. At the relevant time,
section 38(4) read as follows:
“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…… to have imported goods into Zimbabwe, that
operator shall pay any tax thereon to the Commissioner in foreign
currency.”
[20] Both
parties agree that a non-obstante
clause in a statutory provision overrides the other provisions it
refers to. The point of departure between them is that, according to
the applicant, the non-obstante
clauses of section 4A(1)(c) of the Finance Act and section 38(4) of
the VAT Act, before the amendment, both refer to section 41 of the
RBZ Act, and exclude section 44C of that Act. The applicant's
intrinsic argument in this regard is that the overriding effect of
these non-obstante
clauses should be restricted to the old bondnotes and coins to which
section 41 of the RBZ Act refers, and should never be extended to the
new RTGS currency to which section 44C of that Act refers. The
applicant adds that both section 4A(1)(c) of the Finance Act and
section 38(4) of the VAT Act predate section 44C of the RBZ Act which
made the new RTGS currency the sole legal tender in Zimbabwe and
which must now be accepted if offered in payment.
[21] The
respondent's core argument on the point is that the applicant is
manifestly mistaken to think that it was section 44C of the RBZ Act
that introduced the new RTGS currency. It says that this provision
merely empowers the central bank to do so. As such, section 44C would
not be relevant to any consideration whether or not any tax is
payable in foreign currency.
[22] I
find the applicant's approach rather flawed. Its argument is
fragmented and selective. In regards to the non-obstante
clauses of section 4A of the Finance Act and section 38(4) of the VAT
Act, I find the distinction the applicant seeks to draw rather
artificial in suggesting that the sole legal tender concept applies
only in relation to the old bondnotes and coins issued by RBZ, but
not to the electronic currency introduced by the RBZ following the
insertion of section 44C into the RBZ Act. The scheme of the RBZ Act
in Part VI is this. By section 40 the RBZ is empowered to issue
banknotes. By section 41 these banknotes, if not demonetized, are
legal tender. By section 43 the bank is empowered to issue coins
which are legal tender if not demonetized. By section 44B both the
bondnotes and coins are legal tender. By section 44A the Minister is
empowered to make any foreign currency legal tender in Zimbabwe. By
section 44C the bank can issue an electronic currency as legal tender
in Zimbabwe.
[23] The
banknotes, the bondnotes and the bondcoins have not as yet been
demonetized. They are as much legal tender in Zimbabwe as the RTGS
currency. In terms of section 44B(2) of the RBZ Act, the Minister can
prescribe that the bondnotes and coins are exchangeable at par value
with any specified currency other than the Zimbabwean currency. The
RBZ Act makes no such distinction as the applicant seeks to make
between the raft of what constitutes the local currency of Zimbabwe
comprising the banknotes, the bondnotes and coins, on the one hand,
and the electronic RTGS currency, on the other. They are all legal
tender.
[24] The
applicant's purported differentiation is on the basis of the dates
of issue of the currencies. Yet SI 142 of 2019 that introduced the
sole legal tender concept did not single out the electronic currency.
It simply referred to the “Zimbabwe
dollar”.
The heading to section 2 reads: “Zimbabwe
dollar
to be the sole currency for legal tender purposes.”
In the operative part of that provision, the currencies of the
specified countries, including Britain and the United States, are
outlawed and would not be legal tender in Zimbabwe “… alongside
the Zimbabwe
dollar
in any transactions
…” Plainly, the reference to the “Zimbabwean dollar” was a
reference to the banknotes, the bondnotes and coins and the
electronic currency, without distinction.
[25] The
applicant's argument is ill-conceived in another respect. As
pointed out above, the sole legal tender concept in relation to the
Zimbabwe dollar was introduced by SI 142 of 2019 whose provisions
were subsequently incorporated in the Finance [No.2] Act of 2019.
This instrument, despite making the Zimbabwe dollar the sole legal
tender, made exceptions in certain regards. Examples of those
exceptions were the operation of Nostro accounts, the payment of
customs duty and the payment of VAT on imports.
