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Businesses dodge forex tax

by Staff reporter
28 Nov 2020 at 07:10hrs | Views
Treasury has tightened measures to bring to book businesses that are dodging tax obligations in foreign currency amid concerns that most forex sales in the country are not accurately accounted for, thereby undermining fiscal revenues.

The Zimbabwe Revenue Authority (Zimra) has since been directed to conduct a comprehensive audit and avail the requisite technology, which interfaces with registered operators' systems to enable data collection and analysis as well as manage electronic fiscal devices in a manner that enhances accounting for forex Value Added Tax (VAT) collection.

While forex trading of goods and services is permissible at law alongside local currency sales, the Government says most businesses are evading forex tax payments.

Following the Government's authorisation of the use of foreign currency on the local market, VAT registered operators are compelled to configure their fiscal devices to capture all transactions in the currency of trade.

However, the Government says its surveys have shown that in most instances, businesses are not producing customer receipts that reflect the currency of trade.

There is lack of transparency, especially where foreign currency transactions are reported in local currency, said Finance and Economic Development Minister, Professor Mthuli Ncube, while presenting his 2021 National Budget in Parliament on Thursday.

He said a comprehensive audit of all VAT registered operators would be immediately conducted for forex sales. Those found guilty of evading forex tax risk being denied tax clearance certificates and exclusion from participating in the Foreign Currency Auction System, among other penalties.

"Notwithstanding the above, market intelligence surveys show that some VAT registered operators are not adhering to statutory requirements. Thus, sales in foreign currency are not accurately accounted for, thereby undermining fiscal revenues," said Prof Ncube.

"Despite the fact that several companies are transacting in United States, receipts generated are denominated in local currency, which is a deliberate attempt to avoid remitting tax in the currency of trade.

"In other cases, operators entice customers to pay in foreign currency by inflating the local currency price using high parallel market exchange rates.

"Government is, thus, deprived of foreign currency revenue due to non or under declaration of foreign currency transactions. This is also exacerbated by slow implementation of the fiscalisation programme."

In order to safeguard fiscal revenues, the Treasury chief said measures have been put to ensure that VAT registered operators' systems are interfaced with the Zimra server with effect from 1 December 2020.

Failure to adhere to this requirement will mean no operator will be issued with a tax clearance certificate, said Prof Ncube.

"In addition, non-compliant operators will be excluded from participating in the weekly foreign currency auctions.

"Furthermore, the revenue authority will, with immediate effect, undertake a comprehensive audit of all VAT registered operators, with a view to account for all sales in foreign currency," he said.

Prof Ncube said Zimra would provide the public with a 24-hour Hotline where reports on non-compliant operators can anonymously be made, particularly where operators issue local currency receipts after receiving payment in foreign currency.

Further, he said the tax watchdog will, with immediate effect, roll out awareness campaigns aimed at educating the transacting public to demand receipts showing the correct currency of trade, in order to reduce fraudulent activities by operators.

The minister also clarified that business trading in local and foreign currency are obligated to pay corporate tax in proportion to the gross income that is earned in either currency, without regard to the prevailing retention or liquidation thresholds.

In particular, he said exporters were liable to a standard retention threshold of 30 percent of export earnings while local traders are compelled to liquidate 20 percent of foreign currency receipts at the prevailing foreign exchange auction rate.

"I, therefore, propose that businesses pay corporate income tax in foreign currency on the basis of gross foreign currency receipts remaining after deducting the prescribed retention or liquidation thresholds. This measure is with effect from 1 January 2021," said Prof Ncube.

Source - chronicle