Zimbabwe: Firms Fight Zimra Garnishee Orders

LAST month, the Supreme Court overturned a High Court order lifting a US$20 million garnishee order that the Zimbabwe Revenue Authority (ZIMRA) had placed on Packers International Private Limited, a fast foods and retail business concern which owns Chicken Slice, Pizza Slice and Creamy Slice.

Justice Anne-Mary Gowora with her colleagues, Justices Vernanda Ziyambi and Ben Hlatshwayo at the Supreme Court, ruled that it was within ZIMRA’s powers to carry out tax assessments and enforce payment and those powers couldn’t be interfered with.

“Packers had alleged before the court a quo (High Court) that the garnishee imposed a hardship on its operations. In my view, Section 36 creates a remedy for the amelioration of possible financial hardship faced by an individual taxpayer and allows the commissioner to suspend payment pending an appeal.

“However, the commissioner cannot exercise the discretion mero motu (out of mere impulse). He can only do so upon consideration of facts presented to him by a taxpayer who wishes to benefit from the exercise of discretion by the commissioner. As a consequence, the taxpayer bears the onus to place the necessary facts before the commissioner regarding the hardships facing him should the obligation to pay not be suspended,” the court ruled.

The court further pointed out that these provisions were an embodiment of the “pay-now-argue-later” principle, meaning that an appeal would not have the effect of suspending payment.

The principle is aimed at discouraging frivolous or spurious objections and ensures that the whole system of tax collection in the country maintains its efficacy.

This serves the fundamental public purpose of ensuring that the fiscus is not prejudiced by delay in obtaining finality in any dispute.

Whenever the court makes a determination, the law has a provision ordering ZIMRA to make refunds together with interest in cases where there would have been a miscalculation.

Despite this and a number of other court judgments making pronouncements that the country’s tax laws are based on the “pay-now-argue-later” principle, and that this position is cast in stone, a number of businesses in Zimbabwe continue to approach the courts seeking refuge and relief whenever ZIMRA swoops on them demanding what proverbially belongs to Caesar.

A survey conducted by the Financial Gazette revealed that companies that find themselves in trouble with the tax authority are quick to approach the courts seeking cover despite the fact that a number of similar cases that have gone to court have shown that the law is very clear that the courts can only protect them when it is obvious that their rights have been violated, and not when they are failing to perform their obligations.

In some cases, the businesses have pleaded so eloquently that judges have gone out of their way to grant the relief prayed for, but this relief is only temporary as the law is very clear that the only authority that can grant any relief to a taxpayer is the commissioner general of ZIMRA.

It is therefore the duty of the taxpayer to keep the commissioner well informed in order to stop the latter from becoming suspicious, which, in some cases, would result in situations where they end up being raided by ZIMRA officials.

Section 36 of the Value Added Tax Act which ZIMRA administers reads: “The obligation to pay and the right to receive and recover any tax, additional tax, penalty or interest chargeable under this Act shall not, unless the commissioner so directs, be suspended by any appeal or pending the decision of a court of law, but if any assessment is altered on appeal or in conformity with any such decision or a decision by the commissioner to concede the appeal to the Fiscal Appeal Court or such court of law, a due adjustment shall be made, amounts paid in excess being refunded with interest at the prescribed rate (but subject to section 46) and calculated from the date proved to the satisfaction of the commissioner to be the date on which such excess was received, and amounts short-paid being recoverable with penalty and interest calculated as provided in subsection (1) of section 39.”

In December last year, High Court judge Justice Hlekani Mwayera threw out an urgent court application by Delta Beverages in which it sought an order interdicting ZIMRA from imposing a garnishee on its accounts to recover about US$27 million that the authority had assessed as tax arrears due for the period 2009 to 2014. ZIMRA’s initial tax assessment was US$42 374 254,63.

However, on May 9, 2016, after Delta had engaged the authority, the tax due was reassessed giving a total amount inclusive of penalty and interest of US$30 060 623,16.

Delta went on to pay about US$3 million, leaving the tax due at US$26 897 509,50.

