Zimra, the herald and stock brokers

By Admire Mavolwane



THE Herald on May 20 ran a story under the title “Zimra pounces on stockbrokers”. This marked the beginning of a saga that has lasted for

seven trading days.


The gist of the article was that the country?s revenue authority had presented a bill to a number of stockbroking firms demanding value added tax (VAT) on brokerage fees, backdated to January 2004.


It was noted in the article that when government introduced VAT in January 2004 the Zimbabwe Stock Exchange (ZSE) successfully lobbied for exemption. This allegedly led to the Finance Act of 2003 being amended to exempt stockbroking firms from paying VAT.


To compensate for loss of revenue, the government increased stamp duty from 1% to 2%. If all this is true, then the industry players can be excused for their sense of shock at the actions of Zimra. However, what caught our attention was the use by sub-editors of the word “pounce”.


The expression brings to mind a surprising and swift attack of a predator upon its prey, surely not the appropriate analogy to be applied to the actions of a government agency which is expected to be impartial and above reproach.


As a result of the “assault” on stockbrokers, trading on the ZSE came to a halt as the parties concerned sought the opinion of lawyers and tax consultants. Since May 22, there has been no trading on the ZSE as stockbrokers were, and still are, contesting the VAT bills. Brokers are in a way justified in such action since trading would have compounded liability on their part.


The other factor is that, in general, one has to tread cautiously especially when confronted with a situation where the authorities seem to suggest that what had been assumed to be the legal position, and had accordingly guided operations was in fact incorrect.


The asset management industry will be prompted to remind the stock brokers of the circumstances in which they previously found themselves regarding the withholding tax on interest earned by investors.


Meetings upon meetings have been held between Zimra representatives, Ministry of Finance officials and the heavies from the stock broking fraternity.


The latest meeting held between the ZSE representatives and the minister of finance, who ironically had cunningly refrained from commenting on the issue, has yielded positive results with trading resuming yesterday in the afternoon session.


The minister?s intervention came at a time when it appeared Zimra was escalating the issue by taking the battle to the press with the publication of a position statement in Wednesday?s Herald.


In other markets the authorities would have been taken to task over their silence on the issue but we presume that given the host of “challenges” confronting the country, non trading on the ZSE would not rank as requiring priority attention.


There was also a deafening silence from opposition politicians and even the Tripartite Negotiating Forum (TNF); a constituency one would have thought had a keen interest in the ups and downs of the markets.


As a way of resolving the impasse we are made to understand that brokers agreed to start deducting VAT on commissions from June 1.


The collected amounts will be invested in a special fund by the stockbrokers until determination of the court case. In the meantime, the issue of the backdated VAT will remain in the hands of the courts.


There has also been a change in that the case will now be handled by the High Court through an urgent application and not by the Fiscal Appeals Court. Furthermore, it has been agreed in principle that should the broking community lose the court case, they will be liable for the principal amounts only excluding the penalties and interest. If Zimra loses, then investors will be refunded the VAT that would have been collected.


The stalemate on the stock exchange is the latest addition to a host of events that do not augur well for the efficient operation of the markets. We highlighted earlier that the policy flip-flops of recent weeks send signals that the authorities would not want the markets to see.


Another issue that comes to the fore is the apparent lack of coordination in the activities of the various arms of government.


In March, the Minister of Mines announced a new mining policy whose thrust is the compulsory takeover of majority control of mining houses in the country at the very same time that the governor was presenting Zimbabwe?s case for balance of payments support to the board of directors of the International Monetary Fund.


The impasse on the stock market came at a time when the governor was in the Far East trying to market Zimbabwe as a good investment choice and possibly an attractive destination for foreign direct and portfolio investment. This latest development could undo much of his efforts as it couldn?t have come at a worse time.


In another rather unusual development, on May 18 the governor was quoted by Reuter as saying that the central bank would increase interest rates by 100 percentage points.


The excerpt also alluded to inflation peaking at 1 200% before falling to 400% by December. The governor is reported to have said this when he was in Seoul, the capital of South Korea, on a business trip to lure investors.


Market watchers and participants were rather “knocked for six” that the governor would, against traditional and standard practice, make monetary policy announcements whilst in a foreign country.


A few days later, the central bank increased the accommodation rate from 800% per annum to 850% per annum for secured lending and allowed the 91-day Treasury Bill yield to increase from 350% per annum to 494% per annum.


So, in the final analysis, the governor did appear to make a policy announcement whilst in Asia. Yet another notch in the stick recording the growing list of ever-increasing “firsts” that the country has been scoring!