ZIMBABWE Revenue Authority (Zimra) commissioner-general Gershem Pasi is embroiled in a conflict of interest saga after it emerged he is a shareholder in Tetrad Holdings, the holding company of troubled Tetrad Investment Bank — now under judicial management — with tax arrears of more than US$1,6 million.
In addition, Zimra has lost millions of dollars in Tetrad whose liabilities exceeded assets by US$26,3 million and had recorded cumulative losses amounting to US$54 million as of January this year.
This raises a conflict of interest question as Pasi is a Tetrad shareholder, but nonetheless banked Zimra funds with the institution in which he has equity.
The bank also owes creditors, among them Zimra, about US$70 million, according to a report compiled by its former judicial manager, Winsley Militala.
According to the report, Pasi is a significant shareholder of Tetrad Holdings with a 12,03% stake through investment vehicles Opcodd Investments (Pvt) Ltd which has a 6,55% equity (18 092 903 shares) and Watseka Investments (Pvt) Ltd with 5,48% shareholding (15 128 001 shares).
Apart from Tetrad Bank, Tetrad Holdings controls Tetrad Properties, Tetrad Resources, TFS Management Company, Multiridge Finance and THI Insurance.
The report, compiled in March, shows that Tetrad Bank owed Zimra US$1 692 130 in taxes, although this figure could have now gone up if penalties and interest which Zimra could claim are added. The taxes comprised of Pay-As-You-Earn (Paye) of US$839 083 and withholding tax of US$853 047. Tetrad’s total tax and statutory obligations amounted to US$1,8 million.
The bulk of the unpaid withholding tax is in relation to the acquisition of computer software, called finacle, amounting to US$3 824 098 bought by the bank. The report however states that the software would not bring any economic benefit to Tetrad in the event it is not allowed to trade, or goes under liquidation.
The bank’s financial position is likely to worsen, as the report noted that the statement of assets and liabilities had not taken into account the potential penalties and interest which Zimra could claim from the bank.
Banking executives this week described as “dodgy” the situation in which Pasi — who oversees tax collections — found himself a shareholder in a bank which is not paying its tax obligations and held Zimra funds. Pasi and Zimra have been cracking down on companies which evade or avoid paying taxes in recent months, but it transpires his own company was not paying tax.
“This is a scandalous situation. How do you have a commissioner of taxes who is a shareholder in a bank which does not pay taxes? As if that is not bad enough, Zimra also banked with Tetrad, a bank in which Pasi is a significant shareholder,” a senior banking executive said.
“Pasi does not only have a conflict of interest in this situation, but the developments suggest an unethical pursuit of personal interests, and some would dare say corruption.”
Pasi did not respond to questions sent to him via e-mail on Wednesday. Numerous efforts to contact him yesterday were fruitless as his mobile number was continuously unreachable.
To make matters worse, Tetrad is one of the financial institutions which entered into partnerships with Zimra to collect revenue on its behalf in 2011. Zimra claimed the move was in line with its quest to improve service delivery and “ultimately bring real convenience” to clients.
The revenue authority engaged the services of Tetrad Bank although the institution had been reporting significant losses since 2009, until it was put under provisional judicial management by the Reserve Bank of Zimbabwe in January.
“As a result of being undercapitalised, as evidenced by the negative core capital of US$38,2 million, the bank’s financial position was inadequate to cover the risk to which it was exposed,” reads the report.
“As a consequence, its customers lost confidence in its continued solvency as well as its ability to protect depositors against loss of their deposits.”
The report said 99% of the bank’s loan book,which amounts to US$62 million, comprised non-performing loans, 40% being unsecured loans amounting to US$25,1 million, while 30% is made up of loans to related parties amounting to US$19 million — the majority of which are unsecured.
The bank was relying on 1% of the book to generate interest income to fund its operations.
“The significant percentage of the bank’s loan book is unsecured. I note that related party loan balances (US$19,1 million) account for 76% of the unsecured loan balance (which is US$25,1 million) as at end of year 2014, with no security to recover these balances,” the report says.
“In addition to this, the majority of the security held against the secured portion of the loan book has been used by the bank to further secure its own borrowings, and customer investment deposits.”
In November last year, the Reserve Bank suspended Tetrad Bank from taking deposits and issuing loans until it completed its recapitalisation exercise which however failed.
Zimra, which has been increasingly struggling to meet its revenue target as the tax base continues to shrink amid retrenchments and company closures, collected US$1,7 billion in the first half of this year against a target of US$1,8 billion, a negative variance of 6%.
Zimra is owed close to US$1 billion in taxes by companies — which include Pasi’s Tetrad Bank — and individuals, and recently further extended its tax amnesty deadline for defaulters
Ironically, Pasi told a parliamentary committee in June he would be ruthless when dealing with companies and individuals who failed to negotiate with the authority for a payment arrangement of outstanding tax obligations.
“We are now saying that after the amnesty, we need to be ruthless and we may want our minister (Finance minister Patrick Chinamasa) to bring some legislation which can tighten it further for those who are delinquent because we have done all we can to say ‘come clean’,” said Pasi.