THE Zimbabwe Revenue Authority (Zimra) has slapped hoteliers with a US$3,8 million tax bill from outstanding obligations that accrued from the 15 percent value added tax (VAT) on food sold to foreigners as part of their accommodation package, including withholding tax on commissions charged on foreign tour operators.
The new tax became effective in January 2015, but was backdated to 2010, which hoteliers naturally rejected.
Hospitality players claim the added tax is an unwanted cost to business since it makes the local tourism product uncompetitive.
The decision to charge VAT retrospectively it being challenged on the basis that it contravenes Section 41 (Liability for Tax in respect of certain past supplies or importations) of the Value Added Tax Act.
Last week, Zimra told The Sunday Mail Business that the taxman is owed in excess of US$3,8 million by the sector.
Some companies have, however, since grudgingly thrashed out payment plans to settle the outstanding dues.
Zimra board secretary and director for legal and corporate services Ms Florence Jambwa last week said, “Some of the clients have negotiated for payment terms with the Authority in order to liquidate the tax due over an agreed period.
“Zimra is also making follow ups with clients who have not negotiated for payment terms to ensure the full recovery of the VAT due in accordance with the laws of the land.”
By the end of last week, the Hospitality Association of Zimbabwe (HAZ) and the Zimbabwe Council for Tourism (ZCT) were trying to identify members that have been caught up in the dragnet.
ZCT claimed last year that the Victoria Falls Hotel and Victoria Falls Lodge — both based in the country’s premium resort town — had been given a bill worth US$5,3 million.
The 113-year-old Victoria Falls Hotel, owned by Emerged Railway Properties — a joint venture between the National Railways of Zimbabwe and Zambia Railways — and jointly managed by African Sun and Meikles Africa, was said to be owing the bulk of the bill at US$4,1 million.
On the other hand, the Victoria Falls Lodge, a privately-owned lodge in the Zambezi National Park, is said to owe Zimra US$1,3 million in unpaid taxes.
Listed hospitality group African Sun Limited reported in financials for the year ended December 31, 2016 that the Authority is claiming US$1,6 million on VAT and US$290 000 on withholding taxes, inclusive of interest and penalties.
“The Group has contingencies relating to VAT on food and beverage sold to foreign guest before the introduction of VAT on all foreign guests revenues and withholding taxes on foreign tour operators for which, in the opinion of management and its legal counsel, the risk of loss is possible but not probable and therefore no provisions have been recorded.
“The tax matters involve inherent uncertainties including, but not limited to, court rulings, negotiations between affected parties and governmental actions,” said ASL.
ZCT has been lobbying the Office of the President and Cabinet (OPC), which is spearheading the ease of doing business reforms, to “instruct Zimra to stop killing the already bleeding tourism industry before it is too late”.
“Since July 2016, the Zimra has unleashed terror on the tourism operators particularly those in Victoria Falls for what they deem as ‘unpaid taxes’ dating back from 2010 to 2015.
“Victoria Falls Safari Lodge was given a bill of US$1 260 000 (while) Victoria Falls Hotel was given a bill of US$4 100 000.
“Other industry players are currently under examination and they may also be slapped with huge bills,” said ZCT in a report last year.
Currently, ZCT — the representative body for the hospitality sector — is planning to engage Government through the Ministry of Finance, to scrap the VAT and zero-rate tourism products given that the industry is already struggling to make ends meet.
“We are engaging them now; they
(players in the hospitality sector) have given them 90 days extension for the release of Zimra taxes and the 90 days are due to expire soon.
“So we are trying to secure an appointment (with Government),” said Dr Taka Munyanyiwa, a ZCT consultant, last week.
The hospitality sector wants the allegedly inconvenient taxes to be scrapped in order to afford them a chance to invest in sprucing up the local tourism product.
But Zimra says levies are standard practice “and Zimbabwe is no exception”.
“As you appreciate, one of the tenets of taxation is that tax laws should be applied fairly and equitably for the benefit of the country,” explained Ms Jambwa. ZCT argues that Zimra is wrongly interpreting the law by assuming that the difference between a rack rate (recommended or guiding price) and a net rate (amount invoiced by the hotel) is commission.
However, according global practices, where there is a different pricing structure for wholesalers, retailers and the final consumer, the difference between the rack rate and net rate is earned by tour operators and has nothing to do with the hotel.In 2010, Zimra raised the same case with tourism players and dragged them to the Fiscal Appeals Court.It then withdrew the case in January last year.
A similar case was also preferred against the hunting sub-sector in 2003 and Zimra lost the case in the High Court.The tourism sector further claim that they sought and got written confirmation from Zimra indicating that food to foreigners as part of accommodation package was zero-rated.But Zimbabwe is not the only country charging VAT on foreign accommodation.
Countries such as Angola charge 10 percent, Malawi (16,5 percent), Mozambique (17 percent), Tanzania (20 percent), South Africa (14 percent) and Zambia (16 percent).
South Africa exempts VAT on accommodation and has a tax reimbursable policy for all tourists on departure.
Tourism and Hospitality Industry Minister Dr Walter Mzembi has previously said while other countries charge VAT, Zimbabwe needs to waive it since the industry is emerging “from a different background of debilitating EU economic sanctions applied over the last 15 years” that were only repealed in November 2014.
The US’s Zimbabwe Democracy and Recovery Act (Zidera) is however still in force.The 1988 Sales Tax Act recognised tourism as an exporter and zero-rated accommodation services in Zimbabwe to encourage effective foreign direct investment and enhanced arrivals.In 2003, the Ministry of Finance also exempted the sector when VAT was introduced to grow tourist arrivals into the country and benefit the downstream industries.
Zimra rediscovers teeth
Market watchers say the new guard at Zimra has made the Authority very aggressive.The new board, which is led by Mrs Willia Bonyongwe, is currently exploring ways to broaden the country’s tax base, especially in an environment where the informal sector is gradually eclipsing formal businesses.Zimra has since introduced electronic cargo tracking to foil unscrupulous businesspeople who were depriving the country revenue by smuggling goods on the pretext that they were in-transit.
Several fuel tankers have since been intercepted.Last week, the African Development Bank (AfDB) floated a tender for the supply and delivery of cargo tracking seals.
The project will tap from funds provided through AfDB’s Capacity Building for Public Finance and Economic Management (CBPFEM) project. Recently, Zimra also reactivated a 10 percent withholding tax on tobacco farmers without valid tax clearance certificates.Although Government later convinced Zimra to rescind the 10 percent withholding tax following protests by farmers, the law is not new since it is in line with Section 80(2) of the Income Tax Act Chapter 23:06.Similarly, Zimra has also asked small and medium enterprises to take advantage of a moratorium that lapses at the end of June, to register their operations for VAT without being charged penalties and interest for late registration. Almost 6 000 SMEs have since registered with Zimra from January to March 31, 2017. The move will see Zimra pushing up revenue collection. Given the revenue collection initiatives, Zimra announced on Friday that gross revenue collections for the first quarter of 2017 at US$862,47 million were about US$50 million more than the targeted figure.