THE country’s 15 stockbroking firms face imminent closure following High Court ruling dismissing the Zimbabwe Stock Exchange (ZSE)’s appeal to
have them exempted from paying Value Added Tax (VAT) backdated to January 2004.
Most firms will not survive if the Zimbabwe Revenue Authority (Zimra) forces them to pay the tax backdated to two years ago. Brokers told businessdigest yesterday the 15 owed Zimra a combined tax bill of $700 billion.
The amount which includes interest and penalty would leave them virtually insolvent.
“Payments backdated to 2004 could lead to a spate of company closures, chase away investors and loss of confidence in the local bourse,” said head of a securities firm who declined be named.
The 15 stockbrokers that face closure are Intermarket Stockbrokers, FBC Securities (Pvt) Ltd, EFE Securities, Sagit Stockbrokers, Imara Edwards Security, Renaissance Securities P/L, Fidelity Securities P/L, M Lynton-Edwards Stockbrokers, Remo Investments Brokers P/L, Interfin Securities P/L, Kingdom Stockbrokers P/L, Mast Stockbrokers, ABC Stockbrokers P/L, New Africa Securities P/L and D Vrettos Stockbrokers.
Imara Edwards Securities was asked to pay $49,3 billion in May this year but the amount has increased drastically over the past seven months during which the brokers and Zimra were having court battles.
On Wednesday High Court Judge President Rita Makarau threw out the stockbroker’s appeal saying ZSE, their representative in the case, did not have a legal basis to bring the case before the court.
Justice Makarau dismissed the case with cost, something that would further hurt the purse of the brokers. Justice Makarau declined to make a ruling on the merit of the case, saying she had to be satisfied that the case was properly before the court.
In the case, the court had to determine whether the law exempted stockbrokers from paying VAT and had locus standi to bring the application before the higher court and whether the case was still pending before another tribunal of competent jurisdiction, the Fiscal Appeals Court.
Analysts said there were now fears in the market that Zimra might soon pounce on all registered stockbrokers, individually ordering them to pay VAT backdated to January 2004. Some small firms might also not be able to withstand the financial pressure to fight Zimra in the court.
Metropolitan Bank group economist, Brains Muchemwa said stock broking firms would collapse if they make a one-off payment. “The Zimra and the firms should reach a solution where payments can be made over a certain period of time. A once off payment would render them insolvent,” Muchemwa said.
Executives in the sector however told businessdigest late last night that the brokers were planning to appeal against the decisions. Although their lawyer Tendai Biti of Honey and Blanckenburg could not be reached for comment, information gathered indicated that they would lodge an appeal either today or early next week.
If the stockbrokers eventually lose the case it would mean that investors who buy shares on the stock market would be taxed three times in a single transactions — through stamp duty, withholding tax and VAT. This three-tier tax system will also apply to small investors.
A stockbroker with a commercial bank said brokers were exempted from paying this type of tax as per current VAT Act, Section 11 (a). The Finance Act 2003 was amended, which effectively exempted all stockbrokers from paying VAT.