Zimbabwe's finance minister has granted a tax reprieve to grocery retailers and sugar manufacturers.
Finance Minister Patrick Chinamasa's decision to grant a tax reprieve to grocery retailers and sugar manufacturers has left them smiling in anticipation of massive windfalls, but the move puts tax collector Zimbabwe Revenue Authority (Zimra) in an invidious spot as it now has to cough up millions in refunds.
Unofficial estimates from industry players put the refund bill at as much as $10-million. Zimra had demanded value added tax (VAT) on white sugar sales from as far back as February 2009 when the country dollarised after abandoning the local currency.
Zimra had successfully capitalised on a technicality that excluded white sugar from a zero-tariff regime introduced in 2004.
When VAT was introduced in 2004, Zimra indicated that all types of sugar would be zero-rated. Yet when the general regulations that listed all zero-rated products were gazetted in 2004, only brown sugar was listed.
But retailers and sugar manufacturers had not been charging VAT on white sugar since 2004 and the revenue collector appeared to have acknowledged its mistake and did not demand VAT on white sugar.
Government had then regularised the anomaly that excluded white sugar from the zero tariff in September 2012.
At the time Zimra was faced with dwindling revenue and pressure to meet revenue targets under a hard-currency economy. As a result, Zimra demanded VAT on white sugar sales backdated to as far back as February 2009.
Zimra will now have to work out how to reimburse those who had paid the VAT, a tax consultant advising some affected companies said.
"We're talking about a lot of retailers across the country, some of whom had taken contingency measures because no one was sure this relief would come," said the tax consultant, who asked not to be named because he was also advising one of the affected supermarket chains.
"A number of players had been forced to pay after Zimra threatened not to issue them with tax clearance certificates. In this business you cannot operate without a tax clearance certificate."
The Mail & Guardian last February reported that a retail outlet operating under the Food World franchise had received a $200 000 bill from Zimra.
At least three Zimbabwe Stock Exchange-listed retail groups faced a combined bill of nearly $30-million for VAT on sugar sales for three years since February 2009.
Bigger players talk with government
Bigger players had, however, pursued talks with government. A tax consultant said many had created contingency funds in case government had refused to intervene, but still, given the balance sheet sizes for most businesses, many were likely to be forced to borrow or fold altogether.
In his budget statement last month, Chinamasa said white sugar had been excluded from a list of zero-rated products.
"Since white sugar was exempted from sales tax before the inception of VAT (in 2004), manufacturers and retailers assumed that the product was also zero-rated under the VAT regime," said Chinamasa.
"As a result, manufacturers and retailers accumulated substantial amounts of VAT to the fiscus back-dated to 2009 and, hence, may have to borrow in order to liquidate outstanding VAT."
The finance minister's proposals to zero-rate white sugar with effect from February 1 2009 are likely to be ratified by Parliament without amendment.
Bisset Chimhini, chief operating officer for TM Supermarkets in which South Africa's Pick n Pay has a 49% interest, said they had not paid the backdated VAT as demanded by Zimra.
"We could not pay VAT on what we did not collect," said Chimhini.
A huge bill in outstanding VAT
TM has a branch network of 50 stores across the country. OK Zimbabwe's operations manager, Willard Zireva, had not responded to written questions at the time of going to press.
His group, which also has nearly 50 supermarkets across the country, also faced a huge bill in outstanding VAT on white sugar. It was not clear whether the group had made any payments.
An executive with Spar, which also has more than 50 supermarket outlets run by individual franchises, said they could not say whether any of their members had paid the tax, but referred the issue to the chairman of the Retailers Association of Zimbabwe, Themba Ndebele.
Ndebele, who is also the chief executive of Truworths Zimbabwe, said the association explained the position of affected retailers, but the issue was now being handled by Zireva and Chimhini.
A director with sugar manufacturer Star Africa Corporation said the move by Chinamasa was a big relief. "We had created a contingency fund while talks with the ministry of finance progressed. We are happy because we're now going to release cash from the contingency to fund operations," he said.
One retailer admitted he had been "blackmailed" into paying part of what Zimra claimed was outstanding after the revenue collector threatened to withdraw his tax clearance certificate.
Difficulty in getting back the money
"We will have to work out how to recover the money but we know it will be difficult getting our money back from Zimra. They are difficult," said the retailer, adding around $80 000 had been paid for a single shop.
Zimra's acting director for legal and corporate services, Tichawona Chiradza, declined to answer questions on how the development would affect Zimra and whether it has the money to reimburse.
"I am unable to provide the information you requested because it is confidential," Chiradza said.