[26] Further
exceptions to the sole legal tender concept were subsequently
introduced in September 2019 when SI 212 of 2019
was promulgated. By this instrument, all domestic transactions would
be payable in Zimbabwean dollars. But certain categories were
excluded from the meaning of domestic transactions. They included the
payment of carbon tax for foreign registered vehicles, third party
insurance payments for foreign registered vehicles, payments to local
insurance companies for bond guarantees or bonds for designated
goods, payments of duty at ports of entry by individuals opting to
pay in foreign currency, and so on. The applicant argues that the
exclusion of taxes in SI 212 of 2019 means that the legislator
intended that it is only in respect of those listed transactions that
the sole legal tender concept would not apply.
[27]
But all relevant legislation has to be considered together to
arrive at the true intention of the legislature. Plainly, it is the
intention of the legislature that companies whose income comprise a
component in foreign currency should pay tax in foreign currency on
any such foreign currency component. The applicant ignores the
omnibus provision of section 4 of SI 212 of 2019 which extended the
list of transactions exempted from the meaning of domestic
transactions. It reads:
“4.
The following transactions are not within the scope of the definition
of 'domestic transaction' in subsection (1) for the purposes of
these regulations —
(a)……
(b)…
(c)……
(d)……
(e)
transactions in respect of which any other law expressly mandates or
allows for payment to be made in any or a specified foreign
currency.”
[28] Undoubtedly,
the 'any
other law'
which expressly mandates or allows 'for
payment to be made in any or a specified foreign currency'
is section 4A of the Finance Act and section 38(4) of the VAT Act.
The absurdity of the applicant's position becomes clearer with
regards to VAT on receipts in foreign currency. What it would mean,
if its argument were to prevail, would be that it would have the
liberty to unilaterally convert the foreign currency VAT income from
its customers into local currency at some unspecified rate of
exchange before remitting to the respondent. That is untenable. In
fact, this court has since settled the position. In Prosperous
Days Investment v ZRA
HH24-21 it was held that where any output value added tax is received
in foreign currency it should be paid in foreign currency.
[29] The
conflict of statutes alleged by the applicant that one set requires
payment of taxes on receipts in foreign currency and another
prescribes the payment of all taxes only in the local currency as the
sole legal tender does not exist. As shown above, it is only a
misconception that there may be such a conflict. The applicant's
objection under this head has no merit.
(iii) No
jurisdictional facts present to issue assessments
[30] The
next ground of objection by the applicant, again summarized, was that
before the respondent issued the assessments in contention, no
jurisdictional facts existed for it to do so. The applicant explains
'jurisdictional facts' as preconditions prescribed by law that
must be satisfied before the respondent could have taken the
administrative steps that it did. The applicant argues that unless
there was an amount either of gross income or allowable deductions
that ought to have been considered by the applicant in its
self-assessments but had not, then the necessary jurisdictional
factors to trigger the action taken by the respondent were absent. As
such, such action was invalid and should therefore be set aside.
[31] The
respondent's counter argument is that the jurisdictional facts
warranting the action that it took were present because by law what
prompts it to issue an additional tax assessment to a taxpayer are
findings by it during the audit process that, among other things,
some taxable income was not subjected to tax, or that in determining
an alleged loss by a taxpayer there was some income which ought to
have been taken into account that was not, or a deduction which was
made that was not, or that there was credit that was granted but
which ought not to have been granted. It is argued that all these
factors and more were present in the present situation.
[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.
(iv) Refusal
to deduct local currency input tax from foreign currency output tax
[36] 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 which provision sets out the formula for the calculation
of VAT as being output tax less input tax. The applicant further
argues that none of the provisions of the tax statutes gives the
respondent the power to deal with the input and output taxes
disjunctively and to deny a taxpayer's right to cross-currency
deductions in situations where input tax is paid in local currency
and the output tax is received in foreign currency.
[37] Still
on the respondent's treatment of foreign currency input and output
taxes separately from the local currency ones, and the respondent's
insistence that taxes on receipts in foreign currency should be paid
in foreign currency, the applicant has condemned the respondent's
Public Notice No.26 of 2019 which set out the manner of computation
of such taxes as an unlawful and irrational attempt by the respondent
to legislate to cover up for a possible lacuna in the law.
[38] In
response, the respondent insists on the separation of deductions of
input taxes from output taxes according to currencies and argues that
the law does not permit that local currency input tax be deducted
from foreign currency output tax as the applicant had done. The
respondent denies that its Public Notice No.26 of 2019 was an attempt
by it to bridge some gap in the law and avers that the document was
released for advice and information purposes to assist taxpayers
whose receipts from trade are in both local and foreign currencies.