For more than six months the beverages firm did not pay the tax, neither did it engage ZIMRA on a payment plan, resulting in the authority on November 21 last year notifying the company that it was going to issue a garnishee order on its account if the amount was not paid by November 25.

This prompted Delta to file an urgent chamber application seeking to bar ZIMRA from issuing the garnishee order and appointing its bankers to collect the tax on its behalf.

Justice Mwayera ruled that the matter was not urgent because Delta had been aware of its obligations for more than six months and had elected not to do anything about it.

“The applicant was aware of this process of tax investigation and assessment since April 2016. The assessed figure was revised and communicated to the applicant some six months back. The applicant objected to US$26 897 509,50, lodged an appeal with the Fiscal Court, which does not suspend the tax obligation.

“The applicant did not submit any payment plan to the commission (sic), which is the remedy available in terms of the law to suspend the tax. Instead the applicant was adamant the assessment was a legal nullity and when it was brought to its attention enforcement measures which are inevitable after tax assessment were nigh the applicant then approached this court on purported urgency.

“Clearly urgency does not arise from mere commercial hardship. The applicant ought to have discharged the obligation of tax on receipt of income. This is what led to the assessment. From the time of assessment the applicant ought to have organised its tax affairs to avert the inevitable enforcement and appointment of agents and garnish of bank accounts.

“The applicant waited from April 2016 and only approached the court seeking an incompetent order in circumstances where the requirements of urgency have not been met.”

Previously, another company, Mayor Logistics, a firm owned by Gokwe-Nembudziya legislator, Justice Mayor Wadyajena, had also taken its fight with ZIMRA all the way the Supreme Court where it also lost.

In this case, Deputy Chief Justice Luke Malaba pointed out that the courts have no powers to issue an order barring ZIMRA from taking measures to collect tax from entities that had failed or neglected to perform their legal obligations to pay taxes when it is due.

“Failure to fulfil an obligation may be due to a variety of circumstances. The legislature decided to place the responsibility of deciding whether or not the particular circumstances of a tax-payer, entitle him or her to a directive suspending the obligation to pay the assessed tax on the commissioner.

“As the facts on which the Commissioner would exercise the discretion would be within the exclusive knowledge of the taxpayer he or she must place them before the Commissioner. A court of law would be acting unlawfully if it usurped the discretionary powers of the commissioner and ordered a suspension of the obligation on a tax payer to pay assessed tax pending determination of an appeal by the Fiscal Court,” Justice Malaba said.

During last year’s Judicial Services Commission interviews for judges aspiring to be promoted to the Supreme Court, High Court judge Justice Priscilla Chigumba came under fire from Chief Justice (CJ) Godfrey Chidyausiku after she tried to defend her decision to grant relief to a mining firm against which ZIMRA had placed a garnishee order.

Asked if she was aware of what the law said on tax matters, Justice Chigumba said she was well-versed the relevant provisions of the law, but had gone out of her way to grant the order because she considered the dire circumstances that the company would have gotten into because of the garnishee order. She passionately argued that in the present harsh economic climate, justice was not being served when the courts blindly enforced laws that could lead to more company closures.

This resulted in her being labelled “an activist judge” by the JC, who sternly warned her that there was no place for activism on the bench as the Judiciary was just there to interpret and enforce the laws as they are, not to usurp the law-making duties of the Legislature.

Packers International has since taken its case to the Constitutional Court (ConCourt) seeking to have the sections of the VAT Act that empower ZIMRA to garnish companies’ bank accounts without a court order and to unilaterally recover tax owing by collecting money from the firms’ debtors to be declared unconstitutional. The ConCourt is also expected to determine the constitutionality of the “pay-now-argue-later” law.

Packers International wants sections 36 and 48 to be removed from the statute books.

“Therefore, it is clear that the mechanisms used by the respondents in terms of Section 36 and 48 of the Value Added Tax Act clearly violate the constitution. This court has the duty to strike down such offending laws and the applicant has come before this Honourable Court and made representations as to why these laws must be struck down,” the firm argued.

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