Tax fraud hounds Zim

Mary Mundeya

As nightfall descends on the dimly lit central business district of Zimbabwe’s capital Harare,
Tawanda Chipere takes stock of what he sold for the day and prepares to go home.

“Today was a great day, zvanga zvakadirwa shuga (I had very good sales),” he chuckles.
Tawanda is one of Harare’s downtown businesses owners, otherwise known as tuck shops, who
in recent times have risen to fame for their ‘affordable’ prizes.

How thoughtful they are, one might think considering the sharp increases in prices of various goods and services the southern African country has been experiencing. But there is a catch, all their wares are sold strictly in US dollars cash, a mechanism that enables them to avoid paying tax.

In 2018, Minister for Finance and Economic Development, Professor Mthuli Ncube introduced
the intermediated money transfer tax (IMTT), commonly known as the 2 percent tax to capture
the informal sector that ordinarily did not pay any taxes despite making a huge chunk of local
transactions, now accounting for nearly half the contribution of corporate tax – the biggest
revenue head.

Investigations by She Corresponds Africa revealed that the practice is common amongst informal
traders like Tawanda, who make sure, transactions cannot be captured by the Zimbabwe Revenue
Authority (ZIMRA), which has for years been pushing to incorporate the informal sector.

Informal retailers of wares ranging from clothing, household goods, stationery, school uniforms,
chemicals, toys and groceries have conveniently developed the habit of discouraging alternative
forms of payment.

In most instances, they blame poor network connection to avoid mobile money or point-of-sale
(POS) payments. They also do not offer receipts, while in the few instances they do, payments
are reflected in local currency, even when the transaction was in US dollars.

In Zimbabwe it is acceptable to accept any form of payment (cash, cheque, electronic) for goods
and services. However, the law then requires the trader to fully remit all taxes due and in the
currency of trade. The law makes it an offence to not issue invoices/receipts on any purchase/sale
and prescribes the time frame for keeping such records.

Investigations showed that this practice has also progressed to formally registered businesses
owned by locals and foreigners.

When this reporter numerous establishments, the prices on display were pegged in RTGS
dollars, only to be told by the till that no RTGS payments were being taken, only USD was
required. Upon payment, this reporter was surprised to be issued with a receipt stating that her
payment had been made in RTGS dollars.

ZIMRA’s head corporate communications Francis Chimanda told She Corresponds Africa that
the tax authority had taken note of the malpractice by businesses and had put in place various
measures that encourage compliance.

“Tax evasion is a challenge for revenue authorities the world over and we are no exception. The
authority often is engaged in special projects such as door to door follow ups especially targeted at small to medium enterprises to check on tax compliance and remind taxpayers of their tax obligations. Various other types of projects are carried to target specific risk areas and sectors in order to curb tax evasion,” he said.

Tax expert Mr Learnmore Nyamudzanga said it becomes illegal when retailers and other traders
refuse other forms of payments and demand USD cash only.

“Not issuing invoices or issuing receipts in Zimbabwe dollars for a USD transaction does not
affect the IMMT (2 percent tax), but it affects other tax heads; for instance, income tax, because
the taxpayer is likely to understate sales. Citizens must also know that by allowing such illegal
activities, they are reducing potential revenue to finance health, education, infrastructure, as
about 92 to 98 percent of our national budget is financed by taxes, so every cent counts,” he said.

Investigations further revealed that other formal businesses are dodging tax by issuing sales receipts in foreign languages.

According to ZIMRA: “All persons carrying out business in Zimbabwe are required by law to
furnish returns and information. They are also obliged to keep and maintain records of business
transactions and proper books of accounts. The returns, information, records of business
transactions and books of accounts should be in English unless dispensation to the contrary has
been granted by the courts or the Commissioner.”

In addition, a company must register for value-added-tax (Vat) if its annual sales are greater than
US$60 000. When an operator reaches or exceeds this threshold but does not register, Zimra may
force the operator to comply and pay fines.

However, the issuance of sales receipts in foreign languages, or selling things in US dollars but
producing Zimbabwe dollar receipts are some of the methods being deployed to beat the system.
Small businesses who now occupy spaces vacated by large organizations that were forced out of
business by Zimbabwe’s economic challenges mostly engage in this.

They market low-cost goods such cookware, footwear, raincoats, packaging, and washing

Tax specialists believe that, by issuing sales receipts written in foreign languages, businesses are
concealing information.

VAT is expensive in Zimbabwe and as small businesses we are struggling to keep up with it,”
said a shop owner in Harare.

According to a report titled Capital Flight, Natural Resources, and Institutions in Zimbabwe,
compiled by Zimbabwean academics and researchers, the country has suffered enormous losses,
running into billions, due to capital flight in the past three decades. This loss is attributed to fraudulent invoicing and tax evasion.

Investigations also revealed that some VAT registered businesses are evading paying tax by
issuing receipts from 2 or more separate devices, some of which are not fiscalised.

A fiscalised device is one that contains a “fiscal memory”, a special read only memory which is
permanently built into it to store tax information at the time of every sale.

Failure of a business to have a fiscalised device constitutes an offence and renders the operator
liable to a fine or to imprisonment or to both the fine and imprisonment.

However businesses evading tax by issuing receipts from 2 or more separate devices, some of
which are not fiscalised are charging big sales using the non physicalised machines and a few
transactions on the fiscalised ones.

Tax expert Michael Musa corroborated our findings stating that: Revenue officers are also taking
advantage of the shenanigans to establish companies that are assisting individuals and businesses
to evade tax.

“Some revenue officers are doing side hassles, through forming companies which offer tax
advisories, tax consulting, so the government tends to lose lots of revenue as they will be
advising people how to evade tax and also do underhand dealings with the authority to get
favorable conditions when remitting tax or doing their tax returns, that’s where the challenge is.
He urged ZIMRA to adequately pay its employees and revenue specialists well so as to quench
their zeal of opening companies and being corrupt.

“Evidence from the African Development Bank and Global Financial Integrity (2013) also shows
that Zimbabwe has lost a cumulative US$12 billion in the last three decades through illicit
financial outflows (IFFs) ranging from secret financial deals and tax avoidance to illegal
commercial activities,” the report says.

According to Afrodad, the most pressing consequence of IFFs is a substantial loss of revenue,
leading to the disappearance of opportunities for domestic investment and consumption, both in
the public and private sectors.

Afrofad says the revenue lost due to these outflows could have been channelled towards
productive economic and social investments, which would have facilitated the achievement of
the government’s economic growth objectives.

“It is important to note that IFFs starve the national purse of potential revenue that could help in
repaying back loans and stimulating economic growth,” Afrodad argued.

ZIMRA’s head corporate communications Francis Chimanda is of the notion that the parastatal is
advancing its fight against tax evasion.

“The authority has platforms that allow third parties and general citizens to report tax evaders.
These are then audited and if found guilty of tax offenses penalties and or prosecutions are
imposed. Tax legislation provides for penalties for understatement of taxes and interest on late
payments. This will ideally be used to deter would be offenders and offenders”, he said.

Meanwhile according to Afro Barometer, 69% of Zimbabweans do not believe that the
government uses tax revenues for the well being of citizens.

“This story was produced by (Mary Mundeya). It was written as part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation. More information at The content is the sole responsibility of the author and the publisher.”

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