A DELAY by the Zimbabwe Revenue Authority in clarifying tax issues around a US$100 million commercial loan recently advanced by the British government, through the state-run Commonwealth Development Fund (CDC), to Zimbabwe’s private sector, has rattled President Emmerson Mnangagwa and Finance minister Patrick Chinamasa.
By Kudzai Kuwaza
Sources said all the other parties to the US$100 million facility are ready for the deal to proceed, but are being held back by Zimra’s failure to clarify tax issues around the loan deal timeously.
“Zimra is dragging its feet and this has rattled President Mnangagwa and Finance minister Chinamasa,” an insider revealed.
Standard Chartered (StanChart) Zimbabwe has been unnerved by a possible tax charge running into millions of dollars for being a financial intermediary in the transaction which will see the bank earning income on 40% of the total loan it will handle onshore.
The bank was slapped with a US$3,9 million tax bill a few years ago in an almost similar tobacco offshore loan transaction. Banking sources told the Zimbabwe Independent recently that the funds could have reached the intended beneficiaries by now, had Zimra provided tax guarantees to the local bank earlier. Some of the intended beneficiaries are local private sector companies, Delta Corporation and Unilever Zimbabwe.
The funds, US$60 million from CDC and US$40 million from StanChart, were expected to start flowing and reach local beneficiaries at the end of last month had Zimra tax guarantees been obtained.The financial package, the first direct commercial loan by the United Kingdom to Zimbabwe in more than 20 years, is expected to re-equip companies, increase capacity utilisation and propel the turnaround of the depressed economy. When contacted on the issue, Zimra spokesperson Taungana Ndoro declined to comment citing confidentiality.
“The Zimbabwe Revenue Authority (ZIMRA) is precluded by the Revenue Authority Act [Chapter 23:11] from providing specific information concerning its clients to a third party. We are, therefore, unable to comment or provide the requested information because it is protected by the secrecy provisions of the Revenue Authority Act,” he said.
The CDC, the UK’s development finance institution, will provide a US$60 million offshore facility, while StanChart will provide the balance onshore.
However, the allocation of the US$100 million has been delayed by Zimra, which is yet to provide tax clearance assurances to the CDC to ensure the funds are not liable to local charges at StanChart. This requirement has been necessitated by the need to avoid a similar dispute which emerged several years ago between tobacco companies, StanChart and Zimra over US$3,9 million tax charges on an offshore loan.
In a letter dated June 18, 2018, seen by the Independent, to Zimra commissioner-general Mazani and copied to Reserve Bank of Zimbabwe (RBZ) governor John Mangudya, StanChart Zimbabwe chief executive Ralph Watungwa sought assurances that the loan would not be liable to local charges by the taxman. “We are writing to seek your guidance on the tax implications of the recently announced Commonwealth Development Corporation (CDC) and Standard Chartered Bank Zimbabwe Limited (SCBZL) arrangement which we intend to disburse shortly. The structure is similar to the tobacco offshore loans that resulted in a tax dispute where the bank was compelled to pay US$3,9 million in additional taxes,” Watungwa wrote.
“In a meeting attended by our group financial officer with the Governor of the Reserve Bank of Zimbabwe (RBZ) on the 5th of June 2018, we registered our concerns regarding a potential repeat of the tax dispute referred above. A decision was taken to approach the Zimbabwe Revenue Authority by way of this letter, which we have copied the RBZ governor for alignment, to clear any potential tax issues prior to disbursement of the facilities.”
He said clarification was necessary to avoid disputes which occurred in the past.