HARARE – The Supreme Court has ruled in a landmark tax dispute involving the Zimbabwe Revenue Authority (ZIMRA) and Delta Corporation, declaring that taxpayers cannot avoid paying taxes in foreign currency when their income or sales are in foreign currency.
For years, taxpayers have challenged ZIMRA’s efforts to collect Value Added Tax (VAT) on foreign currency sales and income tax on foreign currency earnings. Additionally, taxpayers have contested ZIMRA’s practice of taxation based on “gross tax,” arguing it contradicted the nation’s tax laws.
However, the recent Supreme Court ruling, in the case of Delta Corporation vs. ZIMRA, settles these disputes. A panel of three judges, including Deputy Chief Justice Elizabeth Gwaunza, Tendai Uchena, and Samuel Kudya, unanimously upheld a previous High Court decision rejecting Delta’s appeal. The appeal claimed that ZIMRA had improperly calculated Delta’s tax liability.
Justice Tendai Uchena, writing the court’s judgment, agreed with High Court Judge Joseph Mafusire’s October 2023 ruling. The court found that ZIMRA was correct in imposing additional tax penalties on Delta for failing to pay taxes in foreign currency when required.
“The court is satisfied that a penalty for any outstanding foreign currency tax is payable in foreign currency and it also follows that a penalty on any outstanding local currency tax is payable in local currency. Therefore, the court a quo’s decision is correct. There is no irregularity or irrationality in the court a quo’s determination of the application placed before it by the appellant,” Justice Uchena stated, dismissing Delta’s appeal for lacking merit.
According to the law, a company, trust, or any legal entity must pay tax in the currency in which the income is earned, received, or accrued. ZIMRA had issued additional income tax and VAT assessments, penalties, and interest totaling US$54.7 million against Delta group entities for taxes they deemed should have been paid exclusively in foreign currency.
ZIMRA argued that Delta had neglected or omitted to remit its income tax in foreign currency, opting instead to pay in local currency.
ZIMRA welcomed the Supreme Court’s ruling, emphasizing its importance to their operations as it confirms the tax authority’s right to collect both VAT and income tax in foreign currency when the revenue or income is in foreign currency.
“Whatever challenges were being made in that regard have now been put to bed,” said the ZIMRA Legal Service Division, commenting on the ruling. The division added that the ruling renders several ongoing cases before the Special Court, challenging the validity of assessments based on the term “gross tax,” as academic.
ZIMRA further stated that the ruling also addresses disputes regarding its jurisdiction to raise assessments in foreign currency, considering the Supreme Court’s decision in this case.
Delta had challenged the formula used by ZIMRA for splitting taxes into the currency of payment. The case, which reached the High Court following a tax audit on Delta Beverages’ tax affairs from January 1, 2019, to October 31, 2021, concluded that Delta had improperly computed its income tax by failing to remit foreign currency income taxes in the appropriate currency.
In its amended notices of assessment, ZIMRA required Delta to separate foreign currency input and output taxes from local currency input and output taxes, to prevent cross-currency deductions. ZIMRA argued this was the correct interpretation of the tax laws.
Justice Mafusire’s ruling upheld ZIMRA’s assessments, concluding that the term “gross tax” did not invalidate the assessments as long as they contained the minimum requirements prescribed by law. All of Delta’s objections to the additional assessments were dismissed as lacking merit.
