Up in smoke: Cigarette company Pacific enters business rescue after ZIMRA hits it with a US$19m tax bill and garnishes bank accounts

Pacific Cigarettes
Adam Molai: Pacific in voluntary business rescue

Pacific Cigarette Company (PCC) says it has gone into voluntary business rescue after the Zimbabwe Revenue Authority (ZIMRA) hit it with a tax bill of over US$19 million.

The company, once known as Savanna, makes the Pacific, Pegasus and Branson brands, and has survived on toll manufacturing since 2005, an arrangement under which it makes cigarettes for other companies. However, says the company, ZIMRA has changed how it treats taxation for toll manufacturers, leaving the company with tax liabilities of US$19,315,233.82 and ZWL79,845,954.36.

Pacific says it started toll manufacturing in 2005 to “survive” the 50% foreign currency surrender requirements on exports that applied at the time.

“Since then, the toll manufacturing model has been our accepted raw material funding model, removing the need for PCC to finance the working capital for export raw materials,” PCC says.

“In June this year, without any notice, ZIMRA performed a spectacular U-turn that has undermined the stability of the business and deemed the raw materials funded by our customers as income, subject to VAT. They also levied an arbitrary markup and interest and penalties on PCC for the tax assessment period 2018 to 2020, to which we have objected. The issued tax assessments against the company impose tax liabilities amounting to US$19,315,233.82 and ZWL79,845,954.36.”

ZIMRA has also garnished Pacific’s bank accounts and taken the “unprecedented step of instructing our customers to pay ZIMRA any monies owed to PCC, effectively closing off all the company’s income streams”.

ZIMRA has rejected a proposal by Pacific to make a payment plan while appealing against ZIMRA’s actions.

Says Pacific: “ZIMRA’s unprecedented actions on false tax violations have regrettably placed PCC in an insolvent position, forcing the company’s directors to place the business under voluntary business rescue to safeguard the interests of all creditors and stakeholders, whilst the company continues to try and amicably resolve the matter with the tax authority.”

Pacific has a manufacturing agreement with China Tobacco Shaanxi Industrial Corporation, a subsidiary of the Chinese National Tobacco Company, to manufacture cigarettes in parts of Africa.

The company is owned by Adam Molai, Gerrit de Jong and Christopher Sambaza.

PCC applied for voluntary business rescue on October 2. The Master of the High Court appointed Reuben Mukavhi of Rubaya-Chinuwo Law Chambers Legal Practitioners as the corporate business rescue practitioner.

ZIMRA declined to comment on PCC’s claims, saying it does not comment on individual taxpayers.

“The Zimbabwe Revenue Authority is not in a position to comment in the public domain on the tax affairs of an individual taxpayer as the law through the preservation of secrecy protects clients’ right to confidentiality,” a spokesman said.