Zimbabwe Revenue Authority (Zimra) is hot on the heels of FBC Building Society as the tax collector tries to recover outstanding capital gains tax accrued by the mortgage lender, mirroring treasury’s aggresive drive to boost its dwindling revenues.
Zimra ordered FBC Building Society, a subsidiary of FBC Holdings, to pay capital gains taxes or risk facing stiffer penalties. This is despite the mortgage lender receiving opinions from five tax consultants challenging payment to Zimra..
The building society has, however, made a provision for the tax obligations as it engages the revenue authority.
Reached for comment this week, company spokesperson Pricilla Sadomba said this development was not unique to FBC.
“This is not peculiar to FBC Building Society, but the entire industry and that is an issue being discussed at the highest level,” she said.
Experts say the move by the taxman has created debate and controversy among the business fraternity, highlighting some of the weaknesses and vagueness of the country’s laws.
“In the income taxes act, it is not clear whether it is income from mortgage activities is exempted from taxes or just being registered as a building society. The country’s taxman has over the past years been accused of squeezing companies that are finding it hard to survive, in a difficult operating environment,” an analyst said.
“If you look at FBC Building Society, the mortgage lender managed to keep its profits above US$6 million for the past two years. The move by Zimra is to target those profitable businesses. This is driven by its desperate bid to raise funds for the cash-strapped government. Companies are now reluctant to disclose their profitability as they will become prime targets from Zimra.”
The society recorded a surplus of US$6,3 million for the year ended December 31 2015, which is comparable to the US$6,8 million recorded in the prior year.
Total net income for the year amounted to US$12,9 million in comparison to the US$14,1 million recorded in 2014.
The building society’s financial position increased by 14% to US$124,8 million, from US$109,4 million in 2014.
Deposits increased by 16% from US$74,1 million to US$85,3 million.
The loan portfolio also registered a 16% growth to US$57,9 million from US$50,1 million in 2014. The loan book growth continues to be driven by mortgages lending arising from our housing development projects. FBC Building Society with a mortgage book of US$59 million made a profit of US$6,3 million down from the US$6,7 million it made in 2014.
The bank completed the construction of 90 housing units in 2015 focusing in urban areas of Harare and Bulawayo. Mortgage lending is suppose to be exempt from taxes under the Income Taxes Act, but Zimra is now cracking down on FBC and other banks
The net capital for the building society stood at US$35 million as at December 31 2015, which is compliant with the current minimum capital requirements for building societies.
Zimra has been failing to meet its revenue targets. Cumulative to December 2015, total revenues amounted US$3,5 billion against a target of US$3,7 billion.
Total government expenditures amounted to US$4 billion against a target of US$4,1 billion. The US$500 million deficit was financed through treasury bill issuance, bank borrowings and accumulation of arrears. Analysts say expenditure pressures are projected to worsen in 2016 as a result of shrinking revenues and food imports.