AFRICAN Sun Ltd has taken Zimbabwe Revenue Authority (Zimra) to court after the tax authority garnished the hotel and leisure group for failing to pay tax on groceries it bought for staff.
The ZSE listed group is appealing against the taxability of fuel coupons and hampers as taxable benefits.
Zimra says these benefits are taxable, arguing that they constitute remuneration in foreign currency as provided for under the Income Tax Act.
But African Sun argues in court papers filed on July 29 at the Fiscal Court that Zimra was paid in local currency for the same taxes.
This comes after African Sun bought groceries and fuel for staff from local and foreign suppliers from August 2008 to January last year to cushion them from hyperinflation that prevailed then.
“Applicant (African Sun) paid the disputed tax albeit in local currency and thereby discharged its tax liability. That amount was used by the respondents and never returned back. So to recover another amount in foreign currency over and above the local currency paid (recover double tax) is in my view an abuse of power and unjustified by law. The taxpayer will have been taxed twice on the same income albeit under two different currencies. Therefore, applicant needs to be protected pending determination of any appeals,” African Sun attorneys argued in court documents.
“The concept of pay now argue later should not be used in all instances. The courts should in appropriate cases such as this interdict … suspend payment of the tax pending hearing of appeals. Accordingly, I certify that the matter is one which ought to be heard on an urgent basis to prevent abuse of compulsory recovery methods,” the lawyer added.
According to the court documents, Zimra made the decision to use compulsory tax recovery method (garnish) in order to recover the taxes but African Sun appealed to the Fiscal Court.
Zimra argues that the company was aware that the taxes were supposed to be in foreign currency.
“It is noted in this case that the company was aware of the fact that the taxation of the remuneration was supposed to be in foreign currency. Reference to the African Sun Ltd Human Resources and Remuneration Committee Board minutes of Friday February 13 2009, under the Human Resources Programme, The Human Resources update was noted as follows, ‘The committee noted the company’s payroll costs were going to be in the region of US$400 000. This figure amounts to the same costs that the company was absorbing for staff hampers, tradable groceries and fuel coupons. The anticipated payroll figure will be about 20% of the projected turnover,” argues Zimra.
The authority further argues that fuel coupons at the time had assumed a role quite different from the purpose ascribed to them by fuel suppliers and were in many instances readily exchanged for cash.
“In effect the employer was remunerating the employees in cash though this was disguised as fuel coupons and food hampers,” stated the court documents “The Commissioner is therefore entitled to determine the liability to tax as if the scheme had not been entered into. Having regard to the Commissioner’s powers as contained in section 98 of Income Tax Act (Chapter 23:06) relating to tax avoidance, the remuneration will therefore be taxed as remuneration paid in foreign currency,” Zimra said in its opposing affidavit.
African Sun’s lawyers said the company would suffer “irreparable” damage should the tax authority proceed with the compulsory tax recovery.
“Applicant (African Sun) will suffer irreparable harm if the respondents (Zimra) compulsorily recover the disputed tax of an amount in excess of US$241 000. This money is essential working capital for Applicant’s business operations. Once this amount is suddenly taken away from Applicant’s business , its operations will be disrupted. Applicant has huge wage bills, utility bills, payment to be made for supplies and many other overheads.US$241 000 is a substantial amount and very prejudicial if suddenly taken away from any business, especially those operating in this harsh economic environment fraught with liquidity challenges,” the lawyers said.
Zimra is empowered by fiscal
legislation to use compulsory tax recovery methods to force payment of tax even when a taxpayer is challenging tax liability in the circumstances.