A Supreme Court ruling against Delta, in a US$54.7 million dispute against tax agency Zimra, shows the damage caused by Zimbabwe’s rapid currency policy changes.
At the heart of the dispute are the many changes to regulations on the currency, from the bond notes introduced in 2016, to the RTGS, and to the reintroduction of the Zimbabwe dollar as sole currency in 2019. In the rapid changes and inconsistent policies, businesses have been unsure about how to account for taxes, leading to multiple disputes with the agency and, now, heavy losses.
What happened?
Delta paid taxes in Zimdollars for sales made between March 2019 and October 2021. Zimra argued that taxes on USD sales should be paid in USD. After an audit found USD sales, Zimra demanded additional taxes in USD, including VAT payments.
“The respondent (Zimra) found that (Delta) had received foreign currency in respect of local sales during the period between April 2019 and March 2021.”
Delta disagreed, saying the Zimdollar was the sole currency when it did its taxes. It approached the High Court, which ruled in Zimra’s favour. Delta then appealed to the Supreme Court.
What did the Supreme Court say?
The Supreme Court said evidence showed that Delta violated the law by paying Zimdollar taxes on USD sales.
Said the Supreme Court: “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 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 foreign currency earned into domestic currency for the purposes of paying tax in local currency.”
What were the currency laws discussed in court?
There was Section 4 of the 2019 Exchange Regulations, which made some exemptions on transactions that could be charged in Zimdollars. There was also Section 41 of the RBZ Act, which defined legal tender. Then there was Section 38 of the VAT Act, which said VAT on USD sales must be in the same currency.
It is in this maze of currency regulations that many companies have found themselves on the wrong side of Zimra.
Delta, in its financial reports, said there was an “absence of clear guidelines and transitional measures” around currency laws. They are not alone. National Foods, in its 2023 annual report, also complains about hazy currency laws and their impact.
“These significant changes (in currency measures) have created numerous uncertainties in the treatment of taxes due across the economy and have been compounded by a lack of clear statutory and administrative guidance (by Zimra),” Natfoods reported.
Beyond Delta, the ruling will affect many other companies that have similar tax disputes. Zimra says in reaction to the Delta ruling: “Whatever challenges were being made in that regard have now been put to bed.”
How will this bill hurt Delta?
Delta, in its annual report, had said the US$54.7 million tax bill “would have a material impact on the viability of the group”.
With this ruling, Zimra will pay Delta back for the taxes it paid in Zimdollars. But the money had already been eroded by inflation. Delta had paid the equivalent of US$9.8 million for income tax and US$25.2 million for VAT (total US$35 million). This was already worth just US$115,000 by March this year. According to Delta, this is “unjust enrichment” by Zimra.