[39]
My decision is this. In terms of section 6 of the VAT Act, VAT,
referred to simply as 'a tax' is payable on, among other things,
the supply by any registered operator of goods or services, and the
importation of any goods into Zimbabwe by any person. The rates are
fixed in terms of the Finance Act. In terms of section 15 of the VAT
Act, the amount of VAT payable is arrived at by deducting from the
output tax, the amount of, among other things, input tax. Section
38(9) of the Act declares that for the avoidance of doubt, all the
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 the Zimbabwean currency.
[40] The
question whether local currency input tax can be deducted from
foreign currency output tax has since been settled by this court. In
Inamo
Investments (Pvt) Ltd v ZRA
HH 672-22 the court was moved to issue a declaratory order to the
effect that a taxpayer is entitled to set off the local currency
input tax against the foreign currency output tax. This was rejected.
On page 3 of the cyclostyled judgment, the court stated:
“Significantly,
there is no provision which entitles a registered operator to convert
to foreign currency deductions of input tax denominated in the local
currency from output tax which is denominated in foreign currency. In
other words, the applicant's case is that because there is no
provision which explicitly prohibits that conversion then it is
entitled to offset the input tax paid in the local currency against
output tax denominated in the United States dollar. This is a classic
case of seeking relief based upon a non-existent cause of action.……
The
effect of the relief that is being sought by the applicant is that
the applicant would be paying output tax in local currency where it
would have received same in foreign currency. This defeats the
purpose of section 38(4) of the Act.”
[41] The
applicant argues that Inamo
Investments (Pvt) Ltd
was wrongly decided for the reason that the argument it is presenting
in the present case was not brought up in that case and that as such,
the court could not have applied its mind properly to the issue of
the right of a taxpayer to deduct local currency input tax from
foreign currency output tax. The applicant, in its heads of argument,
then delves into some tortuous but largely irrelevant excursion about
consumption taxes, cascading taxes and what triggers refunds on
taxes. The argument is irrelevant and misplaced because on a proper
construction of the relevant provisions of the VAT Act above,
especially section 38(4) and (9), it is plain that the legislature
has not sanctioned a cross-currency deduction of input tax from
output tax. The applicant's argument under this head cannot
succeed. The respondent's Public Notice No.26 of 2019 was merely
advisory on the state of the law and not legislative.
(v) Respondent
not entitled to levy penalties in foreign currency
[42] The
respondent's amended assessments of the applicant's foreign
currency tax liabilities carried some penalties expressed as a
percentage of the tax due. The applicant has objected to them on the
basis that penalties are not recoverable in foreign currency as there
is no such obligation in law. It is argued that in terms of the tax
legislation, tax is payable on taxable income 'earned, received or
accrued' that as a matter of fact, penalties are not levied on any
income 'earned, received or accrued' and that therefore, there is
no basis for charging civil penalties on tax in foreign currency.
[43] In
response, the respondent argues that a penalty is a tax. It is
treated in the same way as any tax. Therefore, a penalty on any
outstanding foreign currency tax is payable in foreign currency and a
penalty on any outstanding local currency tax is payable in local
currency.
[44] In
my judgment, the answer lies in section 4A 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, section 39 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.
Gill,
Godlonton & Gerrans,
applicant's
legal practitioners
ZIMRA
Legal Services Division,
respondent's legal practitioners
1.
By the Finance
[No.8] Act of 2022
2.
By section 2 of the Finance [No.2] Act, No.7 of 2019 following the
publication of SI 33 of 2019 [Presidential Powers (Temporary
Measures) (Amendment of Reserve Bank of Zimbabwe Act and Issue of
Real Time Gross Settlement Electronic Dollars) (RTGS Dollars)
Regulations, 2019]
3.Ibid
4.
Reserve Bank of Zimbabwe (Legal Tender) Regulations, 2019
5.
Presidential Powers (Temporary Measures) (Amendment of Reserve Bank
of Zimbabwe Act and Issue of Bond Notes) Regulations, 2016
6.
Reserve Bank of Zimbabwe (Demonetisation of Notes and Coins) Notice,
2015, SI 70 of 2015
7.
By the aforesaid Finance (No.8) Act of 2022
8.
Exchange Control (Exclusive Use of Zimbabwe Dollar for Domestic
Transactions) Regulations, 2019
