THE Fiscal Appeal Court is expected to hear the case between the Zimbabwe Revenue Authority (Zimra) and stockbrockers over disputed backdated tax payments on brokerage fees next month, businessdigest is informed.
Zimra is demanding that stoc
kbrokers should pay tax on brokerage fees backdated to January 2004, a move that could throw many stock broking firms into insolvency.
Stockbrokers insist they are not entitled to pay tax on brokerage fees as they are exempted by the Value Added Tax Act from doing so.
Zimra insists stockbrokers’ claims to exemption is based on an erroneous interpretation of the VAT Act.
Although no exact date has been officially set, stockbrokers who spoke to businessdigest this week confirmed that the equities market was now waiting for the commissioner-general to make a decision on whether or not to contest the stockbrokers’ submission.
Zimbabwe Stock Exchange (ZSE) chief executive officer, Emmanuel Munyukwi, confirmed the development, saying it was now up to the commissioner-general to decide whether or not to contest the stockbrokers’ claims.
“Objectives surrounding the dispute have been filed. It is now up to the commissioner-general to weigh the case and decide if it merits a seating from papers submitted to him by both parties,” Munyukwi told businessdigest.
“I cannot tell when the hearing would take place but most of the paper work has been done,” Munyukwi added.
Stockbrokers are challenging Zimra’s decision to make brokers pay tax which is backdated to 2004, warning that the move would not only hamper economic development but scare away prospective foreign investors.
Brokers have also cautioned Zimra against proceeding with the demands, arguing that the move could lead to a spate of company closures and loss of confidence in the local bourse.
Assuming that the outcome of the stalemate goes in Zimra’s favour, Zimra will earn $1 trillion from 17 registered stockbrokers who have not been paying VAT since 2004.
Payment by stockbrokers would effectively mean a three-tier tax system which includes stamp duty, withholding tax and VAT for stock exchange investors.
The stalemate started on April 24 when Zimra wrote letters to stockbrokers asking them to supply information on VAT and other taxes paid since January 2004 when the VAT Bill was promulgated into an Act.
“Recent audit work in a number of organisations in your line of business has indicated low compliance,” Zimra said.
“This has led this (investigations) division to carry out a wide audit and study of operations and taxation of stockbrokers,” wrote Zimra in one of the letters.
Zimra requested stockbrokers to supply VAT registration numbers and the amount they had paid between January 2004 and 30 April.
Stockbrokers did not respond to Zimra.
On May 23, Munyukwi responded to Zimra advising them that the stock market had appointed Kudenga & Co Chartered Accountants as their tax consultants and that all tax correspondence be forward to them.
That same day, brokers stopped trading after Zimra insisted brokers had to pay backdated tax.
The stock market, which has some of the highest transaction costs in the world, lost an estimated $800 billion in un-traded shares during the seven-day disruptions to trading.
Trade resumed on June 1 after Finance minister Herbert Murerwa said brokers had misinterpreted the law and, pending the court’s judgement, they should comply with Zimra’s requirement.
He said the tax would be charged on the 2% brokerage commission, meaning investors would be taxed via the three-tier system.
“Following discussions between Zimra and representatives of the ZSE regarding the impasse that had resulted in the stoppage of trade, an agreement has now been reached that stockbrokers resume trading with immediate effect and should pay VAT,” Murerwa said.